In an April 2025 judgment, the High Court concluded that the defendant’s liability as a surety was not discharged by the release of the principal debtor under a business rescue plan (BR Plan). The BR Plan and the deed of suretyship were both clearly drafted to preserve the creditor’s right to claim from the surety.

The creditor had granted a credit facility to the principal debtor, who subsequently defaulted on its repayment obligations. The surety had entered into a deed of suretyship in favour of the creditor, binding himself as a surety and co-principal debtor for the principal debtor’s indebtedness. The principal debtor was placed under business rescue, and a BR Plan was adopted.

The BR Plan included a provision that compromised and discharged all claims against the principal debtor upon final repayment of dividends. However, it explicitly stated that the plan did not affect the rights of creditors to pursue claims against sureties for the principal debtor’s debts.

The primary legal issue was whether the release of the principal debtor under the BR Plan also discharged the surety’s liability. Generally, if the principal debtor’s debt is discharged, the surety’s obligation is likewise discharged.

The court found that the discharge and/or release of the principal debtor in the BR Plan was expressly subject to the provision which provided that the creditor would not lose its claim against the sureties. The intention of the parties was clearly not to deprive the creditor of its right of recourse against the surety.

The court also examined the deed of suretyship, which contained provisions allowing the creditor to pursue the surety despite any compromise or discharge of the principal debtor’s obligations.

This judgment confirms that while the general rule is that a surety’s liability is accessory in nature and is generally discharged when the principal debt is extinguished, this principle is not absolute. The judgment reinforces that a surety’s liability can be preserved if the relevant agreements explicitly provide for such preservation.

This case serves as a critical reminder of the importance of carefully drafting business rescue plans and suretyships. Creditors must ensure that their rights against sureties are explicitly preserved in any discharge or compromise agreements. Failure to do so could result in the unintended release of sureties from liability. The full judgment can be accessed here:

Kaap Agri Boedery v Potgieter (1196/2023) [2025] ZALMPPHC 80 (25 April 2025)