The latest appeal court decision of New Port Finance Co v Nedbank reinforces our view that every suretyship securing a company’s debts should specifically preserve the creditor’s rights against a surety despite discharge of any part of the principal debt by a business rescue plan and that creditors should ensure that claims against sureties are preserved in business rescue plans. See our blog post on the Tuning Fork case.

In the latest matter, business rescue had failed so it was not necessary to decide this issue. But the court nonetheless made two points:

  1. If judgment is taken against sureties before the business rescue plan is approved, that debt is fixed and can be recovered from the surety who is jointly and severally liable with the principal debtor.
  2. The terms of the suretyship entitled the bank to pursue the sureties if liquidation or judicial management (which the court said included business rescue) occurred. Even if the principal debtor was released wholly or partly from its obligations, the bank was still entitled to recover the outstanding amount from the sureties.

The court said that it was by no means clear that the reasoning in the Tuning Fork case is correct. Section 154(1) of the Companies Act, 2008 can be interpreted to deal with the ability to sue the principal debtor and not with the existence of the debt itself. If that is the case, the liability of the surety would be unaffected by the business rescue plan, unless the plan itself makes specific provision for the situation of sureties.

Creditors must protect themselves by careful wording of suretyships.