Can you have your cake and eat it too?

In the case of BP Southern Africa (Pty) Ltd v Intertrans Earl SA (Pty) Ltd & Others (34716/2016) [2016] ZAGPJHC 310 (25 November 2016), the court had to consider two important issues: firstly, whether suspension of a contract by the business rescue practitioner in terms of s136(2)(a)(i) and (ii) of the Companies Act, No 1971 of 2008 (Act) suspends not only the obligations of the business rescue practitioner to perform in terms of the contract entered into between the parties, but whether it also suspends the obligations of the other contracting parties. Secondly, what effect the suspension of obligations had on the cession of debtors in respect of debts which arose after the commencement of business rescue.

1 Mar 2017 3 min read Dispute Resolution Alert Article

The salient facts of the case are as follows:

  • the applicant, BP Southern Africa (Pty) Ltd (BP) and the first respondent, Intertrans Oil SA (Pty) Ltd (Company) entered into various agreements in terms of which the Company would have the right to exclusively purchase BP’s products for resale and BP would supply the Company with fuel and lease its premises to the Company;
  • as security, the Company ceded to BP all of its debtors, past and future, however, arising;
  • the Company adopted a resolution to place itself into business rescue;
  • the second respondent, the business rescue practitioner was appointed;
  • the business rescue practitioner suspended, in terms of s136(2)(a)(i) and (ii) of the Act, all the obligations on the Company to perform in terms of any agreement including the agreement between BP and the Company;
  • the business rescue practitioner also adopted the attitude that all cession of debtors was unlawful, invalid and unenforceable. In the alternative, the business rescue practitioner argued that his suspension of all the Company’s obligations, meant that the Company had no obligations under the cession of debts in respect of debts that arose in business rescue; and
  • BP thus attacked the conduct of the business rescue practitioner.

The court stated that although the section is silent about the effect that such suspension would have on the obligation 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.

Accordingly, the court held that the suspension of all the Company’s obligations under the agreement in terms of s136(2)(a) would entitle BP to withhold access to the leased premises. However, the court noted that BP must ensure that it complied with the notice and cancellation provisions in terms of the suspended agreement in order to cancel it. As such, the business rescue practitioner cannot simply suspend obligations due in respect of contracts, yet expect performance thereunder by the other contracting parties.

The next issue which the court had to consider was the status of the cession of book debts, given that the business rescue practitioner argued that any debts arising after the suspension of the contract constituted debts which would not form part of the cession of debtors and was capable of being used to rescue the business.

In respect thereof, the court held that a cession of future book debts is, in our law, 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.

As such, the court held that there was no obligation of the company arising from the cession of book debts that was capable of being suspended by the business rescue practitioner. As such, the court held that any debts which arose during the business rescue proceedings were also ceded to BP and could not be disposed of without the BP’s consent as provided for in s134 of the Act, as such book debt constituted security held by the applicant.

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