Removal of business rescue practitioner

I am a creditor in a company that is now in business rescue. I do not believe the business rescue practitioner is acting in the best interests of the creditors. What can I do ?

  1. Depending on the specific facts of a particular case, the Business Rescue Practitioner ( “BRP”) may be removed in terms of section 130(1)(b) and 139(2) of the Companies Act, 71 of 2008 ( ‘the Act”) pursuant to an application for his/her removal being successful in a court of law. The requirements for the removal of a BRP will be expanded on hereunder.
  2. Prior to discussing the method to remove a BRP, it is necessary to have an brief overview of the Business Rescue process as envisaged by Chaper 6 of the Companies Act, 71 of 2008 ( ‘the Act”).
  3. Chapter 6 of the Act which defines business rescue as:

Business rescue is intended to provide the following

The proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for: –

  • The temporary supervision of the company, and or the management of its affairs, business and property;
  • A temporary moratorium on the rights of claimants against the company or in respect of the property in its possession; and
  • The development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing its existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.”
  1. A company can commence business rescue proceedings as follows:
  • The board of Directors of a company may resolve that the company voluntarily begin business rescue proceedings and place the company under supervision; or
  • Any affected person may apply to the court for an order placing the company under supervision and commencing business rescue proceedings.
  1. In order for a company to proceed with business rescue, a business rescue practitioner must be appointed. The business rescue practitioner may only be appointed if he/she:
  • is a member in good standing of a legal, accounting or business management profession accredited by the Companies and Intellectual Property Commission (“CIPC”)
  • has been licenced by the CIPC;
  • is not subject to an order of probation in terms of section 162(7) of the Companies Act, 2008;
  • would not be disqualified from acting as a director of the company in terms of section 68 of the Companies Act, 2008;
  • does not have any other relationship with the company which would lead any a reasonable informed third party to conclude that the integrity, impartiality or objectivity of the business rescue practitioner is compromised by that relationship; and

REMOVAL OF THE BUSINESS RESCUE PRACTITIONER

  1. A business rescue practitioner may only be removed from office by an order of Court via an application launched by an affected person.
  1. An affected person for the in terms of the Act means the following:

“Affected person”- in relation to a company, means –

  • A shareholder or creditor of the company;
  • Any registered trade union representing employees if the company; and
  • If any of the employees of the company are not represented by a registered trade union, each of those employees or their respective representatives.”
  1. The procedure for the removal of a business rescue practitioner from office is provided for in section 139 of the Act. This section provides that a business rescue practitioner may only be removed by a court order in terms of section 130 or upon request of an affected person, or of the Court’s own volition.

When may a business rescue practitioner be removed by a court order in terms of section 130 of the Companies Act?

  1. Section 130 (1)(b) of the Act provides that, at any time after a company has adopted a resolution in terms of section 129, ( ie : to voluntarily commence with business rescue proceedings) and until a business rescue plan has been adopted, an affected person may apply to a court for an order setting aside the appointment of the business rescue practitioner on the grounds that the business rescue practitioner:
  • does not satisfy the requirements set out in section 138 of the companies act and as described above;
  • is not independent of the company or its management; or
  • lacks the necessary skills, having regard to the company’s circumstances.
  1. However, a director of the company who voted in favour of the resolution in terms of section 129, may not apply to court to set aside the appointment of a business rescue practitioner appointed by the company, unless the director can satisfy the court that in supporting the resolution, he or she acted in good faith based on the information that has since been found to be false or misleading.
  1. Put simply, an affected person, (other than a director of the company who voted in favour of the resolution), may apply to the court to set aside the appointment of a business rescue practitioner ( prior to the adopton of a Business rescue plan), in the event that he or she does not meet the qualifications as set out in section 138; is not independent of the company or its management or lacks the necessary skills, during the period between the adoption of the resolution to voluntarily commence business rescue proceedings.
  1. If a court sets aside the appointment of a business rescue practitioner, the court must appoint an alternate business rescue practitioner.
  1. It is clear that only an affected person being a shareholder, creditor of the company, registered trade union and any employee (or their representative) not represented by a registered trade union has locus standi  to bring an application for the removal of a business rescue practitioner in terms of section 130 (1)(b) of the Companies Act, 2008.

When may the business rescue practitioner be removed upon request of an affected person?

  1. In terms of section 139 (2) of the Act, a business rescue practitioner may be removed upon the request of an affected person or the court may remove a business rescue practitioner on its own volition, on any of the following grounds:
  • Incompetence of failure to perform the duties of a business rescue practitioner of the particular company;
  • Failure to exercise the proper degree of care in the performance of the practitioner’s functions;
  • Engaging in illegal acts or conduct;
  • If the practitioner no longer satisfies the requirements set out in section 138 (1);
  • Conflict of interest or lack of independence;
  • The practitioner is incapacitated and unable to perform the functions of that office, and is unlikely to regain that capacity within reasonable time.”
  1. It is clear that there is a wide range of grounds in terms of which a business rescue practitioner may be removed from office.
  1. The Court has the discretion to either refuse or grant an order for the removal of a business rescue practitioner. The court’s discretion is exercisable if one or more of the grounds for removal provided for in section 139, have been established on a balance of probabilities.
  1. If a business rescue practitioner dies, resigns or is removed from office, the company, or the creditor who nominated the business rescue practitioner, as the case may be, must appoint a new business rescue practitioner. This is subject to an affected person’s right to bring a fresh application to set aside the appointment of the ‘new’ business rescue practitioner in terms of section 130 (1)(b).
  1. It is clear that only a shareholder, creditor of the company, registered trade union and any employee (or their representative) not represented by a registered trade union has locus standi to bring an application for the removal of a business rescue practitioner in terms of section 139 (2) of the Companies Act, 2008.

CONCLUSION

  1. A business rescue practitioner can only be removed from office by an order of Court.
  1. It has been held that an application for the removal of a business rescue practitioner requires the court to measure the facts relied upon by the application against the circumstances in which the court is empowered to remove the business rescue practitioner from office.
  1. The first scenario in terms of section 130(1)(b) contemplates an application for the removal of a BRP:
  • after the resolution in terms of section 129 has been adopted; and
  • until the business rescue plan has been adopted.
  1. The basis for the aforesaid application would be that the business rescue practitioner does not satisfy the requirements of section 138; is not independent of the company or its management; or lacks the necessary skills, having regard to the company’s circumstances.
  1. The second instance to lauch an application for the removal of a BRP is upon the request of an affected person or on the court’s own volition in terms of section 139(2) of the Act. The grounds for the removal of the business rescue practitioner in this instance are wider than the grounds provided for in the first instance.
  1. A shareholder, creditor of the company, registered trade union and any employee (or their representative) not represented by a registered trade union has locus standi to bring an application for the removal of a business rescue practitioner in both instances.
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