Chapter 6 of the Companies Act 71 of 2008 (“the Act”) is silent in relation to amendments of a business rescue plan after it has already been approved. The Act further does not empower the Business Rescue Practitioner to deal with nor does it set out the manner in which potential disputes, which may arise after a business rescue plan has been approved, are to be resolved.
Section 145 of the Act allows for participation by creditors. In particular creditors are entitled to notice of, and participation in every court proceeding, decision or meeting. Every creditor also has the right to vote to amend, approve or reject a proposed business rescue plan and if such business rescue plan is rejected, a further right to either propose an alternative business rescue plan or present an offer to acquire the interest of any or all of the other creditors who voted against the approval of the business rescue plan. Creditors are also entitled to form a creditor’s committee which may consult with the Business Rescue Practitioner during the preparation of the business rescue plan.
Section 149 of the Act entitles the committee of creditors to consult with the Business Rescue Practitioner in relation to any matters relating to the business rescue proceedings.
Section 150 of the Act allows the Practitioner, after consulting with creditors and all affected persons to prepare a business rescue plan for consideration and possible adoption at a meeting held in terms of Section 151.
Section 151 of the Act empowers the Practitioner to convene and preside over a meeting of creditors for the purpose of considering the proposed business rescue plan.
Section 152 of the Act empowers the creditors to vote on the proposed rescue plan. It also sets out the matter in which such voting will be exercised.
It must be noted however that all of the abovementioned rights are only available to creditors and to the business rescue practitioner, prior to the approval of a business rescue plan. The Act does not specifically extend similar rights in relation to the business rescue plan to creditors or the business rescue practitioner after the point where a business rescue plan has been approved and adopted. The Act further does not make provision for instances whereby any amendments need to be effected to the business rescue plan after same has been adopted.
Accordingly it is for the Business Rescue Practitioner to implement in the business rescue plan the relevant and necessary provisions which will allow for amendment of the business rescue plan after same has been adopted, in the event that this is required. In particular if one aspect of the business rescue plan cannot be fulfilled after the plan has been approved, the Business Rescue Practitioner in conjunction with the creditors need to be able to revise the plan. Similarly, if a substantial component of the plan goes wrong, provision must be made in the original business rescue plan empowering the Practitioner and the creditors to revisit and relook at the plan.
The basis of such provisions being incorporated into the original business rescue plan is not for the Business Rescue Practitioner to seek the approval of the creditors in respect of his departure from the approved plan in the normal course of business. The Business Rescue Practitioner must as a matter of course have discretion to depart from such plan, should such departure fall within in the normal course of business. The relevant amendment provisions will only come into effect in the event where there is a fundamental and substantial change to the business rescue plan and where such changes would require the consultation and voting upon by creditors.
As an example, the financier to the business in business rescuer proceedings could, after the adoption of the business rescue plan, seek to vary the amount, the form or the manner in which the investment or financing will be put into the business. The business rescue plan must accordingly make provision for creditors to vote on this new proposed form or amount of investment which will be put into the business, which vote will effectively result in the amendment of the business rescue plan.
Section 147 of the Act makes provision for the first meeting of creditors in terms of which the Practitioner:
- must inform the creditors whether he believes that there are reasonable grounds or prospects of rescuing the company and;
- may receive proof of claims by creditors.
The use of the word may in this section indicates that it is not necessary for creditors to prove claims at the first meeting of creditors. This in itself opens the door for abuse as creditors are not obliged to prove their claims formally as is required in the case where a company is placed into liquidation. Furthermore neither this provision nor any other provision of chapter 6 of the Act deals with or specifically allows either a creditor, affected party or the business rescue practitioner to challenge a claim lodged by one of the creditors.
In terms of chapter 6 of the Act there are no mechanisms in place for proving, rejecting or challenging claims. The business rescue plan must accordingly make provision for mechanisms, which mechanisms should include dispute resolution mechanisms whereby the validity of claims may be challenged by affected parties, including the business rescue practitioner. These provisions should be couched in such a manner so as to enable the challenging of creditors’ claims in a similar manner as parties are entitled to do in instances where a company has been liquidated. As a starting point the business rescue practitioner could have regard to the provisions of the Insolvency Act which allow for the challenging of proved creditors’ claims.
In terms of the laws of insolvency, it is usually the Master who would preside over disputes in relation to proved claims in an estate. The question in the case of a business rescue is who should be empowered to preside over such disputes. These are further issues which would need to be canvassed in the dispute resolution mechanism provisions contained in the business rescue plan. The business rescue practitioner could also make provision under such dispute resolution mechanism provisions empowering himself to report to the relevant presiding forum (as agreed upon) regarding the validity of any claim which has been challenged. This would be similar to the powers granted to a liquidator in terms of Section 45(3) of the Insolvency Act which entitles him to file a report to the Master expressing his views as to the validity of any proved claims which have been challenged. In a similar fashion the Business Rescue Practitioner should make provision in his business rescue plan, contractually empowering himself to file a report to CIPC or the Court with his views as to the legitimacy of any proved claims which are challenged.
Aside from resolving disputes of creditors pertaining to claims, the business rescue practitioner must also be empowered to take action against any defaulting party or a party who has breached a substantial component of the business rescue plan. By way of example, a potential financer could, after the adoption of the business rescue plan, seek to withdraw his undertaking to invest and/or provide financing to the business. In these instances the Business Rescue Practitioner must be empowered to take action to effectively enforce the undertaking by the financier. The business rescue plan therefore must make provision for the necessary dispute resolution mechanisms which would regulate such action and which would come into effect in such instances. In this regard and as a starting point the Business Rescue Practitioner could have regard to the standard dispute resolution mechanisms and provisions which are commonly put in place in commercial contracts.
The abovementioned provisions serve as a contractual safeguard and empowerment tool enabling the business rescue practitioner to take the necessary steps to ensure the effective implementation of the business rescue plan and to prevent any abuse of the business rescue process.