BUSINESS RESCUE PROCEEDINGS

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JUDICIAL MANAGEMENT

The Companies Act of 1973 does not contain a definition of judicial management, 9 and one therefore has to rely on the requirements for and contents of both a provisional and a final judicial management order to explain its nature and purpose. Essentially, a judicial management order vests the management of an unsuccessful company in a judicial manager under the supervision of the court, and divests the persons currently managing the company of their powers of management, if the court is satisfied that the company has the ability to become a successful concern.10 It is clear from the requirements as well as case law that judicial management has only one recognised purpose, namely the rescue of the company itself, in its entirety. The rescue of only its business or a viable part thereof is not an acceptable outcome and neither is a better return for creditors of shareholders.

Power to initiate judicial management

An order of the division of the High Court within whose area the registered office or main place of business of the company is situated, is required to place a company 19 under judicial management. This is one of the grounds on which judicial 20 management has frequently been criticised since the formal application to, and order of, the court required to place a company under judicial management render this procedure expensive and onerous, making it unsuitable for smaller companies in particular. The simplification of the procedure to commence business rescue 21 proceedings must therefore be recognised as one of its major benefits.22 The application for a judicial management order may be brought by anyone who is entitled to apply for the winding up of the company.

Requirements for a judicial management order

Section 427(1) of the Companies Act of 1973 provides that a company may be placed under judicial management if, by reason of mismanagement or for any other cause, the company is unable to pay its debts or is probably unable to meet its obligations, has not become or is prevented from becoming a successful concern and there is a reasonable probability that if the company is placed under judicial management, it will be enabled to pay its debts or meet its obligations and to become a successful concern. In addition, the section also requires that it must appear just and equitable to the court to grant a judicial management order

Failure to become a successful concern

The reason for the second requirement, namely that the company has not become, 48 or is prevented from becoming, a successful concern is not clear since a company that is unable to pay its debts or probably unable to meet its obligations is very obviously not a successful concern. The Act also does not indicate at what point or under what circumstances a company would be regarded as not being a successful concern, and this rather vague requirement is thus an unnecessary addition to the very difficult requirements that have to be proved for a judicial management order.

Meeting of creditors and shareholders

Within ten business days after publication of the business rescue plan, the business rescue practitioner must convene and preside over a meeting of the company’s creditors and “any other holders of a voting interest” to consider the rescue plan and vote on its approval. Since only a creditor can have a voting interest, it is unclear 622 623 who the other holders of a voting interest could be. Shareholders whose rights will be affected are referred to as having voting rights. However, judging from other 624 provisions in respect of the meeting, it must be a reference to shareholders with voting rights because only one meeting is convened for creditors and shareholders with voting rights, where creditors get the first opportunity to vote and then shareholders who have voting rights.

Termination of business rescue proceedings

In terms of section 132(2), business rescue proceedings are terminated in one of three ways: by an order of court, by the filing of a notice of termination by the business rescue practitioner, or by the rejection or substantial implementation of a business rescue plan. Although the wording of section 132(2)(a) creates the impression that the court order can either set aside the order or resolution that initiated the proceedings, or convert the proceedings to liquidation proceedings, this is incorrect and misleading. As will appear from the discussion below, an order placing the company in liquidation is always combined with an order setting aside the rescue proceedings. There is no provision for converting these proceedings into liquidation.

TABLE OF CONTENTS :

• SUMMARY
• ACKNOWLEDGEMENTS
• TABLE OF CONTENTS
• CHAPTER 1 INTRODUCTION
  • 1 THE NEED FOR BUSINESS RESCUE
  • 2 JUDICIAL MANAGEMENT
  • 3 COMPANY LAW REFORM
  • 4 METHODOLOGY
  • 5 ISSUES THAT ARE EXAMINED
  • 6 ABBREVIATIONS AND REFERENCES
• CHAPTER 2 SOUTH AFRICA
  • 1 INTRODUCTION
  • 2 JUDICIAL MANAGEMENT
    • 2.1 Definition and purpose
    • 2.2 Entities to which judicial management applies
    • 2.3 Power to initiate judicial management
    • 2.4 Requirements for a judicial management order
      • 2.4.1 Inability to pay debts
      • 2.4.2 Failure to become a successful concern
      • 2.4.3 Reasonable probability that it will be enabled to pay debts or meet obligations and become a successful concern
      • 2.4.4 Just and equitable
      • 2.4.5 Requirements where the application is for winding up
    • 2.5 Procedure to commence judicial management
      • 2.5.1 The provisional judicial management order
      • 2.5.2 The final judicial management order
    • 2.6 The moratorium
      • 2.6.1 Moratorium on legal proceedings
      • 2.6.2 Effect on contracts
    • 2.7 Managing the procedure
      • 2.7.1 The provisional and final judicial managers
      • 2.7.2 Powers and duties of the directors
    • 2.8 Rescue plan
    • 2.9 Termination of judicial management
    • 2.10 Evaluation of judicial management
  • 3 BUSINESS RESCUE PROCEEDINGS
    • 3.1 Definition and purpose
    • 3.2 Entities to which business rescue proceedings apply
    • 3.3 Power to initiate business rescue proceedings
      • 3.3.1 Resolution by the board
      • 3.3.2 Application to court
    • 3.4 Requirements for commencement of business rescue proceedings
      • 3.4.1 Resolution to begin business rescue proceedings
      • 3.4.2 Court order to begin business rescue proceedings
    • 3.5 Procedure to commence business rescue proceedings
      • 3.5.1 Board resolution to begin business rescue
      • 3.5.2 Court order to begin business rescue proceedings
    • 3.6 The moratorium
      • 3.6.1 Moratorium on legal proceedings
      • 3.6.2 Uncompleted contracts
    • 3.7 Managing the procedure
• CHAPTER 3 ENGLAND
  • 1 INTRODUCTION
  • 2 ADMINISTRATION
    • 2.1 Definition and purpose
    • 2.2 Entities to which administration applies
    • 2.3 Power to initiate administration
      • 2.3.1 Appointment by the company or its directors
    • 2.3.2 Appointment by order of court
    • 2.4 Requirements for administration
      • 2.4.1 Inability to pay debts
      • 2.4.2 Achieving the purpose of administration
    • 2.5 Procedure to commence administration
      • 2.5.1 By the company or its directors
      • 2.5.2 By order of court
    • 2.6 The moratorium
      • 2.6.1 Interim moratorium
      • 2.6.2 Final moratorium
    • 2.7 Managing the procedure
      • 2.7.1 The administrator
      • 2.7.2 Powers and duties of directors
    • 2.8 The rescue plan
    • 2.9 Termination of administration
      • 2.9.1 Automatic termination
      • 2.9.2 By order of court
      • 2.9.3 By filing of a notice
    • 2.10 Evaluation of administration
  • 3 COMPANY VOLUNTARY ARRANGEMENTS
    • 3.1 Definition and purpose
    • 3.2 Entities to which a company voluntary arrangement applies
    • 3.3 Power to initiate a company voluntary arrangement
    • 3.4 Requirements for a company voluntary arrangement
    • 3.5 Procedure for a company voluntary arrangement
• CHAPTER 4 GERMANY
  • 1 INTRODUCTION
  • 2 INSOLVENCY PROCEEDINGS
    • 2.1 Definition and purpose
    • 2.2 Entities to which insolvency proceedings apply
    • 2.3 Power to initiate insolvency proceedings
    • 2.4 Requirements for opening of insolvency proceedings
      • 2.4.1 Illiquidity
      • 2.4.2 Imminent illiquidity
      • 2.4.3 Overindebtedness
    • 2.5 Procedure to commence insolvency proceedings
      • 2.5.1 Provisional order
      • 2.5.2 Final order commencing insolvency proceedings
    • 2.6 The moratorium
      • 2.6.1 Civil legal proceedings
      • 2.6.2 Stay of executions
    • 2.7 Managing the procedure
      • 2.7.1 The provisional insolvency administrator and the insolvency administrator
      • 2.7.2 Powers and duties of directors
    • 2.8 The insolvency plan
      • 2.8.1 Power to submit an insolvency plan
      • 2.8.2 Contents of the plan
    • 2.9 Termination of insolvency proceedings
• CHAPTER 5 CONCLUSION
  • 1 INTRODUCTION
  • 2 COMMENTS AND RECOMMENDATIONS ON BUSINESS RESCUE PROCEEDINGS
    • 2.1 Definition and purpose
    • 2.2 Entities to which business rescue proceedings apply
    • 2.3 Power to initiate business rescue proceedings
    • 2.4 Requirements for commencement of business rescue proceedings
      • 2.4.1 Financially distressed
      • 2.4.2 Reasonable prospect of rescuing the company
    • 2.5 Procedure to commence business rescue proceedings
      • 2.5.1 Board resolution
      • 2.5.2 Court order to begin rescue proceedings
    • 2.6 The moratorium
      • 2.6.1 Moratorium on legal proceedings
      • 2.6.2 Uncompleted contracts
    • 2.7 Managing the procedure
• BIBLIOGRAPHY
• REPORTS AND STATEMENTS
• CASES
• LEGISLATION

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SOME COMPARATIVE ASPECTS OF CORPORATE RESCUE IN SOUTH AFRICAN COMPANY LAW