Webber Wentzel recently acted for the business rescue practitioner of Southgold Exploration (Pty) Ltd (Southgold) in an application for a declaratory order.

The issue before the South Gauteng High Court revolved around whether or not the business rescue proceedings of Southgold were properly in place. Southgold's compliance with the procedural requirements of sections 129(3) and 124(4) of the Companies Act, No. 71 of 2008 (the Companies Act) was investigated; as was whether or not the resolution placing the company into business rescue had already lapsed.

The application was argued before Rautenbach AJ, and judgment was handed down on 1 March 2013. Not only did the Court declare that the business rescue proceedings of Southgold are properly in place, but also that the resolution under section 129(1) of the Companies Act had not lapsed. In addition to this the Court found that substantial compliance, in the present case, was sufficient.

Not only will the judgment make it easier for businesses to comply with the procedural requirements of the Companies Act, but it is also relevant to all industries and of central importance to the operation of business rescue in South Africa.

Background

At the time of filing for business rescue, Southgold’s directors were advised by their internal legal advisors that certain noteholders, based in Canada, were not creditors of Southgold. These legal advisors argued that the noteholders would only have enforceable claims against Southgold after they had formally called up the guarantee (in terms of an indenture) and then founded jurisdiction in South Africa to pursue their claims.

As a consequence, Southgold took the bona fide and reasonable view (having been so advised by its legal advisors) that the noteholders were not "affected persons" as defined in the Companies Act, and that the noteholders thus did not need to receive direct notice of the business rescue in the prescribed manner.

Notwithstanding the failure to deliver the section 129 notices to Canadian noteholders, two press releases were distributed regarding Southgold’s business rescue proceedings. The first was submitted for electronic publication to the Toronto, New York, and Johannesburg Stock Exchanges; and the second to the Canada Newswire for publication on its website and distribution to its subscribers. The section 129 notices were also published on Southgold's website.

As a result of these measures, it was confirmed that almost immediately after the releases were issued and the section 129 notices were published, the noteholders were aware that Southgold had entered into business rescue proceedings.

The application

The main issue that the South Gauteng High Court had to decide was whether Southgold complied with its obligations to notify the noteholders and whether "substantial compliance" will be sufficient in the light of the provisions of section 129(3) and (4).

In respect of the latter, the application was brought bearing in mind another matter in which Webber Wentzel had acted, namely Advanced Technologies and Engineering Company (Pty) Limited (in business rescue v. Aeronautique Et Technologies and Others, unreported, North Gauteng High Court case no.: 72522/11. In this matter, Judge Fabricius held that:

"It is clear from the relevant sections contained in chapter 6 [of the Companies Act] that a substantial degree of urgency is envisaged once a company has decided to adopt the resolution beginning rescue proceedings."

In determining whether or not an affected person was given notice, a court will consider whether or not the affected person was aware of the commencement of the business rescue proceedings; and not to the manner in which the affected person became aware.

This interpretation, it was argued, is supported by regulation 2(c), which provides that "publish a notice" — the phrase used in sections 129(3)(a) and 129(4)(a) and in regulations 123(2) and 123(4) — means "to publicise information to the general public, or to a particular class of persons as applicable in specific circumstances, by any means that can reasonably be expected to bring the information to the attention of the persons for whom it is intended".

Of even more importance is section 6(9) of the Companies Act, which expressly provides for substantial compliance with the prescribed manner of delivery of a notice.

Rautenbauch AJ went on to state that "this particular sub-section of the Act in my view enables a Court to find that there was substantial compliance with giving notice to all affected parties if it is established that all affected parties had full knowledge of the notice and its contents".

The Court found that it was apparent from the court papers that the noteholders were not only aware of the resolution taken, but also supported the application. The noteholders also became aware of the business rescue process within the time limits provided for.

On this basis Rautenbauch AJ found that:

1. It would be highly technical and to the prejudice of affected persons should he not find that sections 129(3) and (4) have been substantially complied with.
2. There was substantial compliance with sections 129(3) and (4) as far as notice of the resolution and notice of the appointment of a business rescue practitioner appointment were concerned.

Conclusion

The Southgold judgment is of central importance to the operation of business rescue in South Africa, and will arguably prove to be of substantial importance to all local industries.