The South African Business Rescue, restructuring (turnaround), and Liquidation profession calling for legislative reform

Lucinde explains that the business rescue space is highly dynamic. Since the introduction of Chapter 6 of the Companies Act, our courts have been busy interpreting its provisions, especially in the context of the evolving business rescue landscape.

Lucinde adds that in discussions about reform, it's important to remember the primary purpose of business rescue: to facilitate the return of financially distressed businesses to financial health. A key topic in current reform debates is the definition of "creditor" under Chapter 6 of the Companies Act, particularly whether post-commencement financiers (PCF) should have voting rights on business rescue plans.

Muwanwa notes that in the case of Merchant West Capital Solutions, the judgment focused on the definition of a creditor in Chapter 6 and confirmed that creditors have the right to vote on the adoption of a business rescue plan. In this case, the court had to determine whether voting rights extended to both pre-commencement and post-commencement creditors.

Muwanwa adds that the applicants argued that PCF creditors do not have voting rights in business rescue proceedings, meaning only pre-commencement creditors would have a say in approving or rejecting a rescue plan. The High Court agreed, ruling that only pre-commencement creditors had voting rights. This judgment caused significant concern, as it could have wide-reaching implications for a business's ability to attract and secure post-commencement financing.

Watch the interview below.