In one of the revolutionary judgements on business rescue to date the Supreme Court of Appeal the court clarified certain provisions in the Companies Act 71 of 2008 (hereinafter “the Act”).

Many divisions of the High Court have applied the principle that if a company is placed into business rescue pursuant to a resolution by the board of directors but fails to comply with the procedural requirements as set out in Section 129 of the Act.

The case of Panamo Properties (Pty) Ltd v Nel and Another NNO (35/2014)2015 ZASCA (27 May 2015) the facts briefly as follows the company was placed into business rescue by resolution of its directors. The main aim of the business rescue filing was to prevent the sale of the company property pursuant to a judgement by a financial institution. The business rescue plan was approved but there was no funds available to creditors and the property was sold in accordance with the plan.

When the transfer of the property to the purchaser was imminent, the trust launched an application to whether the company’s non-compliance with the procedural requirements of section 129 resulted in a nullity.

The court held that if a resolution has lapsed and has become a nullity in terms of section 129(5) (a) the business rescue commenced by that resolution has not terminated. The business rescue will only terminate when the court set asides the resolution. Accordingly, the court may only set aside the relevant resolution once it considers it just and equitable to do so and that one or more grounds for setting aside the resolution as set out in section 130(1)(a) exists.

In conclusion, this judgement provides confidence in the procedure and provides certainty for the interpretation of the various provisions which may frustrate business rescue as a whole. This encourages a purposive approach to the application of the business rescue provisions of the Companies Act.

Written by Lynne Louis, Attorney, Conveyancer and Notary Public, Schoeman Law Inc