Do all votes count equally? In the recent judgement of Reiscor Two (Pty) Limited T/A Bootleggers (In Business Rescue) V Anheuser – Busch Inbev Africa (Pty) Limited and Others (Gld Case Number 2022/2731), Reiscor’s business rescue practitioners (“BRPs”) launched an application in terms of section 153(1)(b)(i)(bb) of the 2008 Companies Act (“the Act”) to set aside the vote of the majority creditors (AB Inbev, Distell Limited, Coca-Cola and Heineken) on the basis that it was inappropriate.
One of the creditors who voted against the plan, Distell Limited, counter-applied to liquidate Reiscor. Two days before the section 151 meeting to consider the business rescue plan, the majority creditors’ attorneys requested the permission and cooperation of the BRPs to consent to a due diligence by a management accountant for a period of up to 7 days during November 2021, full access to all documents and records of Reiscor and a postponement of the section 151 meeting to December 2021.
Denied postponement
Reiscor’s attorneys (Fluxmans) denied the postponement on the basis that the Act did not allow the BRPs to postpone the section 151 meeting unilaterally once it had been called for but indicated a willingness to discuss potential amendments to the plan. In other words, any motion to postpone a section 151 meeting once it has been called for is creditor driven. At the section 151 meeting, discussions were invited regarding the plan, with the major creditors failing to:
- propose any amendments;
- record why they did not have sufficient information to vote on the plan;
- propose a postponement.
The plan was rejected as a result of the majority creditors’ dissenting vote (65.36%). The BRPs advised the meeting that Reiscor would apply to set aside the result of the vote on the basis that it is inappropriate. Grounds of opposition to the section 153 application First, the major creditors argued that all affected persons as defined in the Act ought to have been joined. Opperman J disagreed and found that only the creditors who voted against the plan were required to be joined, as has been done, and dismissed the major creditors’ non-joinder point.
Second, they argued that the plan draws conclusions without providing the primary facts. Opperman J in her judgement emphasized that a business rescue plan is not a pleading or legal document. It is a document drafted for business people. This complaint could have been addressed had the majority creditors asked questions on the plan as they were invited to do so by the BRPs. Third, they argued that the immovable property valuation obtained by the BRPs is inadmissible hearsay and unreliable. Opperman J noted that an independent valuation was conducted and provided to the major creditors, and they did not contest its accuracy. She ultimately found that the pertinent issue was whether the sale price of the business, including the property, was for fair market value (which it was). Fourth, they argued that there was a need for further investigation into Reiscor’s affairs at the request of the major creditors. Opperman J found inter alia that there is no obligation on a business rescue practitioner to accede to a request by a creditor to enable the creditor to undertake its own investigation, and in any event, there was no evidence that the BRPs violated their statutory obligation to investigate the affairs of Reiscor.
Image By; Canva
Access to information
Business rescue proceedings do not afford creditors of a company rights to information which they did not have prior to the company being placed in business rescue. Fifth, they argued that the plan contains an illegal clause which enables creditors to contract out of section 34 of the Insolvency Act 24 of 1936. Opperman J found that this section does not apply during the business rescue to a company qualifying as a trader as contemplated in section 34. This is primarily because if section 34 of the Insolvency Act applies, reliance by a creditor or a liquidator on section 34 will nullify any business rescue which depends for its success on the sale of a business by a trading company. Sixth, they argued that allowing Reiscor to participate in commerce post-business rescue would offend commercial morality as it would still be commercially insolvent and have no assets.
Opperman J found that this argument is both factually and legally flawed. It incorrectly presupposes that the purpose of the plan concerned is to allow the applicant to recommence trading after the business rescue, which is not the case. It contemplates a structured wind-down to yield a better return to creditors when compared to liquidation. As part of their opposition, the majority of creditors focussed on a sale agreement for the sale of Reiscor’s business and the fact that only a heavily redacted version had been provided to them on their request. This is not unusual in practice. Given the proprietary nature and inherent confidentiality involved in a private transaction, business rescue practitioners do not disclose the full versions of these types of agreements if requested by creditors.
No additional rights
Opperman J found definitively that business rescue proceedings do not grant creditors additional rights to information beyond what they had before business rescue commenced. Having considered the above, Opperman J concluded that it is reasonable and just (in terms of section 153(7) of the Act) that the vote rejecting the plan be set aside on the grounds that it is inappropriate. The BRPs’ application was accordingly granted, and the liquidation application was dismissed. The majority of creditors elected not to appeal the judgment, which thus serves as a binding precedent pertaining to the confidentiality of documentation in business rescue, as well as the applicability of section 34 of the Insolvency Act during rescue.
Ryszard Lisinski is a Director at Fluxmans.
Buhle Duma is a Director at Fluxmans.
