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 emerging economy has, in realising the importance of

the corporate entities in the evolutionary courses of the commercial world

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

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

teeming working populations in the country), adopted an innovative path in

the Companies Act 71 of 2008 (“2008 Companies Act”). The new scheme 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 Companies Act on business rescue supplant

the now extinct provisions on judicial management under the Companies Act

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

in the 2008 Act are embedded in the liberal conditions for accessibility 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 (“Southern Palace Investments”)3

where the judge observed that the changes in the legislative language in both

statutes are indications that business rescue is preferred 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”)4Bin 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 courts’ decisions have a similar justification 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) Ltd2011 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 the general philosophy permeating

(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 justify that approach are not peculiar to South Africa. In

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

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

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

being of those dependent upon an enterprise 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 reaction consequences upon any

given failure can potentially be so disastrous to creditors, employees and the

community that it must not be overlooked.”6 That observation heralded the

inclusion of provisions on business rescue in the UK Insolvency Act7 which

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

as the “rescue culture” which seeks to preserve viable businesses and is

fundament al to much of the UK Insolvency Act.

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

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

Ltd (“Sydney Land Corp”)9 stated that the main reason for enacting business

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

Corporations Act”) was “undoubtedly because the company’s business was

employing Australians and it was in the interests of Australia that 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 essence of business rescue as

contained in Chapter 6 of the 2008 Companies Act has been the bane of the

South African courts. The noticeable inconsistencies, if not contradictions,

in the judicial pronouncements on the real intendments and application of

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

Mining South Africa (Pty) 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.

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

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

598STELL LR 2017 3

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