A number of recent business reports have highlighted the plight of farmers being subjected to litigation, and more specifically liquidation proceedings, as a result of debts owed to South Africa’s Land Bank.
Apart from extensive engagement with the Land Bank, many of the affected parties, including the agricultural organisation TLU SA, have proceeded to approach the Court to seek to amend some of the current legislation regulating Business Rescue proceedings such as the Companies Act 71 of 2008.
A vast majority of farms and agricultural land in South Africa are owned by trusts or individuals in their personal capacities. Business Rescue proceedings are currently only available to companies, and protection similar to that offered to companies by Section 133 of the Companies Act is not offered to trusts or individuals in their personal capacity.
It remains to be seen what the Court’s findings will be in the application, as it will no doubt have a significant impact on both debtors and creditors in the agricultural industry.
In South Africa, liquidation proceedings are not to be used as a debt collection mechanism where a debt is disputed on reasonable grounds. This principle is referred to as the “Badenhorst Rule” and was established in the matter of Badenhorst v Northern Construction Enterprise (Pty)Ltd 1956 (2) SA 346 (T).
The onus is on a debtor, or Respondent in the case of liquidation proceedings, to establish that its contestation of the debt is based on reasonable grounds.
Where a debt is disputed on reasonable grounds, a creditor would be better served to institute proceedings against a debtor by way of summons or payment application.
Litigation can, in many instances, become complex and as such litigants are encouraged to engage the services of attorneys that are able to properly advise on the procedures available to them.
