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The legal nature of the "practitioner's consent" referred to in section 134(1)(c) and section 134(2)

May 2015

Section 134 of Act 71 of 2008 is extremely important because it is there to protect the interests of both the company in business rescue and the creditors and other third parties related to the company.

The section allows for the disposal by the company of property, provided that the disposal is made in the ordinary course of business.  In addition, the disposal must be in terms of a bona fide transaction for fair value or in writing by the business rescue practitioner.  The third circumstance where a company can dispose of property is when the transaction is part of the implementation of an approved business rescue plan.

Section 134(1)(b) says that a third party in lawful possession of any property of the company, as a result of an agreement made pre-business rescue, may continue to exercise those rights subject to the business rescue practitioner's rights in terms of section 136 to suspend or cancel.

The most important provision is section 134(1)(c), which provides that nobody may exercise any right in respect of any property in the lawful possession of the company, irrespective of whether the property is owned by the company, except to the extent that the business rescue practitioner consents in writing.

The purpose of this article is to investigate on a practical level what is meant by "consent" and how it can be applied in the business rescue process.

Section 134(2) then specifies that the practitioner may not unreasonably withhold consent having regard to the purposes of Chapter 6, the circumstances of the company and the nature of the property and the rights claimed in respect of it.  This, of course presupposes that if the business rescue practitioner does withhold his consent then an application can be brought to court for an order declaring that the withholding of the consent is unreasonable.

In my view this application should be brought as a last resort and every attempt should be made to get the business rescue practitioner to consent before an application is brought.  In some cases the business rescue practitioner will readily consent.  An example of this would be where a major bank creditor holds a notarial bond and in such a case that bank will most certainly not even consider advancing further post commencement finance unless consent is given to perfect the notarial bond.

If, however, there is a refusal by the business rescue practitioner then the creditor will have to proceed to court in terms of section 134(2).  The success of the creditor's application is entirely dependent on the creditor showing the court that the business rescue practitioner's consent will not undermine the proposed business rescue plan.  Another way of putting this is that the argument must be made to the court that the consent of the business rescue practitioner is in accordance with and reconciles with the objectives of obtaining the implementation of the business rescue plan.

By the same token, the business rescue practitioner should not refuse consent unless doing so would frustrate the proposed business rescue plan.

The provisions of section 134(2) cannot be looked at in isolation.  If the applicant for an order to override the business rescue practitioner's refusal of consent merely deals with the purpose of Chapter 6 by quoting section 7(k), this will not be sufficient.  This section states that the purpose of the Act is to provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders. 

It will also not be sufficient for the applicant to bring the court's attention to the circumstances of the company and the nature of the property and the rights claimed in respect of it, without linking these to the business rescue plan.

In my view, extensive negotiations should have taken place between all the affected parties in relation to the business rescue plan, prior to the voting for approval.  During these negotiations it will become apparent that certain rights will have to be exercised in respect of property in possession of the company in order to achieve the implementation of the business rescue plan.  The applicant must then frame his application in accordance with that and not merely by way of a rote repetition of the provisions of sections 134(2)(a), (b) and (c) of Act 71 of 2008.

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