By Brandon Cole (24 August 2024)
In a recent decision handed down by the High Court of South Africa, Western Cape Division, Cape Town, on 16 August 2024, the court granted an interdict preventing the business rescue practitioner of Cambridge Services (Pty) Ltd from filing a notice of substantial implementation of the published and approved business rescue plan (BR Plan). Arthur Limboris and others v Jacques Du Toit N.O and others Case No: 23112/2023 (23112/2023) [2024] ZAWCHC 117 (16 August 2024). (“Limboris v Du Toit”). This ruling underscores the importance of not jumping the gun when filing notices of substantial implementation in Business Rescue proceedings and highlights the importance of ensuring that business rescue plans are genuinely and substantially implemented before doing so.
Cambridge Services (Pty) Ltd has been under business rescue since November 2019. The company’s BR Plan, adopted in March 2020, was intended to restore its financial health and ensure better returns for creditors than would be possible through liquidation. However, the applicants, creditors of the company, argued that the plan had not been substantially implemented, and sought to prevent the business rescue practitioner from filing a notice of substantial implementation.
The argument that the BR Plan was not substantially implemented rested on several critical factors. A major issue was the unresolved debt with SARS, which formed a crucial part of the BR Plan. The court noted that the business rescue could not be considered complete until this debt was addressed.
Financially, the plan also fell short. Although it projected significant revenue and profit growth for the company, these expectations were never realized. Instead, the financial statements reflected continuous losses or minimal profits, with little to no real progress in the company’s business activities.
Furthermore, the BR Plan aimed to convert creditors claims to equity within the company. However, the expected dividends and returns did not materialize, leaving creditors without any tangible benefits.
Compounding these issues was the general inactivity of the company. Over four years passed with minimal activity and no significant progress in implementing the BR Plan.
The central issue in this case was whether the business rescue practitioner could lawfully file a notice of substantial implementation under Section 152(8) of the Companies Act. The court found in favor of the applicants, ruling that the BR Plan had not been substantially implemented and that filing such a notice would be premature.
The judgment clarifies that “substantial implementation” requires more than just the initiation of actions outlined in a BR Plan. It involves the actual achievement of the plan’s objectives.
This ruling serves as a critical reminder that business rescue practitioners must thoroughly ensure that all aspects of a BR Plan are executed as intended before filing a notice of substantial implementation.
For businesses and creditors involved in business rescue proceedings, this judgment highlights the necessity of close monitoring and participation in the implementation of Business Rescue plans. Creditors should be proactive in raising concerns if they believe a BR Plan has not been substantially implemented, as this case demonstrates that courts are prepared to intervene when necessary to ensure fairness and transparency.
The Limbouris v Du Toit judgment emphasizes the stringent requirements for filing a notice of substantial implementation and the courts’ role in safeguarding the integrity of business rescue proceedings. Businesses and creditors alike must ensure that all elements of a BR Plan are fully and properly executed to avoid legal challenges and potential setbacks in the business rescue process.
