In granting an application for security for costs against Polsun Limited (Polsun), a foreign company and former minority shareholder of White Rivers Exploration (Pty) Ltd (WRE), the court undertook a detailed analysis of the merits of Polsun’s underlying application and found it to be without prospects of success.

The judgment provides important guidance on several issues of practical significance: the finality of business rescue proceedings under Chapter 6 of the Companies Act 71 of 2008 (Companies Act); the powers of business rescue practitioners to cancel and reissue shares pursuant to an adopted plan; and the proper approach to security for costs applications involving foreign litigants.

Background

WRE, prior to its business rescue, primarily operated as a mineral exploration and development company. It held substantial mining tenement interests on the Witwatersrand gold fields, estimated to contain significant potential gold resources. WRE’s share capital was divided into Class A and Class B shares, with the Class B shares held by various parties, including Polsun.

On 6 January 2023, the board of directors of WRE adopted a resolution in terms of section 129(1) of the Companies Act to place WRE under business rescue. The business rescue plan recorded a need for a restructuring of WRE’s affairs together with an immediate capital injection of GBP 300,000, to be used to pay existing creditors and other parties referred to in the plan. A central feature of the plan was the cancellation of all the existing issued shares of the shareholders and the allotment and issuing of 100 new ordinary shares to an investor for the agreed contribution of GBP 300,000. This mechanism constituted the commercial quid pro quo for the funding required to rescue WRE.

The plan was adopted in April 2023 with 100% support from both creditors and shareholders. The plan was fully implemented, meaning the cancellation and reissuing of shares for GBP 300,000 was given effect. In September 2023, as a result of substantial implementation the business rescue terminated. It is common cause that all procedural requirements prescribed by Chapter 6 were complied with throughout.

In 2025, Polsun then launched an application seeking declaratory and restorative relief to set aside the cancellation of its shares, to set aside the business rescue itself and to have WRE’s share register altered to reflect the shareholding as it was prior to the cancellation. The respondents in the main application brought an interlocutory application for security for costs on the basis that Polsun was a foreign entity with no assets in South Africa and that its claims had limited prospects of success.

The court confirmed that in considering an application for security for costs, it was no longer merely an enquiry of whether a foreigner was involved. As stated by the Constitutional Court in Giddey NO v H C Barnard and Partners [2007] (5) 525 CC there has to be an enquiry which balances an incola’s potential prejudice and inconvenience, including the prospects of recovery of an adverse costs order, against a foreign litigant’s section 34 constitutional right of access to courts.

One of the issues therefore that the court contemplated was Polsun’s prospects of success in the main application.

Chapter 6 of the Companies Act and the powers of business rescue practitioners

In assessing the merits of the main application, the court analysed the statutory architecture of Chapter 6 of the Companies Act, emphasising that business rescue is “a structured sequential process which confers defined rights and obligations on affected parties at each stage, culminating in a binding collective outcome once the prescribed majorities are achieved”.

The court held that once a business rescue plan is adopted in terms of section 152(4) of the Companies Act, it becomes binding on the company and all affected persons, irrespective of whether they supported it. At that point, the adopted plan replaces prior rights and claims with a new regime created by the plan.

Once the plan is implemented and the business rescue practitioner files a notice of substantial implementation, business rescue terminates by operation of law, and that termination marks finality. A completed process is not capable of being set aside retrospectively.

On the question of the practitioner’s powers, the court interpreted sections 137 and 152(6) of the Companies Act and held that business rescue practitioners are, in terms of those provisions, empowered to cancel and reissue shares if such steps are contemplated in an adopted plan. The term “status” of securities in section 137 was held to be wide enough to encompass changes to the shareholders’ relationship with the company, including whether that person remains a shareholder at all.

The court endorsed the finding of Meyer J in Moodley v On Digital Media (Pty) Ltd and Others [2014] (6) SA 279 (GJ), which rejected the contention that the statutory scheme precluded cancellation of shares in the context of business rescue. According to the court in that case, sections 137 and 152(6) expressly empower the business rescue practitioner to implement an adopted business rescue plan, including an alteration of shareholders’ rights through the cancellation and reissue of securities. The court emphasised that to interpret these provisions otherwise would be contrary to commercial reality, because an external investor would otherwise not inject funding into a financially distressed company without a capital restructuring of sorts. In this instance that restructuring was 100% shareholding.

Competence of relief sought

The court found that the main application was fundamentally defective. The business rescue plan had been endorsed by 100% of the affected parties, including shareholders, and had been substantively implemented. Payments in terms of the plan had been made to creditors and other parties, and a new shareholding arrangement had been put in place. Added to that, it had been over a year between the termination of business rescue and the filing of Polsun’s application. In summary, the court would effectively have been required to set aside a business rescue process which no longer existed and which was legally and factually impossible to reverse. No attempt was made by Polsun to explain how completed transactions could be undone or how third‑party rights would be protected, in fact it conceded that it did not know how the situation could be reversed.

The court also noted that Polsun had failed to explain why the alleged unconstitutionality was not raised contemporaneously during the business rescue proceedings at a time when it was legally represented and actively participated in the process. The constitutional challenge emerged only after (i) the plan was voted for by 100% of the affected parties; and (ii) substantial implementation.

In relation to Polsun’s argument that the cancellation of shares amounted to unlawful deprivation of property in terms of section 25 of the Constitution, the court found it to be procedurally defective in a number of respects – including the failure to clearly identify the precise constitutional infringement and the failure to engage with the just and equitable remedial framework contemplated in section 172(1)(b) of the Constitution.

The court also held that the failure to join the eight shareholders and nine creditors whose rights would be materially affected by the outcome of the relief sought in the main application was prima facie fatal to Polsun’s application. Relying on the SCA’s decisions in ABSA Bank v Naude and Others [2016] (6) SA 540 (SCA) and Golden Dividend 339 (Pty) Ltd v ABSA Ltd [2016] ZASCA 79, the court rejected Polsun’s contention that the non-joinder was a mere technicality which could be cured at a later stage. On the contrary, the SCA has authoritatively held that if creditors are not joined, their position would be prejudicially affected because any business rescue plan that they had voted for would be set aside and the money they would receive would not be paid or might have to be repaid.

Security for costs

Having assessed the merits, the court turned to the application for security for costs itself. Applying the principles of the Giddey case, the court confirmed that security for costs is a discretionary remedy, exercised judicially upon a consideration of all relevant facts and circumstances, with no single factor being determinative. Where it is practicable, a court is entitled to consider the merits of the underlying claim to determine whether the proceedings are vexatious or ill‑conceived.

Polsun was a foreign entity with no assets within the jurisdiction of the court. It had failed to disclose its financial position and had provided no evidence of its ability to satisfy an adverse costs order if one should be made. For reasons set out above, the court also found that the main proceedings had no realistic prospects of success.

Accordingly, the court found it just and equitable to order security for costs and to stay the main proceedings pending the furnishing of such security.

Conclusion

White Rivers is a significant judgment – it confirms, in unequivocal terms, that a completed business rescue, adopted with the requisite majorities, fully implemented, and terminated by operation of statute, should not be susceptible to being unravelled by a disaffected former shareholder after the event. The judgment further confirms the wide statutory powers of business rescue practitioners to implement adopted plans – including the cancellation and reallocation of shares. This discretion seems wide and open to abuse. However, the court also illustrated that affected parties are not without remedies, but if they wish to challenge the consequences of a business rescue plan they must do so timeously and through the right mechanisms, some of which are provided in by Chapter 6 itself. Belated, prima facie unsubstantiated, constitutional challenges launched after the process has run its full course are not the answer.