Business rescue
The company remains in possession; however, the business rescue practitioner takes over the management and control of the company, and any substantial process or action of the company will require approval from the business rescue practitioner.
Liquidation
No. The company may not continue with the business, except insofar as it may be necessary for its beneficial winding up.
Compromise (creditors' scheme of arrangement)
Prior to approval of the proposal, creditors would be entitled to attach security in accordance with their rights under the relevant agreement and insolvency laws, generally.
Once the proposal is approved, the debtor would remain in possession of specified assets and continue to manage its business to the extent contemplated in the proposal approved by the creditors or relevant classes of creditors.
Business rescue
The commencement of business rescue gives rise to the imposition of a moratorium on all current and future claims against the company. This includes claims in relation to property belonging to the company or lawfully in its possession. The moratorium means that no legal proceedings, including any enforcement actions against the company or in respect of property belonging to the company or lawfully in its possession, may be commenced or proceeded with against the company.
Further to the above, if a company in Business Rescue wishes to dispose of any property over which another person has any existing security, the company must do the following:
- Obtain the prior consent of that other person, unless the proceeds of the disposal would be sufficient to fully discharge the indebtedness protected by that person's security
- Promptly pay to that other person the sale proceeds attributable to that property up to the amount of the company's indebtedness to that other person or provide security for the amount of those proceeds, to the reasonable satisfaction of that other person.
The moratorium generally will not operate worldwide.
Liquidation
The company or a creditor may apply to court to stay proceedings against the company before the winding-up order is made.
When a court has made an order for the winding-up of a company or a resolution has been passed for the voluntary winding up of a company, the following will take place:
- All civil proceedings by or against the company concerned shall be suspended until the appointment of a liquidator.
- Any attachment or execution put in force against the estate or assets of the company after the commencement of the winding-up shall be void.
Any person who instituted legal proceedings against a company and which legal proceedings were suspended by the winding-up procedure and any person who intends to institute legal proceedings against the company, shall within four weeks after the appointment of the liquidator give the liquidator at least three weeks' notice before continuing or commencing legal proceedings against the company.
These measures will generally not operate worldwide
Compromise (creditors' scheme of arrangement)
The moratorium regime, including its scope and application, is as agreed in the proposal. Consequently, the moratorium would not commence until the proposal is approved. Often an interim moratorium or standstill is agreed with major creditors pending the formal meeting of all creditors to approve the proposal.
To the extent that a creditor has consented to a standstill or the proposal, it would notionally be treated in the same way as any contractual agreement by foreign courts, depending on the particular jurisdiction. Where an approved proposal containing a moratorium has been sanctioned by a South African court order to "cram down" dissenting creditors, the moratorium would then be recognized only to the extent that South African court orders are recognized in a particular foreign jurisdiction.
Business rescue
After business rescue proceedings have been initiated, the company may obtain post-commencement funding to enable the company to continue trading. Post-commencement finance does not enjoy a superpriority but can be secured by using an asset of the company that is not already encumbered and may be recovered, whether secured or not secured, after the remuneration and expenses of the business rescue practitioner, employee and claims of secured creditors have been paid.
Liquidation
N/A
Compromise (creditors' scheme of arrangement)
There is no specific provision for this; however, super-priority financing may be agreed as part of the proposal to be approved by the creditors.
Business rescue
Yes, as long as it is provided for in the business rescue plan and the business rescue plan has been approved by the creditors.
Liquidation
No. The consequence of liquidation proceedings is that the company is dissolved; therefore, a debt-to-equity swap would not be possible.
Compromise (creditors' scheme of arrangement)
Yes, a debt-equity swap may be incorporated into a proposal under section 155 of the 2008 Companies Act but this may require additional approvals (including shareholder approvals) to be obtained.
Unless otherwise stated in a company's memorandum of incorporation, the board of directors may issue shares in the company to the extent that there are authorized and unissued shares available to be issued. Shareholder approval by special resolution will be required if:
- There are insufficient authorized and unissued shares available to implement the compromise, to increase the number of authorized shares in the company.
- The compromise proposes the issuance of shares, securities convertible into shares or rights exercisable for shares and the voting power of the shares that are issued or issuable as a result of compromise will be equal to or exceed 30% of the voting power of all the shares of that class held by existing shareholders.
A separate procedure under section 114 of the 2008 Companies Act must be followed for a scheme of arrangement with existing holders of securities issued by the company.
In the case of private companies, it may further be necessary to procure a waiver of pre-emptive rights held by existing shareholders in relation to any new shares issued by the company.
Business rescue
Yes, provided this is provided for in the business rescue plan, which the creditors have approved.
Liquidation
No.
Compromise (creditors' scheme of arrangement)
Generally, releases are only available from creditors or affected groups of creditors, which are afforded an opportunity to vote on the proposal. However, a third party may be included in the proposed scheme of arrangement by agreement between such third party, the company and the requisite majority of creditors.1
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1. Ex parte Cyrildene Heights (Pty) Ltd 1966 (1) SA 307 (W) at 310; Du Preez v. Garber: In re Die Boerebank Bpk 1963 (1) SA 806 (W).
Business rescue
No.
Liquidation
This will differ from jurisdiction to jurisdiction.
Compromise (creditors' scheme of arrangement)
The procedure relies on an agreement between the company and its creditors, which would be treated in the same way as any contractual agreement by foreign courts.
The company may also apply for the proposal adopted by the relevant creditors to be made an order of court. The proposal would then be recognized to the extent that South African court orders are recognized in other jurisdictions.
Business rescue
N/A
Liquidation
In 2000, the legislature passed a South African version of the UNCITRAL Model Law, called the Cross-Border Insolvency Act ("Act"). The Act provides for a "designation clause," which provides that the Act will only be applicable to countries the Minister of Justice has designated. The Minister of Justice has not designated any countries to which the Act will apply. Therefore, for the time being, cross-border insolvency matters are regulated in terms of the common law.
Compromise (creditors' scheme of arrangement)
In 2000, the legislature passed a South African version of the UNCITRAL Model Law, called the Cross-Border Insolvency Act ("Act"). The Act provides for a "designation clause," which provides that the Act will only be applicable to countries the Minister of Justice has designated. The Minister of Justice has not designated any countries to which the Act will apply. Therefore, for the time being, cross-border insolvency matters are regulated in terms of the common law.
Business rescue
Yes.
Liquidation
the company may not continue with its business once it has been placed into liquidation, except insofar as it may be necessary for its beneficial winding up.
Compromise (creditors' scheme of arrangement)
Yes.