The safeguards and protective measures for property owners during business rescue

• Jurisdiction: South Africa
• Citation: (2018) 30 SA Merc LJ 40
• Published date: 16 August 2019
• Pages: 40-70
• Date: 16 August 2019

THE SAFEGUARDS AND PROTECTIVE

MEASURES FOR PROPERTY OWNERS

DURING BUSINESS RESCUE

MALEKA FEMIDA CASSIM*

Associate Professor, Department of Mercantile Law, University of Pretoria

Abstract

It is an undeniable dilemma for a landlord or property owner to f‌ind its

property in the possession of a company under business rescue. Not only

does the tenant often remain in occupation of the leased premises during

business rescue, but additionally fails to make ongoing payment of rent.

The goals of business rescue must be carefully balanced with the

prejudice caused to property owners by virtue of the moratorium during

business rescue. The moratorium encroaches on the proprietary rights

of third parties, who are unable to recover their property from a

company during business rescue. My earlier article — MF Cassim

(2017) 29/3 SA Merc LJ 419 — focused on the effect of the moratorium

on the property owner. The present article focuses on the protective

measures available, and which ought to be available, for property owners

whose property is in the possession of a company under business rescue.

The safeguards built into the Companies Act 71 of 2008 for property

owners are discussed. Guiding principles are proposed for the lifting of

the moratorium in business rescue by both the courts and business

rescue practitioners, f‌irst, for the repossession of property by the

property owner, and second, for the recovery of current rent and other

compensation by the property owner during business rescue. Whether

post-commencement claims for rent have, and should have, a super-

priority status as post-commencement f‌inance or as an expense of the

administration is also considered.

I INTRODUCTION TO THE SAFEGUARDS FOR PROPERTY

OWNERS

The goals of business rescue must be carefully balanced against the

prejudice caused to property owners by the moratorium during business

*MBBCh (cum laude) LLB (cum laude) LLM (cum laude) (Wits) PhD (UCT). Associate

Professor, Mercantile Law Department, University of Pretoria; Attorney and Notary Public of

the High Court of South Africa. I am grateful to the National Research Foundation (NRF) for

funding this research.

40

(2018) 30 SA Merc LJ 40

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rescue. It is an undeniable dilemma for a landlord or property owner to

f‌ind its property in the possession of a company under business rescue.

Not only does the tenant often remain in occupation of the leased

premises during business rescue, but additionally fails to make ongoing

payment of rent. The moratorium on the enforcement of debts and

rights against the company, whether proprietary or otherwise, is a

cardinal feature of the business rescue regime which gives the company

essential breathing space while the business rescue practitioner seeks to

steer it towards one of the goals of business rescue. The moratorium

encroaches on the proprietary rights of third parties, who are prevented

from recovering their property from a company during business rescue,

even if they have cancelled the underlying agreement with the company.

The purpose of this temporary restriction is to prevent third parties and

creditors from disrupting or hampering the chances of saving the

company. Without the moratorium, it would simply not be possible to

rescue the company. This aspect is fully canvassed in my earlier article on

which the current article builds.

1

In a misguided attempt to protect property owners, the courts have

regrettably overlooked the fundamental aim of the moratorium and

have improperly whittled it away.

2

The High Courts have held, in effect,

that the moratorium will not apply where the lessor or other property

owner has cancelled its lease, or other relevant agreement, with the

company in business rescue.

3

This means that the lessor is free to

institute legal proceedings or enforcement action against the company

to reclaim the leased property. This approach is not only at odds with the

intention of the legislature, but also threatens to undermine the entire

business rescue regime.

4

The moratorium is intended to restrict the

property owner from freely vindicating its property from the company

during business rescue, regardless of whether the property owner

cancelled its agreement with the company before or after the com-

mencement of business rescue. The repossession of land or goods by the

property owner would in many cases defeat the very purpose of the

rescue endeavour.

1

See MF Cassim ‘The effect of the moratorium on property owners during business

rescue’ (2017) 29/3 SA Merc LJ 419. This article should be read together with the present

article.

2

MF Cassim (2017) 29/3 SA Merc LJ 419 para V.

3

See eg Madodza (Pty) Ltd v Absa Bank Ltd (38906/2012) 2012 ZAGPPHC 165 (12 August

2012); JVJ Logistics (Pty) Ltd v Standard Bank of South Africa Ltd and others 2016 (6) SA 448

(KZD); Southern Value Consortium v Tresso Trading 102 (Pty) Ltd 2016 (6) SA 501 (WCC);

and Kythera Court v Le Rendez-Vous Café CC 2016 (6) SA 63 (GJ), as discussed in MF Cassim

(2017) 29/3 SA Merc LJ para V(a).

4

See further MF Cassim (2017) 29/3 SA Merc LJ para V(b)–(d).

PROTECTIVE MEASURES FOR PROPERTY OWNERS DURING BUSINESS RESCUE 41

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