Section 44 of the Companies Act 71 of 2008 governs the instances when a company may provide financial assistance for the purchase of the company's securities. (It is important to note that section 44(1) carves out the application of the entire section 44 for financial assistance given in the ordinary course of business by a company whose primary business is lending money.)

In this article we investigate whether, in South African law, a subordination agreement could constitute a "voidable disposition" as defined in section 26 of the Insolvency Act 24 of 1936 (the Act). 
 
Section 26 of the Act provides that every disposition of property not made for value may be set aside by the court, if the disposition was made by an insolvent (whether an individual, company or close corporation) either: 
 

Section 133 of the Companies Act 71 of 2008 provides for a general moratorium on legal proceedings against a company in business rescue.

I wrote an article published in the June issue of Without Prejudice in which this question was considered. I criticised the then binding judgment of Chetty t/a Nationwide Electrical v Hart NO and Another (12559/2012) [20141 ZAKZDHC 9 (25 March 2014), as it was held in that case that arbitration proceedings do not constitute legal proceedings for purposes of section 133 of the Act.

Consider the following commonly encountered scenario: A creditor had instituted litigation proceedings against Company X and obtained a default judgment against it. Pursuant to the judgment the creditor issued a writ of execution, but is now faced with the situation where an affected person has brought an application in terms of section 131(1) of the Companies Act 71 of 2008 (the Act) to place Company X under supervision and to commence business rescue proceedings. What is the effect on the creditor?

Section 134 of Act 71 of 2008 is extremely important because it is there to protect the interests of both the company in business rescue and the creditors and other third parties related to the company.

Can a creditor cancel an agreement with a company in business rescue and what is the consequence of a business rescue practitioner suspending an agreement before cancellation?

The lawfulness of cancelling a contract during business rescue

Judge Megarry in Re Rolls Razor Limited¹, aptly describes the necessity of insolvency enquiries:

The advent of the new Companies Act 71 of 2008 (the Act) brought with it a shift from a creditor-protectionist society towards a business rescue model that is debtor-protectionist. In consequence, there has been a swarm of applications taking advantage and exploiting this new scheme. This shift has unfortunately led to considerable abuse of the business rescue procedure.

On 2 September 2014 the Constitutional Court heard an appeal against a final order of sequestration granted by the High Court of South Africa (Western Cape High Court) on 14 August 2013 sequestrating the joint estate of Mr Ivor Charles Stratford, the former chairman of the Pinnacle Point Group, and his wife Mrs Sheila Margaret Stratford (the Stratfords). 

One of the first cases involving the operation of section 153(1)(a)(ii) of the Companies Act 71  of 2008 is the matter of Copper Sunset Trading 220 (Pty) Ltd t/a Build It Lephalale (In Business Rescue) and Spar Group Limited (First Respondent) and Normandien Farms (Pty) Ltd (Second Respondent).  This matter was decided under case 365/2014 in the High Court of South Africa (Gauteng Division, Pretoria) functioning as Limpopo Division, Polokwane.