Ragavan and Others v Optimum Coal Terminal (Pty) Ltd and Others

In February 2018, Optimum Coal Terminal (Pty) Ltd (OCT) and Tegeta Exploration and Resources (Pty) Ltd (Tegeta) were placed under voluntary business rescue. Business rescue practitioners were appointed for each company. OCT was a wholly-owned subsidiary of Tegeta. Tegeta was also a creditor of OCT. In October 2021, OCT's business rescue practitioners published a business rescue plan and notified affected persons, including Tegeta as a creditor, that a meeting to vote on the plan would be held on 10 November 2021. A dispute arose between Tegeta's directors (the appellants) and Tegeta's business rescue practitioners (the respondents) over who had the right to vote on OCT's business rescue plan on behalf of Tegeta. The appellants contended that as directors, they retained the right to vote, while the practitioners argued the right vested in them. The high court interdicted the holding of the meeting pending determination of the issue, and ruled in favour of the practitioners.

• When a company in business rescue (Company A) is a creditor of another company in business rescue (Company B), and Company B is a wholly-owned subsidiary of Company A, does the right to vote on Company B's business rescue plan vest in Company A's business rescue practitioners or its board of directors?
• What is the scope and extent of 'full management control' conferred on business rescue practitioners under section 140(1)(a) of the Companies Act 71 of 2008?
• Whether the power to vote as a creditor on a debtor company's business rescue plan falls within the 'full management control' of business rescue practitioners or remains with the board of directors
• The proper interpretation of sections 66, 137, 140, 141, 142, 151 and 152 of the Companies Act in the context of business rescue

The appeal was dismissed with costs, including the costs of two counsel, in respect of the first, second, third, fifth, sixth and seventh respondents as well as Liberty Energy (Pty) Ltd.

When a company in business rescue is a creditor of another company (whether or not also in business rescue), the right to vote on the debtor company's business rescue plan vests in the creditor company's business rescue practitioners, not its board of directors. This is because the 'full management control' conferred on business rescue practitioners by section 140(1)(a) of the Companies Act 71 of 2008 includes control over the company's property and assets, of which the debtors' book forms part. Voting as a creditor on a debtor's business rescue plan constitutes a decision over the company's property and therefore falls within the practitioner's full management control. This interpretation is supported by the definition of 'business rescue' in section 128(1)(b), which expressly includes management of the company's property, and by sections 133, 134, 141 and 150, which confer extensive powers over the company's property on practitioners. The power to vote on a debtor's plan is essential for practitioners to fulfill their statutory duties to investigate the company's affairs and develop a business rescue plan. Section 66(1), which confers plenary powers on the board, operates subject to exceptions in the Act, and Chapter 6 is such an exception.

The Court noted that whether the board retains any power on strategic matters of the company during business rescue was a matter it did not need to determine, as the specific power to vote as a creditor on a debtor's plan clearly fell within the practitioner's management control. The Court also observed that the structural relationship between the two companies (parent-subsidiary) and the fact that one practitioner served in both companies, while raised by the appellants, were not determinative of the legal issue. The Court implicitly rejected the appellants' 'hybrid cohabitation model' and the purported distinction between 'management' and 'governance' functions, noting that such differentiation had no foundation in Chapter 6. The Court also rejected the appellants' distinction between pre- and post-adoption phases of business rescue as having no basis in the provisions of Chapter 6.

This case provides important clarification on the scope of business rescue practitioners' powers under Chapter 6 of the Companies Act 71 of 2008. It establishes that 'full management control' under section 140(1)(a) includes the power to vote as a creditor on a debtor company's business rescue plan, even where the creditor company is itself in business rescue and the debtor is its subsidiary. The judgment reinforces the comprehensive nature of the shift in management and control from directors to practitioners during business rescue proceedings. It clarifies that practitioners' control extends to all decisions concerning the company's property and assets, including rights in relation to debtors. The decision is significant for understanding the respective roles of directors and practitioners during business rescue, and confirms that practitioners' powers are not limited to day-to-day operational management but extend to strategic decisions concerning the company's property. It provides guidance on the interpretation of business rescue provisions and their purpose in facilitating the rehabilitation of financially distressed companies.