Business Rescue - Possible after the granting of a final Liquidation Order

An important judgment for Business Rescue was handed down in the North Gauteng High Court by his Honorable Justice Legodi in the matter of P T van Staden v Angel Ozone Products CC (In Liquidation) & others on the 12^th of October 2012.

The Applicant (member) of a Close Corporation named Angel Ozone Products CC (First Respondent) brought an application in terms of Section 131 of the Companies Act, Act 71 of 2008 (“new Act”) more than a year after the Magistrates Court of Pretoria had granted a final liquidation order.

Three intervening parties as creditors opposed the application mainly on the basis that the Applicant was not entitled to the relief sought. Their argument was based on fact that liquidation proceedings end when the Court grants a final liquidation order as in this instance and, where after winding-up proceedings follow as directed by the Master’s office.

It was not disputed that liquidation proceedings can be converted into business rescue proceedings. The intervening parties however suggested that a distinction should be drawn between liquidation proceedings and winding-up proceedings, and that a Section 131 application can only be brought by an effected party while liquidation proceedings are pending and winding-up proceedings commence. The intervening parties argued that the new Act does not have retrospective working on orders granted prior to its commencement date, being the 1^st of May 2011.

Judge Legodi shared the views of Henochsberg on the Companies Act 71 of 2008 that liquidation proceedings or winding-up proceedings can be converted into business rescue proceedings no matter how far these proceedings might have progressed. Such contemplated business rescue proceedings being a better option than the current liquidation/winding-up proceedings.

The Judge was furthermore of the view that liquidation proceedings do not end when a final liquidation order is granted, but only once a final Liquidation and Distribution Account has been confirmed by the Master of the High Court as it was originally the case in Section 408  of the old Companies Act, Act 61 of 1973 (“old Act”).

The Judge concluded that Item 10(2) of Schedule 5 to the new Act makes it clear that an order granted in terms of the old Act is subject to any further order that could be made under the new Act. In the present matter the Judge found that the contemplated business rescue proceedings do not purport to extinguish the existing rights and obligations in terms of the old Act.

In conclusion Companies and/or Close Corporations subject to final liquidation orders will still be able to apply to convert such proceedings into business rescue proceedings if the proposed business rescue constitutes a better option than the liquidation of such an entity.