CMC is a company incorporated in Italy and registered as an external company in South Africa under the Companies Act 71 of 2008. In late 2018, CMC experienced financial difficulties and lodged an application in the Court of Ravenna, Italy, for a preventive arrangement with creditors under Italian Bankruptcy Law. On 7 December 2018, the Italian court granted an order assigning CMC 60 days to file a proposal for composition with creditors and appointed judicial commissioners. On 14 December 2018, CMC's board resolved that the company was financially distressed and placed it under business rescue in terms of section 129(1) of the Companies Act, appointing Messrs Van der Merwe and Rey as business rescue practitioners. On 15 February 2019, the CIPC advised that CMC could not be placed under business rescue as it is an external company. CMC brought an urgent application seeking a declaration that it was under business rescue, or alternatively that the Italian court order be recognized and enforced in South Africa. By the time of the hearing, the Italian proceedings had progressed significantly, with creditors approving a composition plan and the Court of Ravenna approving it on 29 May 2020.
1. The application to lead further evidence on appeal was dismissed with costs on the scale as between attorney and client, including costs of two counsel. 2. The appeal was dismissed with costs, including the costs of two counsel.
Business rescue under sections 128 and 129 of the Companies Act 71 of 2008 is only available to a 'company' as defined in section 1 of the Act. A 'company' means a juristic person 'incorporated in terms of this Act', which refers to incorporation under the specific provisions in Part B of Chapter 2 (sections 13-14). Foreign companies registered as external companies under section 23 are not incorporated 'in terms of this Act' and therefore cannot access business rescue proceedings. The express exclusion of external companies registered under the old Act in the definition of 'company' confirms that foreign companies are excluded from business rescue. Where the legislature intends foreign companies to comply with provisions of the Act, it makes express provision for this (e.g., section 95(1)). Foreign insolvency and company law statutes have no extra-territorial effect in South Africa. Recognition of foreign insolvency proceedings must be sought through proper proceedings brought by the foreign office-holder (liquidator, trustee, or equivalent), not by the company itself, and such recognition will be granted on terms that protect local creditors and respect domestic law.
The court made critical observations about the conduct of the litigation, particularly the application to adduce further evidence. Wallis JA stated that bringing an application three days before the hearing with 100 pages of material, without adequate explanation for the delay (when the relevant Italian judgment was available since May 2020 and translated in June 2020), was 'inexcusable'. The court noted that counsel did not even offer an apology when confronted about the delay. The court observed that the heads of argument were 'inaccurate' in not mentioning the court approval of the composition. The court commented that the lack of affidavits from the South African attorney explaining his instructions or why the application was not brought urgently was notable. Wallis JA described the explanation for delay regarding Italian court holidays as 'wholly unacceptable' and 'not born out by the certificate'. The court remarked that seeking to impose terms of a composition on South African creditors without citation or service 'would amount to a wholesale breach of their constitutionally guaranteed right of access to courts' and 'cannot be countenanced'. These observations underscore professional standards expected in litigation and the importance of timely disclosure of material developments.
This judgment clarifies that business rescue under the Companies Act 71 of 2008 is not available to foreign companies, even if registered as external companies in South Africa. It confirms that the definition of 'company' for business rescue purposes is restricted to companies incorporated under the Act itself, and that the express exclusion of external companies registered under the old Act demonstrates legislative intent to exclude all foreign companies. The judgment also addresses the proper procedure for recognition of foreign insolvency proceedings in South Africa, clarifying that such proceedings do not have automatic extra-territorial effect and must be recognized through proper court proceedings brought by the foreign office-holder (not the company itself). The case reinforces principles of statutory interpretation, emphasizing the importance of reading definitions in their statutory context and giving effect to express exclusions. It also demonstrates the court's intolerance of procedural irregularities, particularly late applications to adduce evidence that affect the rights of parties without proper notice.
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