In terms of Section 130(1)(a)(ii) an affected party can apply to the Court for a resolution, resolving that a company begin voluntary business rescue proceedings, be set aside. In Nile Dutch Africa B.V. v Crystal Pier Shipping Proprietary Limited and 2 Others, the Court considered the provisions of Section 130(1)(a)(ii) of the Companies Act 71 of 2008.
In terms of Section 130(a)(1)(ii) of the Companies Act 71 of 2008 (“the Act”) an affected party can apply to the Court for a resolution, resolving that a company begin voluntary business rescue proceedings, be set aside. The Court in Nile Dutch Africa B.V. v Crystal Pier Shipping Proprietary Limited and 2 Others (“Nile Dutch Africa case”) considered the provisions of Section 130(1)(a)(ii) of the Act.
The board of directors of the First Respondent, Crystal Pier Shipping Proprietary Limited, passed a resolution in terms of Section 129(1) of the Act to voluntarily commence business rescue proceedings and to place the First Respondent under supervision. Subsequent thereto, the business rescue proceedings commenced in respect of the First Respondent.
The Applicant and the First Respondent entered into an Agency Agreement in terms whereof the First Respondent acted as an exclusive agent for the Applicant’s owned and/or charted vessels operating to and from South Africa. The agreement was not extended, and the First Respondent had to provide a full and final statement of account on the termination of the agreement, and further effect payment of the closing balance to the Applicant. The agreement was the main source of the First Respondent’s income.
The First Respondent has not carried on business since the commencement of business rescue. The First Respondent only published the first business rescue plan (“the plan”) 15 (fifteen) months after the commencement of business rescue, and after a Court Order was obtained to compel the First Respondent to do so.
The Applicant submitted that the Second Respondent misrepresented to the creditors the manner in which the First Respondent was carrying on business and that it had secured new business. The Second Respondent also misled the creditors about the First Respondent’s assets. As a result, the First Respondent submitted that the Second Respondent failed in her duties as a business rescue practitioner and that there is no reasonable prospect of rescuing the First Respondent. The First Respondent merely submitted that it requires additional time to secure new business, which would place it in a position to be rescued.
The Court held that the Second Respondent had not explained why debts owed to the First Respondent had not been collected and that there was no guarantee that the First Respondent would secure new business in order for income to be generated to rescue the First Respondent. Therefore, the Court set aside the resolution passed by the directors to voluntarily commence business rescue proceedings and placed the First Respondent under provisional liquidation.
The judgment handed down in the Nile Dutch Africa case highlighted that Courts would set aside resolutions passed by directors to commence business rescue should there be no reasonable prospects of the company being rescued, and subsequently place the company under provisional liquidation if found that a company is not merely financially distressed but in fact insolvent.
As a result, companies are to properly assess whether they are in a position to be placed in business rescue failing which the company runs the risk of being liquidated which has a far more drastic impact on the company than the ill-fated attempt to be placed in business rescue.
Article by Philip Roberts | Associate