The ambit of the moratorium enjoyed by companies in business rescue
One of the main advantages of business rescue is the legal protection that comes with it. Once a company commences with business rescue proceedings, whether being voluntarily or by a court order, no legal proceedings, including enforcement action, may be instituted or proceeded with against the company.
The legislature was cognisant of the fact that rehabilitation requires a period of respite to enable the company to restructure its affairs.
Notwithstanding the above, there are limited circumstances in which the legal moratorium may be lifted and legal proceedings be brought or persisted with against a company under business rescue.
These include:
• When the affected person has written consent from the business rescue practitioner to proceed with legal actions;
• With leave of the court, after application therein;
• As a set-off against any claim made by the company in any legal proceedings, irrespective of whether those proceedings commenced before or after the business rescue proceedings began;
• When instituting criminal proceedings against the company or its directors;
• When the proceedings concern any property or right over which the company exercises the powers of a trustee; or
• When proceedings are instituted by a regulatory authority in the execution of its duties but after written notification to the business rescue practitioner.
Legal proceedings may only be brought against a company under business rescue only in the circumstances mentioned above. The legal moratorium is applicable in respect of all legal proceedings against a company in business rescue.
A distinction between pre- and post-commencement causes is irrelevant.
Upon application to uplift the legal moratorium, the court will consider the effect that the grant or refusal of leave would have on the applicant’s right as opposed to other affected persons; the impact the legal proceedings would have on the well-being of the company and its ability to regain financial health; and whether the grant of leave would be inimical to the object and purpose of business rescue.
Therefore, proper legal advice is necessary before proceedings are instituted.
Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice.
Contact information
Visit Business Rescue at 7 Alcrest Building, C/o Mc Adam and Rothery Street Nelspruit.
