Business rescue provisions questioned – South Africa | Moneyweb

Business rescue provisions questioned – South Africa | Moneyweb.

Applications for Liquidation Not Suspended by Business Rescue Applications – By Don Mahon

In two separate judgments, the North and  South Gauteng High Courts have found that applications for the winding up of companies are not suspended by the launching of business rescue proceedings.

Section 131(6) of the Companies Act 71 of 2008 (“the Act”) provides as follows:

 ‘(6) If liquidation proceedings have already been commenced by or  against the company at the time an application is made in terms of subsection (1), the application will suspend those liquidation proceedings until —
   (a)   the court has adjudicated upon the application; or
   (b)   the business rescue proceedings end, if the court makes the order applied for.’ 
In ABSA BANK LTD v SUMMER LODGE (PTY) LTD 2014 (3) SA 90 (GP), Makgoba J found that the terms “liquidation proceedings” referred to the proceedings which followed the granting of a liquidation order. In granting an order for the winding up of the company, the learned Judge stated that:
“…Any other interpretation would give rise to a situation where a  company which, according to the applicant, on the one hand, is hopelessly insolvent, and according to the ‘affected person’, on the other hand, is ‘financially distressed’, is able to continue with its business as usual until the court has either dismissed the application for business rescue, or has made an order placing the company under supervision and commencing business rescue proceedings, and a business rescue practitioner  has been appointed and has taken full management control of the company in substitution for its board.”
In ABSA BANK LTD v MAKUNA FARM CC 2014 (3) SA 86 (GJ), Boruchowitz J endorsed the reasoning of Makgoba J stating that, in his view, the wording of the section indicated that that the words  ‘liquidation proceedings’ in s 131(6) refer to the proceedings that follow the grant of a winding-up order, and not to the application to obtain a winding-up order.