A reasonable prospect for rescuing a company as a requirement for business rescue: a decade later

• DOI: https://doi.org/10.47348/TSAR/2021/i4a3
• Pages: 688-717
• Citation: 2021 TSAR 688
• Date: 20 September 2021
• Published date: 20 September 2021
• Author: O’Brien, P.

https://doi.org /10.47348/ TSAR /2021/i4a 3

TSAR 2021 . 4 [ISSN 0257 – 7747]

688

A reasonable prospect for rescuing a company

as a requirement for business rescue: a decade

later

PATRICK O’BRIEN*

JUANITTA CALITZ**

SAMEVATTING

’N REDELIKE VOORUITSIG DAT ’N MAATSKAPPY GERED KAN WORD AS ’N

VEREISTE VIR SAKEREDDING: ’N DEKADE LATER

Voor inwerkingtr eding van sakeredding a s instelling op 1 Mei 2011 was doemprofete bevre es dat die

sentrale en deu rlopende vereiste van ’n redeli ke vooruitsig vir sake redding die instel ling so oneffektief

as geregteli ke bestuur onder die 1973-wet sou ma ak. Die vereiste word op twe e verskillende man iere in

die wet geformuleer. Da ar word aan die hand gedoen dat d ie twee formulerings op d ieselfde neerkom,

alhoewel konsekwe nte taalgebr uik deur die wetgewe r verkieslik sou wees . Volgens die hoogste hof

van appèl is daar geen algemene minimum voorgeskrewe voorskrifte om te bepaal of daar ’n redelike

vooruitsig vi r sakeredding i s nie. Elke saak word op eie me riete beoorde el. Om daardie re de val die

klem in hierd ie bydrae op die algemene kwessies wat d ie vereiste na vore bring. Die vereist e verg dat

die sta tutêre oog merk van sakeredding bepaal moet word. Dit het die hoogste hof van appèl gedoen

met die vreemde ve rtolking va n die wet dat sakeredding se doel ook d ie alleenstaa nde oogmerk van

sakemoord kan we es.

Daar word aan d ie hand gedoen dat die vereiste he el verstaanbaar is ind ien die tradisionele redeli ke

voorsienbaarhe idstoets wat in ver skeie regskontekste geld, i n gedagte gehou word . Uiteraard is die

objektiewe maat staf aan die han d waarvan red elike voorsienbaa rheid bepaal word, d ie redelike

besigheidspe rsoon by sakeredd ing en nie die redel ike persoon nie. Die b eskryw ing van die howe se

funksie i n hierdie opsig as die uitoefen ing van ’n diskresie in die lo s sin van die woord of die vel van ’n

waardeoorde el, kan verwarre nd wees en dra min by tot d ie debat. Die howe het nog nie die werkli kheid

prontuit gekonf ronteer dat die las om die aanwesig heid of afwesigheid van die ve reiste te bewys, o p

persone kan r us met wyd uitee nlopende vlakke va n toegang tot ken nis van die maat skappy se sake

nie. Alhoewel lipp ediens bewys word a an die stelling dat dieselfde toe ts vir almal geld , is die howe

skynbaar meer toegeeik jeens persone met bepe rkte to egang tot kennis en meer har dvogtig jeen s

diegene met vollediger t oegang tot kenni s, in besonder jeen s diegene met uitsluitl ike kennis oor d ie

sake van die maat skappy. Dispute oor die deurlopende t eenwoordigheid van die vereiste k an op enige

tydstip ontst aan.

Een van die onbea ntwoorde vrae is of die howe disput e daaroor kan bereg in gev alle waarvoor daar

nie in die wet uitd ruklik voorsiening ge maak word vir toegang tot die howe nie. Aa nsluitend daarby

is of aksieverr igtinge vir be regtiging in s ulke gevalle gebr uik kan word waa r daar feitedis pute is of

verwag word. Daa r word aan die h and gedoen dat onde r andere die grond wetlike reg tot toega ng tot

howe beteken dat die howe wel da ardie dispute mag bereg. Weens die alge mene moratorium teen die

instel van regsge dinge tydens sa keredding, mag d it egter moontli k nodig wees om die toest emming

daarvoor va n die sakereddi ngsprakt isyn of hof te bekom. Die arg ument dat ak sieverrigti nge dalk

beskikba ar is het min prakt iese waarde weens die uite rmate lang tyd wat dit nee m om aksieverrigti nge

af te handel. Alh oewel die vrese van doemprofete oor d ie uitwerking van die vereiste o p sakeredding

as instelli ng grootliks beswee r is, bly daar na ’n dekade niete min talle onbeantwoo rde vrae daaroor.

* Professor of Mercantile Law, University of Johannesburg.

** Associate Professor of Mercantile Law, University of Johannesburg.

2021 TSAR 688

© Juta and Company (Pty) Ltd

A REASONABLE PROSPECT FOR R ESCUING A COMPANY 689

[ISSN 0257 – 7747] TSAR 2021 . 4

https://doi.org /10.47348/ TSAR /2021/i4a 3

1 Introduction

Since 1 May 2011, the Companies Act 71 of 20081 (the act) has created a business

rescue regime that enables nancially distressed companies to alleviate the pressure

brought upon them by creditors de manding payment of the debts owing to the m.2 One

of the requirements for business rescue proceedings is that there must a reasonable

prospect for rescuing the company (sometimes expre ssed as a reasonable prospect

of rescuing the company). This requi rement received negative commentar y from

academic commentators. The critics were concer ned that the requirement would

not in practice achieve the laudable aim of the act to “provide for the efcient rescue

and recovery of nancially distressed companies, in a manner t hat balances the

rights and interests of all relevant stakeholders”.3 This contribution considers how

the law has developed over the past decade and whether this concern has proved to

be valid. As w ill appear, our court s have claried some of the issue s regarding the

requirement. Wh ilst the practical application of the requirement has contributed

to concretising it, we focus on the general principles in this contribution. Certai n

questions remain u nanswered and create legal uncertai nty.

2 Context of the requirement

The expression that t here must be “a reasonable prospect of/for rescu ing the

company” is mentioned expressly eleven times in chapter 6 of the act. There are also

cross-references to these expressions. The expression appea rs within the following

contexts:

i a company resolution to begin busines s rescue proceedings;4

ii a court order to begi n business rescue proceedings;5

iii the investigation of the affairs of a compa ny;6

iv the rst me eting of creditors;7

v the rst mee ting of employees’ representatives;8 and

vi the considerat ion of a business rescue plan.9

In what follows, a brief synopsis of these six contexts is provided .

1 GN 32 in GG 34239 (26-04-2011).

2 See s 128(1)(f). “Financial distress” refers to the appearance that the company will not be able to pay

its debts as they fall due in the following six months or that the company will become insolvent in the

following six months. Whilst it is clear that a commercially insolvent company may enter business

rescue, there remains some dispute as to whether a company can be placed into business rescue if it is

already insolvent. See Merchant West Working Capital Solutions (Pty) Ltd v Advanced Technologies

and Engineering Company (Pty) Ltd (13/12406) 2013 ZAGPJHC 109 (10 May 2013) par 8. However,

in Tyre Corporation Cape Town (Pty) Ltd v GT Logistics (Pty) Ltd 2017 3 SA 74 (WCC) par 16 and

Dale v Aeronastic Properties Ltd (Commissioner for the South African Revenue Service Intervening)

(9297/2016) 2016 ZAWCHC 160 (25 Oct 2016) par 16 the view was expressed that conceptually both

commercial insolvency and factual insolvency should be treated as a form of nancial distress.

3 s 7(k). See Burdette “Some initial thoughts on the development of a modern and effective business

rescue model for South Africa (part 1)” 2004 SA Merc LJ 249; Loubser Some Comparative Aspects of

Corporate Rescue in South African Company Law (2010 thesis SA) 339.

4 s 129 and 130.

5 s 131.

6 s 141.

7 s 147.

8 s 148.

9 s 152.

© Juta and Company (Pty) Ltd