In an important judgment delivered by the Supreme Court of Appeal on 20 May 2015 in African Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd and others, the Supreme Court of Appeal held that a purportedly binding offer made to a creditor, who opposes a business rescue plan, is not automatically binding on the creditor.
There have been varying interpretations of the words “binding offer” that appear in section 153(1)(b)(ii) of the Companies Act adopted by different high courts, but the appeal court has now provided certainty.
A bank was a major creditor and voted against the adoption of a business rescue plan. The shareholders then purported to make an offer to purchase the bank’s voting interests. Despite the bank not accepting the offer, the business rescue practitioner ruled that the offer was binding on the bank and the adoption of the business rescue plan went ahead. Since the offer was not accepted by the bank, the court set aside the adoption of the business rescue plan and held that a creditor is entitled to know who exactly is making the offer, what the details of the offer are, including the price or determined value and where, when and how payment would be effected.
Banks will be relieved by this judgment as it will make it more difficult for shareholders or minority creditors to force through the adoption of a business rescue plan.
The court also set aside the resolution that commenced the business rescue process. In doing so, the judgment emphasises that directors who resolve to commence business rescue must “truly believe that prospects of rescue exist and such belief must be based on a concrete foundation.”
The judgment makes interesting reading for business rescue practitioners. The court highlighted that a business rescue practitioner must be held to a high professional and ethical standard. Business rescue practitioners are officers of the court and have the responsibilities, duties and liabilities of a director. The business rescue practitioner is expected to act objectively and impartially in the conduct of the business rescue proceedings. In this case, in order to mark its displeasure with the practitioner’s conduct, the court held him jointly and severally liable with the shareholders for the costs of the appeal.