The law relating to executory contracts in South Africa during business–rescue proceedings

JurisdictionSouth Africa
AuthorClement Marumoagae
Citation(2017) 3(2) JCCL&P 31
Pages31-51
Date16 August 2019
Published date16 August 2019
31
THE LAW RELATING TO
EXECUTORY CONTRACTS IN SOUTH
AFRICA DURING BUSINESS–RESCUE
PROCEEDINGS
CLEMENT MARUMOAGAE
Senior Lecturer, University of the Witwatersrand, School of Law
Johannesburg
ABSTRACT
This paper discusses section 136(2)(a) of the Companies Act 71
of 2008 in relation to executory contracts that a company, placed
under business rescue, is party to. It evaluates the business–rescue
practitioner’s authority to cancel or suspend obligations arising
from these executory contracts after the commencement of these
proceedings. This paper highlights the dangers related to the Business
Rescue Practitioner’s broad discretion afforded by this section. It is
argued that there was no need to differentiate between the common–
law powers of the trustees and liquidators and the statutory powers
of the business–recue practitioner regarding executory contracts.
It further illustrates that there are no useful guidelines on how the
business–rescue practitioner ought to exercise his or her discretion
when deciding to either suspend or cancel certain obligations arising
from executory contracts that companies under business rescue are
party to.
I INTRODUCTION
It is an economic imperative for companies to operate on a profitable
basis.1 Apart from better returns for its investors, a company that is
a going concern is able to contribute meaningfully to the economy
through income tax, as well as through the creation and preservation
of employment. In 2004, the South African Department of Trade and
1 See Oakdene Square Properties (Pty) Ltd & others v Farm Bothasfontein (Kyalami) (Pty)
Ltd & others 2012 (3) SA 273 (GSJ) para 12, where it was correctly held that ‘[t]
he general philosophy permeating through the business rescue provisions is the
recognition of the value of thebusinessas a going concern rather than the juristic
person itself. Hence the name “businessrescue” and not “companyrescue”. This
is in line with the modern trend in rescue regimes. It attempts to secure and
balance the opposing interests of creditors, shareholders and employees’.
(2017) 3(2) JCCL&P 31
© Juta and Company (Pty) Ltd
32 (2017) 3 (2) JOURNAL OF CORPORATE AND COMMERCIAL LAW & PRACTICE
Industry observed that it was almost impossible to rescue companies
due to the legislative corporate–rescue procedure of the time, which
was rarely used and which even more rarely resulted in the successful
rescue of companies.2 In 2008, the Legislature promulgated the new
Companies Act3 (‘2008 Companies Act’), which contains a detailed
process for the rescue of companies.4 Since the enactment of this
Act, there has been adequate judicial and academic commentary and
pronouncements on, among others, the difference between business
rescue and judicial management;5 the impact of business rescue
on creditors;6 the effectiveness of the business–rescue procedure;7
the remuneration of business–rescue practitioners;8 the duties and
functions of the business rescue practitioner;9 and the regulation —
or lack thereof — of business–rescue practitioners.10 It is surprising
that even though much has been written in this area of corporate
insolvency law, not much has been written in relation to executory
contracts, which the business–rescue practitioner is expected to deal
with once he or she assumes office.
South African courts are yet to determine the parameters of the
authority of the business–rescue practitioner in terms of section
2 The Department of Trade and Industry ‘South African Company Law for the 21st
Century Guidelines for Corporate Law Reform’ (May 2004) at 45 available at http://
pmg-assets.s3-website-eu-west-1.amazonaws.com/bills/040715companydraftpolicy.
pdf, accessed on 23 March 2018.
3 71 of 2008.
4 Chapter 6 of the 2008 Companies Act.
5 See Merchant West Working Capital Solutions (Pty) LTD v Advanced Technologies and
Engineering Company (Pty) Ltd & another [2013] ZAGPJHC 109 (10 May 2013). See,
also, C Lamprecht ‘Business rescue replacing judicial management: An assessment
of the extent of problems solved’ (2008) 22 South African Journal of Accounting
Research 184; and E Levenstein An Appraisal of the New South African Business Rescue
Procedure (unpublished LLD thesis, University of Pretoria, 2016) 53.
6 Tuna v Pioneer Foods (Pty) Limited [2016] ZAGPJHC 298 (18 November 2016); and
Oakdene Square Properties (Pty) Ltd & others v Farm Bothasfontein (Kyalami) (Pty) Ltd
& others 2013 (4) SA 539 (SCA). See, also, Richard S Bradstreet ‘Business rescue
proves to be creditor–friendly: CJ Claassen J’s analysis of the new business rescue
procedure in Oakdene Square Properties: notes’ (2013) 130 SALJ 44.
7 Anneli Loubser ‘The business rescue proceedings in the Companies Act of 2008:
Concerns and questions (Part 1)’ 2010 TSAR 501; and ‘The business rescue
proceedings in the Companies Act of 2008: Concerns and questions (Part 2)’ 2010
TSAR 689.
8 Diener NO v Minister of Justice & others [2018] 1 All SA 317 (SCA).
9 Collard v Jatara Connect (Pty) Ltd & others [2017] ZAWCHC 45 (14 March 2017);
and Absa Bank Limited v Caine NO & another, In Re; Absa Bank Limited v Caine NO
& another [2014] ZAFSHC 46 (2 April 2014).
10 See Rezen Papaya ‘Are business rescue practitioners adequately regulated?’
(2014) Dec De Rebus 29; PJ Veldhuizen ‘Regulation and control of business-
rescuepractitioners: Is there a suitable legal framework’ (2015) 6(4) Business Tax
and Company Law Quarterly 24; and Richard Bradstreet ‘The leak in the Chapter 6
lifeboat: Inadequateregulationof businessrescue practitionersmay adversely af-
fect lenders’ willingness and the growth of the economy’ (2010) 22 SA Merc LJ 195.
© Juta and Company (Pty) Ltd

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