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?
Supreme Court Judgment dated 10 March 2016 (STS 151/2016)
The judgment of the Supreme Court analyses the objective scope of extension of the liability for obligations and debts for which, as appropriate, the director of a company should be liable and, more specifically, the scope of "the corporate obligations subsequent to the occurrence of the legal ground for dissolution".
Supreme Court Judgment dated 10 March 2016 (STS 151/2016)
The judgment of the Supreme Court analyses the objective scope of extension of the liability for obligations and debts for which, as appropriate, the director of a company should be liable and, more specifically, the scope of "the corporate obligations subsequent to the occurrence of the legal ground for dissolution".
In any economic downturn, there is usually an increase in the number of demands made throughout supply chains and in particular by owners / employers on project securities (e.g. for performance issues, upon termination or following insolvency) and the recent global economic slowdown caused by the coronavirus pandemic is no different.
Ever since the Companies Act, 2008 came into force, the courts have been inundated with cases pertaining to the interplay between the moratorium established by business rescue, the creditors’ claims and the effect of the business rescue plan.
Summary
In Carey v Korda [2012] WASCA 228, the Western Australian Supreme Court of Appeal (Court) has provided a timely confirmation that legal advisers engaged by receivers to provide advice in relation to a receivership are properly viewed as advisers to the receivers as principal, and not the mortgagor company.
The decision will no doubt be welcomed by insolvency practitioners, as it confirms that the legal advice, and the right to invoke the associated privilege, belongs to the receivers, not the mortgagor company.