Cloete Murray NO & Another v FirstRand Bank Ltd t/a Wesbank

On 22 July 2010, FirstRand Bank Ltd t/a Wesbank (Wesbank) concluded a Master Instalment Sale Agreement (MISA) with Skyline Crane Hire (Pty) Ltd (Skyline), selling and delivering movable goods with retention of ownership until full payment. On 29 May 2012, Skyline's board voluntarily resolved to place the company under business rescue in terms of s 129 of the Companies Act 71 of 2008. Business rescue proceedings commenced on 30 May 2012 when the resolution was filed. Skyline was already in arrears on the MISA instalments. On 30 May 2012, Wesbank sent a letter cancelling the MISA due to non-payment, deemed received on 3 June 2012. In July 2012, the business rescue practitioner consented to Wesbank repossessing and selling the goods. The sale proceeds exceeded the debt, leaving a surplus of approximately R800,000, which Wesbank retained by set-off. On 17 July 2012, business rescue was discontinued and Skyline was placed in provisional liquidation, with a final winding-up order on 10 September 2012. The appellants were appointed as co-liquidators and sought to reclaim the surplus proceeds.

• Whether cancellation of a contract by a creditor during business rescue proceedings constitutes 'enforcement action' under s 133(1) of the Companies Act 71 of 2008
• Whether s 133(1) requires consent of the business rescue practitioner or leave of the court for cancellation of a pre-existing contract
• The proper interpretation of the moratorium provisions in s 133(1) of the Companies Act
• Whether the liquidators could rely on s 134(1)(c) of the Companies Act for the first time on appeal
• The relationship between ss 133, 134(1)(c) and 136(2) of the Companies Act in the business rescue context

The appeal was dismissed with costs, including the costs of two counsel.

The cancellation of a contract by a creditor during business rescue proceedings does not constitute 'enforcement action' as contemplated in s 133(1) of the Companies Act 71 of 2008. The phrase 'enforcement action' in s 133(1) must be interpreted contextually as referring to enforcement by way of legal proceedings in a forum, such as execution of court orders, writs of execution or attachment. It is a species of or ancillary to 'legal proceeding'. The term 'enforcement action' cannot linguistically or contextually bear the meaning of contract cancellation, as cancellation is a unilateral act that does not occur in or by means of any process associated with any forum, and it does not make linguistic sense to speak of cancellation as having 'commenced or proceeded with' in any forum. Therefore, a creditor may lawfully cancel a pre-existing contract during business rescue proceedings without obtaining the consent of the business rescue practitioner or leave of the court under s 133(1).

The court made several obiter observations: (1) The requirement of written consent in s 134(1)(c) should not necessarily be regarded as peremptory rather than directory, particularly where there is no sanction for non-compliance and where construing it as peremptory would lead to injustice. (2) Had the liquidators based their case on s 134(1)(c), questions would have arisen regarding whether the practitioner's consent to repossession constituted acceptance of the MISA's termination and whether repossession destroyed the substratum of the agreement. (3) The moratorium in s 133(1) is a cornerstone of business rescue procedures providing crucial breathing space for restructuring. (4) Foreign company law from jurisdictions like England, Australia and Canada, while sharing similar aims, differs sufficiently in wording that it provides no meaningful assistance in interpreting s 133(1). (5) The obiter dictum in LA Sport 4x4 Outdoor CC v Broadsword Trading 20 (Pty) Ltd that cancellation constitutes 'legal process' under the moratorium was clearly wrong. (6) Extending s 133(1) to prevent contract cancellation would fundamentally change South African contract law and would be contrary to the principle that the legislature does not intend to alter existing law more than necessary, particularly regarding existing rights.

This judgment provides authoritative guidance on the scope of the business rescue moratorium in s 133(1) of the Companies Act 71 of 2008. It establishes that the moratorium does not prevent creditors from unilaterally cancelling contracts during business rescue proceedings. The decision clarifies the meaning of 'enforcement action' in the business rescue context, limiting it to enforcement by way of legal proceedings rather than extending it to contractual rights of cancellation. It preserves traditional contract law principles regarding unilateral cancellation for breach while maintaining the purpose of business rescue proceedings. The judgment also clarifies the relationship between various sections in Chapter 6 of the Companies Act dealing with business rescue, particularly the interplay between ss 133, 134(1)(c) and 136(2). This case is significant for practitioners dealing with business rescue proceedings and secured creditors, as it delineates the boundaries of the moratorium and confirms that contractual cancellation rights survive the commencement of business rescue proceedings, subject to the practitioner's powers under s 136(2).