when good construction contracts go bad
DESCRIPTION
“WHEN GOOD CONSTRUCTION CONTRACTS GO BAD: Business rescue and liquidation” By Eric Levenstein and Lauren BeckerTRANSCRIPT
WHEN GOOD CONSTRUCTION CONTRACTS GO BAD
BUSINESS RESCUE & LIQUIDATION
Lauren BeckerSenior Associate,
Werksmans
Eric LevensteinDirector,
Werksmans Attorneys
30 September 2014
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GENERAL OVERVIEW
> Companies Act 71 of 2008 (Act) - 1 May 2011
> Introduced - new process of restructuring companies in financial distress - business rescue
> USA Chapter 11 proceedings and United Kingdom administration proceedings
> Shifted corporate culture of liquidation to that of rescue
SNAPSHOT OF BUSINESS RESCUE
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DEFINITIONS
> Definitions relevant to the business rescue provisions of the Act
> Affected Person – shareholder, creditor, registered trade union representing employees of the company or if any of the employees of the company are not represented by a registered trade union, each of those employees or their respective representatives
> Business Rescue - proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for—
> temporary supervision of the company, and of the management of its affairs, business and property;
> temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and
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DEFINITIONS
> development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that –
> maximizes the likelihood of the company continuing in existence on a solvent basis; or
> results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company
> Business Rescue Practitioner - a person appointed or two or more persons appointed jointly, to oversee a company during business rescue proceedings –
> two or more persons (could also include a junior and an experienced or senior practitioner)
> “person” – contemplates appointment of a company
ROLE PLAYERS IN BUSINESS RESCUE
COMPANY
SHAREHOLDERSPOST
COMMENCEMENT
FINANCIERS
BUSINESS
RESCUE
PRACTITIONER
CREDITORS
SECURITY
HOLDERSTRADE
UNION
ATTORNEY
COURT/CIPC
EMPLOYEES
DIRECTORS
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TEST FOR BUSINESS RESCUE
> Financially Distressed - 6 month forward looking test -
> it appears to be reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable within the immediately ensuing six months (commercial insolvency test); or
> it appears to be reasonably likely that the company will become “insolvent” within the immediately ensuing six months (factual/balance sheet insolvency).
> Business rescue test –
> forward looking test
> contemplates impending insolvency (commercial insolvency or factual insolvency)
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WHEN TO BEGIN BUSINESS RESCUE
> Welman v Marcelle Props 193 CC & Another (2012) (GSJ)
“business rescue proceedings are not for terminally ill close corporations. Nor are they for chronically ill. They are for
ailing corporations, which given time will be rescued and become solvent”
> First signs of financial distress - apply for business rescue
> If more than just “financially distressed” the company must consider other options such as a liquidation or effecting a compromise
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DUTY OF DIRECTORS BEFORE BUSINESS RESCUE
> In relation to business rescue, directors have an obligation to consider the financial state of the company
> If company is financially distressed, the directors have two choices –
> pass a resolution to commence business rescue; or
> send out what is commonly referred to as a “section 129(7) notice”–
> notify affected persons of the nature of the company’s financial distress (ie impending commercial or balance sheet insolvency); and
> reasons for not adopting a resolution to commence business rescue
> Notice needs to be carefully considered – could constitute an “act of insolvency”, cause suppliers to stop supplying the company or precipitate a compulsory business rescue
> Failure to comply may result in personal liability for directors
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ENTRY INTO BUSINESS RESCUE
Voluntary Business Rescue
Board resolution passed by a simple majority
Practitioner is nominated in the resolution
Company is financially distressed (ie will not be solvent on its balance sheet or will not be able to pay its debts when they fall due within the next six months)
Reasonable prospect that the company can be saved.
Cannot adopt a resolution is liquidation proceedings have been initiated
Compulsory Business Rescue
Affected person (shareholder, creditor or employee) makes application to court
Company is financially distressed
Company has failed to pay over any amount in terms of an obligation under or in terms of public regulation, or contract, with respect to employment related matters
Just and equitable to do so for financial reasons
There is a reasonable prospect of rescuing the company
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SNAP SHOT OF PROCESS AND TIME PERIODS
Practitioner Appointed
Delivery up by Directors of All
Books and Records
As Soon as
Practicable5 Days
Directors to Provide
Statement of Affairs
First Meeting of
Creditors/Employees
10 Days from Date of Appointment
Preparation & Publication of
Plan
25 Days from Date of Appointment
Section 152 Meeting to Consider
& Vote on Plan
10
days
Approved & Plan Implemented
If Rejected - Vote on Revised Plan/Apply to Court to Set
Aside Inappropriate Vote/Offer to Purchase Voting Interests of
Dissenting Parties
If Rejected & No Steps Taken – BRP to File Termination
Notice & Place Company in Liquidation
Note: Business Rescue Should Generally End Within 3 Months, or an Extended Time as Granted by Court
on Application by Practitioner
(Days = Business Days)
Section 150(5)
Inform Regulatory
Authorities of Commencement
IMPORTANT FEATURES OF BUSINESS RESCUE
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IMPORTANT FEATURES OF BUSINESS RESCUEMoratorium Stay on Legal Proceedings & Enforcement Action Against the
Company and in respect of Property Belonging to the Company or Lawfully in its Possession – Certain Exceptions
Post-Commencement Finance
That which becomes due and owing to employees during business rescue proceedings for rendering services to the company and funding which is provided to a company, during the company’s business rescue, by means unrelated to employment (including the provision of credit or services during business rescue)
Management of Company
Business rescue practitioner has full management control of the company in substitution for the board of directors. The board maintains its powers and duties but all decisions must be taken with the approval of the business rescue practitioner – otherwise all transactions are void!
Contracts Certain provisions/the whole contract may be suspended or cancelled by the business rescue practitioner. Cancellation can only be done following an application by the practitioner to court
Employees Remain employed unless they are retrenched in accordance with labour legislation (Section 189 of the Labour Relations Act)
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IMPORTANT FEATURES OF BUSINESS RESCUEStakeholders Continuously engaged by the business rescue practitioner in the
process. Creditors get a vote on the plan at the value of their claim (unless their claim is subordinated by agreement). Shareholders vote on the plan if their rights are affected by the plan
Business Rescue Plan
Contains the plan that the business rescue practitioner has proposed for the turnaround of the company after consultation with the stakeholders of the company
Voting on Plan Plan will be approved if more than 75% of the creditors, voting at value, vote in favour of the plan and 50% of the independent creditors vote in favour of the plan
Binding Offer A creditor or shareholder may buy the voting interest of another creditor or shareholder who voted against the adoption of a plan if such vote results in the plan not being adopted
Cram Down An adopted business rescue plan is binding on all creditors whether or not they voted in favour of the plan, against the plan, were present at the meeting or proved a claim
Discharge of Debt
Unless a business rescue plan provides otherwise, creditors and/or shareholders whose claims are compromised by the business rescue plan are prohibited from enforcing the balance of their claims after the adoption of the plan (even against sureties) – does not apply to guarantees!
EFFECT ON CONTRACTS
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EFFECT ON CONTRACTS
> Section 136 - practitioner may -
> entirely, partially or conditionally suspend, for the duration of the proceedings, any obligation of the company that -
> arises under an agreement to which the company was a party at the commencement of the proceedings; and
> would otherwise become due during those proceedings; or
> apply urgently to court to entirely, partially or conditionally cancel, on any terms that are just and reasonable in the circumstances, any agreement to which the company is party
> Example – practitioner may suspend payment in respect of a portion of rental for the duration of a business rescue
> Other party to the agreement may only assert a claim for damages– no specific performance – radical departure
> Event of default clause – could give rise to automatic termination
SURETIES & GUARANTEES IN BUSINESS RESCUE
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SURETIES & GUARANTEES BY THE COMPANY
> Surety –
> obligation is accessory to the principal obligation
> depends on the wording in the document – has one agreed to be specifically liable for the principal obligation
> Guarantee – liable independently (not accessory to the principal obligation)
> Surety or guarantee by the company in distress -
> section 133(2) - during business rescue proceedings, a guarantee or surety by a company in favour of any other person may not be enforced by any person against the company except with the leave of the court and in accordance with any terms that the court considers to be just and equitable
> the business rescue practitioner is not empowered to consent to the enforcement against the company of claims based on guarantees and suretyships.
> instead - submit a claim for the value of the surety or guarantee
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SURETIES & GUARANTEES BY THIRD PARTIES
> Investec Bank Ltd v Bruyns – 14 November 2011 (Western Cape)
> Considered the meaning of section 133 and the status of a surety and guarantee provided by the company, or by another person or entity in favour of the company, during business rescue
> Held –
> section 133(2) prohibits a third party from enforcing a suretyship or guarantee, provided by the company, against the company, during business rescue; and
> the statutory moratorium that arises for the benefit of a company does not automatically arise for the benefit of a surety on the basis that the statutory moratorium is a personal defence that arises for the benefit of the principal debtor (ie the distressed company) and not for the benefit of a surety
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DISCHARGE OF DEBT
> Section 152(4) - a business rescue plan that has been adopted is binding on the company, and on each of the creditors of the company and every holder of the company’s securities, whether or not such a person –
> was present at the meeting;
> voted in favour of the adoption of the plan; or
> in the case of creditors, had proven their claims against the company
> A business rescue plan may provide that, if it is implemented in accordance with its terms and conditions, a creditor who has acceded to the discharge of the whole or part of a debt owing to that creditor will lose the right to enforce the relevant debt or part of it (ie certain creditors may be identified as retaining certain rights even after adoption of plan) (Section 154(1))
> Business rescue plan - approved and implemented - creditor is not entitled to enforce any debt owed by the company immediately before the beginning of the business rescue process, unless provided for in the business rescue plan (section 154(2))
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SURETIES & THE DISCHARGE OF DEBT
> Investec Bank Ltd v Bruyns – 14 November 2011 (Rogers AJ)
> Rogers AJ -
> a business rescue plan may provide for the company to be released in whole or in part from its debts
> if the business rescue practitioner puts forward a plan that releases a debt and if it is approved and implemented, an affected creditor may lose the right to enforce his claim (whether in whole or in part)
> if all of these events were to occur, a surety for the company would not be liable to the creditor for more than so much of the claim as survives the implementation of the business rescue plan
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SURETIES & THE DISCHARGE OF DEBT
> African Banking Corporation of Botswana Limited v Kariba Furniture Manufacturers Pty Ltd & Others - 28 August 2013 (North Gauteng High Court)
> Bank sought a declaratory order - that the adoption of a business rescue plan will not affect suretyships executed in favour of the creditor
> Kathree-Setiloane –
> no express provision in the Companies Act that prohibits a creditor from proceeding against a surety once a plan has been adopted
> if the legislature intended this consequence it would have expressed it
> interests of sureties do not fall within the objects of the business rescue provisions
> moratorium does not apply to sureties given by third parties in respect of the company
> bank is entitled to enforce its claim against the surety
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SURETIES & THE DISCHARGEOF DEBT
> DH Brothers Industries Pty Ltd v Gribnitz N.O. & Others - 21 October 2013 (Kwazulu Natal)
> Gorven J –
> section 155(9) – specifically states that a scheme or arrangement or compromise does not affect the liability of any person who is a surety - no similar provision under business rescue
> under the Old Companies Act – a specific provision in a scheme of arrangement allowing for the loss of recourse against a surety as a result of the compulsory cession of a claim was not precluded
> straight forward result of the plan in this matter is that since the claims of creditors had been ceded and there is no provision which retains the right of the cessionary to enforce the suretyship, creditors cannot sue the sureties if the plan is adopted
> since section 152(4) makes an adopted plan binding on non-consenting creditors and since section 154(2) allows for the enforcement of pre-business rescue debts only to the extent allowed for in a plan then any plan which goes beyond a voluntary discharge of debt is not competent
> a plan which deprives non-acceding creditors a right to enforce their claim against a surety cannot pass muster
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SURETIES & THE DISCHARGE OF DEBT
> Tuning Fork Pty Ltd t/a Balanced Audio v Greef & Another – 28 May 2014 (Western Cape)
> Rogers J –
> crisp question – whether a creditor loses its claim against a surety if a duly adopted and implemented business rescue plan provides for the creditor’s claim against the principal debtor to be compromised in full and final settlement
> suretyship may provide that the claim against the surety will survive a compromise with the debtor – but this was not the case in this matter
> Directors signed unlimited suretyships for the company’s present and future debts in favour of Tuning Fork
> Obligation undertaken by each surety was as surety and co-principal debtor
> Proceedings were instituted after the adoption of the plan but before its implementation
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SURETIES & THE DISCHARGE OF DEBT
> General principle –
> if the principal debt is discharged, the accessory obligation of the surety is discharged unless the suretyship provides otherwise
> applies to a compromise or release pursuant to a statute regardless of whether or not the creditor himself supported the compromise or release
> If a business rescue plan provides for a release of the principal debtor and if the right against a surety is not preserved in the plan, the right against the surety is discharged
> In this case – the plan did not preserve the right to claim against a surety
> Lawmaker has not dealt with the position of the surety in business rescue and thus deference must be given to the common law
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SURETIES & THE DISCHARGE OF DEBT
> Held –
> no distinction to be made between those who voted for or against the plan
> plan did not preserve the right to pursue the sureties
> Solution –
> ensure that suretyships are drafted so as to ensure that they remain extant notwithstanding the compromise of the principal debt
> ensure that the business rescue plan preserves the creditor’s right to pursue the surety
POST-COMMENCEMENT FINANCE
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POST-COMMENCEMENT FINANCE & SECURITY
> Companies Act - introduced a concept called Post-Commencement Finance (“PCF”)
> Distinguishes between two types of PCF –
> that which becomes due and owing to employees during business rescue proceedings for rendering services to the company
> funding which is provided to a company, during the company’s business rescue, by means unrelated to employment
> PCF may be provided in exchange for security over unencumbered assets of the company
> PCF - financier will generally provide PCF if it will be guaranteed security from a company in business rescue so that it’s claim against the company will rank in priority to the claims of previously unsecured creditors, but behind the claims of the practitioner and the employees for services rendered during business rescue
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SOURCE OF POST-COMMENCEMENT FINANCE
> During business rescue, funding may be generated from–
> loans from shareholders
> further funding from current financiers or lenders
> new funding from new financiers or lenders
> services rendered by current suppliers of the company to it during business rescue
> Importantly, services that continue to be supplied by creditors of a company in business rescue constitutes PCF - ie: the provision of premises to a company in business rescue
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RANKING OF CLAIMS
> Section 135 - sets out the order in which the claims of creditors rank during business rescue
> Order of preference will remain if the company is placed in liquidation (section 135(4))
> PCF - preferred in the order of preference created by the Act
> Section 135(3)(b) -
> does not stipulate whether or not the claims of secured PCF will rank ahead of the claims of unsecured PCF
> merely states that PCF will have preference “in the order in which they were incurred over all unsecured claims” of the company.
> Another issue – where creditors, who are secured (as understood in insolvency law) prior to the commencement of business rescue, rank in the order of preference
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RANKING OF CLAIMS
> Merchant West Working Capital Solutions (Pty) Ltd v Gainsford N.O. & Others - 2013
> Order of preference during business rescue proceedings (free residue) –
> fees and expenses (including legal & other professional fees) of the business rescue practitioner incurred during business rescue proceedings
> fees of employees which become due and payable after the commencement of business rescue
> secured lenders or creditors for any loan or supply made after the commencement of business rescue (ie secured PCF)
> unsecured lenders or creditors for any loan or supply made after the commencement of business rescue (ie unsecured PCF)
> secured lenders or creditors for any loan or supply made before the commencement of business rescue (contentious – because catered for from their security)
> claims of employees (for instance for remuneration) which became due and owing prior to the commencement of business rescue
> unsecured lenders or creditors for any loan or supply made before the commencement of business rescue (ie concurrent creditors)
> Controversial - it was an obiter decision (remark made in passing and not an issue before the court)
BUSINESS RESCUE PRACTITIONERS
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BUSINESS RESCUE PRACTITIONERS
> Qualifications for business rescue practitioner -
> a member in good standing of a legal, accounting or business management profession accredited by CIPC; and
> be licensed as such by CIPC.
> Regulation 126 suggests that a person who is part of an accredited profession need not be licensed by CIPC
> CIPC advised that they are not accrediting certain professions for now
> Further, prospective business rescue practitioner -
> must not be subject to an order of probation;
> must not be disqualified from acting as a director of a company in terms of section 69(8) of the Act;
> must not have any relationship with the company that would lead a reasonable and informed third party to conclude that the integrity, impartiality or objectivity of that person is compromised by such relationship; and
> must not be related to a person who has a relationship as contemplated above.
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CATEGORIES OF PRACTITIONERS
> Public interest score determines size of the company and in turn the type of practitioner needed (regulation 26(2))
> Senior practitioner –
> ten years experience
> medium company (public interest score between 100 and 500) or a large company (public interest score of 500 or more)
> Experienced practitioner –
> five years experience
> small company (public interest score of less than 100) or for a medium company (public interest score between 100 and 500)
> Junior practitioner –
> has not previously engaged in business turnaround before the effective date of the Act or acted as a business rescue practitioner in terms of the Act; or
> has actively engaged in business turnaround practice before the effective date of the Act or as a business rescue practitioner for period of less than five years
> small companies (public interest score of less than 100)
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REMUNERATION OF PRACTITIONER
> Charge for remuneration and expenses
> Tariff -
> R1250 per hour (max of R15 625 per day) (incl VAT) - small company.
> R1500 per hour (max of R18 750 per day) (incl VAT) - medium company; or
> R2000 per hour (max of R25 000 per day) (incl VAT) - large company or state owned company.
> Contingency agreement
> additional remuneration based on agreed incentives
> approved by holders of a majority of the creditors’ voting interests and holders of a majority of the voting rights attached to any shares of the company
> Practitioner - reimbursed for actual costs of disbursements incurred by the practitioner, or expenses incurred by practitioner, to extent reasonably necessary to carry out the practitioner’s functions and to facilitate the conduct of the business rescue
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POWERS OF PRACTITIONERS
> Full management control in substitution for the company’s board and pre-existing management, but may delegate powers to former board member or pre-existing management
> May remove from office any existing officer or appoint any new officer
> Unclear what is meant by “in substitution for the company’s board” as “directors must continue to exercise the functions of director, subject to the authority of the practitioner” (section 137(2)(a))
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DUTIES OF PRACTITIONER
> Must investigate affairs and then decide if there is any prospect of rescuing the company (if not, must inform court and apply for termination of proceedings and commencement of liquidation)
> If evidence of voidable transactions found, reckless trading or fraud, practitioner must forward the evidence to the appropriate authorities for further investigation and/or prosecution and must also direct management to rectify matter including recovering any misappropriated assets of the company
> What is meant by a “voidable transaction” in the context of business rescue?
> Importantly there is no sanction on practitioner if non-compliance with these obligations!
> Question arises as to whether practitioner should have similar rights to liquidator under insolvency? (section 417 enquiries)
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REMOVAL OF BUSINESS RESCUE PRACTITIONER
> Practitioner may be removed –
> section 130 - by order of court on the basis that –
> practitioner does not satisfy the requirements for section 138
> is not independent of the company or its management
> Lacks the necessary skills having regard to the company’s circumstances
> section 139 – grounds for removal on request of an affected person or by the court of its own accord –
> incompetence or failure to perform duties
> failure to exercise proper degree of care in the performance of functions
> engaging in illegal acts or conduct
> no longer suitable for appointment in terms of section 138 (requirements to be a practitioner)
> conflict of interest or lack of independence
> incapacitated or unable to perform the functions of that office and is unlikely to regain that capacity within a reasonable time
> Company or affected person who nominated a practitioner, must appoint a new one if the practitioner dies, resigns or is removed from office (which is subject to any affected person bringing an application to set aside the appointment)
ADOPTION & REJECTION OF A BUSINESS RESCUE PLAN
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APPROVAL OF PLAN
> Section 152(2) - plan approved on a preliminary basis if -
> supported by holders of more than 75% of the creditors’ (all creditors – secured/unsecured) voting interests that were voted (in value); and
> votes in support of proposed plan included at least 50% of independent creditors’ voting interests, if any, that were voted (independent creditors are defined as creditors who are not related to company, director or practitioner)
> “50% of the independent creditors’ voting interests” – 50% of the total amount of independent creditors of the company
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CONSEQUENCES OF REJECTION OF PLAN> If a business rescue plan is rejected, the business rescue
practitioner may–
> seek a vote of approval to prepare and publish a revised plan
> apply to court to set aside any vote as inappropriate
> If the practitioner does not take any of the aforesaid steps–
> any affected persons can take either of the above steps that the practitioner could take; or
> any affected person, or combination of affected persons, can make a binding offer to purchase the voting interests of one or more persons who opposed the adoption of the plan at a value independently and expertly determined on the request of the practitioner to be a fair and reasonable estimate of the return that the person would receive on a liquidation of the company
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REJECTION OF PLAN
> “Binding Offer” –
> an offer that is binding on both the offeror and the offeree (African Banking Corporation of Botswana Limited v Kariba Furniture Manufacturers (Proprietary) Limited & Others 2013)
> offer is binding only on the offeror and cannot be retracted (DH Brothers Industries (Proprietary) Limited v Karl Gribnitz NO & Others (21 October 2013))
> “Inappropriate Vote” – if the court finds it reasonable and justifiable (grounds are set out in section 153(7)) taking into account –
> the interests represented by the person or persons who voted against the proposed business rescue plan;
> the provision, if any, made in the proposed business rescue plan with respect to the interests of that person or those persons; and
> a fair and reasonable estimate of the return to that person, or those persons, if the company were to be liquidated.
TERMINATION OF BUSINESS RESCUE PROCEEDINGS
TERMINATION OF BUSINESS RESCUE
> Business rescue proceedings end when–
> court –
> sets aside the resolution or order that began the business rescue proceedings; or
> converts business rescue proceedings into liquidation proceedings;
> business rescue practitioner files a notice of termination of business rescue proceedings with CIPC
> business rescue plan has been –
> proposed and rejected and no affected person has acted to extend the proceedings in any manner contemplated by the Act; or
> adopted and the business rescue practitioner has subsequently filed a notice of substantial implementation of the plan
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LIQUIDATIONS
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INSOLVENCY LANDSCAPE
> Test for Insolvency – a company will be said to be insolvent if it cannot pay its debts as and when they fall due (commercial insolvency).
> If a company is insolvent -it should be placed in liquidation.
> A distinction must be drawn between insolvent companies and solvent companies
> Insolvent companies - regulated by the provisions of the Companies Act 61 of 1973, as amended (Old Act)
> Solvent companies - regulated by the provisions of the Companies Act (New Act)
> Some provisions of the Old Act, relating to the administration of a liquidated estate and the position and powers of the liquidator remain regulated by the Old Act
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ENTRY INTO LIQUIDATION
> Old Act - insolvent company may be liquidated -
> voluntarily by the board of directors passing of a resolution to that effect (driven by the creditors or shareholders of a company) and by thereafter filing such resolution and various other forms and documents with the companies’ office; or
> pursuant to a formal application having been made to court by (among others) a creditor, the company itself or one or more of its shareholders.
> New Act - solvent company may be liquidated –
> a voluntary winding-up initiated by the company and conducted by either
> the company; or
> the company’s creditors, as determined by the resolution of the company; or
> winding-up and liquidation by court order.
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SNAPSHOT OF THE LIQUIDATION PROCESS
Liquidation Process Commences First Creditors’ Meeting is Held
As Soon as May be After a Final Winding-Up Order has been made by the Court or a
Special Resolution for a Creditors’ Voluntary Winding-Up has been Registered, Master
Calls a First Meeting
Proof of Claims
Appointment of Liquidator/s
Consideration of Statement of
Affairs
Objection to Liquidation & Distribution Account
Lodge Liquidation & Distribution Account
6 Months from the Date of Appointment or Extended Period of Time
Certificate of Completion of Duties and Cancellation of Security
Confirmation of Account & Distribution of Proceeds
Before Confirmation of Liquidation & Distribution Account
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INSOLVENCY ENQUIRIES
> 417 Enquiries
> In any winding-up of a company unable to pay its debts, the Master or the Court may, at any time after a winding-up order has been made, summon before him or it –
> any director or officer of the company or person known or suspected to have in his possession any property of the company; or
> believed to be indebted to the company, or any person whom the Master or the Court deems capable of giving information concerning the trade, dealings, affairs or property of the company
> 418 Enquiries
> Every magistrate and every other person appointed for the purpose by the Master or the Court shall be a commissioner for the purpose of taking evidence or holding any enquiry under this Act in connection with the winding-up of any company
RANKING OF CLAIMS IN LIQUIDATION AFTER BUSINESS RESCUE
> Administration costs
> Secured creditors (both those secured before business rescue or after the commencement of business rescue) – paid what their security realizes after the deduction of costs
> Preferent creditors (paid out of the free residue) –
> fees and expenses (including legal and other professional fees) of the business rescue practitioner incurred during business rescue proceedings
> fees of employees which become due and payable after the commencement of business rescue
> section 98A costs – the payment of salaries and remuneration to employees
> statutory obligations (ie: payment to SARS)
> unsecured lenders of creditors for any loan or supply made after the commencement of business rescue (ie unsecured PCF)
> Proved claims secured by a general mortgage bond
> Concurrent creditors (paid out of the remainder of the free residue)-
> secured creditors whose claims were not satisfied in full
> employees for (i) anything over and above their preferent claim; and (ii) claims of employees (which became due and owing prior to the commencement of business rescue)
> unsecured lenders or creditors for any loan or supply made before the commencement of business rescue
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TAKE-AWAYS
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TAKE-AWAYS
> Business rescue is a developing area of the law
> Good precedents are emerging from our courts
> Security position in a business rescue must be considered carefully – suretyships and guarantees
> The terms of business rescue plans must be carefully considered to ensure the preservation of claims against sureties if need be
> Directors have to make difficult decisions in considering filing for business rescue
> PCF is the lifeblood of a business rescue – without it, it is still born
> Cram down opportunity on dissenting creditors - enables the plan to be approved
THANK YOU
Legal notice: Nothing in this presentation should be construed as formal legal advice from any lawyer or this firm. Readers are advised to consult professional legal advisors for guidance on legislation which may affect their businesses.
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