CRS Business Rescue
In-depth analysis of the business rescue provisions contained in Chapter 6 of the Companies Act No. 71 of 2008 and the Companies Amendment Act No. 3 of 2011

Section 155: Compromise between company and creditors

(1) This section applies to a company, irrespective of whether or not it is financially distressed as defined in section 128(1)(f), unless it is engaged in business rescue proceedings in terms of this Chapter.

(2) The board of a company, or the liquidator of such a company if it is being wound up, may propose an arrangement or a compromise of its financial obligations to all of its creditors, or to all of the members of any class of its creditors, by delivering a copy of the proposal, and notice of meeting to consider the proposal, to—

(a) every creditor of the company, or every member of the relevant class of creditors whose name or address is known to, or can reasonably be obtained by, the company; and

(b) the Commission.

(3) A proposal contemplated in subsection (2) must contain all information reasonably required to facilitate creditors in deciding whether or not to accept or reject the proposal, and must be divided into three Parts, as follows:

(a) Part A—Background, which must include at least—

(i) a complete list of all the material assets of the company, as well as an indication as to which assets are held as security by creditors as of the date of the proposal;

(ii) a complete list of the creditors of the company as of the date of the proposal, as well as an indication as to which creditors would qualify as secured, statutory preferent and concurrent in terms of the laws of insolvency, and an indication of which of the creditors have proved their claims;

(iii) the probable dividend that would be received by creditors, in their specific classes, if the company were to be placed in liquidation;

(iv) a complete list of the holders of the company issued securities, and the effect that the proposal would have on them, if any; and

(v) whether the proposal includes a proposal made informally by a creditor of the company.

(b) Part B—Proposals, which must include at least—

(i) the nature and duration of any proposed debt moratorium;

(ii) the extent to which the company is to be released from the payment of its debts, and the extent to which any debt is proposed to be converted to equity in the company, or another company;

(iii) the treatment of contracts and ongoing role of the company;

(iv) the property of the company that is proposed to be available to pay creditors’ claims;

(v) the order of preference in which the proceeds of property of the company will be applied to pay creditors if the proposal is adopted; and

(vi) the benefits of adopting the proposal as opposed to the benefits that would be received by creditors if the company were to be placed in liquidation.

(c) Part C—Assumptions and conditions, which must include at least—

(i) a statement of the conditions that must be satisfied, if any, for the proposal to—

(aa) come into operation; and

(bb) be fully implemented;

(ii) the effect, if any, that the plan contemplates on the number of employees, and their terms and conditions of employment; and

(iii) a projected—

(aa) balance sheet for the company; and

(bb) statement of income and expenses for the ensuing three years, prepared on the assumption that the proposal is accepted.

(4) The projected balance sheet and statement required by subsection (3)(c)(iii)

(a) must include a notice of any significant assumptions on which the projections are based; and

(b) may include alternative projections based on varying assumptions and contingencies.

(5) A proposal must conclude with a certificate by an authorised director or prescribed officer of the company stating that any—

(a) factual information provided appears to be accurate, complete, and up to the date; and

(b) projections provided are estimates made in good faith on the basis of factual information and assumptions as set out in the statement.

(6) A proposal contemplated in this section will have been adopted by the creditors of the company, or the members of a relevant class of creditors, if it is supported by a majority in number, representing at least 75% in value of the creditors or class, as the case may be, present and voting in person or by proxy, at a meeting called for that purpose.

(7) If a proposal is adopted as contemplated in subsection (6)

(a) the company may apply to the court for an order approving the proposal; and

(b) the court, on an application in terms of paragraph (a) may sanction the compromise as set out in the adopted proposal, if it considers it just and equitable to do so, having regard to—

(i) the number of creditors of any affected class of creditors, who were present or represented at the meeting, and who voted in favour of the proposal; and

(ii) in the case of a compromise in respect of a company being wound up, the report of the Master required in terms of the laws contemplated in item 9 of Schedule 5.

(8) A copy of an order of the court sanctioning a compromise—

(a) must be filed by the company within five business days;

(b) must be attached to each copy of the company’s Memorandum of Incorporation that is kept at the company’s registered office, or elsewhere as contemplated in section 25; and

(c) is final and binding on all of the company’s creditors or all of members of the relevant class of creditors, as the case may be, as of the date on which it is filed.

(9) An arrangement or a compromise contemplated in this section does not affect the liability of any person who is a surety of the company.

References

Media articles

Swanepoel, E. (2009, June 10). New law may make schemes of arrangement easier. Business Report.

Van Zuylen, C., & Stein, C. (2009, August 13). There Be Dragons … Compromises with Creditors Under the New Companies Act. Bowman Gilfillan Attorneys.


Business rescue legislation

Other legislation cited by Chapter 6


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Business rescue provisions in the Companies Acts and Regulations

Business rescue provisions in Chapter 6 of the Companies Act No. 71 of 2008 pdf (323k).

Ondernemingreddingbepalings in Hoofstuk 6 van die Maatskappywet No. 71 of 2008 pdf (333k).

Business rescue provisions in Chapter 6 of the Companies Amendment Act No. 3 of 2011 pdf (279k).

Business rescue provisions in Chapter 6 of the Companies Amendment Act No. 3 of 2011 (English/Afrikaans version) pdf (792k).

Business rescue provisions in Chapter 6 of the unofficial LexisNexis Consolidated Companies Act pdf (105k).

Business rescue provisions in Chapter 6 of the Companies Regulations, 2011 pdf (62k).

Companies Acts and Regulations

Companies Act No. 71 of 2008 pdf (829k).

Mastskappywet No. 71 of 2008 pdf (545k).

Companies Amendment Act No. 3 of 2011 pdf (2 000k).

Companies Amendment Act No. 3 of 2011 (English/Afrikaans version) pdf (5 920k).

Unofficial LexisNexis Consolidated Companies Act pdf (945k).

Companies Regulations, 2011 pdf (951k).