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The Battle of Business Rescue

Business rescue proceedings − whose interests are really protected?

Nicolene Schoeman-Louw




The newly introduced concept of business rescue (in terms of the Companies Act of 2008) has inspired a lot of discussion in the last few months. Cases attracting attention include 1time Airline, Top TV and the lesser-known matter of the Newcity Group, where liquidation proceedings have commenced, as business rescue was refused.

These examples, along with a string of other high-profile liquidation proceedings making the news recently, prove − if nothing else − that the business rescue concept is widely misunderstood and consequently abused.

The fundamental principle of business rescue proceedings, as Keith Braatvedt adequately put it in Without Prejudice (November 2012), is as follows:

“The courts have, unless a proper and motivated business rescue plan is pleaded which demonstrates a reasonable prospect for rescuing the company, consistently dismissed the business rescue application and liquidated the company…. A close scrutiny of the actual rescue platform presented and the rationale mounted on that platform was required in order for the court to determine whether the proper threshold had been met; namely whether the is a reasonable prospect of achieving a rescue through the statutory objectives.”

Therefore, it is common cause that, broadly speaking (among other requirements to be met), when making an application for business rescue, a plan setting out the reasonable prospects of rescuing the distressed company should be submitted.

Any application for business rescue brought for the sole intention of delaying imminent liquidation proceedings will, therefore, fail − especially where there is no reasonable prospect of rescuing the company but the plan does not disclose this.

The case of Newcity Group Pty Ltd

This was clearly illustrated in the application for the final winding up of Newcity Group Pty Ltd, an unreported case also cited by Braatvedt (see above). In this matter, an application was brought for the final winding up of the company.

Subsequently and concurrently, a shareholder brought an application for business rescue pursuant to the provisions of Section 131 of the Act. This case was particularly conspicuous because the judge noted that the application brought by the shareholder constituted an ‘abuse’ of the provisions and consequently the business rescue application failed.

When inspecting the business rescue plan proposed by the shareholder, the judge noted that it was common cause that the company was unable to pay all its debts yet the value of its assets exceeded its liabilities. However, the essence of the business rescue plan was to realise the assets to pay its liabilities and/or service its debts.

When considering all the facts of the case, including the shareholder’s record of failing to disclose all the relevant facts, it was found that the business rescue plan was not genuine. Consequently, as stated, the application failed.

From this point, it is important to note that not only should a business rescue plan prove the distressed company can actually be rescued, but the best interests of its creditors should also be considered alongside the plan’s veracity.

The case of Southern Palace Investments 265 Pty Ltd

The importance of seriously considering the interests of creditors as well as all other stakeholders is emphasised in the Act, specifically in Section 7 (k). This states that one of the purposes of the Act is ‘to provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders’.

In this case (the judge in the Newcity Group case referred to this), the Court’s further aim is to make the purpose and extent of business rescue proceedings very clear in that it states:

Business rescue does, however, not necessarily entail a complete recovery of the company in the sense that, after the procedure, the company will have regained its solvency, its business will have been restored and its creditors paid. There is also the further recognition that even though the company may not continue in existence, better returns may be gained by adopting the rescue procedure.”

Furthermore, the court still has discretion over whether or not to grant the application, which is to be exercised with due consideration to the specific circumstances of each case.

The Court explained the concept and the guidelines for granting business rescue as follows:

 “Every case must be considered on its own merits. It is difficult to conceive of a rescue plan in a given case that will have a reasonable prospect of success of the company concerned continuing on a solvent basis unless it addresses the cause of the demise or failure of the company’s business, and offers a remedy therefor that has a reasonable prospect of being sustainable. A business plan which is unlikely to achieve anything more than to prolong the agony, ie. by substituting one debt for another without there being light at the end of a not too lengthy tunnel, is unlikely to suffice. One would expect, at least, to be given some concrete and objectively ascertainable details going beyond mere speculation in the case of a trading or prospective trading company, of:

24.1. the likely costs of rendering the company able to commence with its intended business, or to resume the conduct of its core business;

24.2. the likely availability of the necessary cash resource in order to enable the ailing company to meet its day-to-day expenditure, once its trading operations commence or are resumed. If the company will be reliant on loan capital or other facilities, one would expect to be given some concrete indication of the extent thereof and the basis or terms upon which it will be available;

24.3. the availability of any other necessary resource, such as raw materials and human capital;

24.4. the reasons why it is suggested that the proposed business plan will have a reasonable prospect of success.”


Although the objectives of the Companies Act are clear, and although writers such as Braatvedt  have also noted that the age of creditor supremacy is over, business rescue should not be applied as a delaying tactic for the inevitable.

Rather, it should be applied by financially distressed companies that are genuinely able to make a tangible and positive difference to all stakeholders through business rescue. In other words: to serve the best interests of all stakeholders as a collective must be served.

It would most certainly seem that our Courts are not inclined to grant these applications lightly. In this sense, perhaps the concept of business rescue is not too far from its predecessor, judicial management after all.

Further clarification by our courts and possibly the legislature should clearly address this in time.

Nicolene Schoeman – Louw is an admitted attorney of the High Court of South Africa, as well as being a Conveyancer, Notary Public and Mediator. She is the Managing Director of Schoemanlaw Inc Attorneys, Conveyancers and Notaries Public (Schoemanlaw Inc Attorneys) in Cape Town. Visit for more information or email



Can Your Words Be Used Against You?

Yes, they most certainly can. Here’s what the RICA Act has to say about recordings.

Andrew Taylor




“This call may be recorded for quality control and records purposes…” Anyone who has been on hold with insurance companies would be familiar with these words — but what are the implications of a recorded conversation and when is it legal?

In essence, the Regulation of Interception of Communications and Provision of Communication-Related Information Act of 2002 (mercifully shortened to ‘RICA’) permits any person, who is a party to a conversation to record that conversation, provided that it is direct communication — which is defined as oral communication between two or more persons that occurs in the immediate presence of those persons.

Section 4 of the RICA Act governs this aspect of our monitoring law. What is unclear, however, is the degree to which this extends to legal persons, such as a company that monitors a call centre agent’s performance, for example.

Related: Understanding Shareholder Agreements

Evidence in legal cases

While limited to direct communications and not covered by third party interception, such as an eavesdropper, the lesson here remains pretty stark — you could legally be recorded during any conversation you have.

The implications of this are significant — just ask former Springbok player Luke Watson, who had a conversation recorded during a function in 2008 that was subsequently leaked to the media.

Furthermore, with the widespread use of smartphones, together with applications freely available on the relevant app stores, designed to record cellphone calls, the likelihood of you being recorded — whether you know it or not, is ever increasing.

Beyond the moral or ethical ambiguity of this, the legal ramifications of what is recorded are more certain — the recording may be used against you as evidence in any criminal proceedings, or equally as possible, in civil proceedings where, for example, agreement to a contract or term thereof is in question, or in the insurance company’s case, whether or not to repudiate a claim based on the information you provide to them.

Related: Protect Your SME From PoPI

Know the business exception

Section 6 of the RICA Act contains a course of business exception that allows the interception of indirect communication:

  1. a) By means of which a transaction is entered into in the ordinary course of business
  2. b) Which relates to that business
  3. c) Which otherwise takes place in the course of that business.

While there has not, to my knowledge, been a reported case that deals with this aspect of the RICA Act, the implications regarding the use of this information to evidence the valid conclusion of a contract or as to the intentions of the parties to a contract are significant, particularly given that the scope is relatively broad, although limited.

The matter has, however, come before the Constitutional Court in the 1999 criminal case of S v Kidson, where the court held, per Justice Cameron, that unless a “reasonable expectation of privacy exists” it would be difficult to prevent the recording or interception falling within the ambit of the RICA Act.

Where to from here?

From both a commercial and criminal perspective, this should serve to remind us all of our wise grandmother’s words — if you have nothing nice to say, rather say nothing at all (especially because you never know whether you are being recorded).

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Why You Shouldn’t Be Sweating The Fine Print

Signing a contract is a big deal, and you never want to sign anything you don’t fully understand.

Andrew Taylor




While it is almost always a grudge purchase, ensuring that you have had a legal eye cast over a contract you intend to conclude means that you are protected, that you understand the nature of the obligations you are taking on and perhaps, an even better deal for you.

Given that legal agreements are an important aspect of commerce, we have distilled key points for you to consider, before engaging with external counsel. This will make the process more efficient and, hopefully, less expensive.

Reviewing a contract is a tricky business, not entirely different from asking a builder to finish building a half built house. However, there are some useful techniques to ensure you get the most out of the exchange with your lawyer.

Related: Why Your Business Needs Employment Contracts

Always create a timeline

You have lived and breathed your business and this transaction, while your attorney is possibly hearing about the matter for the first time.

Setting the scene correctly puts your attorney in the picture and explains what you want out of the exchange. Print this out for your attorney.

It will help an attorney identify key areas of risk which you might not have anticipated. Be sure to also tell your external counsel how quickly you need the review to be done. Setting expectations means there is less chance of disappointment later.

Provide supporting documents

It wastes your time and money when your attorney has to come back to ask you for supporting documentation.

Try to anticipate which documents will be relevant to your transaction and bring copies of them to the meeting for your attorney to consider. If you have previous versions of the agreement, for example, bring those too.

Remember, the more background work you do, the simpler and more efficient the process will be.

Understand your needs

Are you looking for a high level overview of your document to highlight some key contractual risks or are you looking for a thoroughly sanitised document reviewed from every possible angle?

I recently had to look over Jim’s Sale of Business Agreement for the potential acquisition of his Technology Company. He came to me with limited areas of risk which he had identified and wanted me to look at these clauses.

I was able to advise him to push back on certain clauses he had already negotiated and the resulting document placed him in a stronger legal and financial position. It was easy to justify the costs associated with the review.

This is not always necessary though — where there is limited legal exposure, or you have no bargaining power, the role of the attorney can be restricted, but still worth the investment since you have assurance that your legal exposure is as restricted as possible.

Be guided by the relative value of the document and the ensuing legal responsibilities — is this a standard supply agreement with a strange payment clause or a multi-national acquisition of intellectual property? The type of expert you engage with will vary, as will the cost of the review.

Related: Protect Yourself: How to Structure Your Consulting Contracts

Areas of concern

Directly related to knowing your business and understanding your needs, is your responsibility to communicate specific areas of concern to your attorney.

A recent client’s business processed a lot of personal information, in accordance with the Protection of Personal Information Act, but, the contractor they were about to sign a service supply agreement sought to have access to some of this personal information.

Had the client signed this agreement without a review of the potential legal consequences, it would have resulted in a clear breach of an essential provision of his own terms of use.

Seen alone, there was little risk, but within the context of this business, we were able to avoid this. A trusted and qualified expert will help you navigate the complex commercial world.

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Are You Protecting Your Customer’s Data?

A company’s privacy policy dictates what personal information is processed, and the manner in which such information is collected, stored, and shared.

Kyle Torrington




The collection, usage and sharing of personal information is regulated primarily by the Protection of Personal Information Act 4 of 2013. The Act was recently promulgated and is yet to be implemented. The Act seeks to give expression to the right to privacy provided for in the Constitution.

At the time of writing, the primary enforcement arm contemplated by the Act, the Information Regulator, has yet to be appointed. Once appointed, all businesses will be required to register with the Information Regulator to make public what personal information is being collected, and what it is being used for.

The Information Regulator will be empowered to enforce compliance with the Act, and able to investigate whether an entity is lawfully processing the public’s personal information. 

Related: Protect Your SME From PoPI

How are privacy policies affected?

The Act defines the term ‘processing’ broadly, and includes “the collection, receipt, recording, organisation, collation, storage, updating or modification, retrieval, alteration, consultation or use of a person’s personal information”. To process a person’s personal information, the prior consent of the person (data subject) is needed.

Personal information includes email addresses, names, identity numbers, phone numbers, the race, gender, religion, marital status of a person, and if applicable, an entity such as a company, to name but a few. One of the purposes of a business’ privacy policy is to obtain such consent, by an indication that the privacy policy has been read and agreed to.

The primary purpose of a privacy policy is to set out in clear and concise terms what personal information is collected by the company, and exactly what the company will and will not do with that information. It should also set out whether personal information will be shared, and with whom.

The Act restricts a company’s ability to store personal information outside of the country by requiring that it be transferred only to countries in which comparable security laws and data protection measures exist.

A situation such as this arises more easily than expected. Consider the example of the humble contact form: Your website, with its local server situated in Midrand, utilises a plugin to create custom contact forms.

Although your server may be in Midrand, every person who completes the contact form on your website has their personal information transferred and stored on servers in the home jurisdiction of your plugin creator, which may be in the US. But the plugin creator may also make use of third-party service providers based in Vietnam. An in-depth investigation of all third-party plugins and processes of a website is therefore required to ensure that you comply with the Act.

Access by a data subject to personal information

A data subject is entitled to request a full disclosure of any personal information held by the company.

As the procedures governing access to personal information overlap, companies should also ensure compliance with the processes outlined by the Promotion of Access to Information Act 2 of 2000 (‘PAIA’).

Related: Five Tips for Effective Marketing that Complies with the POPI Act

In terms of PAIA, all companies are required to compile a manual that needs to be registered with the South African Human Rights Commission. This manual sets out the company’s contact information, what records are available for inspection, the identity of the leadership of the company, as well as the manner in which a person may request access to information held by the company.

However, the Minister of Justice and Correctional Services has exempted private bodies from complying with this requirement for a period of five years, starting from
1 January 2016.

To ensure compliance with all data protection, privacy, and access to information laws, a privacy policy and a PAIA manual will be required by every business.

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