5 October 2021 by and Dispute Resolution Alert

Online Business Rescue Filings: The shortfalls of protocols implemented by the CIPC

There are two ways in which a company can be placed in business rescue. The first is voluntary business rescue proceedings – when the board of directors of a company passes a resolution to place the company in business rescue in terms of Section 129 of the Companies Act 71 of 2008 (Act); and the second is, compulsory business rescue proceedings – when application is made to court to place the company in business rescue by an affected person in terms of section 131 of the Act.

In relation to commencing voluntary business rescue proceedings, the following must be attended to:

  • the board of a company must pass a resolution resolving to place the company in business rescue due to the company being in financial distress and if there appears to be a reasonable prospect of rescuing the company; and
  • the resolution (and supporting documents) must be filed with the Companies and Intellectual Property Commission (CIPC) with the relevant notice of Commencement of Business Rescue proceedings (known as the CIPC Form CoR 123.1).

Ordinarily, the company would be required to submit these documents to the CIPC via a dedicated CIPC email address for business rescue filings. The date of filing and effective date of commencement of business rescue proceedings will be the date the documents are received by the CIPC’s email server.

However, in an effort to optimise its systems for the effective and efficient facilitation of the submission and filing of applications, the CIPC has introduced an eServices platform to be used for voluntary business rescue filings. However, as can happen with technological endeavours, this has come with some shortfalls.

On 28 July 2021, the CIPC issued Practice Note 3 of 2021 which states that:

As from 15 June 2021, information relating to the Form CoR 123.1 and legal documents in terms of section 129 of the Companies Act 71 of 2008, as well as court orders commencing business rescue proceedings in terms of section 131 of the Act, must be submitted via the electronic platform New eServices, www.cipc.co.za/Online Transacting/eServices”.

The notice goes on to state that:

The date of filing or effective date of commencement of business rescue proceedings will be the date the relevant information was confirmed as correct by a team member of the CIPC, once submitted via new eServices. Therefore, mere submission of the information and required documents, does not constitute filing. CIPC will confirm the commencement of business rescue proceedings and the effective date of the proceedings, upon the issuing of a confirmation letter which, inter alia, indicates the date of submission and effective date of business rescue proceedings.

Unfortunately, the protocols which the CIPC has sought to introduce are inconsistent with what is contemplated in the Act insofar as “filing” and “delivery” are concerned and appear to fall outside the ambit of the processes set out in the Companies Regulations, 2011 (Regulations).

Delivery of prescribed documents

Firstly, the term “file” is defined in the Act as “when used as a verb, means to deliver a document to the Commission in the manner and form, if any, prescribed for that document”.

Furthermore, Regulation 7 of the Regulations, read with Table CR3, deals with the delivery of documents and methods and times of delivery of documents. Delivery of prescribed documents to the CIPC (and as such “filing”, in light of the Act’s definition) is deemed to have taken place on the date and at the time recorded by the CIPC’s computer system, as verified by fax reply to the sender of the information in the instance where the necessary resolution and documentation have been entered on the website maintained by the CIPC. Thus, considering the Regulations, mere confirmation of receipt of the documents or of the date and at the time recorded by the CIPC’s computer system should be deemed to constitute filing.

In considering the above, the protocols that have been introduced by the CIPC have unfortunately created some administrative problems and confusion around the effective date of commencement of business rescue proceedings. The effective date of commencement is critical because it is linked to and has an effect on the time periods within which the company is required to take further steps after the company has been placed in business rescue.  

Our view is that the CIPC has, being a creature of statute, inadvertently acted outside the scope of its mandate in imposing these protocols, and the effective date of commencement of business rescue proceedings remains the date on which the resolution (and supporting documents) are delivered in the manner and form described in the Regulations. We hope that these protocols will be reconsidered, or that our courts will (as we have already seen) provide some clearer guidance on what the correct position is.

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