Overturning a lower court judgment, the appeal court has found that arbitrations are included in the general moratorium on legal proceedings against companies under business rescue in section 133(1) of the Companies Act 2008.

In Chetty v Hart, the Supreme Court of Appeal looked at the meaning of the phrase “legal proceedings” in section 133 in relation to the language and design of the statute as a whole and its purpose. The obvious purpose of placing a company under business rescue is to give it breathing space so that its affairs may be assessed and reconstructed in a manner that allows it to return to financial viability. Given the ubiquitous use of arbitrations in commercial disputes, to exclude them from the meaning of legal proceedings in section 133(1) would significantly hinder the moratorium against financially distressed companies.

The court also found that the absence of the business rescue practitioner’s written consent is not an absolute bar to legal proceedings being instituted or continued against the company under business rescue if the proceedings are not challenged by the business rescue practitioner. A creditor has no legal standing to challenge the proceedings if the practitioner does not do so. Only the business rescue practitioner can seek the protection of section 133(1) and can waive the requirement for written consent.

This judgment overturns a lower court decision discussed in a previous blog which we have taken down.