A recent development in the ever-evolving jurisprudence associated with business rescue proceedings relates to the remuneration of the business rescue practitioner in the event that a business rescue fails. The Supreme Court of Appeal in Diener N.O. v Minister of Justice (926/2016) [2017] ZASCA 180 has recently confirmed that the practitioner’s fees do not hold a ‘super preference’ in a liquidation scenario and the practitioner is required to prove a claim against the insolvent estate like all other creditors. 

The Supreme Court of Appeal provided clarity in Diener N.O. v Minister of Justice & Others (926/2016) regarding the ranking of the business rescue practitioner’s (BRP) claim for remuneration and expenses. The SCA also clarified whether such claim was conferred a “super preference” over all creditors, secured and unsecured in subsequent liquidation proceedings.

The case of Uganda Telecom Limited v Ondama Sammuel t/a Alaka & Co (Miscellaneous Application No. 12 of 2018) presented the Ugandan courts with an opportunity to test the provisions of the Insolvency Act, 2011 in the context of an ongoing company administration process. The case shows how the Ugandan legal system operates to protect a debtor under administration from legal proceedings by its creditors.  Uganda Telecom Limited (“UTL”) has been under administration since May 2017.

Since 1 January 2013, section 19 of the Income Tax Act, 1962 (the “Act”) and paragraph 12A of the Eighth Schedule to the Act (the “Eighth Schedule”) have determined the tax implications where a debt owing by a taxpayer is cancelled, waived, forgiven or discharged for no consideration (or for consideration that is less than the amount of the debt).

The creditors of a company in financial distress are often faced with various options. A debtor company can either be liquidated, placed in business rescue or enter into a compromise with its creditors without first being placed in liquidation. Although an offer of compromise, at first glance, may seem very attractive to creditors, there may be many pitfalls of which creditors must be aware.

“Whenever any person (hereinafter called the insurer) is obliged to indemnify another person (hereinafter called the insured) in respect of any liability incurred by the insured towards a third party, the latter shall, on the sequestration of the estate of the insured, be entitled to recover from the insurer the amount of the insured’s liability towards the third party but not exceeding the maximum amount for which the insurer has bound himself to indemnify the insured” – s156 of the Insolvency Act, No 24 of 1936 as amended (Act).

BUSINESS RESCUE, RESTRUCTURING AND INSOLVENCY: THE COURT’S POWER TO SET ASIDE THE DISSENTING VOTE OF A CREDITOR IN BUSINESS RESCUE PROCEEDINGS If satisfied that it is reasonable and just to do so, a court may set aside a dissenting vote on a business rescue plan. In Collard v Jatara Connect (Pty) Ltd & Others [2017] ZAWCHC 45, the court did exactly that. Explaining his decision, Judge Dlodlo stated that there should be no reason to prefer a winding up application over a business rescue plan that will pay the employees of the company in full and result in a better return for creditors.

Once legal proceedings relating to a debt have started, does the subsequent substitution of one of the parties affect the prescription period for the debt? This was the crux of the recent Supreme Court of Appeal (“SCA”) case of Sentrachem Limited v Terreblanche.

A substitution occurs when a party to legal proceedings is replaced by another party, with no effect on the cause of action.

In the case of First Rand Bank Limited v KJ Foods CC (in business rescue) (734/2015) [2015] ZA SCA 50 (26 April 2017), the main issue that the Supreme Court of Appeal (SCA) had to determine was whether the High Court of Pretoria (Court a quo) was correct in setting aside a vote by the appellant, FirstRand Bank Limited (FNB), against the adoption of a business rescue plan (plan) on the basis that it was reasonable and just to do so in terms of s153(7) of the Companies Act, No 71 of 2008 (Act).

The introduction of business rescue proceedings by Chapter 6 of the Companies Act, No 71 of 2008 (Act) created uncertainty on various levels, in particular the extent and nature of certain rights previously enjoyed by creditors.

Our courts are making progress in finding a path through the muddy waters in this regard and every day a judgment is delivered that sheds some light on previous uncertain propositions.