This blog was co-authored with Thokola Zungu, Candidate Attorney.

When a company in business rescue is a creditor of another company in business rescue, the right to vote on the business rescue plan for the debtor company vests in the business rescue practitioners of the creditor company and not in its board of directors.

The legal question before the Supreme Court of Appeal was formulated as follows “when a company in business rescue (Company A) is a creditor of another company in business rescue (Company B), and Company B is a wholly-owned subsidiary of Company A, does the right to cast a vote on any matter contemplated under section 151 and section 152 of the Companies of 2008, vest in Company A’s business rescue practitioners or its board of directors?”

The question of who has the right to vote came down to whether that power fell within the purview of the ‘full management control’ of the practitioners as contemplated in s 140(1)(a) of the Companies Act. The court determined that ‘everything that has to do with the company’s debtors …falls within the category of management,’ and that inseparable from the power to run a company is the power to manage its assets.

The court highlighted express terms in the Companies Act which reflect the practitioners control in relation to claims by third parties to the property of the company (s 133(1)(a)), the practitioners control in relation to any person’s exercise of any right in respect of any property in the lawful possession of the company (s 134(1)(c)), the practitioner’s powers to investigate the company’s affairs, business, property, and financial situation and consequently consider whether there is any reasonable prospect of the company being rescued, soon after his or her appointment (s 141(1)).

In terms of s 128(1)(b)(iii), the primary purpose of business rescue is to enable the practitioner to prepare and implement a plan ‘to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors, or shareholders than would result from the immediate liquidation of the company.’

The court held that ‘the inability to vote on a debtor company’s plan would affect the practitioner’s assessment of the company’s prospects of rescue and/or state of its financial distress. That would undermine the very purpose of Chapter 6. Thus, the words ‘full management control’ found in s140(1)(a) of the Companies Act must be interpreted as including the power to vote for or against a plan for a debtor company. 

Ragavan and Others v Optimum Coal Terminal (Pty) Ltd and Others (136/2022) [2023] ZASCA 34 (31 March 2023)