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[2018] ZACC 48
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Diener NO v Minister of Justice and Correctional Services and Others (CCT03/18) [2018] ZACC 48; 2019 (2) BCLR 214 (CC); 2019 (4) SA 374 (CC) (29 November 2018)
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Heads of arguments
CONSTITUTIONAL
COURT OF SOUTH AFRICA
Case CCT
03/18
In the matter
between:
LUDWIG WILHELM
DIENER
N.O.
Applicant
and
MINISTER OF
JUSTICE AND CORRECTIONAL
SERVICES
First
Respondent
MASTER OF THE
HIGH COURT OF SOUTH
AFRICA, GAUTENG
DIVISION,
PRETORIA
Second
Respondent
CLOETE MURRAY
N.O.
Third
Respondent
WINIFRED FRANCES
HARMS
N.O.
Fourth
Respondent
CHRISTIAAN
FREDERIK DE WET
N.O.
Fifth
Respondent
FIRSTRAND BANK
LIMITED
Sixth
Respondent
SOUTH AFRICAN
RESTRUCTURING AND
INSOLVENCY
PRACTITIONERS
ASSOCIATION
Seventh
Respondent
BANKING
ASSOCIATION OF SOUTH
AFRICA
Eighth
Respondent
INDEPENDENT
BUSINESS RESCUE ASSOCIATION
OF SOUTH
AFRICA
Ninth
Respondent
TURNAROUND
MANAGEMENT ASSOCIATION
SOUTHERN AFRICA
NPC
Tenth
Respondent
Neutral citation:
Diener N.O. v Minister of Justice and Correctional Services and
Others
[2018] ZACC 48
Coram:
Mogoeng CJ, Basson AJ, Cameron J, Dlodlo AJ, Froneman J, Goliath AJ,
Khampepe J, Mhlantla J, Petse AJ and Theron J
Judgment:
Khampepe J (unanimous)
Heard on:
6
September 2018
Decided on:
29 November 2018
Summary:
Companies Act – Chapter 6 – sections 135(4) and
143(5) – business rescue proceedings – interpretation –
during liquidation – super preference
Insolvency Act –
section 89(1) – ranking of claims – business rescue
practitioners – secured creditors and
unsecured creditors
Leave to appeal
refused – plain reading – purposeful and contextual
reading
ORDER
On appeal from the
Supreme Court of Appeal (hearing an appeal from the High Court of
South Africa, Gauteng Division, Pretoria):
1.
The
application for leave to file a replying affidavit is dismissed.
2.
The
application for condonation for the late filing of the third
respondent’s written submissions is granted.
3.
Leave to
appeal is refused.
4.
There is
no order as to costs in this Court.
JUDGMENT
KHAMPEPE J (Mogoeng
CJ, Basson AJ, Cameron J, Dlodlo AJ, Froneman J, Goliath AJ,
Mhlantla J, Petse AJ and Theron J concurring):
Introduction
[1]
One of the purposes of the Companies Act
[1]
is to provide for the efficient rescue and recovery of financially
distressed companies, in a manner that balances the rights and
interests of all stakeholders.
[2]
Chapter 6 of the Companies Act makes provision for the execution of
this purpose by introducing and regulating the concept
of business
rescue.
[2]
This is
an application for leave to appeal against the order of the
Supreme Court of Appeal which dismissed the applicant’s
appeal.
[3]
The matter involves the interpretation of certain provisions of
the Companies Act dealing with the ranking of claims for
the
remuneration and expenses of business rescue practitioners
(practitioners). In particular, the matter raises the question
whether, when business rescue is converted to liquidation, a
practitioner’s claim for remuneration and expenses enjoys a
“super preference” over all creditors, whether
secured or unsecured.
Parties
[3]
The applicant is Mr Ludwig Wilhelm Diener, the erstwhile
practitioner appointed for JD Bester Labour Brokers CC (in
liquidation)
(JD Bester).
[4]
The first respondent is the Minister of Justice and
Correctional Services (Minister). The second respondent is the
Master
of the High Court of South African, Gauteng Division, Pretoria
(Master). The Minister and the Master did not take part in
the
proceedings and no relief is sought against them.
[5]
The third, fourth and fifth respondents were the joint
liquidators in the estate of JD Bester. The fourth and fifth
respondents
no longer occupy those positions and the third
respondent, Mr Murray, is at present the sole liquidator of JD
Bester.
[6]
The sixth respondent is FirstRand Bank Limited (FRB) and was
the secured creditor in the aforementioned estate.
[7]
The seventh respondent is the South African Restructuring and
Insolvency Practitioners Association (SARIPA), who was admitted as
the first amicus curiae in the Supreme Court of Appeal. In
this Court, SARIPA has abided the outcome of this application
and has
not made any submissions.
[8]
The eighth respondent is the Banking Association of South
Africa (BASA). The ninth respondent is the Independent Business
Rescue Association of South Africa (IBRASA). The tenth
respondent is Turnaround Management Association Southern Africa NPC
(Turnaround). The eighth to tenth respondents all participated
in the Supreme Court of Appeal proceedings as amici curiae
and were
cited by the applicant as respondents on this basis.
[4]
Factual
background
[9]
JD Bester is a property holding entity. It owned one
immovable property and had one major creditor – FRB, which held
a mortgage bond over the property. After JD Bester breached its
contractual obligations to FRB, judgment was granted against
it and
an order was made declaring the immovable property executable. A
sale in execution was scheduled for 15 June 2012.
[10]
On 13 June 2012, a mere two days before the sale in execution,
the sole member of JD Bester passed a resolution placing it in
business
rescue in terms of section 129(1) of the Companies
Act.
[5]
This resolution was adopted without consultation with JD Bester’s
sole creditor, FRB. It is common cause that at the
time JD
Bester was not conducting any business, had no employees and no
assets other than the immovable property over which FRB
held the
mortgage bond. On the same day the resolution was adopted JD
Bester wrote to the Companies and Intellectual Property
Commission
requesting that Mr Diener be appointed as practitioner. It
completed and filed the necessary form giving notice
of the
commencement of business rescue proceedings. On 20 June 2012,
Mr Diener was appointed.
[11]
The day before the sale in execution, on 14 June 2012, after
the commencement of business rescue but before the appointment of Mr
Diener, Cawood Attorneys were instructed by JD Bester to launch
an urgent application against FRB. The application sought
to
stay the sale in execution of JD Bester’s immovable property,
its only asset of any value. An interim order to this
effect
was granted on 14 June 2012.
[12]
Cawood Attorneys later submitted their account for this work
to Mr Diener. Mr Diener considered that, because these
expenses
were incurred with his knowledge and consent and after the
commencement of the business rescue proceedings, they represented
expenses
in business rescue as defined in section 143 of the
Companies Act or, at the very least, represented unsecured
post-commencement
finance as defined in section 135 of the Companies
Act.
[13]
It did not take long for Mr Diener, during August 2012, to
decide that JD Bester could not be rescued. He instructed
Cawood Attorneys to bring an application in terms of section
141(2)(a) of the Companies Act to convert the business rescue
proceedings
into liquidation proceedings. An order for the
liquidation of JD Bester was granted on 27 August 2012. JD
Bester
was therefore in business rescue from 13 June 2012 to
27 August 2012, more than two months before it was liquidated.
[14]
Mr Diener then sought preference for his fees and expenses.
He submitted these claims to the joint liquidators.
Cawood
Attorneys’ fees for the interdict application and the
liquidation application amounted to R34 447.51. Mr
Diener’s
fees amounted to R112 918.40. The joint
liquidators could not agree on how the fees and expenses of Mr Diener
and Cawood
Attorneys should be dealt with. Mr Murray was of the
view that Mr Diener had failed to prove a claim in terms of section
44 of the Insolvency Act
[6]
and that Cawood Attorneys was an unsecured creditor who, ultimately,
was required to make a contribution in terms of section 106
of the
Insolvency Act. The fourth and fifth respondents took a
contrary view and the issue was referred to the Master for
his
decision. The Master upheld the position adopted by Mr Murray
and rejected Mr Diener’s objections.
Litigation
history
High Court
[15]
On 29 April 2015, Mr Diener launched an application in the
High Court of South Africa, Gauteng Division, Pretoria (High Court)
in
terms of section 407(4) of the Companies Act
[7]
to review and set aside the decision of the Master to approve the
final liquidation and contribution account. Mr Diener also
sought orders that the final account should provide for the costs of
a practitioner and the cost of service providers who rendered
services to a lawfully appointed practitioner in finalising business
rescue proceedings.
[16]
The High Court
[8]
agreed with the reasoning of the Master and could find no fault. The
High Court held that section 135(4) of the Companies
Act must be read
with section 97 of the Insolvency Act
[9]
and, on this reading, the remuneration of the practitioner and the
expenses incurred during business rescue proceedings, to the
extent
that these have not been paid during business rescue proceedings and
during liquidation, can be paid only after the costs
set out in
section 97 have been paid. This conclusion, the High Court
said, was dispositive of the entire application which
it accordingly
dismissed with no order as to costs. Though the High Court
refused leave to appeal, the Supreme Court of Appeal
granted it.
Supreme Court of Appeal
[17]
Before the Supreme Court of Appeal, Mr Diener argued that the
claim for remuneration by a practitioner was not a concurrent claim
but a special class of claim created by section 135 of the
Companies Act. He argued that it “enjoys a special
and novel preference” and that it grants the practitioner
“security over all assets, even above securities existing
when
the practitioner takes office”. He submitted further that
the position created by the Companies Act for the remuneration
and
expenses of the practitioner places the practitioner “in a
position more favourable than the best position that can be
occupied
by a secured creditor”.
[18]
The Supreme Court of Appeal held that section 135 concerns
itself with post commencement finance and that it is in this
context
(while business rescue proceedings are in place) that it
creates a set of preferences for the company’s payment of its
unpaid
debts. It held that “it is only section 135(4)
that is concerned with the consequences of a failed business rescue,
retaining the preferences created in respect of post-commencement
finance on liquidation, subject only to the costs of
liquidation”.
[10]
This section, the Supreme Court of Appeal held, says nothing of
the “super preference” contended for over
secured
assets. To the contrary, the Supreme Court of Appeal held
that the section creates a preference over unsecured
claims in favour
of those claims listed in the section.
[11]
[19]
As regard section 143, the Supreme Court of Appeal concluded
that this section is also not concerned with liquidation. Instead,
it regulated the practitioner’s right to remuneration during
business rescue proceedings: it concerns the tariff in terms
of which
practitioners are remunerated; the additional contingency-based
remuneration that the practitioner may negotiate, and
safeguards in
that respect; and the practitioner’s claim for unpaid
remuneration, which ranks “in priority before the
claims of all
other secured and unsecured creditors”.
[12]
The Supreme Court of Appeal held that the reference to secured
and unsecured creditors in this section must be understood
as a
reference back to section 135. In other words, to those persons
who have, or have been deemed to have provided the company
with
post-commencement finance, both secured and unsecured, and not to the
company’s pre-business rescue creditors.
[20]
The Supreme Court of Appeal further held that the argument
that the practitioner’s claim for remuneration takes preference
over secured claims against the company (other than those in respect
of post-commencement finance) also flounders on the wording
of
section 95 of the Insolvency Act. Section 95 provides that the
proceeds of secured property shall, after deductions in
respect of
the costs of maintenance, conservation and realisation of the
property,
[13]
be “applied in satisfying the claims secured by the said
property, in their order of preference”. The
Supreme Court
of Appeal held that it could not be said “without
doing unjustifiable violence to the language of section 95”
that
the payment of remuneration to a practitioner from the proceeds
of property secured in favour of someone else amounts to applying
the
proceeds of the property to the satisfaction of a claim secured by
that property.
[21]
For all these reasons, the Supreme Court of Appeal concluded
that sections 135(4) and 143(5), whether taken individually or
in tandem, do not create the “super preference”
contended for by Mr Diener. Section 135(4) provides the
practitioner, after the conversion of business rescue proceedings
into liquidation proceedings, with no more than a preference
to claim
remuneration against the free residue after the costs of liquidation.
But this is before the claims of employees
for
post commencement wages, those who have provided other
post commencement finance, whether those claims were secured
or
not, and of any other unsecured creditors.
[22]
The appeal was therefore dismissed. No costs were
awarded as the Supreme Court of Appeal found that the issues
raised
were of considerable importance and required
clarification.
[14]
Submissions
[23]
In this Court, Mr Diener submits that the Supreme Court of
Appeal’s interpretation was incorrect. He argues that it
approached the matter from the premise that section 135 deals with
post-commencement finance only, which he says is incorrect in
the
sense that employees’ claims are given a preference over assets
secured during business rescue – which in itself
causes an
inroad on the provisions of section 95 of the Insolvency Act.
Mr Diener argues that the Supreme Court of Appeal’s
reliance on section 135 is incorrect and contrary to an ordinary
reading in the context of that section. The qualification
being
the exception in respect of the liquidation costs. Mr Diener
submits that if the notion were also to restrict its effect
in
liquidation in respect of security, the section would have provided
so expressly.
[24]
Mr Diener argues further that section 143 is a self-standing,
substantive provision that has no bearing on section 135. It
arranges fully for the remuneration of the practitioner and creates a
preference that can rightly be described as a “super preference”.
It does not refer back to section 135, but is incorporated into
section 135 by reference.
[25]
Mr Murray submits that JD Bester was never a suitable
candidate for business rescue as it did not conduct business and
could not
be rescued. Notwithstanding this, JD Bester adopted a
section 129 resolution and appointed Mr Diener as its
practitioner.
Even the most basic enquiries would have made it
clear to Mr Diener that JD Bester had no money, business or employees
and
could not be rescued. Notwithstanding this, Mr Diener did
not immediately terminate the business rescue proceedings (as a
prudent practitioner would have done) but kept the corporation under
his supervision in pursuit of fees.
[26]
Mr Murray submits that a correct interpretation of
sections 143(5) and 135 of the Companies Act, read with the
relevant provisions
of the Insolvency Act, results in a
conclusion that in liquidation, claims by practitioners are payable
out of the free residue
after payment of the liquidation costs
mentioned in section 97. He submits that Mr Diener’s
proposition for a
regime in terms of which the practitioner’s
claim for payment of his remuneration and expenses in liquidation
rank, not only
above the claims of secured creditors, but effectively
also above the costs of liquidation (that are paid from the free
residue)
after payment of all secured claims, is absurd. Last,
he submits that the Supreme Court of Appeal’s interpretation
should be preferred because of the potential for abuse in the
approach suggested by Mr Diener, which it submits is evident from
the
facts of this case.
[27]
FRB submits that Mr Diener’s argument is untenable and
is not a proper balancing of interests underpinning the Companies
Act.
It argues that section 134 creates an order of preference
in respect of what happens after business rescue commenced but
relates only to business rescue proceedings. Therefore, while a
company is in business rescue, the preference in this section
applies. As between those post-business rescue expenses, the
preference is retained in liquidation. Section 143(5)
makes no mention of liquidation and the reference to secured and
unsecured creditors has no influence thereon. Had section
143(5) been intended to apply to liquidation, it would have so
provided, in the simplest terms. FRB submits further that
if Mr
Diener’s interpretation is accepted, practitioners would have
every reason (as in this case) to pursue an unmeritorious
business
rescue, and no reason at all to terminate business rescue
proceedings. They would be prepared to gamble on the outcome
of
business rescue, at the risk of secured creditors. This, FRB
submits, is not in line with the purpose of the Companies
Act.
[28]
BASA submits that section 135(4) of the Companies Act retains
the preference created by section 135(3) of certain claims in the
event of a conversion of business rescue proceedings into
liquidation. But, on a proper construction, the section does
not
create a preference for the practitioner’s fees and
expenses over a secured claim in respect of secured assets. BASA
submits that section 143(5) of the Companies Act also does not create
this preference as it does not relate to the conversion of
business
rescue proceedings into liquidation proceedings nor does it import
that preference into section 135(4).
[29]
IBRASA supports Mr Diener’s interpretation. It
submits that the Supreme Court of Appeal’s interpretation will
have an impact on the willingness of practitioners to accept
appointments, thus militating against the business rescue regime.
Like IBRASA, Turnaround also submits that Mr Diener’s
interpretation is correct and should prevail. In their view,
practitioners should submit a claim in accordance with section 44 of
the Insolvency Act for any unpaid remuneration and expenses
in the
event that business rescue proceedings are superseded by liquidation
proceedings. Claims for outstanding remuneration
and expenses
by practitioners should be treated as “super preferent claims”
in liquidation proceedings ranking after
liquidation costs but above
all other claims, including secured creditors. They should be
payable out of the proceeds of
secured assets insofar as the free
residue is insufficient to meet these expenses.
Jurisdiction
[30]
Section 167(3)(b)(ii) of the Constitution empowers this Court
to hear matters that raise an arguable point of law of general public
importance. The threshold for “arguable” point of
law is a necessary factor for the grounding of jurisdiction
in this
Court for matters that do not engage constitutional issues.
This threshold is necessarily lower than the threshold
for
“reasonable prospects of success”, one of the factors
taken into account when determining whether leave to appeal
should be
granted. This Court in
Paulsen
held that “arguable”
in this context means that the point of law must have
some
prospects of success.
[15]
I am satisfied that this matter raises an arguable point of law of
general public importance. The correct interpretation
of
sections 135(4) and 143(5) of the Companies Act and whether these
sections confer a “super preference” on practitioners
will have a significant impact on credit providers, and therefore the
public, and should be considered. I will deal below
with the
question of whether the application has “reasonable”
prospects of success. First, I consider the ancillary
applications in this matter.
Application for
leave to file replying affidavit
[31]
Mr Diener has sought special leave to file a replying
affidavit to the opposing affidavit of Mr Murray. He states
that this
is required because certain facts relating to the public
importance of the matter are incorrectly set out in Mr Murray’s
opposing affidavit, which he says may seriously prejudice him.
This application is opposed by Mr Murray who submits that to
allow Mr
Diener to file the replying affidavit would be tantamount to allowing
him to include new evidence in reply without affording
the Mr Murray
an opportunity to respond thereto.
[32]
The rules of this Court, for good reason, do not make
provision for a replying affidavit to be filed in applications for
leave to
appeal.
[16]
This Court retains the discretion to admit further affidavits if it
is in the interests of justice to do so.
[17]
The affidavit relates to a factual dispute between the parties,
which has no bearing on the issues before this Court.
[33]
The application falls to be dismissed.
Condonation
[34]
Condonation has been sought for the late filing of the Mr
Murray’s written submissions. Mr Murray has advanced good
reasons for the delay and the delay is slight. There was no
prejudice suffered by any of the parties as a result of the late
delivery of the submissions, and the condonation application is not
opposed. It is therefore in the interests of justice
to grant
condonation.
Leave to appeal
[35]
Notwithstanding that this Court has jurisdiction, leave to
appeal may still be refused if it is not in the interests of justice
that this Court should hear the appeal.
[18]
In considering the interests of justice, prospects of success are an
important factor and Mr Diener who seeks leave to appeal
must show
that there are reasonable prospects that this Court will reverse or
materially alter the decision of the lower court.
[19]
[36]
The question of whether to grant leave to appeal consequently
involves consideration of the merits of the matter to establish
whether
there are reasonable prospects that this Court will reverse
or materially alter the decision of the Supreme Court of
Appeal.
In order to determine whether Mr Diener’s
interpretation of sections 135(4) and 143(5) of the Companies Act has
reasonable
prospects of success, it is necessary to consider both a
plain language reading of the sections as well as their meaning in
context.
I do this below.
Interpretation
Plain reading
[37]
The ordinary rule and starting point in an interpretative
exercise entails a determination of the plain meaning of words in the
relevant statutory provision to be construed.
[20]
[38]
Business
rescue proceedings are intended 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.
[21]
Business rescue proceedings can begin in one of two ways.
[22]
First, the board of the company may voluntarily decide to
initiate business rescue proceedings, provided there are “reasonable
grounds” to believe that the company is financially distressed
and there appears to be a reasonable prospect of rescuing
the
company.
[23]
However, this may only occur “if liquidation proceedings have
[not] been initiated by or against the company.”
[24]
[39]
Second, business rescue proceedings can be commenced through a
court order upon application by an affected person.
[25]
The court may either grant the order
[26]
or dismiss the application, and in the case of a dismissal, may also
grant an order placing the company under liquidation.
[27]
If liquidation proceedings have already commenced, an application to
commence business rescue proceedings by court order
will suspend the
liquidation proceedings, affording the court an opportunity to
establish whether the underlying purpose of business
rescue will be
met through relevant proceedings.
[28]
[40]
Once commenced, business rescue proceedings end when a court
sets aside the resolution by the board or when a court orders the
company
to be placed into liquidation.
[29]
[41]
Chapter 6 of the Companies Act deals with business rescue and
is titled “Business rescue and compromise with creditors”.
[30]
The main provision at issue in this appeal is section 143(5) of the
Companies Act, which is contained in Part B of Chapter
6 of the Act,
and reads:
“Remuneration of practitioner
. . .
(5) To the extent that the practitioner's remuneration and expenses
are not fully paid, the practitioner's claim for those amounts
will
rank in priority before the claims of all other secured and unsecured
creditors.”
[42]
The “remuneration” referred to in section 143(5)
is the amount the practitioner is entitled to be paid in accordance
with the prescribed tariff in terms of regulation 128(1) of the
Companies Act.
[31]
Under regulation 128(3), the term “expenses” means
the actual costs of any disbursement or expenses incurred
by the
practitioner to the extent reasonably necessary to carry out his or
her functions and to facilitate the conduct of the company’s
business rescue proceedings.
[32]
[43]
The question is whether the preference articulated in section
143(5) applies when business rescue converts to liquidation.
Section 135, which is contained in Part A of Chapter 6, reads:
“Post-commencement finance
(1)
To the extent that any remuneration, reimbursement for expenses or
other amount of money relating to employment becomes due
and payable
by a company to an employee during the company's business rescue
proceedings, but is not paid to the employee—
(a) the money is regarded to be post-commencement financing; and
(b) will be paid in the order of preference set out in subsection
(3)(a).
(2)
During its business rescue proceedings, the company may obtain
financing other than as contemplated in subsection (1), and any
such
financing—
(a) may be secured to the lender by utilising any asset of the
company to the extent that it is not otherwise encumbered; and
(b) will be paid in the order of preference set out in subsection
(3)(b).
(3)
After payment of the practitioner's remuneration and expenses
referred to in section 143, and other claims arising out of the
costs
of the business rescue proceedings, all claims contemplated—
(a) in subsection (1) will be treated equally, but will have
preference over—
(i)
all claims contemplated in subsection (2), irrespective of whether or
not they are secured; and
(ii)
all unsecured claims against the company; or
(b) in subsection (2) will have preference in the order in which they
were incurred over all unsecured claims against the company.
(4)
If business rescue proceedings are superseded by a liquidation
order, the preference conferred in terms of this section will remain
in force, except to the extent of any claims arising out of the costs
of liquidation
.” (Emphasis added.)
[44]
Mr Diener argues that when read together, sections 143(5) and
135(4) create a “super preference” for payment of
the remuneration and expenses incurred by practitioners once a
company converts to liquidation above all creditors, whether secured
or unsecured. The opposing respondents maintain that the
preference articulated in section 143(5) applies only during business
rescue proceedings, ceasing once the process converts to
liquidation. On that reading, the words “in terms of this
section” in section 135(4) limit the preference created to
post-commencement financing.
[45]
The opposing respondents also argue that Mr Diener’s
interpretation of the Companies Act has the effect of diluting the
protection
given to secured creditors during business rescue.
Section 134(3) provides:
“If, during a company's business rescue proceedings, the
company wishes to dispose of any property over which another person
has any security or title interest, the company must—
(a)
obtain the prior consent of that other person, unless the proceeds of
the disposal would be sufficient to fully discharge the
indebtedness
protected by that person’s security or title interest; and
(b)
promptly—
(i) pay to that other person the sale proceeds attributable to that
property up to the amount of the company's indebtedness to
that other
person; or
(ii) provide security for the amount of those proceeds, to the
reasonable satisfaction of that other person.”
[46]
Overall, a plain reading of the provisions suggests an
interpretation in line with the opposing respondents’
contentions.
The provision simply ranks the practitioner’s
remuneration and expenses before post-commencement financing and
unsecured
assets and subjects the practitioner’s payment to
liquidation.
[33]
[47]
However, there is some ambiguity. Read alone, section
135 applies simply to post-commencement financing. However, the
Legislature has clearly granted a preference for the claims of a
practitioner over secured creditors in terms of section 143.
How far does it extend? What keeps the preference articulated
in section 143(5) for the payment of remuneration and
expenses
of a practitioner before all creditors, whether secured or unsecured,
from applying during liquidation?
[48]
To answer this, one must turn to the provisions of the
Insolvency Act. Section 97 of the Insolvency Act provides
that
costs of liquidation are paid out of “any balance of the
free residue which shall be applied in defraying the costs of the
sequestration of the estate”, with the exception of the costs
referred to in section 89(1) of the Insolvency Act.
[34]
These costs do not rank in preference above secured creditors, whose
claims are dealt with in section 95 of the Insolvency
Act. Put
another way, section 89(1) of the Insolvency Act deals with the costs
to which those securities are subject.
[49]
When these are read together, section 143 of the Companies Act
does not allow for the claims of practitioners to usurp the claims
of
all creditors, whether secured or not, in liquidation.
Importantly, the preferences listed in the relevant provisions
for
secured creditors are tied to the security. The arguments by Mr
Diener, IBRASA and Turnaround for a preference for the
remuneration
and expenses of practitioners are not so limited. Unlike
section 89(1) of the Insolvency Act, section 135(4)
of the
Companies Act makes no reference to using secured assets to pay
the practitioner. In contrast to section 135(4),
section
89(1), in much clearer terms, creates a preference over secured
assets for the costs of liquidation.
[50]
The consent that must be sought in terms of section 134(3) of
the Companies Act further suggests that the practitioner does
not have a preference over secured assets. It is also
inconsistent with a reading-in of a similar limitation for
practitioners.
[51]
Given that some ambiguity arises when sections 135(4) and
143(5) of the Companies Act are read together, it is necessary to
interpret
the sections having regard to their purpose and context,
which I do next.
[35]
Context
and purpose
[52]
In
KJ Foods
, the Supreme Court of Appeal, in the
context of interpreting section 153(1)(a)(ii) and (7) of the
Companies Act, stated:
“In interpreting the provisions of the Act the principles
enunciated in
Natal Joint Municipal Pension Fund v Endumeni
Municipality
; and
Novartis SA (Pty) Ltd v Maphil Trading (Pty)
Ltd
find application. These cases and other earlier ones
provide support for the trite proposition that the interpretive
process
involves considering the words used in the Act in the light
of all relevant and admissible context, including the circumstances
in which the legislation came into being. Furthermore, as was
said in
Endumeni
, ‘a sensible meaning is to be preferred
to one that leads to insensible or unbusinesslike results’.
Thus when
a problem such as the present arises, the court must
consider whether there is a sensible interpretation that can be given
to the
relevant provisions that will avoid anomalies. Accordingly,
in this instance, the proper approach in the interpretation of
the
provisions is one that is in sync with the objects of the Act, which
includes ‘[enabling] the efficient rescue and recovery
of
financially distressed companies,
in a manner that balances the
rights and interests of all relevant stakeholders
.”
[36]
(Footnotes omitted.)
[53]
In examining whether there are reasonable prospects that the
interpretation by the Supreme Court of Appeal could be overturned by
this Court, it is necessary to look at the context and purpose of
business rescue, having regard to which interpretation is most
sensible in this context and examine any anomalies that arise from
the interpretations suggested by the parties.
[54]
The
purpose of business rescue is to assist a financially distressed
company with paying its debts, avoiding insolvency, and maximising
the benefit to stakeholders upon liquidation (if inevitable).
It is stated expressly in section 7(k) of the Companies Act
that
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”. It must be emphasised that this must
be
done while balancing the rights of all affected persons, including
creditors, employees, and shareholders.
[37]
The primary goal of business rescue is to avoid liquidation and its
attendant negative consequences on stakeholders.
[38]
In addition, a secondary purpose is to achieve a better outcome on
liquidation or disinvestment, whereby “[t]he underlying
principle behind restructuring or reorganisation proceedings is that
a business may be worth a lot more if preserved, or even sold,
as a
going concern than if the parts are sold off piecemeal”.
[39]
At the same time, where it is not viable to rescue a company, it
should be liquidated and its business sold.
[40]
Business rescue can only begin where there is a reasonable prospect
of saving the company.
[41]
This was highlighted in
KJ Foods
, where the Supreme Court of
Appeal quoted with approval the High Court in
DH Brothers
Industries
, which stated that—
“Chapter [6] as a whole reflects ‘a legislative
preference for proceedings aimed at the restoration of viable
companies
rather than their destruction’
but only of viable
companies, not of all companies placed under business rescue
.”
[42]
This is in line with
the ultimate aim of balancing the rights and interests of all
relevant stakeholders.
[55]
The question is which interpretation upholds the purpose of
business rescue while balancing the rights of all stakeholders.
The “super preference” interpretation put forward by Mr
Diener undoubtedly favours practitioners and does not achieve
a
balance of the rights of all interested parties.
[56]
An example of this is where business rescue proceedings are
superseded by liquidation proceedings, and there is no free residue
in an insolvent estate to meet the costs of liquidation. Here,
the “super preference” would mean that as a matter
of
fact, and in conflict with section 97 of the Insolvency Act and
section 135(4) of the Companies Act, the practitioner would
be paid
his or her remuneration out of realised secured property, while the
costs of liquidation would not be. The effect
of the
“super preference” contended for is that the claim
for remuneration of the practitioner would, in fact,
rank ahead of
the costs of liquidation. The practitioner would then also
enjoy this preference over secured creditors even
if a court, upon
challenge to a director’s resolution to institute business
rescue proceedings (in terms of section 129(1)
of the Companies
Act), set aside that resolution and were to grant an order placing
the company in liquidation. In this case,
it cannot be said
that there is any balancing of stakeholder interests.
[57]
Another example of the imbalance introduced by the “super
preference” is that pre-business rescue secured creditors can
incur costs without consultation – even if they object to
placing the company under business rescue. A practitioner
must
be appointed by a board of directors pursuant to a resolution to
place the company in business rescue.
[43]
A creditor can then object to the resolution to place the company
under business rescue.
[44]
But, unless the creditor does so within five days, this objection
takes place after the practitioner is appointed.
[45]
It is also unlikely that a court will set aside a resolution unless a
practitioner has been appointed.
[46]
This is because the court is tasked with deciding if the business
rescue is worth pursuing. To this end, the court
has the power
to ask the appointed practitioner to draft a report detailing the
financial circumstances of the company.
[47]
[58]
If the “super preference” approach is taken, and a
practitioner has been appointed by the time a section 130 objection
to a resolution to place a company in business rescue is made, then
even if that resolution is set aside by a court, a secured
creditor
will have to foot the bill for the practitioner’s report out of
the encumbered assets. This upsets the balance
of interests and
the consultative process envisaged in business rescue.
Ordinarily, creditors and other stakeholders have
a say when it comes
to matters that affect their rights. Yet the “super
preference” results in a situation where
a secured creditors’
security is diluted without them being able to do anything.
[59]
Significantly, there is nothing in Chapter 6, or anywhere
else, which would suggest that the Legislature had intended the
rights
of secured creditors to be diluted where liquidation of the
company supersedes business rescue proceedings through the ranking in
preference of the practitioner’s remuneration and expenses,
above the claims of secured creditors in relation to the property
over which they hold security.
[60]
Finally, the significance of the practitioner’s
preference
during
business rescue on the Supreme Court of
Appeal’s interpretation should not be underplayed. While
business rescue is
ongoing, the practitioner gets first preference
for fees. It is only if business rescue fails, or is followed
by liquidation,
that the practitioner will incur the risk of not
being paid. It also assumes that the practitioner has not
agreed with the
stakeholders concerned that fees will get paid before
business rescue ends. However, there is nothing in the
Companies Act
preventing the practitioner from bargaining for that
position, particularly where there is a good case for business rescue
and
the creditors stand to gain from the process.
[61]
It was argued that there are sufficient mechanisms to hold
practitioners accountable for incurring fees where there is little
chance
of the business being rescued. These mechanisms do
exist, for example in sections 138 to 141 of the Companies Act.
Furthermore,
practitioners have the same fiduciary duty to the
company as a director.
[48]
If they do not exercise their duty properly, they can be removed and
held liable for fruitless expenses.
[49]
However, it must be noted that the standard of gross negligence is a
high one and in cases where there is good faith the
courts have been
reluctant to find that practitioners should be held liable for
fruitless expenses.
[50]
[62]
On Mr Diener’s interpretation, once business rescue
proceedings have been converted to liquidation proceedings, a secured
creditor loses security in whole or in part, for the remuneration and
expenses of the practitioner. The Supreme Court
of Appeal
is clearly correct that this is untenable and goes against the proper
balancing of interests underpinning the Companies
Act.
Anomalies
[63]
There is no doubt that anomalies arise in the interpretations
put forward by both the Mr Diener and the opposing respondents.
In their written submissions, BASA listed a number of anomalies that
arise as a result of Mr Diener’s interpretation.
These
included the tautology in section 135(3)(a)(ii) that refers to “all
unsecured claims against the company”.
The most notable
anomaly occurs where business rescue proceedings are superseded by
liquidation proceedings, but where there is
no free residue.
[64]
In this case, the practitioner’s remuneration and
expenses rank above secured creditors and can be paid from the
proceeds
of a secured asset. Section 135(4) would then
have to be read on the basis that even though “claims arising
out
of the costs of liquidation” ranked before the
practitioner’s remuneration and expenses, if there is no free
residue
the practitioner’s remuneration and expenses will enjoy
preference by being paid out of the “proceeds of a secured
asset”. This is despite this claim ranking after “claims
arising out of the costs of liquidation” and in
preference to
the claims of a secured creditor. This would be in conflict
with section 97 of the Insolvency Act and section
135(4) of the
Companies Act. The practitioner would then also enjoy this
preference over secured creditors even if a court,
upon challenge to
a directors’ resolution to institute business rescue
proceedings in terms of section 129(1) of the
Companies Act,
sets aside that resolution and grants an order placing the company in
liquidation. The anomaly that would
exist in the event that
there is no free residue upon liquidation, is significant and could
not have been intended.
[65]
Similarly, the opposing respondents’ interpretation
results in its own anomalies. For example, it is unclear what
independent
meaning can be given to section 143(5) of the
Companies Act, given the contents of section 135(3). This
arises only
if one takes “all other secured and unsecured
creditors” to be a reference to post commencement finance
creditors.
One response to this anomaly provided by counsel for
BASA during the hearing was that section 143(5) places the
practitioner’s
claims during business rescue proceedings above
those of all unsecured and secured creditors, while section 135(3)
merely places
the practitioner’s claims above those claims for
post-commencement finance and does not deal with creditors whose
claims
were secured before business proceedings started. This
is contrary to the findings of the Supreme Court of Appeal, which
held that section 143(5) is specifically in relation to
post-commencement finance creditors only. We are not, however,
required to make any finding on this as no arguments were made in
relation to this point other than in response to a question from
the
bench, and because the point is
obiter
(a remark said in
passing) as it deals with the ranking of the practitioner’s
claims during business rescue rather than during
liquidation
proceedings.
[66]
In
Panamo Properties
the Supreme Court of Appeal
remarked that the “commendable goals are unfortunately being
hampered because the statutory provisions
governing business rescue
are not always clearly drafted”.
[51]
It is clear that neither interpretation is without its faults.
Nevertheless, taking into account the Chapter 6
context and the
purpose of business rescue and the sections themselves, as well as
the anomalies arising from each interpretation,
I do not see any way
that the interpretation contended for by Mr Diener is tenable.
Consequences
[67]
It was argued before this Court that if the Supreme Court of
Appeal’s interpretation were to stand the institution of
business
rescue will be undermined. This is because
practitioners will be less willing to take appointments, given that
they may not
recover their costs and fees, and the purposes of
Chapter 6 of the Companies Act will therefore not be fulfilled.
[68]
This argument is unconvincing. On the contrary,
practitioners will take appointments having regard to the purpose of
business
rescue proceedings and will (rightly) avoid taking
appointments where there are no prospects of rescue – as should
have been
the case in this matter where the business was not
operating, had no employees and only one secured asset. This
interpretation
would guard against appointments in circumstances
where business rescue proceedings ought not to have been commenced
and where
practitioners are reliant on payment of their remuneration
and expenses at the expense of secured creditors without reference to
those creditors.
[69]
In addition, it remains open for practitioners to insist on
the payment of a deposit, or to reach an agreement with creditors to
ensure payment of their remuneration and expenses. In the
context of liquidation, most creditors, including some secured
creditors, stand to lose something. Even liquidators do not
enjoy preference over secured creditors for their fees.
[52]
Yet liquidations still occur. Credit – on a secured
and unsecured basis – is still given. The mere
fact that
creditors and liquidators do not enjoy preference over all others
does not deter them entirely from transacting. Finally,
these
contentions are also purely speculative and no evidence was produced
to substantiate this argument.
[70]
Even if the predictive claim is true, to the extent that fewer
practitioners will take on work, this does not mean the purpose of
business rescue will necessarily be undermined
.
The
purpose is to rescue those financially distressed companies that are
capable of being rescued. Just because a practitioner
risks not
being paid in the event of liquidation does not mean business rescue
will never happen, or even that viable business
rescue will happen
less. It means only that practitioners, like all creditors,
will have to assess the risk of transacting
with what may turn out to
be a financially distressed company before agreeing to the
transaction. This assessment of risk
– especially where
there is no residue from which to pay a practitioner – might
avert the superfluous “business
rescue” of a company that
should be liquidated.
[53]
In that sense, the number or proportion of successful business
rescues may even increase.
[71]
While I accept that there is some difficulty with the wording
of sections 135(4) and 143(5), when one considers the purpose of
business
rescue and the overall context of the relevant sections, I
do not see any basis on which to interfere with the order of the
Supreme
Court of Appeal. It is therefore not in the interests
of justice to grant leave to appeal and the application for leave to
appeal is dismissed.
Costs
[72]
As in the Supreme Court of Appeal there will be no order as to
costs.
Order
[73]
In the result, the following order is made:
1.
The
application for leave to file a replying affidavit is dismissed.
2.
The
application for condonation for the late filing of the third
respondent’s written submissions is granted.
3.
Leave to
appeal is refused.
4.
There is
no order as to costs in this Court.
For the Applicant: J
L Van der Merwe SC, L K Van der Merwe and I M Hlalethoa instructed by
Cawood Attorneys
For the Third
Respondent: K W
Lüderitz SC and J Vorster
instructed by Tintingers Inc
For the Sixth
Respondent: J Gauntlett SC and J E Smit instructed by Werksmans
Attorneys
For the Eighth
Respondent: A E Bham instructed by Edward Nathan Sonnenbergs
For the Ninth
Respondent: J Hershensohn and L Maite instructed by Couzyn, Hertzog
and Horak Inc
For the Tenth
Respondent: X Stylianou and N Mncube instructed by Hogan Lovells
(South Africa) Inc
[1]
71 of 2008.
[2]
Id at section 7(k) of the Companies Act.
[3]
Diener N.O. v Minister of Justice
[2017] ZASCA 180
;
2018 (2)
SA 399
(SCA) (Supreme Court of Appeal judgment) per Plasket AJA
(Navsa ADP, Bosielo and Majiedt JJA and Schippers AJA concurring).
[4]
Supreme Court of Appeal judgment id at para 5.
[5]
Section 66(1A) of the Close Corporation Act 69 of 1984 makes Chapter
6 of the Companies Act applicable to close corporations.
[6]
24 of 1936.
[7]
61 of 1973.
[8]
Diener N.O. v Minister of Justice
[2016] ZAGPPHC 1251 (High
Court judgment) per Dewrance AJ.
[9]
Section 97 of the Insolvency Act provides:
“Costs of sequestration
(1) Thereafter any balance of the free residue shall be applied in
defraying the costs of the sequestration of the estate in
question
with the exception of the costs mentioned in subsection (1) of
section
eighty-nine
.
(2) The costs of the sequestration shall rank according to the
following order of priority–
(a) the sheriff’s charges incurred since the sequestration;
(b) fees payable to the Master in connection with the sequestration;
(c) the following costs which shall rank
pari passu
and abate
in equal proportions if necessary, that is to say: the taxed costs
of sequestration (as defined in subsection (3),
the fee mentioned in
section 16(5), the remuneration of the
curator
bonis
and of the trustee and all other costs of administration and
liquidation including such costs incurred by the trustee in giving
security for his proper administration of the estate as the Master
considers reasonable, in so far as they are not payable by
a
particular creditor in terms of section 89(1), any expenses incurred
by the Master or by a presiding officer in terms of section
53(2)
and the salary or wages of any person who was engaged by the
curator
bonis
or the trustee in connection with the administration of
the insolvent estate.
(3) In paragraph (
c
) of subsection (2) the expression ‘taxed
costs of sequestration’ means the costs (as taxed by the
registrar of the
court) incurred in connection with the petition of
the debtor for acceptance of the surrender of his estate or of a
creditor
for the sequestration of the debtor’s estate, but it
does not include the costs of opposition to such a petition, unless
the court directs that they shall be included.”
[10]
See Supreme Court of Appeal judgment above n 3 at para 42.
[11]
Id.
[12]
Id at para 43.
[13]
Section 95 of the Insolvency Act above n 6.
[14]
Supreme Court of Appeal judgment above n 3 at para 65.
[15]
Paulsen v Slip Knot Investments 777 (Pty) Ltd
[2015] ZACC 5
;
2015 (3) SA 479
(CC);
2015 (5) BCLR 509
(CC) at para 22.
[16]
Cross-Border Road Transport Agency v Central Africa Road Services
(Pty) Ltd
[2015] ZACC 12
;
2015 (5) SA 370
(CC);
2015 (7) BCLR
761
(CC) at para 52.
[17]
Id.
[18]
See
Ingledew v Financial Services Board: In re Financial Services
Board v Van der Merwe
[2003] ZACC 8
;
2003 (4) SA 584
(CC);
2003
(8) BCLR 825
(CC) at para 13;
National Education Health and
Allied Workers Union v University of Cape Town
[2002] ZACC 27
;
2003 (3) SA 1
(CC);
2003 (2) BCLR 154
(CC) at paras 25 6;
National Union of Metalworkers of South Africa v Bader Bop (Pty)
Ltd
[2002] ZACC 30
;
2003 (3) SA 513
(CC);
[2003] 2 BLLR 103
(CC)
at paras 15-6.
[19]
See
S v Boesak
[2000] ZACC 25
;
2001 (1) SA 912
(CC);
2001 (1)
BCLR 36
(CC) at paras 11-2.
[20]
Mankayi v AngloGold Ashanti Ltd
[2011] ZACC 3
;
2011 (3) SA
237
(CC);
2011 (5) BCLR 453
(CC) at para 70 and
Wary
Holdings (Pty) Ltd v Stalwo (Pty) Ltd
[2008] ZACC 12
;
2009 (1)
SA 337
(CC);
2008 (11) BCLR 1123
(CC) at para 58.
[21]
Section 7(k) of the Companies Act above n 1. See
also
Panamo Properties (Pty) Ltd v Nel
[2015] ZASCA 7
;
2015 (5) SA 63
(SCA) (
Panamo
Properties
) at para 1.
[22]
Section 132(1) of the Companies Act
above n 1
.
[23]
Sections 129(1) of the Companies Act above n 1.
In terms of section 129(3)(b) of the Companies Act, the board must
appoint
a practitioner who satisfies the requirements set out in
section 138 of the Companies Act, and who has consented to the
appointment
in writing.
[24]
Section 129(2)(a) of the Companies Act above n 1.
[25]
Section 131(1) of the Companies Act above n 1.
[26]
Section 131(4)(a) of the Companies Act
above n 1
.
[27]
Section 131(4)(b) of the Companies Act above n 1.
[28]
Section 131(6) of the Companies Act
above n 1
.
[29]
Section 132(2)(a) of the Companies Act above n 1.
[30]
Chapter 6 is divided into 4 parts: Part A
“Business rescue proceedings”, Part B “Practitioner’s
functions
and terms of appointment”. Part C “Rights of
affected persons during business rescue proceedings” and Part
D “Development and approval of business rescue plan”.
[31]
Companies Regulations, 2011 to the
Companies Act 71 of 2008
.
[32]
Id.
[33]
This qualification is found in the phrase “except to the
extent of any claims arising out of the costs of liquidation”
contained in
section 135(4)
of the
Companies Act.
>
[34]
Section 89(1)
reads:
“The cost of maintaining, conserving, and realising any
property shall be paid out of the proceeds of that property, if
sufficient and if insufficient and that property is subject to a
special mortgage, landlord’s legal hypothec, pledge, or
right
of retention the deficiency shall be paid by those creditors, pro
rata, who have proved their claims and who would have
been entitled,
in priority to other persons, to payment of their claims out of
those proceeds if they had been sufficient to
cover the said cost
and those claims. The trustee’s remuneration in respect
of any such property and a proportionate
share of the costs incurred
by the trustee in giving security for his proper administration of
the estate, calculated on the
proceeds of the sale of the property,
a proportionate share of the Master’s fees, and if the
property is immovable, any
tax as defined in subsection (5) which is
or will become due thereon in respect of any period not exceeding
two years immediately
preceding the date of the sequestration of the
estate in question and in respect of the period from that date to
the date of
the transfer of that property by the trustee of that
estate, with any interest or penalty which may be due on the said
tax in
respect of any such period, shall form part of the costs of
realisation.”
[35]
The correct approach to interpretation was summarised by the Supreme
Court of Appeal in
Natal Joint Municipal Pension Fund v Endumeni
Municipality
[2012] ZASCA 13
;
2012 (4) SA 593
(SCA) at para 18
where it stated:
“Interpretation is the process of attributing meaning to the
words used in a document, be it legislation, some other statutory
instrument, or contract, having regard to the context provided by
reading the particular provision or provisions in the light
of the
document as a whole and the circumstances attendant upon its coming
into existence. Whatever the nature of the document,
consideration must be given to the language used in the light of the
ordinary rules of grammar and syntax; the context in which
the
provision appears; the apparent purpose to which it is directed and
the material known to those responsible for its production.
Where more than one meaning is possible each possibility must be
weighed in the light of all these factors. The process
is
objective, not subjective. A sensible meaning is to be
preferred to one that leads to insensible or unbusinesslike results
or undermines the apparent purpose of the document. Judges
must be alert to, and guard against, the temptation to substitute
what they regard as reasonable, sensible or businesslike for the
words actually used. To do so in regard to a statute or
statutory instrument is to cross the divide between interpretation
and legislation; in a contractual context it is to make a
contract
for the parties other than the one they in fact made. The
‘inevitable point of departure is the language
of the
provision itself’, read in context and having regard to the
purpose of the provision and the background to the preparation
and
production of the document.”
See also
Kubyana
v Standard Bank of South Africa Ltd
[2014] ZACC 1
;
2014 (3) SA
56
(CC);
2014 (4) BCLR 400
(CC) at para 18.
[36]
FirstRand Bank Ltd v KJ Foods CC
[2017] ZASCA 50
;
2017 (5) SA
40
(SCA) (
KJ Foods
) at para 75.
[37]
Sections 7(k)
and
128
(1)(h) of the
Companies Act above
n 1. See also
KJ Foods
id at para 68;
Panamo Properties
above n 21
at para 1;
Cloete Murray N.O. v Firstrand Bank Ltd t/a
Wesbank
[2015] ZASCA 39
;
2015 (3) SA 438
(SCA) at para 12;
Oakdene Square Properties (Pty) Ltd v Farm Bothasfontein
(Kyalami) (Pty) Ltd
[2013] ZASCA 68
;
2013 (4) SA 539
(SCA) at
para 23.
[38]
Cassim “Business Rescue and Compromises” in Cassim
Contemporary Company Law
2 ed (Juta & Co Ltd, Cape Town
2012) at 862. For a critical reprisal of this rationale, see
Loubser “Tilting
at windmills? The quest for an effective
corporate rescue procedure in South African law” (2013) 25
SA
Merc LJ
437.
[39]
McCormack “Super-priority new financing and corporate rescue”
(2007)
Journal of Business Law
701 at 703.
[40]
KJ Foods
above n 36 at para 77, endorsing
DH Brothers
Industries (Pty) Ltd v Gribnitz
2014 (1) SA 103
(KZP) (
DH
Brothers Industries
); Cassim above n 38 at 863.
[41]
Section 129(1)(b)
of the
Companies Act above
n 1.
[42]
DH Brothers Industries
above n 40 at para 10.
[43]
Section 129(3)(b)
of the
Companies Act above
n 1.
[44]
Section 130(1)(a)
of the
Companies Act above
n 1.
[45]
Section 129(3)
of the
Companies Act above
n 1.
[46]
Section 130(1)(a)
of the
Companies Act above
n 1.
[47]
Section 130(5)(b)
of the
Companies Act above
n 1.
[48]
Section 140(3)(b)
of the
Companies Act above
n 1.
[49]
Sections 139(2)
,
140
(3)(b) and (c)(ii) of the
Companies Act above
n
1.
[50]
See
Absa Bank Limited v Marotex (Pty) Ltd
2016 JDR 1987 (GP).
[51]
Panamo Properties
above n 21 at para 1.
[52]
The only exception is in section 89(1) of the Insolvency Act above n
6, where the expenses of liquidation relate to the encumbered
property.
[53]
This is not to say that a company with only encumbered assets cannot
be rescued. But this is a determination the company’s
directors and the practitioner must make before placing the company
under business rescue.