Setting aside creditor votes in business rescue
Reiscor Two (Pty) Limited T/A Bootleggers (In Business Rescue) V Anheuser – Busch Inbev
Africa (Pty) Limited and Others (Gld Case Number 2022/2731)
Reiscor Two’s business rescue practitioners (“BRPs”) launched an application in terms of
section 153(1)(b)(i)(bb) of the 2008 Companies Act (“the Act”) to set aside the vote of the
majority creditors (AB Inbev, Distell Limited, Coca-Cola and Heineken) on the basis that it
was inappropriate.
One of the creditors who voted against the plan, Distell Limited, counter-applied to liquidate
Reiscor.
Two days before the section 151 meeting to consider the business rescue plan, the majority
creditors’ attorneys requested the permission and cooperation of the BRPs to consent to a
due diligence by a management accountant for a period of up to 7 days during November
2021, full access to all documents and records of Reiscor and a postponement of the section
151 meeting to December 2021.
Reiscor’s attorneys (Fluxmans) denied the postponement on the basis that the Act did not
allow the BRPs to postpone the section 151 meeting unilaterally once it had been called for
but indicated a willingness to discuss potential amendments to the plan. In other words, any
motion to postpone a section 151 meeting once it has been called for is creditor driven.
At the section 151 meeting, discussions were invited regarding the plan, with the major
creditors failing to:
propose any amendments;
record why they did not have sufficient information to vote on the plan;
propose a postponement.
The plan was rejected as a result of the majority creditors’ dissenting vote (65.36%).
The BRPs advised the meeting that Reiscor would apply to set aside the result of the vote
on the basis that it is inappropriate.
Grounds of opposition to the section 153 application
First, the major creditors argued that all affected persons as defined in the Act ought to have
been joined. Opperman J disagreed and found that only the creditors who voted against the
plan were required to be joined, as has been done, and dismissed the major creditors’ non-
joinder point.
Second, they argued that the plan draws conclusions without providing the primary facts.
Opperman J in her judgement emphasized that a business rescue plan is not a pleading or
legal document. It is document drafted for business people. This complaint could have been
addressed had the majority creditors asked questions on the plan as they were invited to do
so by the BRPs.
Third, they argued that the immovable property valuation obtained by the BRPs is
inadmissible hearsay and unreliable. Opperman J noted that an independent valuation was conducted and provided to the major creditors and they did not contest its accuracy. She
ultimately found that the pertinent issue was whether the sale price of the business, including
the property, was for fair market value (which it was).
Fourth, they argued that there was a need for further investigation into Reiscor’s affairs at
the request of the major creditors. Opperman J found inter alia that there is no obligation on
a business rescue practitioner to accede to a request by a creditor to enable the creditor to
undertake its own investigation and in any event, there was no evidence that the BRPs
violated their statutory obligation to investigate the affairs of Reiscor.
Business rescue proceedings do not afford creditors of a company rights to information
which they did not have prior to the company being placed in business rescue.
Fifth, they argued that the plan contains an illegal clause which enables creditors to contract
out of section 34 of the Insolvency Act 24 of 1936. Opperman J found that this section does
not apply during business rescue to a company qualifying as trader as contemplated in
section 34. This is primarily because, if section 34 of the Insolvency Act applies, a reliance
by a creditor or a liquidator on section 34 will nullify any business rescue which depends for
its success on the sale of a business by a trading company.
Sixth, they argued that it would offend commercial morality to allow Reiscor to participate in
commerce post business rescue as it will still be commercially insolvent and have no assets.
Opperman J found that this argument is both factually and legally flawed. It incorrectly
presupposes that the purpose of the plan concerned is to allow the applicant to recommence
trading after the business rescue, which is not the case. It contemplates a structured wind
down to yield a better return to creditors when compared to liquidation.
As part of their opposition, the majority creditors focussed on a sale agreement for the sale
of Reiscor’s business and the fact that only a heavily redacted version had been provided to
them on their request.
This is not unusual in practice.
Given the proprietary nature and inherent confidentiality involved in a private transaction of
this nature, business rescue practitioners do not disclose the full versions of these types of
agreements if requested by creditors.
Opperman J found definitively that business rescue proceedings do not grant creditors
additional rights to information beyond what they had before business rescue commenced.
Having considered the above, Opperman J concluded that it is reasonable and just (in terms
of section 153(7) of the Act) that the vote rejecting the plan be set aside on the grounds that
it is inappropriate.
The BRPs’ application was accordingly granted and the liquidation application was
dismissed.
The majority creditors elected not to appeal the judgment, which thus serves as a binding
precedent pertaining to the confidentiality of documentation in business rescue, as well as
the applicability of section 34 of the Insolvency Act during rescue.
Ryszard Lisinski (Lead attorney on the matter)
Buhle Duma
Brett Weinberg
