A Melomed Finance (Pty) Ltd (In Liquidation) v Harris Jeffrey (SGHC Case no: 2016/A5028) (Judgment handed down 23 June 2017)

The South Gauteng High Court, sitting as a court of appeal, recently handed down a judgment to the effect that a verbal acknowledgement of debt when made at an enquiry held into the affairs of a company, in terms of s417 and s418 of the Companies Act, No 61 of 1973 (s417 enquiry), can be used as evidence in subsequent civil litigation to recover the amount so acknowledged.

Since 1956, legislation has required suretyship agreements to be embodied in a written document. A suretyship agreement involves three parties; simplistically if A does not pay B, then C will. C will step into the shoes of A and perform A’s obligations for them.

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.

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).

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.

“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).

In the case of BP Southern Africa (Pty) Ltd v Intertrans Earl SA (Pty) Ltd & Others (34716/2016) [2016] ZAGPJHC 310 (25 November 2016), the court had to consider two important issues: firstly, whether suspension of a contract by the business rescue practitioner in terms of s136(2)(a)(i) and (ii) of the Companies Act, No 1971 of 2008 (Act) suspends not only the obligations of the business rescue practitioner to perform in terms of the contract entered into between the parties, but whether it also suspends the obligations of the other contracting parties.

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.

Creditors face daily uphill battles when trying to collect money from debtors. Not only has the National Credit Act, No 34 of 2005 made it more onerous on creditors to recover debts due to them, but creditors must constantly be aware of the threat of a claim prescribing.

The Prescription Act, No 68 of 1969 (Act) provides that a debt is extinguished by prescription after the period set out in the Act.

In Freshvest Investments (Pty) Ltd v Marabeng (Pty) Ltd (1030/2015) [2016] ZASCA 168, the Supreme Court of Appeal (SCA) was afforded the opportunity to pronounce on the so called Badenhorst rule which assumes its name from Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (T).