The crisp issue that was decided by the Supreme Court of Appeal in the matter of Lutchman N.O. and Others v African Global Holdings (Pty) Ltd and Others was when exactly a business rescue application is ‘made’ under s 132 of the Companies Act 71 of 2008 (“the Act”).
Section 131(6) of the Act provides that:
“If liquidation proceedings have already been commenced by or against the company at the time an application is made in terms of subsection (1), the application will suspend those liquidation proceedings until: (a) the court has adjudicated upon the application; or (b) the business rescue proceedings end, if the court makes the order applied for.”
In the Lutchman case, the directors of companies in voluntary liquidation issued a business rescue application to suspend the liquidation proceedings and prevent the auction of the companies’ assets.
The directors argued that they have made application for business rescue and that the liquidation and linked auction were thus suspended.
When the matter became before the SCA, there were conflicting judgments on the meaning of when a business rescue application was made. Some Courts held the view that the mere lodging of the application with the Registrar of the High Court was sufficient while others held that an application was only ‘made’ when it was issued, served and notified to affected persons in the prescribed manner.
The SCA clarified the position and held that:
“The business rescue application must be issued, served on the company and the Commission, and all reasonable steps must have been taken to identify affected persons and their addresses and to deliver the application to them, to meet the requirements of s 131(6) in order to trigger the suspension of the liquidation proceedings.”
Only once these steps have been taken will liquidation proceedings be suspended by a business rescue application. Mere issuing is not sufficient.
About the author
Freddie Terblanche is an attorney with more than 15 years post-qualification experience. For more guidance contact him at [email protected] or (076) 018 7214.