When does an application for business rescue proceedings suspend liquidation proceedings? : notes

• Author: H. Stoop
• Pages: 329-338
• Published date: 01 January 2014
• Date: 01 January 2014
• DOI: 10.10520/EJC166187

329

Aantekeninge/Notes

When does an application for business rescue

proceedings suspend liquidation proceedings?

1 Introduction

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

commencement of business rescue proceedings by an order of court. In

terms of section 131(1) an affected person may apply to court at any

time for an order placing a company under supervision and

commencing business rescue. “Affected person” is defined in section

128 as a shareholder or creditor of the company, a registered trade union

representing employees of the company or the representatives of

employees not affiliated to a trade union. It may happen that affected

persons would wish to approach the court with an application to

commence business rescue proceedings after liquidation proceedings

had already commenced. The Act makes provision for this circumstance

in section 131, which states amongst other things that such an

application, if brought, would have the effect of suspending the

liquidation proceedings.

Just more than three years have passed since the Act became

operational. The application of the provisions of section 131, innocuous

as they may seem at first glance, is cause for concern. The contention

centres around the meaning and interpretation of the term “liquidation

proceedings” and the crux of the matter is whether this refers to

proceedings in court (up to the point where a liquidation order has been

granted), whether it encompasses winding up proceedings after a

liquidator has been appointed and put in control of the company’s

assets, or indeed whether it refers only to that part of the proceedings

that follows upon the liquidation order to the exclusion of proceedings

preceding it.

The Act does not define the concept “liquidation proceedings” and

court decisions that grappled with its meaning in this context have

reached divergent conclusions. This note seeks to highlight the

discrepancies that have arisen because of this. With reference to the

stated aims and outcomes of the Act, the law of insolvency and the law

governing the interpretation of statutes, an appropriate solution to the

inconsistencies will be debated.

2 The Relevant Statutory Provisions

Business rescue can be initiated either by means of a company

resolution (s 129), or by court order (s 131). A company resolution may

however not be adopted once liquidation proceedings have been