On 20 December 2024, in the matter of Macneil Plastics (Pty) Ltd v Van den Heever N.O. and Others ([2024] ZASCA 181 (20 December 2024)), the Supreme Court of Appeal (SCA) upheld the findings of the Gauteng Division of the High Court, Pretoria, and reaffirmed the statutory principle that an order placing a company in business rescue whilst in liquidation does not terminate liquidation proceedings but merely suspends them.

Ronnie Dennison Agencies (Pty) Ltd t/a Water Africa Systems (Pty) Ltd (the Company) was placed under final liquidation on 28 October 2015. A few days later, on 2 November 2015 the Company made payment of R407,010.20 to Macneil Plastics, a creditor of the Company.

Just over a month later, on 9 December 2015, the High Court granted an order suspending the liquidation proceedings of the Company and placing it under business rescue in terms of section 131 of the Companies Act, 2008 (the Act). However, on 12 April 2016, the High Court set aside the Company’s business rescue proceedings and reinstated the final liquidation of the Company.

The liquidators of the Company sought an order declaring the payment made by McNeil Plastics on 2 November 2015 void and ordering Macneil Plastics to repay the amount together with interest.

In the court a quo, Mngwibisa-Thusi J held that because the Company had made payment to Macneil Plastics after the liquidation order had been granted, the payment was void in terms of section 341(2) of the Companies Act 61 of 1973 (1973 Companies Act) and Macneil Plastics was ordered to repay the monies received from the Company to the liquidators. Those findings were upheld on appeal by the Full Court of that Division of the High Court.

On appeal in the SCA, Macneil Plastics argued that the placing of the Company under business rescue superseded or replaced the liquidation proceedings and thereby nullified the voidness of the payment made to it by the Company. In other words, Macneil Plastics argued that liquidation and business rescue proceedings are mutually exclusive.

The SCA rejected Macneil Plastic’s arguments for three reasons:

1. It was common cause that the Company was unable to pay its debts when it was placed under liquidation and when the payment was made to Macneil Plastics. Once a concurcus creditorium is established by the liquidation of the Company, no transaction can be concluded which would prejudice the Company’s general body of creditors in favour of one creditor. Accordingly, the payment made to Macneil Plastics by the Company subsequent to the liquidation order was void and could not be validated.

2. Section 131(6) of the Act expressly provides that an application for an order placing a company under business rescue suspends liquidation proceedings until business rescue proceedings end. The SCA referred to its judgment in GCC Engineering (Pty) Ltd and Others v Maroos and Others [2018] ZASCA 178 which held that:

    2.1 the office of the provisional liquidators is not terminated nor does the assets and management of the Company re-vest with the directors of the Company;

    2.2 “[i]t is the process of winding-up and not the legal consequences of a winding up order that is suspended” when a company in liquidation is subsequently placed in business rescue.

As such, the placing of the Company (which was already under liquidation) into business rescue did not reverse the voidness of the payment made to Macneil Plastics by the Company.

3. Section 131(6) of the Act uses the word “suspend” and not “set aside” nor “terminate”. In interpreting the provision, the SCA used the definition of “suspend” in the Concise Oxford English Dictionary which is “to halt temporarily”.

The SCA’s judgment raises a number of interesting questions - what other processes of winding-up are suspended by placing a company into business rescue and what are the “legal consequences” that the court is referring to when it held that “[i]t is the process of winding-up and not the legal consequences of a winding up order that is suspended”? From this judgment and that in GCC Engineering, “legal consequences” includes that payments made to a creditor after a company is placed into liquidation are void and that the office of provisional liquidators is not terminated.

But what else? By way of example:

1. where an inquiry in terms of sections 417 and 418 of the 1973 Companies Act is convened prior to the company in liquidation being placed under business rescue, can that inquiry continue? If yes, then would the business rescue practitioner be entitled to participate in the inquiry when he/she would ordinarily have no authority to convene such inquiry?

2. would a creditor or another third party be entitled to access the company’s books and records in terms of section 360(1) of the 1973 Companies Act even though the company is no longer in liquidation but rather under business rescue?

3. would payments by the company authorised by the business rescue practitioner be void if the liquidation order is subsequently reinstated?

Although the suspension of liquidation proceedings by placing that company under business rescue is uncommon, this judgment certainly provokes an examination into the difference between “the process of winding up” (which is suspended) and the “legal consequences of a winding-up order” (which are not suspended).