Our intention with this article is to explore how foreign shipping administration or curatorship orders (or the like) can be made orders in South Africa using our business rescue procedure as a tool of persuasion. This is especially relevant in light of the Admiralty Jurisdiction Regulation Act 105 of 1983 (Act) which, being creditor-friendly, allows for the arrest of foreign vessels routing through South Africa. Until a foreign administration order is recognised by our courts, the protection afforded to a vessel under that order is defunct in South Africa.
Being under administration (or the like) generally means a hiatus on payments to creditors. Therefore, companies under administration are at high risk of having their vessels arrested in creditor-friendly jurisdictions where they are not protected by the administration order. This means that, until the foreign protection orders are recognised in South Africa, those entities currently undergoing foreign administration proceedings tend to avoid their vessels entering South African waters and ports unless absolutely necessary. Consequently, many companies face a dilemma and South Africa incurs a reduction of trade and co-operation, which in turn frustrates the growth of our shipping industry and economy in general.
As is well known (see our previous Business Rescue, Restructuring & Insolvency newsletters), South Africa’s business rescue procedure can be used for a variety of positive outcomes for a company, which in turn can facilitate holistic economic growth for South Africa (and, as seen below, its international shipping trading partners).
The shipping industry is no exception. Over the years our CDH Business Rescue, Restructuring and Insolvency Team has successfully used South Africa’s business rescue provisions to persuade our courts to recognise foreign administration orders in the shipping sector, thereby increasing the ambit of the protection to include South Africa.
The courts have recognised that foreign administrative processes usually contain similar characteristics to South Africa’s business rescue process, and provide similar protection for companies which have the legitimate aim to rescue their business.
From our experience, the courts have made it clear that when objectives and effects of administration proceedings in foreign countries can be equated to the objectives and effects of and under business rescue proceedings in South Africa, then a court has little issue to bridge the gap between foreign administration orders and South African business rescue provisions in the context of shipping law. This recognition then allows for the protection to be extended to and in South Africa.
Some of these similar characteristics invariably include the following:
- The foreign administrative procedure commences because the company in question is unable to make payments when due without causing significant hindrance to the continuation of its business.
- To obtain an administration order, a legitimate foundation must be established that the business can be rescued and returned to profitability.
- The foreign administrative procedure usually involves:
- an investigation into the assets and liabilities of the company;
- a process whereby a company’s creditors can submit (within a stipulated period of time) claims against the business in order for them to participate in the administration proceedings;
- the appointment of a practitioner, curator or trustee to administer the business;
- the review of creditor claims, by the practitioner, curator or trustee, whereby having to submit such review to an authoritative body or court for record purposes;
- a period of response or a meeting whereby creditors with claims prove their claims or object, within a specific period of time, to the review or submissions made by the practitioner, curator or trustee;
- recognition that claims, once filed, become final and binding on all creditors and shareholders of the company, once they have been approved by the practitioner, curator or trustee;
- the preparation of an administration plan by the practitioner, curator or trustee within a set timeframe;
- a mechanism whereby creditors or other parties with standing object or query the plan that is submitted by the practitioner, curator or trustee;
- confirmation by the relevant regulatory body or court, after the plan has been approved by the voters, to the effect that it is confirmed that the plan is:
- its provisions are fair and equitable;
- it has been approved by the voters in good faith; and
- all conditions to the plan are satisfied.
- a moratorium or an order for commencement of the administration proceedings to the effect that no creditor with claims, secure claims or other claims may exercise its rights based on such claims against the company or any of the property of the company until the plan is implemented, unless it is explicitly provided under the plan or by consent from a regulatory body for court; and
- the administration proceedings terminating by decision of a regulatory body or court when the plan is implemented. Whereby satisfying the situation where the company is able to restructure its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation.
This application in the shipping industry is but an example of what can be achieved when comparing our unique business rescue procedure to similar procedures in other jurisdictions. We are of the view that, where necessary, recognition of foreign administrative orders in other sectors should not be any less successful.
This is not only for the greater good of the companies in question, but also promotes and establishes South Africa as forward thinking, allowing greater room for the rescuing of foreign businesses in distress, but capable of rescue. In turn this promotes the economy, public policy and continued establishment of the principles of the comity of nations, allowing for reciprocity of recognition of South African business rescue orders in other jurisdictions.