Business rescue and the position of sureties

A company can be placed under business rescue in accordance with Chapter 6 the Companies Act, 2008. This establishes a moratorium for the company against the claims of its creditors and enjoins the appointed business rescue practitioner to formulate a plan for presentation and acceptance by a prescribed majority of creditors and other parties with voting rights.

In the case at hand, the business rescue practitioner included a provision in his plan whereby the creditors who held suretyships against the executive directors of the company were precluded from claiming against the directors in accordance with such suretyships. The business plan was accepted. When the sureties were summonsed, they raised a defence that creditors of the company were precluded from claiming against them.

The High Court held that the Companies Act, 2008 did not afford protection to parties who had signed as sureties for a company that had gone under business rescue.

In light of the judgment, it is advisable for creditors who hold deeds of suretyship not to agree to any arrangement whereby sureties try to claim protection in circumstances where their companies are under business rescue. Where the business rescue practitioner tries to force the position by putting this to the vote as part of the business rescue plan, it is advisable for any creditor holding a suretyship to object vehemently and to require that his or her objection be noted, whatever the outcome of voting. This will enhance the creditor’s position against sureties in the circumstances described above. 

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