The Companies Act 71 of 2008, in section 131(6) provides that a court may order that business rescue proceedings commence after a final order of liquidation has been granted.
In the case of Richter v ABSA Bank Limited (20181/2014) _ [2015] ZASCA 100(01 June 2015) the Supreme Court of Appeal considered the interpretation of liquidation proceedings in the provisions on business rescue in the above section of the Act.
The facts of this case were briefly: Bloempro CC was placed in final liquidation on 13 September 2012 by the Free State High Court. Mr. Richter the general manager of the CC then brought an application for business rescue on 12 February 2013. Bloempro CC at the time owned immovable property from which it derived income via rental.
The court had to determine whether liquidation proceedings as provided for in section 131(6) is applicable only before a final order of liquidation has been granted or whether it extends up until final deregistration of the company.
The Supreme Court of Appeal held that where evidence comes to light that there are prospects of rescue for a financially distressed company during liquidation there is no reason for a court to deny business rescue. In the event that business rescue would yield a better return for shareholders, creditors and jobs will be retained then an order of business rescue could be granted after an order placing a company in final liquidation.
At its core purpose business rescue aims to facilitate the rescue of a financially distressed company whereas liquidations aims to facilitate the winding up and deregistration of a company. Having the possibility of a business rescue after liquidation proceedings have commenced seem strange as the purposes and aims of each process is conflicting.
In conclusion, ‘liquidation proceedings’ as set out in section 131(6) of the Act must be read to include proceedings after a final order of liquidation up until the final deregistration of the company with the Companies and Intellectual Property Commission.
Written by Lynne Louis