Islandsite Investments 180 (Pty) Ltd v The National Director of Public Prosecutions and Others

Islandsite Investments 180 (Pty) Ltd (the company) was in business rescue under Chapter 6 of the Companies Act 71 of 2008. The fourth and fifth respondents were appointed as business rescue practitioners (BRPs). The National Director of Public Prosecutions (NDPP) launched an ex parte application for a provisional restraint order under section 26(3) of the Prevention of Organised Crime Act 121 of 1998 (POCA) against property of the company and other respondents. The directors of the company appointed BDK Attorneys and delivered a notice of intention to oppose and an answering affidavit seeking to oppose confirmation of the provisional restraint order. The BRPs also appointed attorneys and indicated there was a dispute about who was authorised to represent the company. The NDPP launched an application under Uniform Rule 7(1) to dispute the authority of the directors' attorneys to represent the company. The Free State High Court (Musi JP) ruled that BDK Attorneys did not have authority to act on behalf of the company and that the directors had no standing to oppose the proceedings without the approval of the BRPs. The directors, on behalf of the company, appealed to the Supreme Court of Appeal.

• Whether directors of a company in business rescue have authority to represent the company in restraint order proceedings under POCA without the approval of business rescue practitioners
• Whether the authority to represent a company in litigation concerning property restrained under POCA falls within the 'full management control' granted to business rescue practitioners under section 140(1)(a) of the Companies Act
• The proper interpretation of sections 66(1), 128, 137(2) and 140 of the Companies Act concerning the respective roles and authority of directors and business rescue practitioners during business rescue proceedings

The appeal was dismissed. The directors of Islandsite Investments 180 (Pty) Ltd, Ms Ragavan and Mr Chawla, were directed to pay the costs of the appeal jointly and severally, the one paying, the other to be absolved.

During business rescue proceedings under Chapter 6 of the Companies Act 71 of 2008, business rescue practitioners have 'full management control' of the company in substitution for its board and pre-existing management as provided in section 140(1)(a). This includes the authority to represent the company in litigation that directly implicates the property of the company, such as restraint order proceedings under the Prevention of Organised Crime Act. Directors must exercise their functions subject to the authority of the practitioner and must exercise management functions in accordance with the express instructions or directions of the practitioner as required by section 137(2). The provisions of Chapter 6 constitute an exception to the general rule in section 66(1) that the board manages the business and affairs of a company. The term 'full management control' must be given a wide meaning and includes everything that has to do with the management of the company's property.

The court noted that BRPs contended they could authorise directors to deliver an affidavit and present argument in the POCA litigation. The court stated that this contention proceeds from the premise that BRPs have authority but does not inform the issue in the rule 7 application, which is limited to the question of whether they have such authority. The court held that the question of the manner in which BRPs exercise their authority does not fall within the ambit of the rule 7 application and must be reserved for another day. The court also observed that if agreement cannot be reached between directors and BRPs on the conduct of litigation, and if it can be shown that BRPs had acted or were about to act in a manner which could prejudice the company, there are remedies available to interested parties such as directors. The court noted that both directors and BRPs are enjoined to act in the best interests of the company and that the first resort would be to explore whether they can agree on the conduct of litigation.

This judgment clarifies and reinforces the extensive powers of business rescue practitioners under the Companies Act 71 of 2008. It confirms that BRPs have 'full management control' of a company during business rescue proceedings, which includes the authority to represent the company in litigation that implicates the company's property, including restraint order proceedings under POCA. The judgment emphasizes that during business rescue, directors must exercise their functions subject to the authority of the BRP and in accordance with the BRP's express instructions or directions. The judgment provides important guidance on the interpretation of sections 66(1), 128, 137(2) and 140 of the Companies Act and the relationship between directors and BRPs during business rescue. It also demonstrates that directors who purport to act on behalf of a company without authority may be held personally liable for costs. The judgment applies and develops principles established in Ragavan v Optimum Coal Terminal regarding the wide interpretation of BRPs' powers.