Can a business rescue practitioner unilaterally make amendments to an adopted business rescue plan?

Can a business rescue practitioner unilaterally make amendments to an adopted business rescue plan?
02 Jun 2021

Section 150 of the Companies Act No. 71 of 2008 (“the Act”) provides that a business rescue practitioner must, after having consulted with all affected persons of the company in business rescue, prepare a business rescue plan for consideration and possible adoption at a meeting held in terms of section 151 of the Act.

Only after the prescribed percentage of creditors and other holders of voting interests entitled to vote at the meeting have voted in favour of the adoption of the business rescue plan in all the different phases of voting, can it be said that the business rescue plan has been adopted (section 152 of the Act).

The legal consequences of a business rescue plan having been adopted are that “A business rescue plan that had been adopted is binding on the company and on each of the creditors of the company and every holder of the company’s securities, whether or not such a person was present in the meeting, voted in favour of adoption of the plan or in the case of creditors, had proved their claims against the company” (section 151 of the Act).

Business Rescue Practitioners (“BRPs”) are creatures of statute and as such only have those powers expressly conferred upon them by the Act and the BRPs may only perform acts which the Act expressly permits them to perform. Accordingly, to determine whether or not BRPs can unilaterally make amendments to an adopted business rescue plan it is necessary at the outset to have regard to the express provisions of the Act.

There is no provision in the Act which affords BRPs the right to amend a business rescue plan which had been adopted by the creditors. Section 152(1)(d)(ii) of the Act only allows BRPS the right to amend a business rescue plan before it has been adopted by the creditors.

The Supreme Court of Appeal in Kransfontein Beleggings (Pty) Ltd v Corlink Twenty Five (Pty) Ltd [2017 JDR 1577 (SCA)] held that not even a court can alter an approved business rescue plan and “foist on creditors a plan which they have not discussed and voted on at [a meeting held in terms of section 152 of the Companies Act, 71 of 2008]” and that “the only plan which practitioners can implement is one adopted by creditors in accordance with s 152 of the Companies Act.”

The court in Booysen v Jonkheer Boerewynmakery (Pty) Ltd and Another [2017 (4) SA 51 (WCC)] in dealing with the question whether or not BRPs may reserve for himself/herself the right to amend a business rescue plan unilaterally after it had been adopted by creditors held that “… there is, to my mind, no room for a business rescue practitioner to reserve to himself the right to amend a business rescue plan. By doing so, he would effectively circumvent the procedure set out in the Act in terms of which the claims, which are to be discharged as per the rescue plan, derive their binding force” and “Any other interpretation would make nonsense of the process provided for in the Act whereby control over the rescue proceedings is to be exercised by democratic majority vote of the creditors and affected parties, and would allow the business rescue practitioner to unilaterally reduce or compromise creditors’ claims to their prejudice (or even perhaps to increase certain claims at the expense of others), thereby exposing the whole process to uncertainty and possible corruption.

The express provisions of the Act also support the view that only creditors may make substantial amendments to an adopted business rescue plan:

Firstly, section 151(4) states that a business rescue plan that had been adopted is binding on the company and on each of the creditors of the company and every holder of the company’s securities. Therefore, an adopted business rescue plan is analogous to a contract concluded between the company in business rescue and its creditors. It is trite that one party to a contract is not entitled to unilaterally amend the terms of the contract. The consensus of all the contracting parties is required for such an amendment.

Secondly, section 155(5)(b) of the Act provides that the company in business rescue, under the direction of the practitioner, must take all necessary steps to implement the plan as adopted. No other plan, including a plan unilaterally amended by the practitioner, may be implemented.

The question then arises whether or not a clause in an adopted business rescue plan permitting a BRP to unilaterally amend the plan is lawful and enforceable. For the same reasons outlined above, it is submitted that such a clause is not lawful and enforceable.

See also:

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
Lionel dos Passos
Lionel dos Passos

Lionel dos Passos is a highly experienced litigator whose extensive expertise and skills extend to all aspects of general civil and commercial litigation. A vital member of the firm’s insolvency... Read more about Lionel dos Passos

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