This blog is longer and more dense than usual. Most of it is taken directly from the precise wording of the judgment and it will be of use to anyone interested in the business process.
Section 151 of the Act requires a business rescue practitioner to convene and preside over a meeting of creditors and holders of other voting interests within ten days after the publishing of a business rescue plan, for the purpose of considering the plan. Section 152 regulates the procedure to be followed in considering the plan. If it is supported by the holders of more than 75 per cent of the creditors’ voting interests, and at least 50 per cent of the independent creditors’ voting interests (that were voted), the business rescue plan will be considered as approved on a preliminary basis as contemplated by s 152(2). Section 152(3)(a) provides that if a proposed business rescue plan is not approved on a preliminary basis, the plan is rejected and may be considered further only in terms of s 153 of the Act. It was not necessary for purposes of the judgment to consider the rights of holders of securities.
Thus, once the business rescue plan is rejected, the business rescue practitioner may, in terms of s 153(1)(a), either seek approval, from the holders of voting interests, to prepare a revised plan, or apply to the court for an order setting aside the result of the vote on the grounds that it was inappropriate. If the business rescue practitioner fails to do so, or decides not to exercise any of these options, this section provides an affected person with three alternative courses of action. The first is to seek a vote of approval to prepare and publish a revised plan. The second is an application to set aside the result of the vote as inappropriate; and the third is to offer to acquire, by means of a ‘binding offer’, the voting interests of any persons who opposed the adoption of the plan. The first and second options are only available to an affected person that is present at the meeting. The third is available to any affected person or combination of affected persons. Once such a binding offer has been made, according to the text of s 153(4), the business rescue practitioner must adjourn the meeting for no more than five business days to afford the practitioner an opportunity to make any necessary revisions to the plan to reflect ‘the results of the offer’ and set a date for the resumption of the meeting at which the provisions of s 152 would apply afresh. The proper interpretation of s 153(4) lay at the heart of the appeal.
The literal meaning of s 153(4) is clear. It says that if an affected person makes an offer, the practitioner must act as prescribed in ss 153(4)(a) and (b). However, the parties rightly accept that s 153(4) could not possibly bear its literal meaning. It is trite that a court may depart from the clear and unambiguous meaning of a statutory provision to avoid an absurdity.
This accords with the broader purpose of business rescue proceedings, which is ‘… geared at providing a window of opportunity to restore an ailing company to financial health and functionality’. Business rescue is not an open-ended process. Its very rationale is that it must end, either when its aim has been attained or when the realisation arises that rescue is not attainable. It follows that once a business rescue plan is accepted, it will be implemented by the business rescue practitioner on the terms stipulated therein. But once a business rescue plan has been put to a vote and rejected as contemplated in s 152 of the Act and, the parties having unsuccessfully exhausted their remedies as provided for in s 153(1)(b), business rescue must come to an end.
The appellants contended that, despite the rejection of the binding offer, the business rescue practitioner was required to proceed in terms of s 153(4) and convene a further meeting of creditors. The business rescue practitioner acted on the basis that s 153(4) only caters for the scenario where a binding offer has been accepted.
The court said that the interpretation contended for by the appellants did not amount to a sensible and business-like interpretation of s 153(4) and would cause a ‘never-ending loop’. For these reasons the court concluded that s 153(4) of the Act only applies when a binding offer in terms of s 153(1)(b)(ii) is accepted.