Is post-commencement finance proving to be the thorn in the side of business rescue proceedings under the 2008 Companies Act?

• Jurisdiction: South Africa
• Author: Giles Freebody
• DOI: 10.10520/EJC-57fa1ad39
• Published date: 01 December 2016
• Date: 01 December 2016
• Record Number: dejure_v49_n2_a6
• Pages: 265-287
• Published By: University of Pretoria

265

Is post-commencement finance proving

to be the thorn in the side of business

rescue proceedings under the 2008

Companies Act?

Juanitta Calitz

BIuris LLB LLM LLD

Associate Professor of Mercantile Law, University of Johannesburg

Giles Freebody

LLB LLM

LLM Student, University of Johannesburg

OPSOMMING

Is na-aanvangsfinansiering die doring in die vlees van

ondernemingsreddingsverrigtinge ingevolge die 2008 Maatskappywet?

Ondernemingsredding word toenemend as ’n gewilde en belangrike punt

op die wetgewende agenda van lande wêreldwyd beskou. In Suid- Afrika

het die Maatskappywet 71 van 2008 (die Wet) wat op 1 Mei 2011 in

werking getree het, geregtelike bestuur vervang met ’n ondernemings-

reddingmodel wat onder andere die rehabilitasie van 'n maatskappy in

finansiële nood as doelstelling het. Een van die sleutelfaktore van ’n

suksesvolle ondernemingsreddingproses is die verkryging van na -

aanvangsfinansiering. Die onderhawige artikel bevat ’n bespreking van die

spesifieke tekortkominge van die ondernemingsreddingmodel wat ’n

nadelige effek het op die vekryging van na -aanvangsfinansiering in die

praktyk. Aandag word ook geskenk aan ondernemingsreddingsverrigtinge,

na -aanvangsfinansiering in die algemeen en die rangorde van die eise van

skuldeisers wat sogenaamde na -aanvangsfinansiering verleen. Daar word

ook gekyk na die benadering wat deur die Verenigde State van Amerika in

hoofstuk 11 van die Amerikaanse ‘Bankruptcy Code’, asook ander

internasionale instrumente, gevolg word. Die outeurs doen dan ten slotte

aan die hand dat ondernemingsredding as model slegs kan slaag indien

daar ’n paradigma skuif plaasvind wat wat tot ’n meer skuldenaar-

vriendelike milieu tot gevolg sal hê en sodoende sal verseker dat na -

aanvangsfinansiering meer vrylik beskikbaar sal wees.

How to cite: Calitz & Freebody ‘Is post-commencement finance proving to be the thorn in the side of business rescue

proceedings under the 2008 Companies Act?’ 2016 De Jure 265-287

http://dx.doi.org/10.17159/2225-7160/2016/v49n2a5

* This article is partly based on Freebody Is post-commencement finance

proving to be the thorn in the side of business rescue proceedings under the

Companies Act of 2008? (LLM dissertation UJ 2014).

266 2016 De Jure

1Introduction

The Chinese use two brush strokes to write the word ‘crisis’. One brush stroke

stands for danger; the other for opportunity. In a crisis, be aware of the

danger – but recognize the opportunity.

(J. F. Kennedy, Speech in Indianapolis, Indiana, 12 April 1959)1

Corporate rescue has become an increasingly popular topic on the

legislative agenda of many countries, and has long been a focus of global

interest. The Companies Act 71 of 2008,2 which contains Chapter 6

entitled ‘Business rescue and compromise with creditors’, introduced a

new corporate rescue regime into the South African commercial law

landscape.3 This new approach was welcomed as it was generally

accepted that the process of judicial management was a failure in

practice.4 The purpose of this particular chapter in the Act is to provide

the opportunity to companies that are financially distressed to reorganise

and restructure themselves in order to have the best possible chance of

returning to a position of solvency while having regard to the rights and

interests of all stakeholders.5

Where the option of rescuing a business is available, many

jurisdictions have now recognised that any going concern strategy

requires a means of financing the business until such time as the rescue

plan can be successfully devised and implemented.6 It logically follows

that one of the most important factors to business rescue proceedings in

bringing about a successful rehabilitation is thus that of post-

commencement finance. It has also been stated that post-

commencement finance ‘is potentially one of the most important, and

most problematic, aspects of a successful business rescue model’.7 A

recent study done in the United States (US) also acknowledged that ‘[a]s

a general matter, the Commissioners recognized the need for a robust,

1 Olivares-Caminal Phoenix Operations in the Pre-packaged Administration: A

Rescue for the Company or a Trap for the Creditors? (LLM Dissertation QMUL

2013).

2 Hereinafter the ‘2008 Companies Act’ or ‘the Act’.

3 The Act came into effect in May 2011.

4 Burdette ‘Some initial thoughts on the development of a modern and

effective business rescue model for South Africa (Part 1)’ 2004 SA Merc LJ

241 (hereinafter Burdette Part 1); Le Roux Hotel Management (Pty) Ltd v E

Rand (Pty) Ltd 2001 2 SA 727 (C).

5 Rushworth ‘A critical analysis of the business rescue regime in the

Companies Act 71 of 2008’ 2010 Acta Juridica 375; s 7(k) of the 2008

Companies Act.

6 Sarra ‘Financing Insolvency Restructurings in the Wake of the Financial

Crisis: Stalking Horses, Rogue White Knights and Circling Vultures’ 2011

Penn State International Law Review 582. Pretorius & Du Preez ‘Constraints

on decision making regarding post-commencement finance in business

rescue’ 2013 South African Journal of Entrepreneurship and Small Business

Management 170.

7 Burdette ‘The development of a modern and effective business rescue

model for South Africa: Pre consultation working document’ (2004) 51; see

also Prins Priority issues in business rescue (LLM dissertation UCT 2015) 3-5.