This blog site was co-authored with Thokola Zungu, Prospect Lawyer
When a business in organization rescue is a lender of another business in organization rescue, the right to vote on business rescue prepare for the debtor business vests in business rescue specialists of the financial institution business and not in its board of directors.
The legal concern prior to the Supreme Court of Appeal was developed as follows ” when a business in organization rescue (Business A) is a lender of another business in organization rescue (Business B), and Business B is a wholly-owned subsidiary of Business A, does the right to cast a vote on any matter pondered under area 151 and area 152 of the Business of 2008, vest in Business A’s organization rescue specialists or its board of directors?”
The concern of who can vote boiled down to whether that power fell within the province of the ‘complete management control’ of the specialists as pondered in s 140( 1 )( a) of the Business Act. The court identified that ‘whatever that relates to the business’s debtors … falls within the classification of management,’ which inseparable from the power to run a business is the power to handle its possessions.
The court highlighted reveal terms in the Business Act which show the specialists manage in relation to claims by 3rd parties to the home of the business (s 133( 1 )( a)), the specialists manage in relation to anyone’s workout of any right in regard of any home in the legal ownership of the business (s 134( 1 )( c)), the specialist’s powers to examine the business’s affairs, organization, home, and monetary scenario and as a result think about whether there is any sensible possibility of the business being saved, right after his/her consultation (s 141( 1 )).
In regards to s 128( 1 )( b)( iii), the main function of organization rescue is to allow the specialist to prepare and carry out a strategy ‘to save the business by reorganizing its affairs, organization, home, financial obligation and other liabilities, and equity in a way that increases the possibility of the business continuing around on a solvent basis or if it is not possible for the business to so continue around, leads to a much better return for the business’s financial institutions, or investors than would arise from the instant liquidation of the business.’
The court held that ‘the failure to vote on a debtor business’s strategy would impact the specialist’s evaluation of the business’s potential customers of rescue and/or state of its monetary distress. That would weaken the extremely function of Chapter 6. Therefore, the words ‘complete management control’ discovered in s140( 1 )( a) of the Business Act need to be translated as consisting of the power to choose or versus a prepare for a debtor business.
Ragavan and Others v Optimum Coal Terminal (Pty) Ltd and Others (136/2022) [2023] ZASCA 34 (31 March 2023)