Interpreting Business Rescue Provisions of the South African Companies Act 71 of 2008: Secured Pre-Commencement Finance Versus Post-Commencement Finance

Stef Du Plessis, In-house Legal Adviser, Corporate and Investment Banking, a division of The Standard Bank of South Africa Limited

The South African Companies Act provides for a business rescue process. A current interpretational issue relates to the ranking of claims of creditors who provided secured Pre-commencement Finance in relation to claims of creditors providing Post-commencement Finance. This paper presents an analysis of sections 134 and 135 of the Companies Act, as well as relevant case law. It is argued that two South African High Court judgments have incorrectly attributed to Post-commencement Finance a higher level of seniority in relation to secured Pre-commencement Finance than the provisions of the Companies Act do. A brief comparison with four international legal systems regarding rescue finance and super-priority issues is also provided. It is recommended that the Companies and Intellectual Property Commission be approached with a request to apply for a declaratory court order as provided for in section 188(2)(b)(ii) of the Companies Act, alternatively that amendments to the Companies Act be made.