Can a Company file for business rescue after a final liquidation order had been granted?

Cardinet (Proprietary) Limited v Wedgewood Golf and Country Esttate (Pty) Ltd (in liquidations) and others (unreported case No 19599/2012 Western Cape High Court)

This judgment confirmed that a business rescue order may be issued after a final liquidation order. In this case, the final liquidation order was issued on 9 February 2012 and a business rescue order was issued on 30 January 2013. The liquidators raised no objections because the company had guaranteed payment of their fees and expenses.

How long does the process take?

Business Rescue consists of two processes. The first process is to commence Business Rescue and the second process is the Business Rescue Proceedings itself. I will first discuss the process to commence Business Rescue and will deal with the Business Rescue Process itself in a follow-up post.


COMMENCING BUSINESS RESCUE
The Act makes provision for two ways to commence Business Rescue. Section 129, by the management of the company and Section 131, by any other affected party including shareholders or creditors. 


Section 129 of the Act
This process usually takes approximately one day. The management of the Company signs a resolution to commence Business Rescue Proceedings with an affidavit setting out the details of the company's financial distress and the Companies prospects of Rescue.


Once the above-mentioned resolution and affidavit is filed at the Companies and Intellectual Property Commission (CIPC previously CIPRO), business rescue has commenced and the Company is protected from creditors from the date on which the resolution was filed.


No Court application is necessary for business rescue to commence.


Section 131 of the Act
This process usually takes approximately three weeks. A person referred to by the act as an "affected party" must apply to the High Court for an order placing the company under Business Rescue. This process is considerably more expensive as an attorney needs to be appointed to bring the aforementioned application. 


The legal fees for this application is considerable and can escalate dramatically if the application is opposed. A creditor or other affected party may however, request costs against the company or any other party who opposes the application.


Despite the costs, we have been successful in numerous applications against Companies who refuses to pay their creditors. I personally consider this one of the most effective means of debt collection available to creditors in South African law.


Even though High Court litigation is usually time consuming, the Courts have declared that Business Rescue applications are inherently urgent and therefore the application can be placed on the urgent court roll.


Once the Court grants the application, Business Rescue has commenced. The Company is protected from creditors once the court application is issued.

Can a Close Corporation commence business rescue?

One of the frequently asked questions we encounter is if a Close Corporation may also resolve to commence business rescue.

The Close Corporations Act does not contain any provisions similar to Chapter 6 of the Companies Act. Some are therefore under the impression that a Close Corporation cannot commence business rescue proceedings.

This is however incorrect as the Close Corporation Act is amended in the Schedule to the Companies Act.

There is therefore no doubt that a Close Corporation may resolve to commence business rescue proceedings, we have in fact been successfully appointed as business rescue practitioners for various Close Corporations.

The only difference in the regards to the business rescue process is that the members of the Close Corporation is regarded as the shareholders as well.