Exploring the Goal of Business Rescue Through the Lens of the South African Companies Act 71 of 2008

• Jurisdiction: South Africa
• Date: 27 May 2019
• Author: Anthony O Nwafor
• Published date: 27 May 2019
• Pages: 597-613
• Citation: (2017) 28 Stell LR 597

597

EXPLORING THE GOAL OF BUSINESS

RESCUE THROUGH THE LENS OF THE SOUTH

AFRICAN COMPANIES ACT 71 OF 2008

Anthony O Nwafor

LLB (Hons) BL LLM PhD

Professor of Law, Department of Private Law, University of Venda

1 Introduction

South Africa as an e merging economy has, in realising t he importance of

the corporate ent ities in the evolutionary courses of the com mercial world

(especially in the areas of the product ion of goods and services, as well as

the creation of ever increasing dem ands for employment opportunities for the

teeming working popu lations in the country), adopted an i nnovative path in

the Companies Act 71 of 2008 (“2008 Companies Act”). The new s cheme is

geared towards ensu ring the sustainability r ather than the demise of corporate

entities where th is could be avoided. This new legislative scheme is reected

in Chapter 6 of the Act. The provisions are t ailored in such a manner so as to

attain one of the stated pur poses of the Act namely to provide for the efcient

rescue and rec overy of na ncially distres sed companies, in a man ner that

balances the rights a nd interests of all relevant stakeholders.1

The provisions in the 2008 Compa nies Act on business rescue supplant

the now extinct provisions on judicial manage ment under the Companies Act

61 of 1973 (“1973 Companies Act”).2 The cardinal feature s of the provisions

in the 2008 Act are embedded i n the liberal conditions for accessibilit y and

application to companies in nancial distress. An instance of this new approach

was succinctly captur ed by Eloff AJ in Southern Palace Investments 265 (Pty)

Ltd v Midnight Storm Investments 386 Ltd (“So uthern Palace Investments”)3

where the judge observed that the ch anges in the legislative language in both

statutes are i ndications that business rescue is prefer red to liquidation. The

preference given to resc uing the nancial ly distressed corporate entity in

place of liquidation is not without good reason. I n Koen v Wedgewood Village

Golf & Country Estat e (Pty) Ltd (“Koen”)4 Bin ns-Ward J observe d:

1 S 7(k) of the 2008 Compan ies Act.

2 S 427 of the 1973 Companies Act .

3 2012 2 SA 423 (WCC) paras 20-21 [court ’s emphasis].

4 2012 2 SA 378 (WCC). A number of other cou rts’ decisions have a sim ilar justific ation for business

rescue. See Che tty v Hart 2015 4 All SA 401 (SCA) para 28 per Cacha lia JA who stated that the obv ious

purpose of pla cing a company under bus iness rescue is to give it bre athing space so tha t its affairs may

be assessed a nd restructur ed in a manner that al lows its return to fi nancial viability. See al so Madodza

(Pty) Ltd v ABSA Ba nk Ltd ZAGPPHC case no 38906/2012 of 15-08-2012 par a 12. In Swart v Beagle s Run

Investment s 25 (Pty) Ltd 2011 5 SA 422 (GNP) para 19 Makgoba J recog nised that an i mportant fea ture of

business res cue as distingu ished from liquidat ion is that the company w ill continue to exist o n a solvent

basis after p ayment of credit ors. Claasse n J in Oakdene S quare Proper ties (Pty) Ltd v Far m Bothasfontei n

(Kyalami) (Pty) Ltd 2012 2 All SA 433 (GSJ) para 12 stated that th e general philosophy p ermeating

(2017) 28 Stell LR 597

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“It is clear that the legislature has recognised that the liquidation of companies more frequently than

not occasions signicant collateral damage, both economically and socially, with attendant destruction

of wealth and livelihoods. It is obvious that it is in the public interest that the incidence of such

adverse socio-economic consequences should be avoided where reasonably possible. Business rescue

is intended to serve that public interest by providing a remedy directed at avoiding the deleterious

consequences of liquidations in cases in which there is a reasonable prospect of salvaging the business

of a company in nancial distress, or of securing a better return to creditors than would probably be

achieved in an immediate liquidation.”5

The adoption of a business rescue scheme i n companies’ legislation and the

reasons adduced to just ify that approach are not pecul iar to South Africa. In

the United Kingdom (“UK”), for insta nce, the Cork Committee had , while

recommending a compa ny rescue approach in the UK Insolvency Act of 1986

(“UK Insolvency Act”), observed th at “a concern for the livelihood and well-

being of those dependent upon an ent erprise which may well be the lifeblood

of a whole town or even a region is a legitimate factor to which a moder n law

of insolvency must have regard. The chain react ion consequences upon any

given failure can potential ly be so disastrous to creditor s, employees and the

community th at it must not be overlooked.”6 That observation heralde d the

inclusion of provisions on business rescue in the U K Insolvency Act7 which

was explicitly alluded to by Lord Brown-Wilkinson i n Powdrill v Watson8

as the “rescue cultu re” which seeks to preserve viable businesse s and is

fundament al to much of the UK Insolvency Act.

In Australia where a “ business rescue culture” has a lso been adopted in

companies’ legislation, Young J in Sydney Land Corp (Pt y) Ltd v Kalon (Pty)

Ltd (“Sydney Lan d Corp”)9 stated that the main re ason for enacting business

rescue provisions in the Austra lian Corporations Act of 2001 (“Australian

Corporations Act”) wa s “undoubtedly because the compa ny’s business was

employing Australians a nd it was in the interests of Australia t hat as much

employment as possible be maintained . Thus, things were to be structu red so

as to maximise t hat chance.”10

The quest to achieve the established e ssence of business rescue as

contained in Chapte r 6 of the 2008 Companies Act has been the bane of the

South African cou rts. The noticeable inconsistencies, if not cont radictions,

in the judicial pronouncement s on the real intendments and application of

the various provisions are not lost in t he statement of Kgomo J in Redpath

Mining South Africa (Pt y) Ltd v Piers Marsden NO (“Redpath Mining South

Africa”)11:

through th e business rescue prov isions is the recogn ition of the value of the busine ss as a going concern

rather tha n the juristic pe rson itself. Hence, th e name business res cue and not company res cue.

5 2012 2 SA 378 (WCC) para 14.

6 Report of the Rev iew Committe e on Insolvency Law and P ractice, (Cork Com mittee Repo rt, 1982 (Cmnd

8558)) para 204, quoted in A Dig nam & J Lowry Comp any Law 8 ed (2014) 451-452 .

7 See Schedule B1 to the U K Insolvency Act now substitu ted with section 248 of the Ente rprises Act of

2002 (“Ente rprises Ac t”).

8 1995 2 AC 394 442A.

9 1997 26 ACSR 427 430.

10 Part 5.3A, s 435A of the Austral ian Corporat ions Act.

11 ZAGPJHC case no 18486/2013 of 14-06-2013.

598 STELL LR 2017 3

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