HOT OFF THE PRESS AND GROUNDBREAKING

Panamo Properties (Pty) Ltd v Nel and Another NNO (35/2014) 2015 ZASCA 76 (27 May 2015)  

by Alex Eliott, Hogan Lovells and Dawie Van Der Merwe, Independent Advisory. 

This judgment is likely to have profound positive implications for the business rescue industry.

Summary and legal framework:

Business rescue proceedings – resolution by company in terms of s 129(1) of Companies Act 71 of 2008 – non-compliance by company with further requirements of ss 129(3) and (4) of the Act – effect – s 129(5) of the Act – non-compliance does not automatically result in the business rescue being terminated – such non-compliance a ground for bringing an application to court to set aside the resolution in terms of s 130(1)(a)(iii) of the Act – a court will only set aside such resolution if it is otherwise just and equitable to do so in terms of s 130(5) of the Act – the business rescue terminates in terms of s 132(2)(a)(i) of the Act once an order setting aside the resolution has been granted.

The highlights of the judgment and application to the present case:

Non-compliance with the procedural requirements of sections 129(3) and (4) of the Companies Act 71 of 2008 does not automatically result in the proceedings becoming a nullity, notwithstanding the provisions of section 129(5). The Advanced Technologies and Engineering vs Aeronautique  judgment of Fabricius J and others following that line, have been overruled.

An applicant who wishes to set aside a business rescue resolution or order must do so by approaching the Court in terms of section 130 of the Act. Trivial non-compliance with time periods do not bring about termination of the business rescue proceedings and the court will in such an application determine genuine issues of whether the company is in financial distress or remains capable of being rescued.

Only an affected person has the necessary locus standi to apply to court for such an order

The lapsing of a resolution does not automatically result in the business rescue proceedings terminating. Rather, the business rescue proceedings end only when a court order setting aside the resolution or order that began those proceedings, in terms of section 132(2)(a)(i).

The relevant statutory provisions are shoddily drafted but using a purposive approach, as described by Wallis J in Natal Joint Municipal Pension Fund v Endumeni Municipality, can be reconciled by means of a sensible interpretation that will avoid anomalies.

The disjunctive “or” between subsections 130(5)(a)(i) and (ii) must be read as a conjunctive “and”, which has the effect that the court may only set aside the resolution if it finds that it is just and equitable to do so (i.e. procedural deficiencies will never constitute sufficient grounds on their own to set aside the resolution)

The judgment expressly states that the above approach “largely precludes litigants, whether shareholders or directors of the company or creditors, from exploiting technical issues in order to subvert the business rescue process or turn it to their own advantage.” This approach also serves the purpose of section 7 of the Act which is to provide for the efficient rescue and recovery of financially distressed companies in a manner that balances the rights of all relevant stakeholders.

In this case a liquidation order which had been made by the court a quo at the instance of FNB was set aside. Effectively the business rescue practitioner was reinstated.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

EVERY MOVE MATTERS

“The beauty of a move lies not in its appearance, but in the thought behind it” – Aron Nimzowitsch, Chess Master 

Research shows that our society is increasingly becoming more inactive. Our young children are spending more and more time in front of the TV instead of on the sports field. Despite our inactive lives, we all want to look and feel our best. Every physical move we make, influence our health.

Likewise, there are important moves we need to make in our personal and professional lives.  An important move that necessitates a thought behind it, is the decision by an individual with assets, to have a Last Will and Testament drafted in order to make sure his or her assets are dealt with in accordance with their wishes. One of the reasons people neglect to have a Will drafted, is denial of the inevitable. In this issue, we publish articles on the importance of having a Last Will and Testament and the consequences of not having one.

Furthermore, the issue also contains informative information regarding collection of practical issues important to small practitioners, insolvency practitioners as well as business rescue practitioners in South Africa.

This issue also reflects on the recent case of African Bank Corporation of Botswana v Kariba Furniture Manufacturers & Others (228/2014) [2015] ZASCA 69 (20 May 2015) and how not to cram down a binding offer down a dissenting creditor’s throat.

Think several moves ahead and make the move today. Our professional staff are here to assist you. Whether it is a decision regarding your personal health, your personal finances or your business, thinking several moves ahead, will enable you to make decisions which will give you peace of mind.

Written by Hillary Plaatjies

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

A BINDING OFFER AND A DISSENTING CREDITOR

by Hans Klopper, Independent Advisory

One of the cornerstones in any restructuring regime is to deal with uncooperative creditors in an effective manner, and to find an equitable mechanism to ensure that a rescue or reorganization plan is successfully implemented while there are objections to the plan. In the United States, under Chapter 11 of their Bankruptcy code a “cram down” allows the Bankruptcy Courts to impose conditions to ensure that all parties have a better return than what they would have had without such modifications.

This was undoubtedly also what the South African legislature had in mind with the provisions of s153 (1) (b) (ii) of the Companies Act 71 of 2008 (‘the Act”) (“the binding offer provisions”).

In the United States,[1] the term “cram down” originates from the notion that the proposed “haircut” or changes to a loan are “crammed down” creditors’ throats. Creditors can thus either renegotiate their position through a Chapter 11 reorganization, or lose everything through a liquidation process under Chapter 7 of the US Bankruptcy code.

In my view, the binding offer provisions under this Act were intended to be a mechanism to “force” a creditor who does not accept the proposals enclosed in a business rescue plan to be forced to participate and to be “crammed down”.

On 20 May 2015 the SCA handed down judgement in the matter of African Bank Corporation of Botswana v Kariba Furniture Manufacturers & Others (228/2014) [2015] ZASCA 69 (20 May 2015) and provided their interpretation on the meaning of the “binding offer provisions”. The conflicting judgements of the court a quo in the Kariba Matter and the DH Brothers Industries (Pty) Limited v Gribnitz NO 2014 (1) SA 417 (GNP) matter, now appear to have been settled. Have we seen the end of this matter?

Upon an initial reading of the latest Kariba judgement one would think that the ability of affected persons to purchase the voting interest of a dissenting creditor would henceforth be difficult, as a binding offer will only result in an enforceable contract once the creditor accepts the offer.

In my view however, it is inconceivable that the legislature intended that a binding offer to a dissenting creditor, at all relevant times, require the acceptance thereof. The reason for my view is to be found in a subsequent section of the Companies Act, more specifically s153 (6) of the Act.

It is provided in s153 (6) that the holder of a voting interest, or a person acquiring that interest in terms of a binding offer, may apply to a court to “review, re-appraise and re-value a determination by an independent expert…” This raises the question as to why the legislature provided for this remedy to unlock a potential deadlock. If an offer first had to be accepted before a legally enforceable contract comes into existence, to purchase a voting interest, then it can be asked, why would it be necessary to approach the court if consensus was the order of the day and an agreement had to come into existence on every occasion? Was it not the intention that an unhappy holder of a voting interest who received and was bound by a “binding offer” has the remedy and option to approach a court to “review, re-appraise and re-value a determination by an independent expert”?

It would therefore appear that the door might still be open for affected parties to, in the event of a specific creditor dissenting upon being offered a return better than the immediate liquidation of the company; properly invoke the provisions of the aforesaid section. The first step in this process is to attend a proper independent and expert valuation of the underlying assets forming the subject matter of the proceeds likely to accrue to creditors upon liquidation. Secondly, having the financial means and ability to make an immediate payment in respect of the amount offered to the expert calculation of the liquidation dividend.

What would appear to have gone wrong in the Kariba matter was that the business rescue practitioner, in conjunction with affected persons merely, upon his published business rescue plan being rejected, indicated that the shareholders wished to make a binding offer to purchase the dissenting bank’s voting interest and himself ruled that it was not open for the bank to reject to the offer.

The SCA criticised the practitioner who appeared not to have provided sufficient financial detail to enable a valuation of the liquidation value of the bank’s voting interest to be ascertained, in his business rescue plan. The business rescue practitioner would also appear not to have provided any evidence by an independent valuation of the company’s assets but rather relied on his own valuation. The offer made was not accompanied by the demonstration of immediate funding being available to make payment in respect of the offer. Finally the offer did not present the creditor bank with an opportunity to, in the face of an expertly determined valuation of its voting interest and likely liquidation outcome, consider the offer in a business-like manner.

The Kariba judgement appears to have closed the door on affected persons who are aggrieved by a dissenting creditor’s refusal to accept an offer that forms part of a professionally proposed business rescue plan. However, I believe that in the event of a properly constituted binding offer made, the intention of the legislature and the success of our business rescue regime would be better served by a more lenient interpretation to the concept of a binding offer.

The criticism levelled at the practitioner in Kariba judgement and the successful appeal would appear to relate to an ill-conceived “offer” having been made without any substantiation and being accompanied by the wherewithal and demonstrated ability to make payment of the amount offered.

[1] Read more:

http://www.investopedia.com/terms/c/cramdown.asp#ixzz3b2mOx0od

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

YOUR WILL AND FOREIGN ASSETS

Each country has its own legislation regarding inheritance and signing of wills. It would therefore be possible that your South African will does not comply with all the requirements of the country where your foreign assets are located. This may result in the non-inheritance of your foreign assets in terms of your last will and testament. It is therefore imperative that you should have two wills if you have foreign assets; one for your South African assets and one regarding your foreign assets according to the regulations of the country where these assets are located. It is always important to plan your estate carefully; should you have foreign assets, however, you must take extra care to ensure that you meet all the requirements of the relevant country’s legislation.

The aim with planning an estate is ultimately to reach your goals in the distribution of your assets and liabilities. These goals should make provision for the management of your estate during your lifetime, but also after your passing.

A further consequence of the increasing  exposure to international investments is that South Africans are also exposed to foreign fiduciary services, including wills for their foreign assets.

Whether it is truly necessary to draw up a separate foreign will or just one global will depends on the following:

  • where your foreign assets are located;
  • the nature of the assets and the type of products in which these assets have been invested; and
  • who takes care of the administration of your foreign assets/investments.

Should your South African will be drawn up in Afrikaans, it may be necessary to have it translated and sealed before sending it to the foreign executor/agent. This could be time-consuming and very costly.

A separate foreign will also has other advantages: your foreign will is administered in line and simultaneously with your South African assets; an executor/agent who is familiar with the required procedures in the relevant country where your assets are located will save you time and money; and someone who draws up wills professionally within the jurisdiction of the relevant country can provide you with advice regarding the possible dangers in relation to tax accountability and hereditary succession when it comes to assets outside the borders of South Africa.

Although we would recommend drawing up a second will with reference to foreign assets, we suggest that, should there be any mention of foreign assets, your South African will must be drawn up in English and it should not pertinently refer to the fact that the document is only applicable to your South African assets.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

SHOULD I DRAFT A WILL?

A mother who has always wanted her daughter to inherit her diamond engagement ring may never get her wish if she dies without leaving a valid written will. The mother’s estate would then be distributed in terms of the Intestate Succession Act No. 81 of 1987.  

Taking the time to draft a will can leave you with the peace of mind that your assets will be distributed according to your wishes as far as possible. Your will should reflect exactly how you want your assets to be dealt with after your death and should not be contra bonos mores (against good morals). It should also not amount to “ruling from the grave”.

There are a number of legal requirements that have to be complied with for a will to be valid.  If it does not comply with all of these requirements it could be found to be invalid. Your estate would then also be dealt with in terms of the Intestate Succession Act of 1987. It is therefore of the utmost importance that you obtain the assistance of someone with the necessary specialised skill and knowledge to assist you with the drafting of your will.

A will should also regularly be revised and updated to adapt to your changing circumstances, for example after getting married, and when there is a child on the way. Section 2B of the Wills Act No. 7 of 1953 (as amended by the Law of Succession Act No. 43 of 1992) deals specifically with a change in marital status by way of divorce, and reads as follows:

If any person dies within three months after his marriage was dissolved by a divorce or annulment by a competent court and that person executed a will before the date of such dissolution, that will shall be implemented in the same manner as it would have been implemented if his previous spouse had died before the date of the dissolution concerned, unless it appears from the will that the testator intended to benefit his previous spouse notwithstanding the dissolution of his marriage.”

This can be explained by way of the following example: A and B get divorced and B dies within three months of the date of the divorce. B’s will was executed before they got divorced. Unless B’s will specifically indicated that A must benefit from B’s estate despite the divorce, B’s estate will then be distributed as if A died before they got divorced. A will therefore not inherit from B’s estate in this scenario. However, should B die more than 3 months after the divorce and B’s will, which benefits A, was not changed, then it will be seen as if B intended A to inherit, despite the divorce.

A person who was previously married and who remarries, should ensure that the necessary changes are made to his/her will. If not, this could have profound consequences for the “new” spouse, especially if the will still benefits the spouse from the previous marriage.

When there are minor children in the picture, it is advisable to make adequate provision for their living costs and education in your will. This can be done by creating a testamentary trust of which the minor children can be beneficiaries.

Thinking and talking about one’s passing is not a pleasant subject. Having a valid, clear and unambiguous will can prevent unpleasant family feuds caused by them having to make decisions about the distribution of your estate. It is certainly worth the time and effort to have a valid written will in place.

References:

Drafting of Wills 2013 – LEAD

Intestate Succession Act 81/1987

Wills Act 7/1953

Compiled by Riëtte Nel 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.