Inappropriate vote defined
A business rescue plan outlines how the company’s affairs will be restructured.
For the plan to be adopted, more than 75% of the holders of voting interest must support it. If the plan is rejected, the practitioner or any affected person may apply to court to set aside any vote on the grounds that it is inappropriate.
The act does not define what an inappropriate vote is. This article aims to explore circumstances under which a vote may be deemed to be inappropriate and circumstances under which a vote may not be deemed inappropriate.
In the FirstRand Bank v KJ Foods, the court stated that the word “inappropriate” may be understood to mean “not suitable or proper in the circumstances after the consideration of the objects of business rescue and the interest of all stakeholders”.
In this case, after FirstRank Bank voted against the plan, the court held that its vote was inappropriate because if the plan was adopted the employees would remain employed, FirstRand Bank would be paid in full and other creditors would receive a better dividend than they would if the company was liquidated.
Whereas in Ferrostaal v Transnet, Transnet voted against the adoption of the business rescue plan. The circumstances were slightly different in this matter. Ferromarine had no employees and its business was to sub-lease a property it leased from Transnet.
The shareholders, as affected persons, brought an application to set aside Transnet’s vote, claiming it was inappropriate. The court held that Transnet’s vote was not inappropriate in that the plan did not make provision for the repayment of the arrear rental. The court further noted the plan was based on uncertain events, in that if sub-leases are not concluded in the future, there would not be sufficient funds to cover the full rental payable to Transnet.
Creditors are advised not to accept one-sided arrangements that are prejudicial to their interests. Prior to a court setting aside a vote, it must be satisfied that it is just and reasonable to do so having regard to all the relevant circumstances.
Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice
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