Protection and privilege for the secured creditor in Business Rescue

Law and Courts II

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At paras 35-36 and section 135 Companies Act 2008 ch 6, the honourable Judge held that under the broad architecture of the law and Common Law specifically of the section that dealt with assets obtained prior to commencement of BRP, assets may only be removed once permission was granted expressly by the creditor. The protected and privileged status of the secured creditor was consistent with the Common Law and disposal of property sought at the permission of the holder of the security and consequent payment of indebtedness which was to be effected immediately, if the security owner [as EnergyDrive did] agreed* as cited curially. The Court further dealt with BRP provisions inter alia that pertained to the actual plan; creditors and their held positions, employees' remuneration re-imbursements prior and during BRP, the Practitioner's fee and expenses, assets pre the proceedings and attached security, obtainment of company financing, all encompassed within the purvey of the Practitioner and held the Bank's assets were not superior, as per the Practitioners. The practitioners' had called for a vote eroneously the Court held and in their plans took it upon themselves to liquidate the company thereby elevating the employees claims as above that of the Bank which was unlawful. Further, the Bank's vote, in favour of allowing the Practitioners to commence the 'controlled liquidation' served as no waiver of the Bank's rights to security nor was the Bank requested to waive the security. The understanding by all concerned was that all claims would remain uncompromised. The Court found the Practitioners' actions that elevated the employees' remuneration over the Bank's claims reckless in that they asked the employees to wait and further paid them nothing. Their pursuit of 'liquidation' under the auspices of BRP and their failure in reporting curially as to the realized assets were reckless acts and the Practitioners were ordered to promptly pay over the realized amounts to the Bank.
The judgment in this matter sets out a comprehensive factual background to the issue ultimately to be determined by the court however with due respect, we've staunched the overflow of facts briefly in order to facilitate the overall picture. Suffice to say that at the point of business rescue proceedings
("BRP") where the plans morphed into a sort of “controlled liquidation”, the present case was prompted. VR Laser was part of the empire acquired by the Gupta family as part of their “state capture” sortie in South Africa ("RSA") that drew quite a collective response publicly. The company employed at least 147 individuals, all members of NUMSA (hence the locus standi )who were listed as the applicants. The Bank of Baroda ("Bank") had extended facilities to the entire Gupta group, some of which were asset-secured and owned by VR Laser. At eruption of the Gupta situation, four main commerical RSA banks plus the Bank withdrew their banking facilities which enforced directors of VR Laser into a resolution of placing the company into business rescue - a similar
fate befell many other Gupta RSA companies who held stakes. Two prominent business rescue practitioners were appointed to take control of the affairs of VR Laser ("Practitioners") and at the outset the practitioners sought to persuade the employees to continue rendering their services to VR Laser on the ground that their entitlement to remuneration would constitute “post commencement finance” and they could enjoy a preference on distributions made by the practitioners. At the point where the practitioners changed track and realize the assets of the VR Laser, including those over which the Bank had a secured interest, the present dispute emerged under the question - to what extent did the secured interest of the Bank prevail over post-commencement claims of the employees in respect of the proceeds derived from the disposal of the assets.

Company Law Expertise

Vide National Union of Metalworkers of South Africa & Others v VR Laser Services & Others (19419/19) ZAGPJHC 47; *EnergyDrive Systems v Tin Can Man [2017] (3)SA539 GH.



   



 

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