09 Sep 2015

Is Business Rescue Possible After a Final Liquidation Order?

Practice Area(s): Corporate & Commercial |

Can an application for business rescue be brought even after a company has been placed in final liquidation?  The short answer, thanks to a recent Supreme Court of Appeal ("SCA") decision, is yes.

In Richter v Absa Bank Limited 2015, an interpretation of 'liquidation proceedings' within the context of section 131(6) of the Companies Act, 71 of 2008 ("the Act"), was central to the issue before the SCA.  

Section 131(6) of the Act reads as follows:

"…If liquidation proceedings have already been commenced by or against the company at the time an application [for business rescue] is made in terms of subsection (1), the application will suspend those liquidation proceedings until-

  1. the court has adjudicated upon the application; or
  2. the business rescue proceedings end, if the court makes the order applied for."

Essentially, the court had to determine whether section 131(6) only applies to the suspension of liquidation proceedings prior to a final order of liquidation or whether it includes a suspension of liquidation proceedings in instances where a final liquidation order has already been granted.

The SCA held that, in circumstances where the prospects of success of business rescue exist, there is no justification for distinguishing between pre- and post- final liquidation.  Therefore, "a proper  interpretation of 'liquidation proceedings' in relation to section 131(6) must include proceedings that occur after a winding up order to liquidate assets and account to creditors, up to deregistration of a company."

In summary then, a company which has been placed into final liquidation but which has not yet been finally deregistered with the Companies and Intellectual Property Commission may still enter into business rescue provided that prospects of its success still exist. 

Whether such prospects do exist will of course depend on the circumstances in each case and one should carefully consider the status of the company and its potential to be rescued before bringing an application in terms of section 131(1) of the Act.