The case concerned an urgent interdict application by Arqomanzi against, amongst other things, the two business rescue practitioners (BRPs) of Vantage Goldfields, Barbrook Mines and Maronjwaan Imperial Mining Company. In this regard, a rule nisi was issued on 26 February 2021 in terms of which the BRPs of these three companies in business rescue were interdicted from further unilaterally implementing amended business rescue plans, pending finalisation of the dispute between the parties, which was laid before the court on 4 May 2021.

Previous Roelofse court order and the background facts

It is important to point out that Arqomanzi previously brought an application against the BRPs and accordingly obtained a court order against them.

This previous application came after the funding model provided for in the initial business rescue plans for the three companies, had failed. As a result of this failure, Arqomanzi made an offer to provide the necessary funding to the companies in rescue, in order to assist them with returning to a financially healthy state.

Various circumstances led to Arqomanzi bringing an application against the BRPs, which culminated in a court order by Roelofse AJ. The Roelofse court order directed that the BRPs introduce Arqomanzi’s (and other parties’) offer to the three companies’ creditors and affected persons in accordance with the Companies Act 71 of 2008 (Act), for purposes of proposing an amendment to the initial business rescue plans. The BRPs were further ordered to then prepare amended business rescue plans in accordance with these offers, and to publish them for consideration and voting on by the companies’ creditors and affected persons. These orders were allocated timelines within which the BRPs had to attend to the obligations.

The timelines provided for in the Roelofse court order were, however, not adhered to. Furthermore, two other companies, Vantage Goldfields SA and Vantage Goldfields Limited (collectively referred to as the new offerors), subsequently submitted a new funding offer to the BRPs. In the offer, it was proposed that the BRPs unilaterally amend the adopted business rescue plans. In response, the BRPs accepted the offer and unilaterally amended the adopted business rescue plans in accordance with this new offer.

Pertinent issues to be determined by the court in the Arqomanzi case

The court had to consider the two pertinent issues of:

• Whether, as a general rule, the BRPs of the companies in business rescue proceedings can unilaterally (without the involvement of creditors) make substantial amendments to the business rescue plans, after the plans have been adopted by the creditors of the entities under business rescue.
• Whether the BRPs can disregard a court order which directed them to publish amendments to the adopted business rescue plans and to allow creditors to vote on the amendments.

Can the BRPs unilaterally amend the adopted business rescue plans?

The respondents (the BRPs and new offerors) argued that the validity of the amended plans had to be determined in accordance with the terms of the originally adopted business rescue plans, and in particular, clause 9 of the business rescue plans which provided that the BRPs were permitted to amend the business rescue plans, as long as the amendments did not prejudice any affected persons and that the BRPs acted reasonably.

Arqomanzi argued that the clause in the adopted business rescue plan which allowed BRPs to amend the plan should be interpreted restrictively. It contended that, amendments that the BRP would be entitled to make, would be amendments of an administrative nature that do not affect the substance of the plan that was adopted by the creditors. Any amendments of substance must be considered and voted on by creditors.

The court considered section 140(1)(d) of the Act which provides that a BRP is responsible to develop a business rescue plan to be considered by affected persons and to implement any business rescue plan that has been adopted in accordance with part D of Chapter 6 of the Act.

The court held that any clause in the adopted business rescue plan which gives the BRP general power and duties, has to be seen in the context of the restrictive imperative in section 140(1)(d) of the Act. Any implementation of a business rescue plan has to be laid for consideration by the affected persons as contemplated in section 140(1)(d).

The court indicated that this did not happen in the present case and the conduct of the BRPs in the circumstances was therefore not in accordance with the legislative scheme in the Act (including sections 150 and 151 of the Act, which deal with business rescue plans).

The court further stated that, even in the absence of a legislative restriction on the BRPs’ powers to amend the business rescue plans, the amendments that had been made still did not meet the requirements for a valid amendment in terms of clause 9 of the plans. In this regard, the court noted that the BRPs were not acting reasonably, and that the amendment had the potential to prejudice Arqomanzi and other affected persons.

The court found that “changing a funding entity which formed part of the adopted plans with another entity, is not an insignificant and inconsequential matter. It goes into the heart of seeking to resuscitate a distressed company.” The court stated that the ability and credibility of such a funder is something the creditors of the distressed company, including affected persons, would want to know and be sure of. The substitution of a funder in an adopted plan is therefore not something which can be done without consultation and approval by creditors and affected persons.

Did the Roelofse court order place a general duty on the BRPs to seek creditors’ approval to amend the adopted plans?

The BRPs argued that the court order and associated timelines were only applicable to Arqomanzi’s offer and to the subsequent offer made by the new offerors 14 months later. The BRPs contended that they were entitled to let the timeframes lapse, and, by so doing, move from the premise that the order was no longer in force (as it had run its course).

The court held that another reason why the BRPs could not unilaterally amend the adopted plans in the manner that they did was because of the court order which directed the BRPs to consult the creditors, prepare amendments to the adopted plans, and allow the creditors to vote on the amendments.

The court did not accept the arguments raised by the BRPs and stated that laws and court orders simply cannot be disregarded, as this would;

“encourage disorder and potential prejudice that can turn into lawlessness and free for all, damaging the interest of justice”.

The court’s finding

The court declared that the BRPs could not unilaterally amend the previously adopted business rescue plans of the companies and ordered that any offers (including those of Arqomanzi and the new offerors) be “subjected to compliance with the relevant legislative framework for proper adoption by the creditors of the entities under business rescue”. The court further declared that the BRPs could not disregard the Roelofse court order. The rule nisi granted on 26 February 2021 was confirmed and granted as final relief.

Conclusion

It is clear that BRPs are not entitled to unilaterally make substantial or material amendments to an adopted business rescue plan, notwithstanding a clause in the plan that permits amendments.

It is important that any unilateral amendments that a BRP seeks to make are not material, that they do not prejudice any affected person, and that the BRP acts reasonably at all times.

BRPs are required to act within the confines of section 140(1)(d) of the Act and, accordingly, should any material amendments need to be made to an already adopted business rescue plan, a BRP is required to first consult the creditors and other affected persons, prepare and publish the amendments to the adopted plan, and allow the creditors and other affected persons to vote on the amendments.