The appointment of additional BRPS: who has the power to appoint additional BRPS?

When a company is placed into business rescue, the management of its affairs is handed over to business rescue professionals (BRPs), who are tasked with implementing corrective measures to address the company’s financial distress. A lot of trust is placed in these BRPs to address the company’s financial distress and provide a framework that will ensure future profitability.

This article will discuss the powers of appointing additional BRPs and the impact this will have on implementing the business rescue plan.

Background

Chapter 6 of the Companies Act (the Act) introduced business rescue to the South African business landscape in 2013. Following this date, financially distressed South African companies have an opportunity to identify the root causes of their distress and take steps to restructure their affairs to address this distress.

The concept of ‘business rescue’ was introduced in corporate South Africa in 2011. According to section 7(k) of the Act, one of the purposes of the Act is 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.’ Business rescue proceedings are proceedings aimed at facilitating the rehabilitation of a company that is financially distressed by providing for, among other things, the temporary supervision of the company and the management of its affairs, business, and property by a BRP.

A BRP (or two BRPS if there is a joint appointment) is appointed to oversee a company during business rescue proceedings. While the Act defines a BRP as one or more persons, the business rescue provisions of the Act do not necessarily refer to or support joint appointments. Section 131(5) of the Act provides that if the court places the company in business rescue, it may make a further order “appointing as an interim BRP a person who satisfies the requirements of section 138, and who has been nominated by the affected person who applied in terms of subsection (1)”. Such an appointment is “subject to ratification by the holders of a majority of the independent creditors’ voting interests at the first meeting of creditors, as contemplated in section 147.”

However, the word “person” in the Act includes a juristic person. It is, therefore, arguable that a company can take an appointment as a BRP. The BRP may be appointed by the board of directors if commencement happens by way of a board resolution (‘voluntary business rescue’).

The appointment of an additional BRP

There are no express provisions in the Act which empower a creditor and/or the BRP to appoint an additional BRP. The source of a BRP’s powers and the rights of creditors, employees, and shareholder (collectively defined as “Affected Persons”) stems from Chapter 6 of the Act. It is thus only within the confines of Chapter 6 that the BRP and creditors can act in relation to the business rescue proceedings.

The general powers and duties of a BRP are prescribed in section 140 of the Act. This section provides and outlines to the board of the distressed company the powers that a BRP has (what they can and cannot do) and the responsibilities that are associated (and are part-and-parcel) with their appointment.

During a company’s business rescue proceedings, the BRP – in addition to any other powers and duties (set out in the Act) – has complete management control of the company in place of its board and pre-existing management. Further, the BRP may:

• delegate any power or function of the BRP to a person who was part of the board or pre-existing management of the company;
• remove from office any person who forms part of the pre-existing management of the company or appoint a person as part of the management of a company (whether to fill a vacancy or not); and
• the BRP is responsible for developing a business rescue plan that will be considered by affected persons and implementing any business rescue plan that has been adopted.

As previously stated, section 128(1)(d) of the Act defines a BRP. This definition provides for the possibility of a joint appointment of BRPs, and such an appointment must take place per Chapter 6. However, Chapter 6 sets out no criteria or instances for the joint appointment of BRPs. Save for section 128(1)(d), no other provisions in Chapter 6 refer to joint appointments or multiple BRPs.

Instead, Chapter 6 expressly refers to two distinct powers of appointment. The first is found in section 129, and the second is in section 131(5). Further, if a substitution to that appointment is required in a voluntary business rescue, section 139(3) entitles the board to appoint a substitute BRP in the event of death, resignation, or removal. In the case of compulsory business rescue, the affected person who brought the business rescue application will make the substitution appointment.

The appointment of a substitute BRP or Joint BRP follows that the party is entitled to make the appointment and needs to be done after an election, which must be exercised at the time the appointment is made. After the appointment, the right to appoint would only again arise when the substitution of BRPs must take place in terms of section 139(3).

Shiva Uranium

In the case of Shiva Uranium (Pty)Ltd (In Business Rescue) and Another v Tayob and Others (Shiva Uranium), the company voluntarily initiated business rescue proceedings under section 129 of the Act.

The company’s BRP resigned, leading to the High Court granting an order under section 130(6)(a) of the Act after a major creditor made a court application to place Shiva into business rescue. Following this order, the court appointed two substitute BRPs (one senior and one junior).

The senior BRP later wished to resign from office, and accordingly, the two “court-appointed” BRPs passed a resolution purporting to appoint a substitute senior BRP. However, shortly after this, Shiva’s Board of Directors also appointed replacement BRPs of their own.

Two key judgements

The question, then, was which of these two appointments was valid.

The Supreme Court of Appeal (“SCA”) held that section 139(3) regulated only two scenarios in the alternative. If a company enters into voluntary business rescue, in terms of section 129, the power to appoint a substitute (if the original BRP resigns or there is a death) remains with the company. Conversely, if a company is placed into compulsory business rescue, in terms of section 131, the power to appoint a substitute (if the original BRP resigns or if there is a death) remains with the affected person/party who brought the application for business rescue.

These were the two scenarios indicated by the phrase ‘as the case may be’ in section 139(3) of the Act.

The Constitutional Court (“CC”) agreed with the SCA, namely that where a BRP appointed by a company in terms of section 129(1)(b) resigns, the company itself (acting through its board) may appoint the substitute. On the other hand, the CC held that in case of compulsory business rescue, in the event of the BRP’s resignation or death, the power of appointment would stay with the affected person who applied for business rescue rather than switching to the body of independent creditors who ratified the appointment.

The CC clearly found that the ratification by creditors of an interim appointment does not bestow them with the power to appoint a BRP in a compulsory rescue and precludes an interpretation that it would be in a voluntary rescue.

Further judgements

In the unreported case of Wescoal Mining (Pty) Ltd v Arnot Opco (Pty) Ltd and Others, Salungo Group, formerly known as Wescoal Holdings (Wescoal), a shareholder in Arnot OpCo (Pty) Ltd (Arnot), successfully bid to put Arnot into compulsory business rescue. The BRP was appointed by Wescoal as the interim BRP, and so appointed by the court. His appointment was subsequently ratified at the first meeting of creditors. Further, during the proceedings, the Respondents in the aforesaid application nominated other BRPs to act as joint practitioners alongside the interim BRP.

Thus, the court considered whether to appoint a joint practitioner as per the nomination and request of other affected parties. The court decided that it did not have the power to do so as it was only the applicant as the petitioning creditor who had the right to nominate a practitioner (single or joint) and not the other affected persons or the court (section 131(5)) of the Act.

Additionally, in a recent unreported case of The Minister of Communications and Digital Technologies and Another v The South African Post Office SOC Ltd (SAPO) & Others, the Minister of Communications and Digital Technologies (the Applicant) successfully bid to place the SAPO, which was under provisional liquidation, into compulsory business rescue. During the proceedings, two of the SAPO’s creditors (namely the Municipal Employees Pension Fund and Chrisal Investments (Pty) Ltd), proposed appointing two additional individuals as interim business rescue practitioners. Despite their vested interest in the matter, and being considered affected parties, the court held that neither the Municipal Employees Pension Fund nor Chrisal Investments are applicants in the business rescue proceedings. Consequently, there was no justification in appointing the interim business rescue practitioners proposed by these two entities, especially given the absence of opposition to the appointment of the interim business rescue practitioners proposed by the Applicant. The court based its decision on Section 131 (5) of the Act.

Two separate powers of appointment

With the exception of section 128(1)(d), none of the other provisions in Chapter 6 mention joint appointments or multiple BRPs. Instead, Chapter 6 specifically addresses two separate powers of appointment outlined in section 129 and section 131(5) of the Act. The only other reference to the appointment of a BRP is found in section 139 (3) of the Act, which pertains to the appointment of a new BRP in the event that a BRP dies, resigns, or is removed from office.

A key departure point in this issue is whether the company is under voluntary business rescue or if the company is under compulsory business rescue. An appointment, according to sections 129, 131(5), and 139(3) of the Act, can only be made through a board resolution for voluntary business rescue and by an affected person who initiated the business rescue application for compulsory business rescue. This interpretation is also reinforced by the case law discussed in this article.

We live in interesting times.