It has become increasingly popular for companies that have pending liquidation applications issued against them to use business rescue proceedings to “rescue” them from demise as a result of liquidation.

However, this tool is not up for grabs anytime it is convenient to do so, or for discarding when it is no longer convenient. One of the caveats in the Companies Act 71 of 2008 (Companies Act) to ensure that business rescue proceedings are not abused is section 129(2)(a), which prohibits the adoption of a resolution for a company to be placed under business rescue where liquidation proceedings have been initiated against the company.

The South Gauteng High Court in NTC Global Trade Fund (Pty) Ltd and Another v Letopa and Others (2025/102392) considered the issue of validity of business rescue proceedings initiated by NTC Global Trade Fund (Pty) Ltd (NTC) while there were pending liquidation proceedings.

Background

On 7 December 2023, about 21 applicants instituted an urgent application for the liquidation of NTC. The matter was heard on 21 December 2023, and the application was dismissed outright (21 December 2023 order).

On 19 February 2024, the same applicants brought a second application for an order declaring the dismissal of the first application void, alternatively for the 21 December 2023 order to be set aside and for NTC to be placed in provisional liquidation. The second application was heard on 1 March 2024 and judgment was reserved.

On 4 March 2024, NTC adopted a resolution for it to be placed in business rescue. The resolution was registered by the Companies and Intellectual Property Commission (CIPC) on 5 March 2024. On 15 April 2024, the CIPC issued a certificate confirming the notice of application for a business rescue practitioner (BRP) as successful. A BRP was then appointed.

On 13 March 2024, an order was delivered in the second application, rescinding the 21 December 2023 order, and NTC was placed in provisional liquidation (13 March 2024 order). On 24 May 2024, the second application was withdrawn, and the provisional liquidation order was abandoned.

Subsequently, an urgent application was brought by NTC and its BRP (the applicants) wherein they asked for orders compelling the respondent, the sole director of NTC, to provide the BRP with information on the business and affairs of NTC and to co-operate with the BRP to assume management responsibility over NTC.

The respondent denied that NTC had been validly placed in business rescue or that the BRP had been validly appointed. In support of this contention the respondent relied on section 129(2)(a) of the Companies Act, which provides that: “A resolution in subsection (1) may not be adopted if liquidation proceedings have been initiated by or against the company”.

The applicants argued that the second application did not constitute liquidation proceedings for the purposes of section 129(2)(a) because the 21 December 2023 order had not been set aside and thus served as a bar to a liquidation application.

The court noted that the pertinent question was what the state of affairs were at the time the resolution to place NTC in business rescue was adopted as it is the mere existence of initiated liquidation proceedings that serves to bar a resolution placing the company in business rescue. It is not required that the liquidation proceedings should in time prove successful.

What constitutes liquidation proceedings?

The issue that the court had to consider was whether the 21 December 2023 order meant that the second application did not suffice as “liquidation proceedings” for purposes of section 129(2)(a). The court considered the relevant provisions of the Companies Act in coming to its decision.

Section 129(2)(a) makes clear that the board of directors of a company cannot adopt a resolution to place the company in business rescue if liquidation proceedings have been initiated against the company. Section 129(2) does not contain consequences for non-compliance, therefore, the court turned to the consequences outlined for non-compliance with section 129(1), (3) and (4).

It also considered section 130, which provides that application may be made to set aside a resolution to place a company in business rescue if there is no reasonable basis for believing that the company is financially distressed, there is no reasonable prospect for rescuing the company, or the company has failed to satisfy the procedural requirements set out in section 129.

Section 132(2)(a)(i) provides that the setting aside of a resolution results in the termination of the business rescue proceedings. In order for business rescue proceedings to be set aside as a result of a flaw in the resolution or a failure to comply with post-filing obligations, it is additionally required that it be just and equitable to set aside the resolution.

Findings

Having considered sections 130 and 132, the court found that it could not have been the intention of the legislature to treat non-compliance with section 129(2)(a) differently to non-compliance with the other provisions of section 129. The court found that it was sufficient to read non-compliance with section 129(2)(a) into the grounds on which a resolution may be set aside in terms of section 130.

As such, the court found that even if the second application initiated liquidation proceedings for the purposes of section 129(2)(a) of the Companies Act, it was not until the resolution which was filed on 5 March 2024 was set aside in terms of section 130 that NTC’s business recue proceedings or the appointment of the BRP could come to an end. The court therefore granted the order sought by the applicants (even though it disagreed with their contention that liquidation proceedings had not been validly brought).

This case seems to open the door for the adoption of resolutions placing a company in business rescue even though there are liquidation proceedings pending in respect of that company as it appears that the resolution will be valid until it is set aside in terms of section 130. If left unchallenged the effect of this judgment will present practical difficulties for creditors that would undoubtedly be frustrated by companies adopting resolutions placing companies in business rescue, pending liquidation applications, as such creditors would be forced to bring an application to set aside such resolution first.