The impact of the moratorium on creditors of the company under business rescue

Abstract

The notion of the moratorium on legal proceedings against a financially distressed company undergoing business rescue is internationally recognized as a legal intervention necessary for allowing a breathing space for a company to be rescued. In South Africa, section 133 of the 2008 Companies Act makes provision for moratorium and details its main objectives in as far as business rescue is concerned. The main objective of the moratorium is to give effect to the purposes of the Act as enshrined in section 7 of the 2008 Companies Act. In particular, the moratorium is imposed to provide the company the required opportunity to breathe or the necessary period of respite in order to reorganise its affairs in a way as would allow it to operate on profitable basis without the unnecessary disruptions arising from the enforcement of the creditors’ claims and legal action taken against it whilst trying to reorganise its affairs. While this purpose is obviously a reasonable one, the rights of third parties to enforce their rights in a form of enforcement actions and legal proceedings against the subject company are seriously affected by moratorium. This dissertation aims at discussing and analysing the provisions in the Act relating to moratorium; to discuss and evaluate the impact that moratorium as provided for in section 133 of the Companies Act of 2008 has on the interests of creditors; as well as to compare the South African company law position in r the moratorium with that of Australian company law.