Lutchman N.O. and Others v African Global Holdings (Pty) Ltd and Others; African Global Holdings (Pty) Ltd and Others v Lutchman N.O. and Others

Following revelations at the Zondo Commission regarding state capture involving the Bosasa Group of companies, Operations' banking facilities were withdrawn. This led directors to place Operations and its ten subsidiaries (the Bosasa companies) under voluntary winding-up in February 2019, and joint provisional liquidators were appointed. Holdings attempted to have the special resolutions and liquidators' appointments declared null and void, which failed both in the High Court (Ameer AJ) and on appeal to the Supreme Court of Appeal (November 2019). The liquidators, with directors' consent, obtained court orders extending their powers to sell assets in consultation with and subject to the consent of the directors, pending the appeal outcome (Mudau J and Bhoola AJ orders). On 22 November 2019, the SCA upheld the liquidators' appeal, confirming the Bosasa companies remained in liquidation. On 3 December 2019, Holdings issued a business rescue application. Between 4-6 December 2019, the liquidators proceeded with a public auction selling most assets of six Bosasa companies for approximately R113 million. Holdings then launched an auction application to set aside the sales, arguing: (1) the business rescue application suspended liquidation proceedings under s 131(6) of the Companies Act 71 of 2008; and (2) the liquidators lacked authority to sell without directors' consent under the Bhoola AJ order.

• When is a business rescue application 'made' within the meaning of section 131(6) of the Companies Act 71 of 2008 so as to trigger the suspension of liquidation proceedings?
• Does mere issue of a business rescue application suffice, or must it be issued, served and notified as required by section 131(2)?
• What is the proper interpretation of a consent order requiring liquidators to sell assets 'in consultation with and with the consent of' directors pending an appeal, after the appeal has been determined in the liquidators' favour?
• What are the applicable principles for interpreting court orders?

1. The auction appeal (case no. 1088/2020) was upheld with costs, including two counsel. 2. Paragraphs 7-11 of the high court order were set aside and replaced with an order dismissing the auction application with costs including two counsel. 3. The business rescue appeal (case no. 1135/2020) was dismissed with costs save that: 3.1 Paragraph 16 was set aside and replaced with an order striking the business rescue application from the roll (rather than dismissing it); 3.2 The cross-appeal against the costs order (paragraph 17) was upheld; 3.3 Paragraph 17 was replaced with an order that applicants pay respondents' full costs of the business rescue application including two counsel (not 50% as originally ordered).

A business rescue application is only 'made' within the meaning of s 131(6) of the Companies Act 71 of 2008 when: (1) the application has been issued by the Registrar; (2) it has been served by the sheriff on the company (or its liquidators if in liquidation) and the Commission; and (3) each affected person has been notified of the application in the prescribed manner. Mere issue or lodgment of the application is insufficient to trigger the suspension of liquidation proceedings. The service and notification requirements in s 131(2) are substantive requirements, not merely procedural steps, and strict compliance is required. When interpreting court orders, the manifest purpose must be determined by having regard to the language of the order, reading it as a whole, and considering the relevant background facts which culminated in it being made. A consent order requiring liquidators to act in consultation with and with the consent of directors pending an appeal will be interpreted as lapsing when the appeal is determined in the liquidators' favour, where the context and purpose demonstrate that the consultation requirement was a temporary measure during the disputed period.

The Court observed that business rescue proceedings can easily be abused and should not be used to delay winding-up or to afford those behind business operations an opportunity not to account for their stewardship. Business rescue exists for rehabilitating companies capable of being restored to profitability or, if impossible, to enhance creditor dividends. The Court noted that the Bosasa companies had lost their substratum after government contracts (the backbone of their business) were terminated, making disposal of redundant assets necessary to avoid ongoing expenses without income. The Court stated that it would give effect to the purpose of s 131(6) to suspend liquidation proceedings only where the application has been publicly and formally made. The Court indicated that an interpretation allowing mere issue to trigger suspension would result in absurdity, militate against logic, lead to an insensible result, and undermine the statutory purpose. The Court emphasized that provisional liquidators may operate banking accounts, receive and disburse funds, remunerate employees, conclude contracts and generally carry out directors' duties, making it critical they have formal notice of any suspension. The Court noted that knowledge alone would be insufficient; liquidators are entitled to service and must officially know they are suspended.

This judgment provides definitive guidance on the critical issue of when a business rescue application is 'made' for purposes of triggering the automatic suspension of liquidation proceedings under s 131(6) of the Companies Act 71 of 2008. The Court rejected the approach that mere lodgment and issue suffices, holding instead that the application must be properly served and notified as required by s 131(2). This prevents abuse of the business rescue mechanism to delay liquidations without proper compliance with substantive requirements. The judgment emphasizes that liquidators exercising statutory powers must have formal notice of suspension, and that affected persons' rights to participate require proper notification. The decision also clarifies principles for interpreting consent orders in light of changed circumstances and the purpose for which conditions were included. It reinforces that business rescue exists for genuine rehabilitation, not to obstruct legitimate liquidation processes or avoid accountability. The strict approach to compliance with service and notification requirements ensures transparency and protects the interests of creditors, employees and other stakeholders in corporate insolvency proceedings.