COMMENCEMENT OF BUSINESS RESCUE PROCEEDINGS WHILE A COMPANY IS IN LIQUIDATION
The mere fact that a company that is liquidated can be placed under supervision seems at first sight nonsensical in most cases. In certain circumstances however it might just be what the doctor ordered.
The question, however, is whether South African law allows for a company that is in winding up to be placed in business rescue.
A company that is already in liquidation, or where a winding up application is pending before a court, cannot commence business rescue proceedings voluntarily, that is by adopting a resolution.
However, section 131 (1) of the Companies Act, 2008 read with section 131 (6) of the Act provides a lifeline in appropriate circumstances. These provisions state that a court application to commence business rescue proceedings may be lodged by an affected person, even if liquidation proceedings have already commenced. An affected person includes a shareholder, employee or creditor. Section 131(6) of the Act provides that when an affected person applies to the court to commence business rescue proceedings while liquidation proceedings already commenced, the liquidation proceedings will be suspended until the court decides on the application to commence business rescue proceedings. If the court grants the order, business rescue proceedings will commence, if the court refuses the order, liquidation proceedings will no longer be suspended and will continue.
An application to commence business rescue proceedings may be brought “at any time”. The extent of the term “any time” was considered in Richter vs ABSA 2015 (5) SA 57 (SCA) where the court held that an application to commence business rescue proceedings may be lodged until almost completion of liquidation proceedings, being any time before the company is dissolved or deregistered.
This does not however mean that the liquidator or other affected persons cannot oppose the application to commence business rescue proceedings. In Van Staden NO v Pro-Wiz Group (Pty) Ltd 2019 (4) SA 532 (SCA) the court held that a liquidator still holds the authority to oppose a business rescue application, even if the liquidation proceedings are suspended.
It was determined by our courts that the term “liquidation proceedings” does not include the winding up order but is rather the actual process of winding up of a company, overseen by the liquidators and the Master of the High Court. For this reason, when an application is brought to commence business rescue proceedings during liquidation proceedings, the actual wind-up order remains extant, but the liquidation proceedings are suspended.
Moreover, in Jansen Van Rensburg NO v Cardio Fitness Properties (Pty) Ltd and Others (46194/13) [2014] ZAGPJHC 40 (4 March 2014), the court held that the liquidators remain in control of the Company until the court has ruled on the business rescue application and a business rescue practitioner is appointed.
To conclude, South African law does indeed allow for an affected party to apply to court placing a company under supervision and commencing business rescue proceedings while being liquidated. This is however not a process to be abused and will only be a viable remedy in appropriate circumstances.
Article by Enrico Acker (MCom, Dip. Insolvency Law)
For more information, Enrico can be contacted at enrico@rgprok.com or 044 601 9900.
www.rgprok.co.za
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Disclaimer
Nothing contained in this publication is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This publication is intended for educational and informational purposes only.
