Mazars Durban - SUPREME COURT OF APPEAL RESCUES BUSINESS RESCUE2015-10-15
“….. a stratagem involving a wholly undesirable exploitation of legal technicalities for their own advantage†(Court’s comment on the conduct of the directors in the case below)
Business rescue was one of the new features of the 2008 Companies Act (“the Actâ€). It is designed to give ailing companies time and space to get back on their feet and resume trading. Business rescue replaced Judicial Management which was widely considered a failure in the previous Companies Act. It is more flexible than Judicial Management â€" for example, a director’s resolution can institute business rescue proceedings whereas a court order was required for Judicial Management. The problem - technicalitiesAlthough business rescue got off to a promising start, it suffered some setbacks in various High Court decisions, based around procedural aspects of business rescue, which threatened to undermine the whole process.SCA to the rescue
A recent case that ended up in the Supreme Court of Appeal (SCA) has however come to the rescue.
The directors of the company (who did not want the property to be transferred to the purchaser) then approached the courts to nullify the whole process on the technicality that certain procedural requirements had not been complied with. What did the SCA say?The Court found it difficult to reconcile the laudable intentions of the Act of giving struggling companies the space to recover against the fact that the Act’s aims could seemingly be effectively torpedoed by “trivial†non-compliance with administrative procedures.The Court held that only a court can terminate business rescue proceedings. Therefore, whilst “trivial†non-compliance could open the way for a court application to nullify the resolution to enter business rescue, it did not automatically terminate business rescue. Instead, held the SCA, “the court needs to be satisfied that in the light of all the facts it is just and equitable to set the resolution aside and terminate the business rescueâ€. In the circumstances, the appeal was allowed and the business rescue continues. This important new judgment effectively precludes parties using loopholes to their advantage and thereby undermining the business rescue provisions of the Companies Act. |
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