What can the UK and South Africa learn from each other by comparing the business rescue regime with administration?

South Africa’s relatively recent business rescue regime (introduced in 2011) has exploded into a popular process for “affected persons” facing a company in financial distress. It shares some aspects with the administration procedure in England and Wales (UK). Lessons can be drawn from both the similarities and the differences between the two procedures that may benefit restructuring and insolvency practitioners both in the UK and South Africa.

Dead Horses

When is a dead horse really a dead horse? Given that ‘insolvency’ opens the door to various procedures for creditors and others, it should (in theory) be fairly easy to define. In practice, however, it is not.

Since the inception of business rescue, misconduct by business rescue practitioners (BRPs) has been one of the biggest causes of complaint (and headaches) by creditors. More and more disgruntled creditors and other affected persons are pursuing the removal of rogue BRPs of companies in business rescue.

In terms of section 139 of the Companies Act 71 of 2008, a BRP may only be removed from office in terms of section 130, or as provided for in section 139. Furthermore, only the court is authorised to remove a BRP from office, both in terms of sections 130 and 139.

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.)

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.

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

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

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.

Interim costs awards in arbitration proceedings are not often the precursors to winding up applications. However, it may happen that if such an award of costs is not paid, the possibility of winding up the non-paying party may arise. This possibility leads to the following question, "Is a bill of costs drafted pursuant to an arbitration award and taxed by the taxing master of the High Court a "debt" for purposes of section 345 of the Companies Act 61 of 1973?"

In recent years it appears to have become a common trend for distressed homeowners to publish voluntary surrender notices as a stratagem to stay execution proceedings instituted by creditors. We have also witnessed an increase in institutions approaching distressed homeowners following publication of a notice of sale in execution, purporting to be in the business of assisting distressed homeowners by guarding their homes from sales in execution by the sheriffs of the high courts.