THE COMPANIES ACT (2008) AND THE APPOINTMENT OF BUSINESS RESCUE PRACTITIONERS
Business Rescue (BR) was introduced by the Companies Act 71 of 2008 (the Act) to provide for procedures aimed at saving a financially distressed business from closure. Central to this procedure, is the appointment of a suitably qualified Business Rescue Practitioner (BRP) who is tasked with the responsibility of coming up with a business rescue plan and, pursuant to its adoption by stakeholders, to preside over its implementation.
It is an important requirement for BR that there must be reasonable prospects for the business to return back to trading in solvency, and whereat such prospects are not foreseeable, winding up of the business ought to be considered.
The case of Shiva Uranium (Proprietary) Limited And Another v Mahomed Mahier Tayob And Others CCT305/20 considered a scenario whereby upon a BRP resigning, who holds the authority or responsibility to appoint a replacement?
In February 2018 the board of Shiva Uranium (Proprietary) Limited (Shiva) had voluntarily resolved to have the company placed under BR proceedings, as provided for under section 129 of the Act. The board also resolved that Mssrs Klopper and Knoop be appointed as the BRPs. One of the major creditors of Shiva, IDC brought an application before the High Court to have these BRPs removed and replaced by Mr Murray. Mssrs Klopper and Knoop subsequently resigned before the hearing of the application, and the parties agreed that Mr Murray be appointed as the BRP, assisted by an appointee of the CIPC, Mr Monyela. In September 2018 Mr Murray resigned as BRP of Shiva and together with Mr Monyela, resolved to appoint Mr Damons as his replacement.
Mr Monyela argued that as per section 139 (3), IDC had authority to appoint the replacement of Mr Murray, and the appointment of Mr Damons by himself and Mr Murray was at the instance of IDC. The board disagreed and passed a resolution to appoint Messrs Tayob, Januarie and Monyela to be the BRPs. The CIPC accepted the board’s resolution and appointees, over Mr Damons’ appointment by Murray and Monyela. Mr Monyela approached the Companies Tribunal, which ruled in his favour. The board approached the High Court, to interdict against the execution of the Tribunal’s ruling pending the review of its decision. In the subsequent review application, the High Court ruled in favour of Mr Monyela citing that the board’s appointment of Tayob and Januarie ought to have been authorised by Mr Monyela as per section 137(2) and secondly, that IDC should take steps to have Murray’s replacement appointed.
On appeal by Tayob and Januarie, the Supreme Court of Appeal (SCA) held that Mr Monyela and Murray had no authority to appoint Mr Damons, and further that section 139 (3) does not provide for creditors to appoint a replacement BRP when the resigning BRP was appointed at the instance of section 130 (6)(a), which provides that:
(6) If, after considering an application in terms of subsection (1)(b), the court makes an order setting aside the appointment of a practitioner— (a) the court must appoint an alternate practitioner who satisfies the requirements of section 138, recommended by, or acceptable to, the holders of a majority of the independent creditors’ voting interests who were represented in the hearing before the court; and
The SCA ruled against Mr Monyela.
On appeal to the Constitutional Court (Concourt), the fundamental question was, where the BR proceedings were initiated under section 129, the BRP removed by and a replacement appointed by Court, who then holds the authority to appoint a new BRP upon such BRP appointed by Court resigns. The Concourt found that upon a proper consideration of section 139 (3), where a BRP appointed by the company pursuant to section 129 resigns, the company may appoint the replacement. Where the BRP was appointed pursuant to an application, for example by a creditor, such creditor may appoint the replacement. Therefore, the appointment of Mssrs Tayob and Januarie was above board. The Concourt upheld the decision of the SCA and ordered Mr Monyela to pay the costs.
In conclusion, the wording of 130 (6)(a) whereby it provides that “recommended, or acceptable to,” should not be interpreted in tandem with “nomination” as provided for in section 139 (3).
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