Shareholders’ rights during Business Rescue proceedings.

/ / 2020, COVID-19, News

By Mohau Ledwaba, Associate and Stefano de Gouveia and Candidate Attorney


Business rescue is regulated by Chapter 6 of the Companies Act 71 of 2008 (the “Act”) with the aim to facilitate the rehabilitation of a company from what the Act defines as being financially distressed, as an alternative to liquidation, for a better return for the company’s creditors or shareholders. In terms of Section 7, 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 terms of section 128(1)(a) of the Act, an “affected person” to business rescue proceedings is defined as:
  • a shareholder or creditor of the company;
  • any registered trade union representing employees of the company; and

if any of the employees of the company are not represented by a registered trade union, each of those employees or their respective representatives.

For purposes of this article, we are going to take a more focused look at what rights shareholders of a company in Business Rescue have when business rescue proceedings are going to commence and once same proceedings have commenced.

Rights prior to Business Rescue Proceedings 

Shareholders fall squarely within the scope of the definition of ‘affected person’ in Business Rescue proceedings and have a direct interest in the rehabilitation of the company in rescue. As result, a shareholder should have significant influence over the business rescue proceedings followed by a financially distressed company.

Should the board of directors of a company voluntarily resolve to commence business rescue proceedings, shareholders are entitled to receive written notice of:

  • such resolution;
  • all relevant events leading up to and during Business Rescue Proceedings; and
  • the consequent appointment of the relevant Business Rescue Practitioner.

Shareholders who disagree with a resolution that has duly passed may, in accordance with section 130(1)(a) of the Act, apply to court for an order setting aside the resolution on the grounds that there is no reasonable basis to believe that the company is financially distressed, there are no reasonable prospects of rescuing the company or the company failed to satisfy the requirements set out in section 129 of the Act.

On the other hand, where the board of directors has not passed a resolution to commence business rescue proceedings, shareholders may, at any time, apply to a court directly for an order placing the company under business rescue, in accordance with section 131 of the Act. According to section 131(6), such an application can be made regardless of whether or not liquidation proceedings have commenced and will in actual fact suspend any liquidation proceedings that may have already commenced until such time as the court has adjudicated on the application or business rescue proceedings have ended. Each affected person will have a right to participate in the hearing of the court application in terms of section 131.

Rights during Business Rescue Proceedings

Section 146 provides shareholders with certain rights and participation during the business rescue proceedings. Shareholders are entitled to:

  1. notice of any relevant event concerning the business rescue proceedings;
  2. participate in any court proceedings arising during the business rescue proceedings;
  3. participate in the company’s business rescue as provided for in the Act;
  4. vote to approve or reject a proposed business rescue plan, if the plan would alter the rights associated with the class of securities; and
  5. if the rescue plan is rejected, to:
    1. propose the development of an alternative plan; and
    2. present an offer to acquire the interests of any or all of the creditors.

Prior to preparing a business rescue plan for consideration and possible adoption at a meeting in terms of section 151, a business rescue practitioner is obligated to consult with affected persons (i.e. shareholders inter alia) in accordance with section 150(1). The business rescue plan must, in terms of section 150(2), contain all the information reasonably required to facilitate affected persons in deciding whether to accept or reject the plan.

Further, it must be noted that, in terms of section 137(1) of the Act, during business rescue proceedings, an alteration in the classification or status of issued securities of a company, other than by way of ordinary course of business, is invalid, except if the court or the business rescue plan directs otherwise.


In summary, the Act provides and promotes for participation of all affected parties, including shareholders. Shareholders are entitled to notices, votes and participation during the business rescue proceedings. Participation of shareholders during business rescue proceedings, including consultation with the business rescue practitioner, is vital and protected by the Act.

Accordingly, a shareholder who was not consulted in respect of the contents of the business rescue plan prior to the publication of such business rescue plan will be afforded a remedy. Depending on the circumstances, the said shareholder may be entitled to interdict the meeting contemplated in section 152 of the Act and to an order setting aside the publication of the business rescue plan with the intention of considering and approving the plan.

A sound base knowledge of your rights as a shareholder in a financially distressed company is vital in ensuring efficient rescue and recovery of the company and best possible return.

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