Kurt Robert Knoop and Others v Tegeta Exploration and Resources (Pty) Ltd and Others

The appellants were appointed business rescue practitioners (BRPs) of the first to fourth respondent companies. The fifth respondent (Ms Ragavan) was a director of the first and second respondents, and the sixth respondent (Mr Archery) was a director of the third respondent. On 21 October 2022, Ms Ragavan and Mr Archery, purporting to act on behalf of the companies, launched an application in the Gauteng High Court seeking removal of the first and second appellants as BRPs and a declarator that the third and fourth appellants were not properly appointed as BRPs. They appointed Van der Merwe and Van der Merwe Attorneys (VDM) to act for the companies. The BRPs disputed the authority of VDM to represent the companies and delivered a Rule 7 notice on 2 November 2022. On 21 November 2022, the respondents filed resolutions and powers of attorney from Ms Ragavan purportedly authorising VDM to act. The high court found that VDM was not authorised to represent the first, third and fourth respondents but was authorised to represent the second respondent (Koornfontein). The BRPs appealed this finding in relation to Koornfontein.

• Whether the high court's declaratory order that VDM was authorised to represent Koornfontein was a 'decision' within the meaning of s 16(1)(a) of the Superior Courts Act 10 of 2013 and therefore appealable
• Whether a director of a company under business rescue has authority to appoint attorneys to act on behalf of the company without approval from the business rescue practitioners
• Whether directors have power to institute litigation to remove business rescue practitioners under s 139 of the Companies Act 71 of 2008
• The proper interpretation of Rule 7 of the Uniform Rules of Court in the context of business rescue
• The scope of directors' powers versus business rescue practitioners' powers during business rescue proceedings
• Whether costs should be awarded personally against directors who purported to act without authority

The appeal succeeded with costs including costs of two counsel. The high court order was set aside and replaced with an order dismissing the application in respect of prayers 1, 2, 3 and 4, and ordering the fifth and sixth respondents (the directors) to pay costs personally, jointly and severally, including costs of two counsel.

During business rescue proceedings under the Companies Act 71 of 2008, business rescue practitioners have full management control of the company in substitution for the board and pre-existing management (s 140(1)(a)). Directors must continue to exercise their functions subject to the authority of the practitioner and in accordance with the express instructions or directions of the practitioner (s 137(2)). Directors do not have authority to appoint attorneys to institute or defend litigation on behalf of a company in business rescue without the approval or authority of the business rescue practitioners, because such litigation has financial implications that affect the practitioners' ability to manage company assets and prepare and implement business rescue plans. Only business rescue practitioners have the power to bind a company in litigation during business rescue. Section 139(2) of the Act only permits 'affected persons' (which definition excludes directors and the company itself) to bring applications to remove business rescue practitioners; directors cannot bring such applications. Under Rule 7 of the Uniform Rules, a person claiming authority to act must satisfy the court that they are authorised, which requires that any power of attorney issue from a person with actual authority to grant it. Directors who purport to appoint attorneys without authority may be personally liable for the costs of such unauthorised litigation.

The Court observed that the distinction between governance and management powers is unhelpful in determining the respective authority of directors and business rescue practitioners. The proper enquiry is whether the provisions in the Act relating to business rescue provide an exception to the general provisions of s 66(1) regarding the powers of directors. The Court noted that it is a policy issue that transfer of control and power from the board to the BRPs is part of the process of business rescue, designed to facilitate rehabilitation of the company. The Court observed that directors have other remedies available to them during business rescue, including the ability to apply qua director for interdictory or declaratory remedies, and the remedies contained in s 165 of the Act which allows directors to serve a demand upon the company (through the BRPs) to commence or continue legal proceedings to protect the company's legal interests. The Court noted that while in voluntary business rescue directors may have power under s 139(3) to appoint a substitute practitioner if one dies, resigns or is removed, this does not apply in non-voluntary business rescue situations. The Court observed that the former distinction between permissible background and surrounding circumstances in interpretation has fallen away, and interpretation is now essentially one unitary exercise considering words in light of all relevant and admissible context.

This case is significant in clarifying the distribution of authority between directors and business rescue practitioners during business rescue proceedings under the Companies Act 71 of 2008. It authoritatively establishes that directors do not have authority to appoint attorneys to represent companies in litigation during business rescue without the approval of business rescue practitioners. The judgment reinforces that business rescue practitioners have full management control of companies, including control over litigation decisions that have financial implications for the company. It clarifies that directors cannot bring applications to remove business rescue practitioners under s 139 - only 'affected persons' (which excludes directors) or the court mero motu can do so. The case also establishes that directors who purport to act without authority may be personally liable for costs. The judgment provides important guidance on the interpretation of Rule 7 of the Uniform Rules and the appealability of declaratory orders concerning authority to represent parties in litigation.