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SAIPA CPD SEMINAR: COMPANIES AND CO-OPERATIVES 2019

SAIPA CPD SEMINAR: COMPANIES AND CO-OPERATIVES 2019. OUTLINE. OVERVIEW OF COMPANIES ACT INTRODUCTION TO BUSINESS RESCUE WINDING UP PROCEDURES DEREGISTRATION COMPANIES TRIBUNAL COMPANIES AMENDMENT BILL DIRECTORS/INSOLVENT TRADING. OVERVIEW OF FRAMEWORK OF THE COMPANIES ACT 71 OF 2008.

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SAIPA CPD SEMINAR: COMPANIES AND CO-OPERATIVES 2019

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  1. SAIPA CPD SEMINAR: COMPANIES AND CO-OPERATIVES 2019

  2. OUTLINE • OVERVIEW OF COMPANIES ACT • INTRODUCTION TO BUSINESS RESCUE • WINDING UP PROCEDURES • DEREGISTRATION • COMPANIES TRIBUNAL • COMPANIES AMENDMENT BILL • DIRECTORS/INSOLVENT TRADING Companies and Co-operatives 2019

  3. OVERVIEW OF FRAMEWORK OF THE COMPANIES ACT 71 OF 2008 COMPANIES ACT AND REGULATION • The Companies Act, Act no. 71 of 2008 was signed by the President on 8 April 2009 and gazetted in Gazette No. 32121 (Notice No. 421). The Act replaces the Companies Act, 61 of 1973 and came into effect on 1 May 2011. • The Minister of Trade and Industry has in terms of s 223 and Item 14 of Schedule 5 of the Companies Act published the Companies Regulations. These regulations became effective on 1 May 2011, at the same time that the Companies Act No 71, 2008, became effective. COMPANIES AND INTELLECTUAL PROPERTY COMMISSION • Companies and Intellectual Property Commission (CIPC), was established through the amalgamation of the Office of Companies and Intellectual Property Enforcement (OCIPE) and the Companies and Intellectual Property Registration Office (CIPRO). The Commission is a juristic person, and as mandated by the Companies Act, 2008, has jurisdiction throughout the Republic, is independent, and subject only to the Constitution and the law and any policy statement, directive or request issued to it by the Minister of Trade and Industry in terms of this Act. Companies and Co-operatives 2019

  4. FEATURES OF COMPANIES ACT • One of the main features of the Companies Act … ‘a move towards the decriminalisation of company law and the establishment of bodies for the effective enforcement of the legislation’. • Companies Act decriminalises company law and rather aims to achieve compliance through administrative enforcement. • See eg. Compliance notice s 171. • Delport = section ‘is an important part of the framework in terms of which regulators have an expanded role in enforcing compliance with the Act’. • Davis = the introduction of a compliance notice provision as ‘the most novel feature of the 2008 Act’. • Sutherland = ‘the most powerful enforcement tool in the arsenal of the Commission’. Companies and Co-operatives 2019

  5. TYPES OF COMPANIES • PROFIT COMPANIES • GENERAL • STATE OWNED • PRIVATE • NON-PROFIT COMPANIES • SEPARATE LEGAL NATURE? • PIERCING THE CORPORATE VEIL Companies and Co-operatives 2019

  6. MEMORANDUM OF INCORPORATION • ‘‘Memorandum of Incorporation’’ means the document, as amended from time to time— (a) that sets out rights, duties and responsibilities of shareholders, directors and others within and in relation to a company, and other matters as contemplated in section 15; and (b) by which— (i) the company was incorporated in terms of this Act, as contemplated in section 13; or (ii) a pre-existing company was structured and governed before the later of— (aa) the effective date; or (bb) the date it was converted to a company in terms of Schedule 2; Companies and Co-operatives 2019

  7. WHAT IS AN MOI ? • “The Act defines the Memorandum of Incorporation (MOI) as a document that sets out the rights, duties and responsibilities of shareholders, directors and others within and in relation to a company and by which a company is incorporated under the Act (or by which a pre-existing company was structured and governed). • The Memorandum of Incorporation (MOI) therefore has priority over the Companies Act as long as it does not conflict with the Act. It represents a set of rules that companies may accept, change or supplement to suit the particular needs of the company, with a proviso that all provisions of the Memorandum of Incorporation (MOI) must be consistent with the provisions of the Act.” Companies and Co-operatives 2019

  8. LEGAL NATURE • OLD Act = the memorandum and articles of association were binding between the company and its members, and among the members, but the Act further binds prescribed officers and members of any board committees (including the audit committee). • NEW ACT = (MOI) is essentially the shareholders control document which defines the company’s authority levels + the roles and rights of shareholders and directors. It is also the company’s internal code of corporate governance and confirms to 3RD parties whether the company has any restrictive conditions (RF or ring-fenced companies). • In essence, the Memorandum of Incorporation (MOI) is considered to be the practical implementation of the Act. Companies and Co-operatives 2019

  9. PROPOSED AMENDMENT TO MOI Memorandum of Incorporation (section 16): • The CIPC = 10 business days to process amendments to the MOI, after which any amendments will be deemed to take effect if the CIPC has not endorsed or rejected same after the filing. • This amendment will provide much-needed certainty as to the status and effectiveness of amendments, and will do away with the concern of lengthy delays. Companies and Co-operatives 2019

  10. INTRODUCTION AND HISTORY OF BUSINESS RESCUE • South Africa has brought the Companies Act 71 of 2008 into operation. • REPLACED = Judicial management in Companies Act 61 of 1973. • Judicial management has been criticized for many years by various writers. Smits described judicial management as a “spectacular failure”, and Josman J finally administered the lethal injection to this corporate rescue procedure in Le Roux Hotel Management (Pty) Ltd v E Rand (Pty) Ltd where he referred to judicial management as a “system which has barely worked since its initiation in 1926”…. • Was it really such a failure? …. • BUSINESS RESCUE? In Panamo Properties the SCA remarked that the “commendable goals are unfortunately being hampered because the statutory provisions governing business rescue are not always clearly drafted”. (Panamo Properties (Pty) Ltd v Nel [2015] ZASCA 7; 2015 (5) SA 63 (SCA).) Companies and Co-operatives 2019

  11. CONTEXT OF CHAPTER 6 • S7 of the Companies Act of 2008, sets out to establish the purpose of the Act mentioning the promotion of the South African economy by… • “(b)(i)Encouraging entrepreneurship and enterprise efficiency, (ii) Creating flexibility and simplicity in the formation and maintenance of companies, (c) Promotion of innovation and investment in South African markets, (d) Re-affirm the concept of company as a means of achieving economic and social benefits, and to (k) Provide for efficient rescue and recovery of financially distressed companies in manner that balances the rights and interests of all relevant shareholders.” • As one of the express purposes of the Act is to facilitate the efficient rescue of financially distressed companies (s 7(k)), a court will give preference to business rescue over liquidation, but only where there is a genuine attempt to achieve the aims of the Act. Companies and Co-operatives 2019

  12. WHY IS BUSINESS RESCUE IMPORTANT? • Access to credit for individuals and businesses is severely constrained in much of the developing world. • Weak legal and regulatory environments for lending and enforcement, combined with the lack of predictability for lenders, inability to leverage productive assets, and the absence of credit information, create a lending environment that is unfriendly to micro, small, and medium enterprises (MSMEs) and individuals. • The availability of credit is a key driver of economic activity, innovation, and growth. By providing for the restructuring and preservation of distressed yet viable businesses, as well as the orderly resolution of distressed, non-viable businesses, insolvency laws offer predictability and enhance investor confidence. As a result, this increases the willingness of financial institutions to lend to businesses, thus encouraging entrepreneurship, which creates jobs, increases productivity, and promotes innovation. Companies and Co-operatives 2019

  13. INTERNATIONAL CONTEXT:CHAPTER 11 • Ch 11 of US Bankruptcy Code sets out the primary policy of US bankruptcy law for corporate debtors: • to preserve and protect an ailing business by encouraging a financial restructuring that is binding upon all parties. • Under Ch 11, “a distressed company has the opportunity to obtain a breathing spell from the demands of creditors, remain in business with existing management, reassess its business plan and negotiate (or seek to impose) a restructuring of its capital structure which binds all existing creditors and shareholders.” • Ch 11 eg. largest corporations in the US, …Lehman Brothers, Enron, WorldCom, American Airlines, US Airways (twice), Delta Airlines, United Airlines, Polaroid, Washington Mutual and LTV Corporation (twice). Companies and Co-operatives 2019

  14. CHAPTER 11 • A business need not be insolvent to apply for Ch 11 relief. There is no requirement that its liabilities exceed its assets or that it even be unable to pay its debts as they come due. • Solvent companies may, therefore, voluntarily file and enter reorganisation proceedings under the Code. • Applications must be in ‘good faith’ + intention of reorganisation or to effect a liquidation or sale of the company, = creditors may apply to have petitions dismissed where this is not the case. • NB =moratorium… Companies and Co-operatives 2019

  15. CONCLUSION • Omar: ‘...a fascination with the American “Chapter 11” procedure. • Loubser:” Indeed, one of the grounds on which Ch 11 has been criticised is that it is used by large corporations to effect a sale of their assets and then divide the proceeds among their creditors instead of reorganising the business. High success rates of Ch 11 must therefore be approached with caution because it includes many outcomes that we would regard as failures of a rescue procedure.” • Judge Stong concluded with the vision: “…imagine you could get everyone in one tent with a pause; everyone takes a deep breath with a judge who has the power of the federal judiciary and the ability to not only look in the rear-view mirror but also in the windshield and move everybody forward …,with good case management, transparency, responsiveness, preserving value and creating value where possible and I think that’s why our system works …”. INSOL ART, ACCRA GHANA, OCTOBER 2016 Companies and Co-operatives 2019

  16. KEY FEATURES AND PRINCIPLES OF BUSINESS RESCUE… • Plan Formulation and Consideration • Plan Voting and Approval • Plan Implementation and Amendment • Discharge and Binding Effects • Plan revocation and closure Companies and Co-operatives 2019

  17. INTRODUCTION TO BUSINESS RESCUE • As one of the express purposes of the Act is to facilitate the efficient rescue of financially distressed companies (s 7(k)), a court will give preference to business rescue over liquidation, but only where there is a genuine attempt to achieve the aims of the Act. • S 128 (h)… ‘‘rescuing the company’’ means achieving the goals set out in the definition of ‘‘business rescue’’ in paragraph (b)…. Companies and Co-operatives 2019

  18. ROLE PLAYERS • COMPANY • SHAREHOLDERS • EMPLOYEES • DIRECTORS • CREDITORS • TRADE UNION • PCF FINANCIERS • BRP • DTI/CIPC Companies and Co-operatives 2019

  19. DEFINITION OF BUSINESS RESCUE BR is defined in S 128 (b) as: “proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for: • temporary supervision of the company, and the management of its affairs, business and property, by a business rescue practitioner in substitution for the company’s board and prior management; • a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and Companies and Co-operatives 2019

  20. DEFINITION OF BUSINESS RESCUE • the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if that is not possible, a plan that would achieve a better return for the company’s creditors than the payment they would have received if the company had simply been liquidated immediately..” • S 128 (h)… ‘‘rescuing the company’’ means achieving the goals set out n the definition of ‘‘business rescue’’ in paragraph (b); Companies and Co-operatives 2019

  21. DEFINITION OF BUSINESS RESCUE • The business rescue provisions apply to ‘financially distressed’ companies… • A company is ‘financially distressed’ if it appears to be: • Reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable, or • Reasonably likely that the company will become insolvent …….Within the immediately ensuing six months Companies and Co-operatives 2019

  22. FINANCIAL DISTRESS ? • Since s 128(1)(f) refers to imminent inability to pay debts or imminent insolvency, the question arises as to whether a company can be said to be "financially distressed" if it is already unable to pay its debts or is already insolvent. • Merchant West? Commercial insolvency X • Tyre Corporation Cape Town (Pty) Ltd v GT Logistics? Commercial insolvency √ • Al Mayya International Limited (Bvi) (Formerly Al Mayya South Africa Ltd (Bvi)) v Valley of the Kings Thaba Motswere Proprietary Limited (carrying on business at Thaba Mtsweri, Thabazimbi) and Others [2017] JOL 38030 (EL)where the issue of what constitutes "financial distress" is discussed at paras 22 and 28 of the judgment? = Commercial insolvency √ Companies and Co-operatives 2019

  23. COMMENCEMENT OF BUSINESS RESCUE Business rescue proceedings may be initiated either by: • A resolution by the board of directors, or • Acourt order on the application of an ‘affected person’: affected person is any creditor, shareholder, trade union or unrepresented employee • (Company or directors may not apply) Companies and Co-operatives 2019

  24. BOARD 129.   Company resolution to begin business rescue proceedings • Subject to ss (2) (a), the board of a company may resolve that the company voluntarily begin business rescue proceedings and place the company under supervision, if the board has reasonable grounds to believe that— • the company is financially distressed; and • there appears to be a reasonable prospect of rescuing the company. • A resolution contemplated in ss (1) — • may not be adopted if liquidation proceedings have been initiated by or against the company; and • has no force or effect until it has been filed Companies and Co-operatives 2019

  25. NON-COMPLIANCE - SECTION 129(3) AND (4) • S 129(3): Within 5 business days after filing resolution • Publish notice of resolution to every affected person, and • appoint business rescue practitioner; • S 129(4): File notice of appointment of business rescue practitioner within 2 business days after appointment; and • Publish a copy of such notice within 5 days after filing; • S 129(5): Non-compliance: resolution lapses and is a nullity, 3 months embargo… Companies and Co-operatives 2019

  26. SECTION 130 (1)(a) • Subject to subsection (2), at any time after the adoption of a resolution in terms of section 129, until the adoption of a business rescue plan in terms of section 152, an affected person may apply to a court for an order— • setting aside the resolution, on the grounds that— i) there is no reasonable basis for believing that the company is financially distressed; ii) there is no reasonable prospect for rescuing the company; or iii) the company has failed to satisfy the procedural requirements set out in section 129; Companies and Co-operatives 2019

  27. PANAMO PROPERTIES (PTY) LTD V NEL • Non-compliance with the procedural requirements of S 129(3) and (4) of the Companies Act does not automatically result in the proceedings becoming a nullity, notwithstanding the provisions of S 129(5). • Business rescue proceedings will only be terminated when the court sets the resolution aside. • The court will only set aside the business rescue resolution & terminate the business rescue if it is satisfied that, in the light of all the facts, it is just and equitable to do so – S 130(5)(a)(ii). • This approach precludes a company from passing a resolution in order to gain the protection of Ch 6 for a brief period of time, only to exit the procedure due to the resolution lapsing and becoming a nullity at a later date. Companies and Co-operatives 2019

  28. COURT ORDER • An affected person may apply to court for such an order • The court may make the order if it is satisfied that: • The company is financially distressed; or • The company has failed to pay any amount in terms of an obligation under a public regulation, or contract, with respect to employment-related matters; or • It is just and equitable to do so for financial reasons • And there is a reasonable prospect for rescuing the company. • The court may appoint business rescue practitioner. Companies and Co-operatives 2019

  29. SECTION 131 (6) AND (7)… • The application may be made even if proceedings for the liquidation of the company have already commenced (s 131(6); (6) If liquidation proceedings have already been commenced by or against the company at the time an application is made in terms of subsection (1), the application will suspend those liquidation proceedings until— • the court has adjudicated upon the application; or • the business rescue proceedings end, if the court makes the order applied for. (7) In addition to the powers of a court on an application contemplated in this section, a court may make an order contemplated in subsection (4), or (5) if applicable, at any time during the course of any liquidation proceedingsor proceedings to enforce any security against the company. • Cardinet (Proprietary) Limited v Wedgewood Golf and Country Estates (Pty) Ltd (in liquidation) (WCC Case no 19599/2012) Companies and Co-operatives 2019

  30. RICHTER V ABSA BANK LIMITED • SCA held that an application in terms of s 131 to place a company under business rescue can be made after the final liquidation order • conversion of liquidation to business rescue even after a final liquidation order has been granted was clearly envisaged by s136(4) • Practical implications? • In Van der Merwe v Zonnekus Mansion (Pty) Ltd (in liquidation) (4653/2015) [2015] WCC (10 June 2015) the judge disagreed with the decision by the SCA, but was bound by it. • PRACTICAL ISSUES? Companies and Co-operatives 2019

  31. WHO IS IN CONTROL?GCC ENGINEERING V LAWRENCE MAROOS SCA • s 131(6) - application for business rescue proceedings does not terminate the office of provisional liquidators nor does it result in the assets and management of the company in liquidation re-vesting in the directors of the company in provisional liquidation. • [12] In Knipe v Noordman the court also dealt with the effect of s 131(6). …said that the legislature did not intend to create a situation where the provisional liquidators would be disempowered to carry out their function. The learned Judge further said that the provisional liquidators cannot be hamstrung by the business rescue application. • [13] It is not the responsibility of the provisional liquidators to wind up the company, although under certain circumstances a provisional liquidator can, in terms of s 386(4)(f) request the Master or the court to extend their powers. Companies and Co-operatives 2019

  32. WHO IS IN CONTROL?GCC ENGINEERING V LAWRENCE MAROOS SCA I find that the appointment, office and powers of the provisional liquidators are not suspended. In s 131(6) the legislature used the word ‘suspend’ and which not mean termination of the office of the liquidator. In my view the term ‘liquidation proceeding’ refers only to those actions performed by a liquidator in dealing with the affairs of a company in liquidation in order to bring about its dissolution. What is suspended is the process of winding-up and not the legal consequences of a winding-up order. Companies and Co-operatives 2019

  33. MORATORIUM General moratorium: • S 133 (1) During business rescue proceedings, no legal proceeding, including enforcement action, against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any forum, except—…. • The moratorium envisaged by S 133 is in place for the duration of 'business rescue proceedings' • Business rescue proceedings clearly extend beyond the adoption of a business rescue plan. For as long as the moratorium is in place, s 133(1)(b) permits a court to grant leave to a person to institute legal proceedings. Companies and Co-operatives 2019

  34. MORATORIUM… • Murray v Firstrand Bank Ltd 2015 (3) SA 438 (SCA) concerned the validity of the cancellation of an instalment sale agreement during business rescue proceedings. The court explained that the phrase “legal proceedings, including enforcement action” indicates that enforcement action is seen as a particular type of legal proceeding, and this meaning is supported by the reference to “commenced or proceeded with in any forum”. The word “forum” usually refers to a court or tribunal. • “Enforcement action” in s 133(1) thus contemplates formal proceedings ancillary to legal proceedings, such as the enforcement or execution of court orders through writs of execution or attachment. The words in s 133(1) cannot be stretched to include the unilateral act of cancellation of a contract. Companies and Co-operatives 2019

  35. BUSINESS RESCUE PLAN DEFINITION OF BUSINESS RESCUE iii) the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if that is not possible, a plan that would achieve a better return for the company’s creditors than the payment they would have received if the company had simply been liquidated immediately..” Companies and Co-operatives 2019

  36. BUSINESS RESCUE PLAN • The Companies Act 71 of 2008 (“the Act”), Chapter 6, S 150 prescribes a number of required disclosures in the BR Plan which is contained under 3 separate headings, namely: • Part A – Background • Part B – Proposals; and • Part C – Assumptions and Conditions. BUT • Pretorius: Business rescue plan serves as a tool for feasibility declaration. The outcome of the plan is reliant on what is feasible; that is, based on the facts, circumstances and practical assumptions, the plan involves a strategy intended to rehabilitate the company and in so doing offer creditors a better return. Companies and Co-operatives 2019

  37. VOTING? • In order for a business rescue plan to be adopted it must be supported by 75% of creditors voting interests and must be supported by at least 50% of the independent creditors voting interests…. • …, where a creditor with a sufficient voting interest prevents the adoption of the business rescue plan by voting against the adoption of the business rescue plan then any affected person (creditor) may purchase that creditors voting interests at the price that the creditor would receive at liquidation. • African Bank Corporation of Botswana Limited v Kariba Furniture Manufacturers (Pty) Ltd ; • DH Brothers Industries (Pty) Ltd vs Karl Johannes Gribnitz N.O. and Dowmont Snacks (Pty) Limited ; • Absa Bank Limited v Caine N.O. and Another, In Re; Absa Bank Limited v Caine N.O. and Another. Companies and Co-operatives 2019

  38. PARTICIPATION BY CREDITORS S 145 S 2) In addition to the rights set out in subsection (1), each creditor has— a) the right to vote to amend, approve or reject a proposed business rescue plan, in the manner contemplated in s 152; and b) if the proposed business rescue plan is rejected, a further right to— • i) propose the development of an alternative plan, in the manner contemplated in s 153; or • ii) present an offer to acquire the interests of any or all of the other creditors in the manner contemplated in s 153. Companies and Co-operatives 2019

  39. S 147 FIRST MEETING OF CREDITORS • Should be convened and presided over by the practitioner within 10 days after such practitioner’s appointment. • At the meeting, the practitioner must inform the creditors whether he or she believes that there is a reasonable prospect of rescuing the company. • The creditors may present proof of claims to the practitioner as well as determine whether or not to form a committee of creditors. • A decision at the meeting is approved if it is supported by the holders of a simple majority of the independent creditors’ voting interests. • However, it is important to note that this does not apply to a meeting convened for the purpose of considering a proposed business rescue plan. Companies and Co-operatives 2019

  40. S 150 PROPOSAL OF BUSINESS RESCUE PLAN • After consultation with all creditors, other affected persons and the management, a practitioner must prepare a business rescue plan. • In terms of the provisions of ch 6 creditors clearly have the strongest right to consultation regarding the development of a business rescue plan, and since they have the most to lose in financial terms it is submitted that this is the correct approach. However, the provision goes further and states that “other affected persons” and “the management of the company” should also have been consulted. • Although the provisions dealing with shareholder participation in the business rescue proceedings do not refer to the right to be consulted, it would appear that under this provision they do indeed have such a right. See Meskin.Hlumisa Investment Holdings (RF) Limited v Van der Merwe NO=The court was satisfied that the applicants were not consulted as contemplated in s150(1) of the Act (par [23]) and ordered that the scheduled meeting to consider the business rescue be postponed pending consultation between the business rescue practitioners and the applicants and pending the delivery of specified documents to the applicants by the business rescue practitioners. Companies and Co-operatives 2019

  41. PLAN? • Such business rescue plan must contain all the information which affected persons may need in order to reach a decision regarding its adoption. • The business rescue plan must be published within 25 business days after the date on which the practitioner was appointed or such longer time as may be allowed by the court on application by the company or the holders of a majority of the creditors’ voting interests. Companies and Co-operatives 2019

  42. S151. MEETING TO DETERMINE FUTURE OF COMPANY Within 10 business days after publishing a business rescue plan in terms of s 150, the practitioner must convene and preside over a meeting of creditors and any other holders of a voting interest, called for the purpose of considering the plan. 2) At least five business days before the meeting contemplated in subsection (1), the practitioner must deliver a notice of the meeting to all affected persons, setting out— a) the date, time and place of the meeting; b) the agenda of the meeting; and c) a summary of the rights of affected persons to participate in and vote at the meeting. 3) The meeting contemplated may be adjourned from time to time, as necessary or expedient, until a decision regarding the company’s future has been taken in accordance with ss 152 and 153. Companies and Co-operatives 2019

  43. S 152 CONSIDERATION OF BUSINESS RESCUE PLAN At a meeting convened in terms of section 151, the practitioner must— • introduce the proposed business rescue plan for consideration by the creditors and if, applicable, by the shareholders; • inform the meeting whether the practitioner continues to believe that there is a reasonable prospect of the company being rescued; • provide an opportunity for the employees’ representatives to address the meeting; • invite discussion, and entertain and conduct a vote, on any motions to— • amend the proposed plan, in any manner moved and seconded by holders of creditors’ voting interests, and satisfactory to the practitioner; or • direct the practitioner to adjourn the meeting in order to revise the plan for further consideration; and • call for a vote for preliminary approval of the proposed plan, as amended if applicable, unless the meeting has first been adjourned in accordance with paragraph (d)(ii). Companies and Co-operatives 2019

  44. SECTION 153(1)… • b) If the practitioner does not take any action contemplated in paragraph (a) – • i. any affected person present at the meeting may- • (aa) call for a vote of approval from the holders of voting interests requiring the practitioner to prepare and publish a revised plan; or • (bb) apply to the court to set aside the result of the vote by the holders of voting interests or shareholders, as the case may be, on the grounds that it was inappropriate; or • ii any affected person, or combinations of affected persons, may make a binding offer to purchase the voting interests of one or more persons who opposed adoption of the business rescue plan, at a value independently and expertly determined, on the request of the practitioner, to be a fair and reasonable estimate of the return to that person, or those persons, if the company were to be liquidated • INAPPROPRIATE VOTE? Companies and Co-operatives 2019

  45. AFRICAN BANKING CORPORATION OF BOTSWANA V KARIBA FURNITURE MANUFACTURERS • SCA agreed with the decision in DH Brothers • A binding offer in terms of section 153(1)(b)(iii) of the Companies Act 71 of 2008, to purchase the voting interests of one or more persons who opposed adoption of the business rescue plan, is binding on the person who made the offer, not on the person to whom the offer is made without acceptance of the offer. • The offer cannot be a valid offer if it does not cover the minimum requirements of the proposed contract such as details of the person who makes the offer, the price or determined value, and where, when and how payment would be effected. Companies and Co-operatives 2019

  46. CONTRACTS • Original version of s 136(2): practitioner may cancel or suspend entirely, partially or conditionally any provision of an agreement to which the company was a party at commencement of BR • Amended: practitioner may suspend any obligation that would otherwise become due during proceedings • Inserted: S 136(2A)(c) - if practitioner suspends a provision relating to security granted by the company…… • Cloete Murray NO & another v FirstRand Bank Ltd (20104/2014) 2015] ZASCA 39 (26 March 2015) • 178 Stamfordhill CC v Velvet Star Entertainment CC (LEASE AGREEMENTS) Companies and Co-operatives 2019

  47. POST COMMENCEMENT FINANCE -PCF • Post-commencement financing may be secured by any asset “to the extent unencumbered” and will have preference in the order incurred over all unsecured claims against the company. • Employee claims arising during proceeding (including management severance?) take precedence… • Paid in order of preference per s 135(3)(a) • Equal (cf Insolvency Act) • After practitioner remuneration, expenses and other costs of BR proceedings • Before secured/unsecured PCF • Before all unsecured claims Companies and Co-operatives 2019

  48. NB RANKING? • Company may obtain other financing during business rescue • May be secured over unencumbered property • Ranking • Remuneration and expenses of practitioner • Claims arising out of the costs of business rescue proceedings • Employment-related post-commencement financing equally • Other post-commencement financing (secured or unsecured) order in which incurred (implementation?) • All unsecured pre-commencement claims • [Secured pre-commencement claims – separate] = SEE Merchant West case? • Are PCF providers entitled to vote at the various meetings required to be held in terms of Chapter 6? Companies and Co-operatives 2019

  49. NEW TYPE OF PCF? COMPANIES AMENDMENT BILL A new type of post-commencement financing ("PCF")* Section 135(1A) proposes to deem, as PCF, an amount equal to all disbursements, outgoings, including rates, taxes, electricity and water, paid by a property owner to a third party. These claims will rank equally to claims for outstanding remuneration during business rescue proceedings to employees in terms of section 135(1) of the Companies Act, but higher than PCF. It remains open if (i) a landlord would be able to recoup the amount of income tax owing to The South African Revenue Service in relation to the rental that would have accrued during such period; (ii) a rental subcontract would be included within this construct Companies and Co-operatives 2019

  50. BUSINESS RESCUE PRACTITIONERS • S 128(1)(d) of the Act defines a ‘business rescue practitioner’…. • as ‘a person appointed, or two or more persons appointed jointly, in terms of this Chapter to oversee a company during business rescue proceedings …’. Companies and Co-operatives 2019

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