Creditors take heed: Not understanding business rescue and the Companies Act 71 of 2008 could see you voting against the business rescue plan. A creditor could be forced to sell his voting interests and claims against the company for little or no value to any affected person compared to what they would have received had they voted for the business rescue plan.
The recently implemented Companies Act 71 of 2008 introduces “business rescue” as a replacement to the previous method of judicial management, bringing South Africa more in line with the global trend of restructuring companies which are in financial distress.
More often than not, creditors attend business rescue meetings without having a thorough understanding of the Act and the implications of voting against a Business Rescue Plan. The adoption of a business rescue plan is governed by section 152 and 153 of the Companies Act 83 of 2008 and in order for a business rescue plan to be adopted it must be supported by 75% of creditors voting interests and must be supported by at least 50% of the independent creditors voting interests.
If the business rescue plan is not supported by the requisite number of votes, as set out in section 152, then the plan is rejected and can only be reconsidered in terms of Section 153. Section 153(1)(a) states that if the plan is rejected for failing to obtain the requisite voting percentages then the business rescue practitioner can either seek the creditors approval in submitting a revised plan or he can inform the creditors that he will seek a court order setting aside the vote of creditors on the basis that such vote is inappropriate.
However, if the business rescue practitioner fails to take these steps as contemplated in Section 153 (1)(a) then Section 153(1)(b) states that any affected person at the meeting can call for another vote in order to seek the creditors approval in forcing the Business Rescue Practitioner to submit a revised plan or the affected person can apply to court to seek an order setting aside the vote of creditors on the basis that such vote is inappropriate.
Not many creditors have fully considered section 153 and especially section 153(1)(b)(ii), which states as follows: “Any affected person, or combination of affected persons, may make a binding offer to purchase the voting interests of one or more persons who opposed adoption of the business rescue plan, at a value independently and expertly determined, on the request of the practitioner, to be a fair and reasonable estimate of the return to that person, or those persons, if the company were to be liquidated.”
In other words, where a creditor with a sufficient voting interest prevents the adoption of the business rescue plan by voting against the adoption of the business rescue plan then any affected person (creditor) may purchase that creditors voting interests at the price that the creditor would receive at liquidation. If the creditor is unsecured or concurrent his return could be as little as R1, depending on the circumstances. Careful consideration needs to be given, especially where the liquidation value states that there will be a contribution towards liquidation.
The definition of “affected person”, in relation to a company, means:
* A shareholder or creditor of the company;
* Any registered trade union representing employees of the company; and
* If any of the employees of the company are not represented by a registered trade union, each of those employees or their respective representatives.
The net effect of section 153 is that a creditor could be forced to sell his voting interests and claims against the company for little or no value to any affected person compared to what they would have received had they voted for the business rescue plan.
In short, when a person is a creditor of a company in business rescue, one must approach the adoption of the business rescue plan with caution and be well apprised of all the possible consequences. Liaising with fellow creditors will allow you to get a feel as to the way they will be voting regarding the adoption of the business rescue plan, in many cases it may be advisable to raise your objections against the business rescue plan and then abstain from the vote rather than voting against it. Proper legal advice should be sought prior to voting.