|BP Southern Africa (Pty) Ltd (“the Applicant”) and Intertrans Earl Oil SA (Pty) Ltd (“the First Respondent”) entered into various agreements in terms of which the First Respondent would have the right to exclusively purchase the Applicant’s products for resale and in return, the Applicant would supply the First Respondent with fuel and lease its premises to the First Respondent. As security, the First Respondent ceded all of its debtors, past and future, however, arising.
The First Respondent adopted a resolution to place itself into business rescue and resultantly, the Second Respondent was appointed as the business rescue practitioner.
The Second Respondent suspended, in terms of s136(2)(a)(i) and (ii) of the Companies Act No 1971 of 2008 (“the Act”), all the obligations on the First Respondent to perform in terms of any agreement, including the agreement between the Applicant and the First Respondent. The Second Respondent also adopted the attitude that all cession of debtors was unlawful, invalid and unenforceable. Alternatively, the Second Respondent argued that his suspension of all the First Respondent’s obligations, meant that the First Respondent had no obligations under the cession of debts in respect of debts that arose in business rescue.
The Applicant contested these propositions. It argued that the doctrine of unanimous asset destroyed any reliance on the absence of a special resolution and that the cession was thus fully enforceable. It submitted that the suspension of obligations under s 136(2)a) was, by virtue of s 136(2A)(c), expressly subject to the protection of property over which it had security in terms of s 134(4) of the Act. Arguably, all the debts (past, present and future) were covered by the cession and were its property, incapable of being disposed of without its consent.
|The court stated that although the section is silent about the effect that such suspension would have on the obligations of the other contracting party, it must be accepted that the other contracting party always has their common residual rights in terms of the law of contract available, including the normal rights of cancellation.
The court held that the suspension of all the First Respondent’s obligations under the agreement, in terms of s136(2)(a), would entitle the Applicant to reserve access to the leased premises. However, the Applicant must ensure that it complied with the notice and cancellation provisions of the suspended agreement in order to cancel it. As such, the Second Respondent cannot suspend obligations due in respect of contracts, expect performance by the other contracting parties.
In considering the status of the cession of book debts, given the Second Respondent’s contention that any debts arising after the suspension of the contract constituted debts which would not form part the cession of debtors and was capable of being used to rescue the business, the court held that:
1.A cession of future book debts is, complete and effective by the mere agreement thereto. When at the future date the book debts come into existence, they become the property of the cessionary without any further obligation being placed on the cedent.
2.There was no obligation of the First Respondent arising from the cession of book debts that was capable of being suspended by the Second Respondent. As such, any debts which arose during the business rescue proceedings were also ceded to the Applicant and could not be disposed of without the Applicant’s consent, as provided for in s 134 of the Act, as such book debt constituted security held by the Applicant.
|Obligations of a company, arising from the cession of book debts, are not capable of being suspended, certainly not as regards the right of the cessionary to enforce the debts, even if they arise from sales during business rescue.
Written by Jordan Dias and Celeste Frank