Proceedings Over Proceedings: How and When are Liquidation Proceedings Suspended by an Application for Business Rescue Proceedings?

• Jurisdiction: South Africa
• Published date: 27 May 2019
• Author: S P Phungula
• Pages: 584-596
• Citation: (2017) 28 Stell LR 584
• Date: 27 May 2019

584

PROCEEDINGS OVER PROCEEDINGS: HOW

AND WHEN ARE LIQUIDATION PROCEEDINGS

SUSPENDED BY AN APPLICATION FOR

BUSINESS RESCUE PROCEEDINGS?

SP Phungula

LLB LLM (UKZN)

Lecturer, University of KwaZulu Natal

1 Introduction

Section 131 of the Companies Act 71 of 2008 (“Companies Act”) regulates

or governs the commencement of busine ss rescue by court order. In ter ms of

this section, un less a company has adopted a resolution as c ontemplated in

sec tion 1 29,1 an affected person may apply to a court at any t ime for an order

placing the company under supe rvision and so commenci ng with business

rescue proceedings.2 An affected per son, in relation to the company, is

dened in section 128 as a shareholder or creditor of the company, a registered

trade union rep resenting the employees of the company, and employees of the

company or their respect ive representative if not represent ed by a registered

trade union. I n order to apply for the commencement of business re scue

under section 131(3), the applicant must serve a copy of the application on the

company and the Companies a nd Intellectual Proper ty Commission (“CIPC”),

and must notify each af fected person of the application in the p rescribed

man ne r.3 The cour t may, after considering an application , make an order

placing the company under supe rvision and commence w ith business rescue

proceedings4 or dismiss t he application, and make any fu rther necessa ry and

appropriate order, including an orde r placing the company under liquidation.5

Section 131(6) provides that if liquidation proceedi ngs have already been

commenced by or against t he company at the time an applicat ion is made in

terms of section 131(1), the application will suspend liquidation procee dings

until the cour t has adjudicated upon the applicat ion, or the business rescue

proceedings end, i f the court makes the order applied for.

The Companies Act does not specif y the type of motion th at should be

complied with when the application for business resc ue proceedings is made

in court. It is up to the cou rts, as will become appare nt later, to decide whether

1 Section 129(1) of the Companie s Act provides that, subje ct to subsection (2)(a), the board of a compa ny

may resolve that th e company voluntar ily commence bu siness rescue pro ceedings and pla ce the company

under super vision, if t he board has rea sonable grou nds to believe th at the company is f inancia lly

distresse d, and there appe ars to be a reasonable p rospect of rescui ng the company.

2 S 131 (1).

3 S 131 (2).

4 S 131 (4) (a).

5 S 131 (4) (b).

(2017) 28 Stell LR 584

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