Suspending liquidation proceedings with a business rescue application

In order for an application for business rescue to successfully suspend commenced liquidation proceedings, it must be served on the Companies and Intellectual Property Commission (CIPC), together with all affected persons in terms of the Companies Act, No 71 of 2008 (Act). This position was confirmed in the Gauteng Local Division’s decision handed down on 10 March 2016.

16 Mar 2016 2 min read Dispute Resolution Alert Article

Section 131(6) of the Act stipulates that if liquidation proceedings have commenced by or against the company at the time an application (for business rescue) is made, the application will suspend those liquidation proceedings until the court has adjudicated upon the application, or the business rescue proceedings have come to an end, if the court makes the order applied for.

In the matter of Standard Bank of South Africa Limited v Gas 2 Liquids (Pty) Ltd case no 45543/2012 (GLD), the court considered whether the mere issuing of a business rescue application, without adequate service, could suspend liquidation proceedings that had already commenced.

In this instance, Standard Bank had obtained a provisional liquidation order against Gas 2 Liquids and, on the return date, argued for a final order. Gas 2 Liquids then attempted to suspend the proceedings by arguing that an application for business rescue had been issued by a third party on the very same day.

Neither the appointed provisional liquidators nor the company had received service of the business rescue application. The application had also not been sent to all the creditors and employees that the third party was aware of and that were referred to in the business rescue application.

The court held that the issuing of the application was insufficient and that service was required in order to suspend liquidation proceedings.

The practical effect is that anyone who brings an application for business rescue once liquidation proceedings have commenced should ensure that the application is not only issued but also served on CIPC and all affected persons are given notice in accordance with the Act before it can have the effect of suspending the liquidation proceedings.

Despite a contrary finding in the Western Cape High Court that only required that the application be issued and not served, this decision is in accordance with the decisions in Taboo Trading 232 (Pty) Ltd v Pro Wreck Scrap Metal CC and others 2013 (6) SA 141 KZP and ABSA Bank Ltd v Summer Lodge (Pty) Ltd 2013 (5) SA 444 GNP.

This requirement will ensure, at least for matters within the jurisdiction of the Gauteng Local Division and the Kwazulu Natal Division, that debtors meet the requirements of service before attempting to derail or delay a creditor’s liquidation application.

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