An analysis of the consequences of a business rescue moratorium on legal proceedings on property owners.
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Date
2021
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Abstract
It has been over a decade since the Companies Act 71 of 2008 introduced business rescue
proceedings which provided for the rescue of financially distressed companies. This procedure
replaced the then statutory procedure of judicial management under Companies Act 61 of 1973.
The business rescue proceedings begin with the general moratorium or stay on legal proceedings
against the company or its property. This has a consequence that any claims against the company
may only be enforced with the consent of the business rescue practitioner or the leave of the court.
However, the courts continue to grapple with the interpretation, effect, and application of
the key elements of business rescue provisions while always striving to accord respect to the
legislative intention of business rescue as set out in section 7(k) of the Companies Act 71 of 2008.
After a decade since its introduction, it is an opportune time to ascertain whether the business
rescue proceedings is an effective corporate rescue procedure suitable to the modern-day demands
of the South African economy.
The research analyses the effect and the consequences of the moratorium on the rights of
property owners. The moratorium has the effect that companies are given temporary immunity to
actions brought by creditors which would have been due and enforceable. In this regard, the
property leased by the property owner remains occupied by the company during business rescue
proceedings as the property owner is barred by the moratorium to institute legal proceedings
against the company. Further, when the repossession of the property is not possible and the rental
due or installment is not payable by the company, the business rescue proceedings encroaches on
the right of the property owners. The purpose of the research is to highlight the effect of the
moratorium on the lease agreement between the company and property owners and the possible
protection of the property owners’ rights. The study includes a critical analysis of judicial decisions
on the moratorium, together with a discussion of the legal position in comparable foreign
jurisdictions. In my conclusion, based on the findings, the business rescue is not free from
imperfection. Therefore, I recommended that the legislature amend some parts of Chapter 6 of the
Companies Act 71 of 2008.
Description
Masters Degree. University of KwaZulu-Natal, Durban.