THE POWERS OF BUSINESS RESCUE PRACTITIONERS IN RESPECT OF EXECUTORY CONTRACTS

Abstract

With the coming into operation of the new Companies Act of 2008, business rescue replaced judicial management to remedy the somewhat flawed restructuring process in place at the time. The business rescue practitioner is the key role player in business rescue proceedings and is responsible for facilitating the rehabilitation of the company. In the course of fulfilling his functions, the business rescue practitioner will be faced with various legal issues and challenges, including the treatment of executory contracts.

Unlike general insolvency proceedings, the rights of creditors and the role of the business rescue practitioner are still somewhat uncertain when it comes to executory contracts, which may be attributed to the fact that the courts are required to play an active role in interpreting the provisions of the Companies Act, specifically sections 133, 134 and 136. With executory contracts, the courts are often tasked with determining whether the cancellation of an agreement by a creditor constitutes legal proceedings or enforcement action and whether this has consequences for the lawfulness of the company’s possession of property subject to the agreement. Decisions in this regard could infringe upon the moratorium that the company in business rescue is entitled to and negatively affect the powers of the business rescue practitioner. Statutory amendments and judicial precedent have attempted clarifying issues regarding the powers of the business rescue practitioner in respect of executory contracts and the upholding of these contracts. However, the suspension power of the business rescue practitioner and the current moratorium provision remain contentious areas of law.

In this dissertation, I investigate the powers of the business rescue practitioner with the aim of seeking a resolution to the conflicts between the powers of business rescue practitioners and the rights and obligations of creditors. Furthermore, this dissertation will investigate whether the powers of the business rescue practitioner are affected by a breach of contract that occurred before and/or during business rescue proceedings and what affect such a breach will have on the business rescue as a whole. To this end, I will also investigate the differences between the South African Companies Act, the USA Bankruptcy Code and the Australian Corporations Act to draw conclusions and make recommendations regarding the best way forward for the South African approach to the treatment of executory contracts during business rescue by the business rescue practitioner.