The rights of affected persons as stakeholders during business rescue proceedings in South Africa

• Jurisdiction: South Africa
• Pages: 117-139
• Author: Marumoagae, C.
• Date: 16 August 2019
• Citation: (2018) 4(2) JCCL&P 117
• Published date: 16 August 2019

117

THE RIGHTS OF AFFECTED PERSONS

AS STAKEHOLDERS DURING

BUSINESS RESCUE PROCEEDINGS IN

SOUTH AFRICA

CLEMENT MARUMOAGAE

Senior Lecturer, School of Law, University of the Witwatersrand

ABSTRACT

In South Africa, the Companies Act 71 of 2008 introduced the

concept of business rescue, which has created a legal framework

with which attempts can be made to save failing companies when

there is a chance of saving them. This Act has also shifted the

balance of power in the manner in which companies are managed,

and has created space for various stakeholders to participate in the

affairs of companies. This paper illustrates that in the 2008 Act

the legislature somehow managed to limit the number of persons

who can legislatively participate in business rescue proceedings

as stakeholders, by specifically prescribing such stakeholders and

referring to them as ‘affected persons’. This paper critically reviews

the rights of these affected persons and the remedies available to

them to assert their rights during the business rescue proceedings.

I INTRODUCTION

There is a need for the board of directors to comply with the principles

of good corporate governance when managing their companies, and

should ‘not merely focus on the interests of shareholders, but also on

the interests of other stakeholders’.1 More companies are becoming

aware of the importance of not only actively tracking the interests of

their stakeholders but also, where possible, satisfying their needs in

order to make their companies more competitive in their respective

markets.2 Various provisions of the South African Companies Act3

1 GJ Rossouw ‘Balancing corporate and social interests: Corporate governance

theory and practice’ (2008) 3 African Journal of Business Ethics 28 at 29. It is,

nonetheless, worth noting that the distinction between shareholder and

stakeholder approaches to corporate governance is beyond the scope of this

paper.

2 Andrija Baric´ ‘Corporate social responsibility and stakeholders: Review of the last

decade (2006–2015)’ (2017) 8 Business Systems Research 133 at 137.

3 71 of 2008.

(2018) 4(2) JCCL&P 117

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(2018) 4 (2) JOURNAL OF CORPORATE AND COMMERCIAL LAW & PRACTICE

(hereinafter ‘the 2008 Act’) are drafted in a way that demonstrates the

need for directors to consider the interests of various stakeholders in

a company. As it will be shown in this paper, certain provisions of the

2008 Act enable stakeholders to challenge the decisions or conduct

of companies that they have an interest in.

In particular, the 2008 Act identifies specific stakeholders as

participants when initiatives are taken in an attempt to save a

failing company. This paper discusses the role of stakeholders

that have been identified by the legislature when the company is

undergoing business rescue proceedings. While business rescue

has generally received both academic4 and judicial attention,5 the

role of stakeholders as affected persons during business rescue has

not been adequately examined by academics. This paper critically

analyses aspects of ss 130 and 131 of the 2008 Act, with a view of

assessing the role and powers provided by this Act to affected persons

in relation to business rescue proceedings. This will be done by first

discussing the importance of company stakeholders and the manner

4 See among others Clement Marumoagae ‘The law relating to executory contracts

in South Africa during business-rescue proceedings’ (2017) 3(2) JCCL&P 31–51;

P Kloppers ‘Judicial management – A corporate rescue mechanism in need

of reform?’ (1999) 10 Stell LR 417; DA Burdette ‘Some initial thoughts on the

development of a modern and effective business rescue model for South Africa

(Part 1)’ (2004) 16 SA Merc LJ 241–63; Richard Bradstreet ‘The leak in the chapter

6 lifeboat: Inadequate regulation of business rescue practitioners may adversely

affect lenders’ willingness and the growth of the economy’ (2010) 22 SA Merc LJ

195–213; J Calitz & G Freebody ‘Is post-commencement finance proving to be

the thorn in the side of business rescue proceedings under the 2008 Companies

Act?’ (2016) 49 De Jure 265–87; and EP Joubert & A Loubser ‘Executive directors

in business rescue: employees or something else?’ (2016) 49 De Jure 95–104.

5 See among others Diener NO v Minister of Justice 2018 (2) SA 399 (SCA) dealing

with the preference (if any) that the business rescue practitioner’s claim for

remuneration and expenses enjoys over all creditors when business rescue

is converted to liquidation; African Banking Corporation of Botswana v Kariba

Furniture Manufacturers (Pty) Ltd 2015 (5) SA 192 (SCA) dealing with the meaning

and status of a binding offer made to a creditor who opposes a business rescue

plan; Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd

2012 (2) SA 423 (WCC) at 22 where the court had to evaluate the efficiency of the

business rescue plan; and Chetty t/a Nationwide Electrical v Hart 2015 (6) SA 424

(SCA) which examined whether arbitration proceedings fall within the general

moratorium on legal proceedings against a company under business rescue. See

also Merchant West Working Capital Solutions (Pty) Ltd v Advanced Technologies and

Engineering Company (Pty) Limited 2013 JDR 1019 (GSJ) para 1 where the court

held that ‘[t]he new Companies Act, 2008 (Act 71 of 2008) as amended came up

with novelties or innovations that did not exist in the old Companies Act 1973

(Act 61 of 1973) as amended (“the Act”). Among those innovations is the so-called

business rescue. Our courts have already started pronouncing themselves on this

new phenomenon, however, there is still in my considered view, quite a long way

before the organised profession completely muster all the nitty-gritties, explore

all the nooks and crevices of the new Companies Act and lay or cast a well-

travelled path that would engender and ensure consistency and sure-footedneth

in the implementation and interpretation of this “new baby” (business rescue).’

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