Business Rescue Set 1

In view of the commencement of C9A’s voluntary business rescue proceedings, Mr A Loft would like to know what the categories of C9A’s affected persons are in terms section 128(1) of the Companies Act 71 of 2008. Which of the following persons are not affected persons as defined?

Assume for the purposes of this question only that the board of directors of C9A decided not to voluntarily commence business rescue proceedings, despite the fact that the board has reasonable grounds to believe that C9A is financially distressed. Which of the following statements is/are correct?

The Chief Financial Officer of C9A (Mrs F Igure) is under the impression that the term “financially distressed”, as defined in the Companies Act, only contemplates factual (balance sheet) insolvency and does not require a consideration of commercial insolvency. She approaches you for advice and asks you to confirm her understanding of the term “financially distressed”. Which of the following statements will not form part of your advice?

Mr O’Mally, a senior executive board member of C9A, is extremely saddened by C9A’s current financial predicament. Unlike the rest of the board of directors, he believes that business rescue is an ineffective mechanism in comparison to judicial management, which existed in “the good old days” prior to 2011. Seeking your consolation, he asks for your views on judicial management. Which of the following statements correctly describes judicial management –

Ms A Wright, who has been employed by C9A for the past 15 years as an Aeronautical Engineer, is desperately hoping that C9A will return to solvency and continue to trade as a going-concern. To her mind, this is the only objective of business rescue and any other outcome will constitute an unsuccessful business rescue. Based on your knowledge of the Companies Act and reported case law, what would your response be?

Assume for the purposes of this question only that C9A’s board of directors did not voluntarily commence business rescue proceedings, despite the fact that C9A is financially distressed. The employees of C9A (pilots, cabin crew, engineers, etc.) are concerned that C9A will end up in liquidation. One of the employees has heard that business rescue proceedings place employees in an advantageous position in comparison to liquidation. Consequently, the employees would like to bring an application to place C9A under supervision and commence business rescue proceedings. Advise the employees as to the grounds and conditions under which this may be achieved?

Assume for purposes of this question only that the aggressive trade creditor that supplies C9A’s on-board drinks decided to institute liquidation proceedings against C9A on 15 April 2020. What impact would this have on the section 129 resolution passed and filed by the board of C9A on 30 April 2020? Please advise (with reference to the provisions of the Companies Act and reported case law) when liquidation proceedings are deemed to have been initiated against a company –

1. In terms of the decision in Tjeka Training Matters (Pty) Ltd v KPPM Construction (Pty) Ltd (under supervision) and others [2019] JOL 46183 (GJ) the liquidation application will have to be served on C9A and filed at court before liquidation proceedings can be said to have been initiated against the company.
2. In terms of the decision in Tjeka Training Matters (Pty) Ltd v KPPM Construction (Pty) Ltd (under supervision) and others [2019] JOL 46183 (GJ) the liquidation application need not be served and filed before liquidation proceedings can be said to have been initiated against the company. Liquidation proceedings are “initiated” when a resolution or decision by a creditor to launch liquidation proceedings against a company is adopted, and not when the application is filed or issued with the court.
3. In terms of the decision in Mouton v Park 2000 Development 11 (Pty) Ltd and others and a related matter [2019] 4 All SA 133 (WCC) the liquidation application will have to be served on C9A and filed at court before liquidation proceedings can be said to have been initiated against the company.
4. In terms of the decision in Mouton v Park 2000 Development 11 (Pty) Ltd and others and a related matter [2019] 4 All SA 133 (WCC) the liquidation application need not be served and filed before liquidation proceedings can be said to have been initiated against the company. Liquidation proceedings are “initiated” when a resolution or decision by a creditor to launch liquidation proceedings against a company is adopted, and not when the application is filed or issued with the court

Mr A Loft is invited to a dinner party by his friend Mr T Urbulence, who happens to be a young attorney with a keen interest in business rescue. Out of interest, Mr T Urbulence asks Mr A Loft whether he conducted a pre-assessment of the affairs, business and prospects of C9A (prior to the commencement of business rescue proceedings). Mr A Loft is embarrassed beyond measure as he has no idea what a pre-assessment is! He quickly excuses himself from the dining room in order to call you for advice. Mr A Loft would like to know what a pre-assessment is, as well as the consequences for failing to conduct one. Which of the following statements will not form part of your advice?

Based on the facts provided, Mr C Flight was appointed as the business rescue practitioner of C9A by C9A itself in terms of section 129(3)(b). You recall from your SAIBA business rescue course that the Companies Act contemplates two ways of appointing business rescue practitioners. What is the alternative way for business rescue practitioners to be appointed?

Mr C Flight has recently been placed in the spotlight, as the newly appointed business rescue practitioner of C9A. Due to his diligent approach towards his duties, Mr C Flight has immediately begun to investigate the affairs of the C9A. The board of directors are concerned that Mr C Flight may uncover evidence, in the dealings of the company before the business rescue proceedings began, of voidable transactions and failures by the board to perform material obligations relating to the company. Furthermore, Mr O’Mally (one of the board members of C9A) is especially concerned that Mr C Flight might find evidence of fraud and other contraventions of law as a result of his shady dealings with VR Airlines. The board approaches you for advice as to whether Mr C Flight is acting beyond the scope of his powers by investigating the affairs of C9A. Furthermore, the board would like to know what steps Mr C Flight can take based on the findings of the investigation. How would you advise the board?

C9A’s bank as well as the CAA have been advised of the outcome of SAIBA’s disciplinary proceedings against Mr C Flight, and which involved findings of prior fraudulent conduct. The bank and the CAA are major creditors of C9A and are of the view that Mr C Flight is not suitable for his position as business rescue practitioner on this basis. The bank and the CAA approach you for advice on whether they may seek an order of court to remove Mr C Flight as the business rescue practitioner of C9A, as a result of the finding in the disciplinary proceedings? If so, they ask you to point out which ground for removal they may rely upon in terms of the Companies Act?

Assume for the purposes of this question only that C9A’s bank loses faith in the business rescue proceedings of C9A and believes that C9A will most likely end up in liquidation. In order to protect the bank’s interests, the CEO of the bank wishes to perfect its GNB that was registered as security over certain assets of the company. The head of legal at the bank is concerned that this might not be possible in light of the moratorium against legal proceedings, as contemplated in section 133 of the Companies Act. The CEO of the bank dismisses the advice of his head of legal and decides to seek your counsel instead. How would you advise him?

Mr C Flight, in the course of his investigations, discovers that Mr A Loft has bound himself as surety for the debts of the company in an amount of R100 million. Mr C Flight decides to confront Mr A Loft about this, in order to ascertain whether he appreciates the consequences of him having bound himself as surety for the debts of the company. After a short discussion, it becomes apparent that Mr A Loft is under the impression that his obligations as a surety will automatically be discharged upon the adoption of the business rescue plan. Advise Mr A Loft whether he is correct in his understanding.

The summons served on C9A by one of C9A’s lessors ends up on the desk of Mrs F Igure. Mrs F Igure has been advised that the lessor has a tacit hypothec over the movable property (belonging to C9A) that is on the leased premises and as a result of unpaid rental. Ms F is concerned and asks you for advice as she is aware that lessors enjoy a preference upon liquidation even without the hypothec being perfected. She asks you for advice as to whether this is the case in the context of business rescue? Which of the following statements will form part of your advice to her.

Assume for purposes of this question only that AEGE Aircrafts (Pty) Ltd (AEGE), one of C9A’s aircraft lessors, is fed up with the business rescue process of C9A. The management of AEGE is also of the view that there is no end in sight for the ongoing prohibition on international air travel in South Africa. Accordingly, AEGE wishes to terminate its aircraft lease agreements with C9A. The Chief Operating Officer of AEGE notes that business rescue is provided for in the lease agreements as an event of default that would trigger the termination of those agreements, and allows for the repossession of the aircraft. Please advise how AEGE, who wishes to rely on these contractual provisions, will be treated in a business rescue.  

Mr C Flight has realised that the aircraft lease agreements entered into by C9A are incredibly expensive and prejudicial to the company’s prospects of being rescued. Accordingly, Mr C Flight wishes to downsize C9A’s aircraft fleet in order to save costs. What options are available to Mr C Flight in terms of Chapter 6 of the Companies Act?

Having regard to the ongoing prohibition on domestic and international flights imposed by the national lockdown, C9A experienced a significant loss of revenue. Accordingly, Mr C Flight wishes to suspend certain additional prejudicial contracts that are hindering his efforts to rescue the company, such as the airline catering and baggage handling contracts. He asks you for advice on whether he may suspend the prejudicial contracts, whilst still preserving C9A’s rights to claim performance from the counterparties in terms of their reciprocal obligations. In light of reported case law, how would you advise him?

The investment consortium that has expressed an interest in acquiring a controlling stake in C9A is willing to put up post-commencement finance. However, before committing to the short-term bridging finance agreement, the CEO of the investment consortium approaches you for advice on the order of preference and the ranking of post-commencement finance claims in business rescue. Which of the following statements regarding the ranking of post-commencement finance claims in business rescue is incorrect?

Assume for the purposes of this question only that Mr C Flight wishes to dispose of the 10 aircraft that were registered as security in favour of the bank in terms of an aircraft security mortgage bond. Mr C Flight is of the view that the bank will not consent to this disposal, for several reasons. However, Mr C Flight is aware of the fact that C9A is in desperate need for cash in order to pay for its fixed overheads. Accordingly, Mr C Flight approaches you for advice on whether there is any provision in the Companies Act that will allow him to dispose of the 10 aircraft without the consent of the bank. Which of the following statements will form part of your advice?

Assume for the purposes of this question only that Mr C Flight wishes to dispose of the 10 aircraft that were registered as security in favour of the bank in terms of an aircraft security mortgage bond. Mr C Flight is of the view that the bank will definitely give consent to this disposal, as the disposal makes commercial sense and is in the bank’s best interest. However, Mr C Flight is aware of the fact that C9A is in desperate need for cash in order to pay for its fixed overheads. Accordingly, Mr C Flight approaches you for advice on whether there is any provision in the Companies Act that will allow him to dispose of the 10 aircraft with the consent of the bank, but without having to promptly pay over the sale proceeds to the bank. Mr C Flight informs you (in passing) that C9A owns an office building in Polokwane (with a market value equivalent to C9A’s indebtedness towards the bank) which cannot be sold immediately due to the struggling real estate market in the area, but which can be encumbered by a first mortgage bond. Given the above facts, which of the following statements will form part of your advice?

Assume for purposes of this question only that Mr C Flight has initiated retrenchment processes, as contemplated in section 189 of the Labour Relations Act 66 of 1995, in respect of C9A’s employees. Mr C Flight was motivated to take these steps due to the substantial wage bills that are incurred, as a result of the airline’s large staff complement. However, it is well known that, to date, no business rescue plan has been prepared in respect of C9A. Ms A Wright (one of C9A’s employees) approaches you for advice as to whether the retrenchment proceedings commenced by C9A are valid in light of recent case law. How would you advise her?

Assume for purposes of this question only that Mr C Flight has not yet prepared a business rescue plan in respect of C9A. However, C9A is struggling to keep up with the salary payments that are due to its employees each month. Mr C Flight is aware of recent case law and therefore decides against taking steps in terms of section 189 of the Labour Relations Act 66 of 1995 at this stage. However, he is in search for alternative means to reduce C9A’s wage bills. One night Mr C Flight comes up with an idea. He recalls that section 136(2) of the Companies Act allows him to suspend contracts for the duration of the business rescue proceedings. Accordingly, he decides that he will suspend the employment contracts of the non-essential staff of C9A to reduce costs. Advise Mr C Flight as to whether this decision to suspend employment contracts is valid.

Assume for the purposes of this question only that C9A was unable to pay its employees as from March 2020 and that the last salary payment that C9A made was on 28 February 2020. C9A entered into business rescue on 30 April 2020. Based on the above, which of the following statements correctly describes the position of C9A’s employees in respect of the remuneration that became due and payable by C9A before the beginning of the company’s business rescue proceedings (i.e. the salaries for March and April 2020)?

Assume for purposes of this question only that you are approached by the engineers and maintenance crew of C9A, who are very unhappy. The engineers and maintenance crew have not been paid their salaries that became due and payable to them during C9A’s business rescue proceedings, despite having worked tirelessly throughout the business rescue process. They are concerned that their claims will not be considered in the business rescue plan and are of the view that they have been “working for nothing”. Based on the above, which of the following statements correctly describes the position of the employees?

Assume for purposes of this question only that C9A’s lessor (that leases one of its aircraft hangers to C9A) withdraws its action (summons) that it instituted against C9A. However, the lessor wishes to secure its position within C9A’s business rescue process and approaches you for advice. The lessor would like to know whether it can elevate its claims (relating to the provision of services to C9A post business rescue under an agreement concluded pre-business rescue) to post-commencement finance status. Which of the following statements will form part of your advice?