| This matter concerned the claim for remuneration and expenses of a Business Rescue Practitioner (the “BRP”) when business rescue has failed and been converted into a liquidation, and particularly the order of preference of the BRP’s claim on the liquidation of the company concerned.|
In 2010, Nedbank Limited (“the Applicant”), loaned funds to Fima Films SA (Pty) Ltd (“the Company”), which loan was secured by a mortgage bond over immovable property owned by the Company and registered in favour of the Applicant. Shortly after this, the Company was placed under supervision and business rescue proceedings commenced. Atka Trading 223 (Pty) Ltd t/a Holboth Business Solutions were appointed as the BRP’s (the “Second Respondent”). In less than a year the business rescue proceedings failed and were subsequently suspended by a final liquidation order.
| The Applicant and Second Respondent’s proved claims against the Company’s estate. In this regard the Liquidators proceeding to draw up the Liquidation and Distribution Account (“L&D”), wherein the Second Respondent’s claim was reflected as a “Super Preferent” claim which was to be paid from the proceeds of the sale of the encumbered immovable property, before the Applicant’s secured claim.|
The Applicant’s attorneys made contact with the Liquidators alleging that this was incorrect by virtue of the fact that the Second Respondent’s claim was not to be deducted from the proceeds of the encumbered property but rather from the free residue of the estate following the deduction of the costs of sequestration, in terms of section 97 of the Insolvency Act 24 of 1936 (“Insolvency Act”). In response to this, the Liquidators lodged a revised L&D with the Master of the High Court (the “First Respondent”) reflecting the Second Respondent as a Preferent Creditor with its claim against the free residue and not encumbered property.
The Second Respondent wrote to the First Respondent objecting to the revised L&D. the Second Respondent highlighted the fact that section 135(4) read together with 143(5) of the Companies Act 71 of 2008 (“Companies Act”) deals with remuneration of BRP’s, where they have not been fully reimbursed. In terms of this section, their claim would “rank as priority before the claims of all other secured and unsecured creditors”. Thereafter, the Liquidators explained to the First Respondent that their amendment to the L&D was as a result of to the correspondence they received from the Applicant. They further explained that section 135(4) and 143(5) of the Companies Act only elevates the Second Respondent’s claim to a preferential claim against the free residue of the estate after the conversion of the business rescue proceedings to Liquidation proceedings.
Following this, the First Respondent sustained the Second Respondent’s objection to the L&D. in response to this the Applicant instituted an application objecting to the L&D in terms of section 407(4)(a) of the Companies Act 61 of 1973 (“Old Companies Act”).
| The Johannesburg High Court (“the Court”) acknowledged the fact that the question of whether a BRP enjoys a “super preference” claim over all creditors during Liquidation proceedings had already been addressed at length and resolved by the Supreme Court of Appeal in the Diener NO v Minister of Justice and Correctional Services and Others 2018 (2) SA 399 (SCA), which was later endorsed by the Constitutional Court (Diener NO v Minister of Justice and Correctional Services and Others 2019 BCLR 214 (CC)) (“Diener” case). |
The Court reiterated the findings in the Diener case and held that that section 143 of the Companies Act does not make provision for a BRP’s claim to appropriate those of secured or unsecured creditors in respect of liquidation proceedings.
Section 135(4) of the Companies Act is to be read together with section 97 of the Insolvency Act. The interpretation of these two section read together is that the remuneration of a BRP and the expenses incurred during Business Rescue Proceedings, that have not been paid, cannot be paid from proceeds of the secured assets. Further, section 143 of the Companies Act merely regulates the BRP’s right to remuneration during the Business Rescue Proceedings, and the preferential claim in this regard is specifically in respect of creditors who provided post commencement finance and not in respect of the company’s pre-business rescue creditors.
Lastly, the Court held that the First Respondent’s persistence with the application solely on a point in limine regarding the Applicant’s objection to the initial L&D lodged with the Master, which it believed was not properly lodged in terms of section 407 of the Old Companies Act by virtue of the fact that it was not communicated to the it but rather to the Liquidator’s by way of correspondence had no merit. The Court concluded that the explanation furnished by the Liquidator’s for the revision of the initial L&D clearly demonstrated the basis for same, which was due to a valid objection raised by the Applicant which was substantially communicated to the First Respondent. Moreover, such opposition was unreasonable, especially once the Constitutional Court had delivered its Judgment in the Diener case.
The Court in this matter reiterates that it is an established principle in our law, following the Diener Case, that the remuneration of a BRP does not take preference over secured claims where Business Rescue Proceedings fail and a company is subsequently placed under Liquidation.
Written by Kirsten Chetty Checked by Omphile Boikanyo
8 November 2019