Ergomode (Pty) Ltd v Jordaan NO and Others

Sakhile Contract Mining (Pty) Ltd (Sakhile) was placed under business rescue on 23 October 2020 in terms of s 129(1) of the Companies Act 71 of 2008. The first and second respondents were appointed as business rescue practitioners (BRPs) on 30 October 2020. Sakhile owned a coal washing plant situated on Ergomode's property pursuant to a lease agreement. At the commencement of business rescue, Sakhile owed Ergomode arrear rental of more than R18.2 million. The BRPs deducted approximately R4.8 million from this claim for alleged damages, valuing Ergomode's claim at approximately R12.8 million. On 30 March 2021, the majority creditors adopted a business rescue plan which provided for the relocation and refurbishment of the plant. On 22 February 2022, the BRPs suspended the lease agreement with immediate effect and gave instructions to remove the plant. Ergomode was determined by the BRPs as a non-independent creditor. Before the plant could be removed, Ergomode sought leave under s 133 of the Act to: (a) perfect its landlord's hypothec over the plant; (b) set aside the BRPs' determination that it is not an independent creditor; (c) condonation for failure to comply with s 145(6); and (d) declare the adoption of the business rescue plan of no force or effect. The high court dismissed Ergomode's application with costs.

• Whether the extension of the time period for the publication of the business rescue plan was validly done in terms of s 150(5) of the Companies Act 71 of 2008
• Whether the business rescue plan was validly adopted at the meeting of 30 March 2021
• Whether the BRPs complied with s 151(2) in giving notice to all affected persons
• Whether the BRPs correctly determined Ergomode as a non-independent creditor under s 145(5)
• Whether condonation should be granted for Ergomode's late application to review the BRP's determination under s 145(6)
• Whether the general moratorium on legal proceedings in s 133 applies to perfection of a landlord's hypothec
• Whether leave should be granted to perfect a landlord's tacit hypothec over property of a company in business rescue
• Whether the moratorium under s 133 applies to post-commencement debt

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

The binding legal principles established are: (1) Section 150(5)(b) of the Companies Act 71 of 2008 does not expressly require a formal meeting to extend time periods for publication of a business rescue plan; extension by majority of creditors' voting interest without a formal meeting is valid, particularly where creditors are invited to respond to the proposed extension and consent can be inferred from silence. (2) A landlord's tacit hypothec, prior to perfection by attachment or the lessee's insolvency, does not confer a real right of security but only a personal right (jus in personam ad servitutem adquirendam) to perfect the hypothec. (3) The general moratorium in s 133 of the Act applies to legal proceedings to perfect security during business rescue and requires written consent of the business rescue practitioner or leave of the court before such proceedings may be commenced. (4) A landlord's tacit hypothec that was not perfected before a company was placed in business rescue cannot be perfected during business rescue proceedings without compliance with s 133. (5) The five-day time limit in s 145(6) for applying to court to review a business rescue practitioner's determination that a person is or is not an independent creditor is strictly enforced, and failure to comply timeously is fatal to the application.

The court made the following non-binding observations: (1) The statement in DH Brothers Industries (Pty) Ltd v Gribnitz NO that failure to publish a plan within the prescribed time or extended period results in automatic termination of business rescue proceedings was disapproved by the Supreme Court of Appeal in Panamo Properties (Pty) Ltd v Nel NO. (2) Were the interpretation espoused by NUMSA and Ergomode regarding s 144(1) to prevail (that unionized employees can only be represented by their union), it would lead to employees whose union is invited but does not attend meetings being unrepresented and unable to participate in business rescue proceedings, which would not serve the best interests of employees. Section 144(1) properly construed entitles employees to exercise their rights either directly or by proxy through an employee organization or representative. (3) Business rescue is designed to provide for the efficient rescue and recovery of financially distressed companies in a manner that balances the rights and interests of all relevant stakeholders, and therefore a liberal interpretation of the Act must be adopted. (4) The purpose of s 133 is to grant a company placed in business rescue a moratorium to provide it with "breathing space" whilst every attempt is made to rescue the company in financial distress by designing and implementing a business rescue plan. (5) Even if condonation for non-compliance with the five-day period in s 145(6) were available, it would not be in the interests of justice to grant it where the applicant took part in proceedings, voted at the meeting, and did not object to the determination until after the business rescue plan was adopted.

This case provides important clarification on several aspects of business rescue proceedings under the Companies Act 71 of 2008. It confirms that: (1) a liberal interpretation must be adopted to balance the rights and interests of stakeholders in business rescue; (2) s 150(5)(b) does not require a formal meeting to extend time for publication of a business rescue plan, and consent of the majority of creditors' voting interest is sufficient; (3) the five-day time limit in s 145(6) for reviewing a BRP's determination of creditor independence is strictly enforced; (4) the moratorium in s 133 applies broadly to protect companies in business rescue from legal proceedings, including claims to perfect security; and (5) a landlord's tacit hypothec that has not been perfected before commencement of business rescue cannot be perfected during business rescue without consent or leave. The judgment emphasizes that business rescue is designed to be a speedy process and that parties must raise objections timeously rather than wait until the outcome is unfavorable to them.