Prescription is one word which every creditor (and attorney) dread. Prescription extinguishes a debt and there is very little a creditor can do once that proverbial ship has sailed.
The Prescription Act, No 68 of 1969 (Prescription Act), on a good day, has its challenges, but the situation is even more uncertain when an insolvent estate is concerned.
Rogers J, with Nuku J concurring, in the recent judgment of Van Deventer and Another v Nedbank Ltd 2016 (3) SA 622 (WCC) shed some very needed light on this issue.
The Policy Framework Behind Section 34 of The Act
The policy of the law is to afford protection to a trader's creditors against his dispossessing himself of his property without paying his debt before the disposition or from the proceeds thereof. This framework policy is well set out in the case of Paterson vs Kelvin Park Properties CC (1998) 1AII SA 22 (E) where it was held:-
On 1 September 2016, Hanjin Shipping Co Limited ('Hanjin') successfully applied for and obtained an order whereby it was placed under rehabilitation. Such an order was obtained within 24 hours of the company making application to the Korean courts, without notice or input from other interested parties, most notably Hanjin's creditors.
Business rescue was introduced by the 2008 Companies Act and commenced in 2011. It provides for a regulated process in terms of which a company in financial distress is allowed the opportunity of engaging with its stakeholders and creditors to find a solution, which generally would result in the recue or restructuring of its financial affairs.
There has always been a degree of uncertainty when it comes to a business rescue practitioner’s costs and expenses incurred in the business rescue proceedings of an entity when the business recue proceedings are, for whatever reason, converted to liquidation proceedings.
Section 133 of the Companies Act, No 71 of 2008 places a general moratorium on legal proceedings, while the company is under business rescue. This provides a company with time and resources to be rehabilitated through the implementation of a business rescue plan. As a result, there is some debate as to whether creditors are precluded from perfecting their security, such as a notarial bond, under business rescue.
Employment contracts were previously deemed to be suspended on the date of liquidation, being the date that the application for liquidation of the company is presented and issued at court in terms of s348 of the Companies Act, No 61 of 1973 (Old Companies Act). However, this position has since changed.
The Western Cape High Court[1] has recently passed judgment in a decision which reiterates the bounds of the duties of directors of holding companies to subsidiary companies. Even though the case involved a damages claim against the liquidators of the holding company (in liquidation), the principle applies equally to directors.
The restructuring of financially distressed companies is on the increase globally. In line with this international trend is Chapter 6 of the Companies Act, No 71 of 2008 (Act) which introduced business rescue into the South African corporate landscape.
Although business rescue has brought a much needed and long overdue alternative to liquidation for businesses in distress, it is also responsible for many points of contention. The most pertinent of these is currently the general moratorium found in s133 of the Act.
The Supreme Court of Appeal (SCA) in Lagoon Beach Hotel v Lehane (235/2015) [2015] ZA SCA 2010 (21 December 2015) recently considered the granting of a preservation order to a foreign trustee and the recognition of a foreign trustee by our courts in exceptional circumstances.