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.
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.
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.
The South African Revenue Service (SARS) published Binding Private Ruling No. 198 on 7 July 2015 (Ruling). The Ruling deals with the distribution by a South African resident company (Subsidiary) of its loan account to its South African holding company (Holding Company) in anticipation of the Subsidiary’s deregistration.
The applicable provisions in the Income Tax Act, No 58 of 1962 (Act) are s10(1)(k), s47, s64D and s64FA(1)(b).
The relevant facts relating to the Ruling are as follows:
The Business rescue process as set out in Chapter 6 of the 2008 Companies Act (operative since 2011) has opened up new and creative opportunities to resolve complex and protracted shareholders’ disputes.
Judge Megarry in Re Rolls Razor Limited1, aptly describes the necessity of insolvency enquiries:
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.
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.