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IS PRESCRIPTION SUSPENDED DURING BUSINESS RESCUE? - Cox Yeats Attorneys

2019-07-02


Prescription extinguishes a debt and brings finality to disputes. It is the period within which a creditor must act to recover a debt, failing which, the debt will prescribe and the creditor can no longer claim payment. Generally speaking, this period is three years for civil claims and 30 years for debts secured by mortgage bonds.

Whilst there are challenges with the Prescription Act 68 of 1969 itself, the challenge is worse when dealing with an insolvent or financially distressed debtor. What if statute prevents you from taking the necessary action to recover your debt? This is particularly relevant when a debtor is placed in business rescue.

Subject to certain exceptions, a company in business rescue is protected against legal action, including enforcement action, by section 133 of the Companies Act which provides that no legal proceedings, including enforcement action, may be continued with or brought against the company during the rescue period. The intention being, that the company is afforded breathing space to develop a plan which will result in a rescue. Creditors prove claims by lodging the claim with the business rescue practitioner who determines whether the claim is acceptable or not. What about creditors who did not receive notice of the business rescue proceedings, or creditors whose claims are rejected on the basis that they prescribed post-business rescue?
Section 133(3) of the Companies Act provides that "... any right to commence proceedings or otherwise assert a claim against a company is subject to a time limit, the measurement of that time must be suspended during the company's business rescue proceedings."

It is our view that for sake of clarity, instead of referring to 'the measurement of time', this provision should have been drafted to align with the South African institution of prescription. The provision should have stated that prescription is suspended from the time the business rescue procedure commences.
If a company commences business rescue while the period of prescription is running and a creditor fails to lodge its claim or is precluded from doing so, it is our view that the prescription period is suspended by section 133(3) of the Companies Act.

The judgement in LA Sport 4X4 Outdoor CC and Another v Broadsword Trading 20 (Pty) Limited and Others also supports this view, where the Honourable Tuchten J states that section 133(3) refers to the principle, which may broadly be described as prescription, that in certain circumstances the claim of a creditor which does not institute proceedings against its debtor within a certain time will lapse or become unenforceable.

Business rescue, whilst primarily a company protected rescue mechanism or "pro debtor" process, also demonstrates an element of creditor protection despite the moratorium provided by section 133(1).
It is imperative that creditors actively ensure the status of their debtors with whom they trade. Creditors should participate in business rescue proceedings and ensure that their claims are lodged in good time. However, if caught unaware by unscrupulous debtors who failed to provide notice of the proceedings, our view is that prescription is suspended by s133(3) and should a creditor's claim prescribe after business rescue has commenced but before implementation of a business rescue plan, that claim can still be lodged and cannot be rejected on the basis that it prescribed.

INSOLVENCY & BUSINESS RESCUE LAW TEAM
The Insolvency & Business Rescue Law Team consists of Thys Scheepers, Partner and head of this team; partners Callyn Wilkinson and Nkosinathi Gobhozi; Associate Tasmiya Patel and Candidate Attorney Carla Bishop.
The law team has extensive experience in insolvency, schemes of arrangement and debt recovery and has represented individuals, SMEs and large corporates in this regard. Their focus is on:
• Liquidations and sequestrations
• Cross-border insolvencies
• Business rescue
• Insolvency interrogations
• Perfecting securities
• Offers of compromise and schemes of arrangement

Thys Scheepers joined the firm as a partner in 2014. Thys previously practiced as a senior associate and director heading up an Insolvency, Debt Recovery and Business Rescue Department for a number of years. He has extensive experience as both a liquidator and specialist attorney in all matters relating to insolvency.
Callyn Wilkinson joined the firm as a partner and practises in the fields of insolvency, business rescue and debt recovery as well as matters relating to the Prevention of Organised Crime Act. Callyn has extensive experience in assisting with estate management, debt recovery by way of sequestration, liquidation and business rescue as well as High Court litigation.
Nkosinathi Gobhozi is experienced in insolvency, general litigation and Road Accident Fund litigation. Nkosinathi joined the firm in 2017 as part of the Insolvency and Business Rescue Law Team.
Tasmiya Patel joined Cox Yeats in 2018 and is an Associate. She has experience in banking litigation and corporate litigation. She specialises in recoveries, which include liquidations, sequestrations and business rescue.
Candidate Attorney Carla Bishop joined Cox Yeats in 2018 as part of the Insolvency and Business Rescue Law Team. 

For any Insolvency & Business Rescue law queries, please contact the team on: Tel: 031 536 8500 or on Email: tscheepers@coxyeats.co.za  ; cwilkinson@coxyeats.co.za  ; ngobhozi@coxyeats.co.za  ; tpatel@coxyeat.co.za   and cbishop@coxyeats.co.za
Website: www.coxyeats.co.za

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IS PRESCRIPTION SUSPENDED DURING BUSINESS RESCUE? - Cox Yeats Attorneys

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