Effect of Section 133 on transactions concluded after business rescue
During business rescue proceedings, a business rescue practitioner (BRP) may borrow money, employ people and sell property.
This is what a BRP in the matter between Timasani (in business rescue) v Afrimat 2020 sought to do when it instructed an auctioneering firm to sell a farm belonging to Timasani.
Afrimat submitted an offer to purchase the farm subject to certain suspensive conditions and paid a deposit of R1,7 million. The suspensive conditions were not met and the sale agreement was cancelled. The BRP was thereafter requested to repay the deposit to Afrimat.
In an application to the High Court and subsequently the Supreme Court of Appeal for the repayment of the deposit, the BRP raised two points in limine, being moratorium and non-joinder. Timasani argued that Afrimat failed to comply with the provisions of the Companies Act in that the application could not be instituted without the written consent of the BRP or leave of the court. It further argued that Afrimat failed to join and give notice of the proceedings to its creditors.
On the point of non-joinder, the court held that Timasani’s creditors do not have a financial interest in this matter and the duty to notify creditors rests on the BRP. The court further stated that the Act does not require the automatic joinder of creditors on every business rescue proceeding.
Regarding moratorium, the court held that the moratorium does not preclude vindicatory proceedings against a company in business rescue. The deposit was paid subject to suspensive conditions that were not met and nowhere was it stated in the offer to purchase that the deposit was non-refundable. Therefore, Timasini was in unlawful possession of the deposit.
Thus, no consent or leave was required to institute these proceedings. Although the moratorium also applies to transactions concluded after the commencement of business rescue proceedings, it, however, only protects property lawfully in the possession of the company and does not serve as a blanket prohibition on legal proceedings.
Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice.
Contact information
Visit BVR at 7 Alcrest Building, on the corner of Mc Adam and Rothery Streets, Mbombela.
