Bond restructurings Implementation mechanisms: schemes vs. exchange offers December 2015 ■ a principal haircut; ■ extended maturity; and / or ■ a change in coupon (rate and/or whether the coupon is cash-pay or PIK). Exchange offers are based entirely on voluntary participation. They can only succeed if a critical mass of bondholders agrees to participate. A “carrot and stick” approach is used to incentivise participation and penalise holdouts. For background on the use of schemes of arrangement as restructuring tools, see here.
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.
In terms of Section 153 (1)(b)(ii) of the Companies Act, a creditor who votes against the adoption of a business rescue plan runs the risk of having their claim purchased by another party at a value of what the creditor would have received on liquidation of the company. In the terms of the bankruptcy laws of the United States of America this procedure is referred to as a "cram down" which is imposed on creditors in business rescue situations.
Judge Megarry in Re Rolls Razor Limited1, aptly describes the necessity of insolvency enquiries:
In two recent cases decided in the Supreme Court of Appeal (SCA), namely,Willow Waters Homeowners Association (Pty) Limited v KOKA NO and others [2015] JOL 32760 (SCA) and Cowin NO v Kyalami Estate Homeowners Association (499/2013) [2014] ZASCA 221, the SCA was asked to consider:
As parties to litigation, creditors often find themselves in a predicament where the individual they have a claim against has assets of insignificant value. The same individual may, however, be a trustee of a discretionary trust owning substantial assets. Faced with this difficulty, creditors are left with little choice but to ask a court to 'go behind the trust' in an attempt to find assets to execute judgment against.
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).
On 20 May 2015, the Supreme Court of Appeal (in the matter of African Banking Corporation of Botswana v Kariba Furniture Manufacturers & Others) clarified one of the biggest uncertainties arising out of the business rescue provisions of the Companies Act. The Court has now clarified the meaning of the term “binding offer” in a manner which not only brings clarity to the business rescue regime in general, but also will provide greater comfort to banks and other creditors.
Judge Andre van Niekerk handed down an interesting judgment in the High Court of South Africa (North Gauteng Division) on 30 September 2013. In my respectful opinion the judgment is insightful and is correct. The facts are fairly simple. Miles Plant Hire (Pty) Ltd (MPH) had a tax liability of R37 441 090.59 to the commissioner of the South African Revenue Services (SARS). SARS had levied a tax assessment in this amount on MPH, which included penalties and interest.
It is common practice to find directors of a company standing surety for the company in order to secure its debts. The consequence could be severe for the sureties, because if the company is unable to pay its debt, the creditor can take legal action against the directors or other third parties in their capacity as sureties, unless the company pays its debts and the sureties are released from liability.