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:-

Acceleration clauses are commonly found in loan agreements that require debtors to make repayment in instalments. A standard acceleration clause provides that if a debtor fails to pay an instalment, the creditor may elect to terminate the loan agreement and demand payment of the full amount owing under the agreement.

There have been a myriad of decisions on business rescue proceedings since the inception of the new Companies Act 71 of 2008 (“the Act”).  More recently, our courts have considered section 153(1)(b)(ii) of the Act which introduces the concept of a ‘binding offer’.

INTRODUCTION

This section allows one affected person to make an offer to purchase at liquidation value, the voting interests of those persons who opposed the adoption of the business rescue plan.

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

On 20 May 2015, the Supreme Court of Appeal (SCA) delivered judgment in the matter of African Banking Corporation of Botswana v Kariba Furniture Manufacturers & others(228/2014) [2015] ZASCA 69, dealing, amongst other things, decisively with the proper interpretation of the words 'binding offer' as they appear in s153(1)(b)(ii) of the Companies Act, 71 of 2008 (Act).

Ever since the new business rescue regime, contained in Chapter 6 of the Companies Act, No 71 of 2008 came into force in May 2011 there has been much anticipation as to how courts would treat sureties who had stood and provided security for the debts of a company (principal debtor) that subsequently went into business rescue and had a business rescue plan adopted: would such suretyships remain unaffected and enforceable?

The in duplum rule is a common law rule that provides that arrear interest ceases to accrue once the sum of the unpaid (accrued) interest equals the amount of capital outstanding at the time (and not the amount of capital originally advanced). "In duplum" directly translates to "double the amount". 

An interesting judgment was delivered by the Honourable J Majiki on 19 of November 2013 in the Eastern Cape High Court, Port Elizabeth. The first and second applicants under case 3521/2012 were ABSA Bank Limited and Maria Ramos respectively.

In 2009, a certain savings bank (“S Savings Bank”) issued subordinated bonds (the “Subordinated Bonds”).  Subsequently, the Financial Services Commission designated it as an insolvent financial institution and issued a management reform order, which included the suspension of its business.  Eventually, bankruptcy proceedings were commenced against S Savings Bank in around 2011, and the representative director of S Savings Bank was indicted for financial statement fraud and eventually found guilty.

On 19 May 2016, the National Assembly passed the bill to amend the Debtor Rehabilitation and Bankruptcy Act (“DRBA”).  Key amendments include (1) improvements to the early proposed rehabilitation plan submission policy; (2) broadened scope of creditor participation in the proceedings; and (3) stronger protection of creditors with commercial claims.  The revised DRBA is expected to enter into force 3 months after promulgation. 

I. Improvements to the early rehabilitation plan proposal submission policy