Business Rescue – Is it too late after Liquidation? The Supreme Court of Appeal speaks

An important new SCA (Supreme Court of Appeal) decision recently addressed the following scenario –

A close corporation runs a business renting out its commercial properties. The properties are bonded to a bank.

The close corporation was placed into final liquidation by the High Court despite contending that it should rather be placed under business rescue.

5 months later it applied again for business rescue, but the High Court concluded that once a final liquidation is granted against a company (the same business rescue provisions apply to close corporations as to companies), it is too late to apply for business rescue.

On appeal however, the SCA held the opposite, in other words that you can apply for the business rescue of a company even after a final liquidation order is granted against it.

This is significant for you if …..

As the Court noted, the circumstances of a liquidated company could improve radically, even after liquidation, such that it would become profitable if allowed to trade. It could, for example, be awarded a contract for which it had earlier tendered, secure funding for future projects, or have a major creditor offer to subordinate its claim.

This decision could have a major impact on you if you are –

  1. A creditor, supplier or customer of the company
  2. An employee
  3. A director, shareholder or surety
  4. Anyone else with a stake in the outcome.

 

Uncertainty and disruption?
If, held the Court, business rescue proceedings will yield a better return for shareholders and creditors and jobs will be retained, there is no reason to deny business rescue only because the company is in final liquidation.
But this raises concerns of uncertainty and disruption.  On liquidation, control of the company moves from the directors to liquidators, whose duties include making decisions which would impact on ongoing and new contracts, continued trading etc.  One can imagine the potential mess and practical problems if liquidators have to operate with the knowledge that they could at any time be removed from office and control of the company returned to the directors.
“The simple answer” to those concerns, said the Court, “is that a court can dismiss any application for business rescue that is not genuine and bona fide or which does not establish that the benefits of a successful business rescue will be achieved.”
Liquidators – your fees and expenses
Remember that you are just a creditor of the company for anything due to you for remuneration and expenses incurred before the commencement of business rescue proceedings.