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Without Prejudice article

01 April 2013

Routledge Modise

A further interesting decision was that of Nyman AJ. This was decided in case 19599/2012 in the Western Cape High Court. The applicant was Cardinet (Pty) Ltd, which brought an application in terms of s131(6) to have Wedgewood Golf & Country Estate (Pty) Ltd (in liquidation) placed into business fescue. On 9 February 2012 Wedgewood had been placed under final winding-up (after a number of failed business rescue applications by various parties).

On 30 January 2013, nearly a year later, Nyman AJ ordered that Wedgewood be placed into business rescue. The court appointed an interim business rescue practitioner and ordered the applicant to indemnify the joint liquidators in respect of their reasonable fees and expenses incurred in the winding-up of Wedgewood.

In the Wedgewood proceedings Nyman AJ went to great lengths to satisfy himself that business rescue would result in a better return, not only for Nedbank (the secured creditor which opposed the business rescue application) and for all its creditors and stakeholders, than would the immediate liquidation of Wedgewood.

Factually, the court found that the costs of completion of the development would be approximately R18m and reference was made to various property reports. Nyman AJ concluded that the property opinions provided sound reasoning for revised valuation figures and found there was credibility in the applicant's factual averment regarding the costs of completion.

Importantly, Nyman AJ exercised his discretion and gave due weight to the legislature's preference to come to the rescue of ailing companies.

Again, questions will be asked as to the effect of these judgements on what liquidators have already done in the winding-up process.

In my view, both these judgements are correct. However, they certainly have both positive and negative effects. A huge positive is that a good business can be revived through a business rescue application and the subsequent involvement of a practitioner, even after that business has been effectively closed down and rendered incapable of development through the liquidation process.

A negative is obviously that applications for business rescue can, theoretically, be brought years after the liquidation resulting in tremendous difficulties for the liquidators and what they have done in the course of the process. Furthermore, the fact that merely launching the application suspends the liquidation, without any provision being made for interim management of the company, lends itself to abuse.

It is my view the liquidators themselves should remain mindful of the fact that it may ultimately be in the long-term best interests of all the stakeholders lor a business rescue application to be brought if there is a true and inherent value in the business. Tin- thinking and its correct application can possibly unlock the value and benefit to the various stakeholders.

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