Mashwayi Projects (Pty) Ltd and Others v Wescoal Mining (Pty) Ltd and Others

Arnot Opco (Pty) Ltd (the second appellant) operates the Arnot coal mine and was placed under business rescue on 10 October 2022 at the instance of Wescoal Mining (Pty) Ltd (first respondent), a creditor. Mr Phahlani Lincoln Mkhombo (the third appellant) was appointed as business rescue practitioner. On 28 July 2023, the practitioner convened a creditors' meeting under section 151 of the Companies Act 71 of 2008 to vote on a business rescue plan. The plan afforded voting rights to both pre-commencement and post-commencement creditors. The plan proposed four options, including Option B for the sale of the business as a going concern, with four alternative purchase offers including one from Ndalamo Coal (Pty) Ltd (third respondent). After counting votes, the practitioner initially declared that 75.4% of voting interests voted for Option B and 88% voted for Ndalamo's offer. However, a forensic accountant's subsequent report revealed tallying errors (including double counting, late proxies, and other irregularities). After correcting these errors, only 70.5% to 72.2% of creditors voted in favour, falling short of the required 75% threshold under section 152(2) of the Act. The practitioner notified creditors on 4 August 2023 that the plan had not been validly adopted. Wescoal and Salungano (second respondent) objected, contending that if post-commencement creditors (particularly Mashwayi Projects (Pty) Ltd, the first appellant) were excluded from voting, the 75% threshold would have been met. The matter proceeded to the High Court.

• Whether post-commencement creditors are entitled to vote on a business rescue plan under Chapter 6 of the Companies Act 71 of 2008
• Whether the business rescue plan presented to creditors on 28 July 2023 was validly adopted in accordance with section 152 of the Companies Act
• The proper interpretation of the term 'creditor' in the context of business rescue proceedings
• Whether the absence of express reference to post-commencement creditors in sections 135, 145, 150, 151, and 152 of the Act excludes them from voting
• Whether foreign insolvency law principles should inform the interpretation of South African business rescue legislation
• Whether the balancing of stakeholders' interests under section 7(k) of the Act supports or excludes post-commencement creditors from voting

1. The appellants' appeals are upheld with costs, including the costs of two counsel. 2. The order of the High Court is set aside and replaced with the following: (a) The first and second applicants' application is dismissed with costs, including the costs of two counsel; (b) The third respondent's counter-application is dismissed with costs, including the costs of two counsel; (c) It is declared that the amended business rescue plan presented by the first respondent to the meeting of creditors of the second respondent held on 28 July 2023 was not supported by the holders of more than 75% of creditors' voting interests at the meeting as required by section 152(2) of the Companies Act 71 of 2008 and was accordingly rejected in terms of section 152(3)(a) of the Act; (d) The first and second applicants and the third respondent are directed to pay the costs of the first and second respondents' counter-application, jointly and severally, the one paying the other to be absolved, including the costs of two counsel; (e) The first and second applicants and the third respondent are directed to pay the costs of the fourth respondent's counter-application, jointly and severally, the one paying the other to be absolved, including the costs of two counsel.

Post-commencement creditors are entitled to vote on business rescue plans under Chapter 6 of the Companies Act 71 of 2008. The term 'creditor' in the Act bears its ordinary grammatical meaning – a person or entity to whom an unpaid debt is due – and includes both pre-commencement and post-commencement creditors unless the Act expressly provides otherwise. The absence of any express limitation or distinction between pre-commencement and post-commencement creditors in sections 145, 150, 151, and 152 of the Act means the Legislature intentionally chose not to differentiate between these categories of creditors. Section 145(2) grants 'each creditor' the right to vote on a business rescue plan without qualification or limitation. Where the Legislature intended to distinguish between different categories of creditors (as it did with employees in sections 135 and 144), it did so expressly; the absence of such distinction for other creditors is determinative. Business rescue and liquidation proceedings serve different purposes and are governed by different legislative frameworks; the concursus creditorum concept applicable in liquidation does not apply to business rescue. Interpreting 'creditor' to exclude post-commencement creditors would constitute an impermissible reading-in and would violate the equality provisions of the Constitution and section 7(k) of the Act, which requires balancing the rights and interests of all relevant stakeholders. Foreign insolvency law should not determine the interpretation of South African business rescue legislation where such foreign law reflects different policy considerations and socio-economic contexts.

The Court made several important observations: (1) The policy arguments regarding potential prejudice to pre-commencement creditors under the 'cram down' provisions of section 152(4) are matters for the Legislature, not the courts, to address. (2) While the World Bank has made recommendations regarding post-commencement financing priority, these do not include any recommendation regarding voting rights and do not constitute international consensus on best practice in this regard. (3) Section 153(1)(a) provides a remedy for bad faith voting by allowing courts to set aside inappropriate votes. (4) The preference afforded to post-commencement finance creditors under section 135(2) and (3) does not adequately safeguard their position, as there may not be sufficient unencumbered assets to secure their exposure or sufficient funds after payment of the practitioner's fees and employee claims. (5) The Legislature's decision to place business rescue plan approval under the control of the practitioner and creditors without court sanction (unlike compromises under section 155) was a deliberate policy choice. (6) Section 150(2)(a)(ii)'s reference to a list of creditors when business rescue began serves the limited purpose of enabling a comparative analysis between the business rescue plan and potential liquidation dividends; it does not limit the concept of 'creditor' for voting purposes. (7) The Court noted that it was inappropriate for the High Court to make declaratory orders that effectively substituted judicial power for the creditors' voting rights. (8) The Court observed that the Act does not permit remission of a rejected plan back to a creditors' meeting for a new vote; the practitioner must proceed under section 153(1)(a)(i) if a revised plan is to be pursued.

This judgment provides authoritative guidance on a critical and previously uncertain issue in South African business rescue law: whether post-commencement creditors have voting rights on business rescue plans. The decision is significant because it clarifies that all creditors, regardless of when their claims arose, have equal voting rights unless the Act expressly provides otherwise. This promotes the constitutional principles of equality and the protection of property rights under section 25 of the Constitution. The judgment recognizes the commercial reality that post-commencement financing is essential to the success of business rescue proceedings and that denying voting rights to post-commencement creditors would discourage such critical financing. The decision also clarifies that business rescue law must be interpreted on its own terms and according to South African socio-economic realities, rather than by importing principles from foreign insolvency regimes or liquidation law. The judgment reinforces the purposive approach to statutory interpretation and the obligation to interpret legislation consistently with the Constitution and Bill of Rights as required by sections 5(1) and 7(a) of the Companies Act. It settles a debate that had divided legal academics and practitioners and provides certainty for business rescue practitioners, creditors, and companies in financial distress.