In a previous article, I commented on the trend in South African
courts that the judges are saying that there must be a detailed,
proposed business rescue plan before any application for business
rescue will be granted.
This trend was reinforced by a judgment in the Western Cape High
Court, Cape Town under case number 24850/2011. The judgment was
delivered on 9 December 2011 by the Honourable Mr Justice
The important paragraph of the judgment is on page 14 (paragraph
23), which reads as follows:
"It is not clear which of the two possible objects of business
rescue the applicants seek to achieve by having the company placed
under supervision. In their founding papers it appears to be to
restore it to solvency, while in their reply it appeared that a
better return for creditors than would be achieved on immediate
liquidation was the intended objective. It does not really
matter, however, because on either approach the applicants have
fallen woefully short of furnishing the court with the material
required to make the assessment of whether a reasonable prospect of
business rescue succeeding exists."
In this matter the applicants, William and Yvonne Koen, brought the
business rescue application in respect of a planned development
which was to become a golf course estate. The judge commented that
the company's expenditure in the development outpaced the
receipts received in respect of the sale of plots to such an extent
that the company was unable to sustain the development. By 2009
only 14 of the 18 holes were completed and thereafter the
infrastructure was left to deteriorate and was abandoned.
The company was indebted to Nedbank Limited in the amount of
approximately R60 million and the court heard evidence that
approximately R81.5 million was required to complete the
There was evidence on an unnamed potential investor in the
development. The judge commented on this saying "their case is
manifestly dependent on the provision by the mystery potential
investor of the means to enable a business rescue practitioner to
draw up a feasible rescue plan".
The trend has been reinforced by this judgment. The South African
courts will only grant orders in terms of section 131 of Act 71 of
2008 if a fully motivated and structured business rescue plan based
on Part D of Chapter 6 of Act 71 of 2008 is filed of record. The
applicant needs to be transparent about the identities of potential
investors. Affected parties intending to bring an application in
terms of section 131 of Act 71 of 2008 must interact with all the
stakeholders, especially the financial institutions, to design a
workable business rescue plan with the business rescue practitioner
being the key player because, after all, business rescue can only
succeed if the business rescue practitioner successfully interacts
with all the affected parties.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Globalisation and the rapid expansion of international trade has highlighted the need for uniform and consistent insolvency legislation across international markets. South Africa will take a further step towards such international best practice with the passing of the Judicial Matters Second Amendment Bill making provision for certain technical changes to Section 35B of the Insolvency Act.
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