MORATORIUM IN BUSINESS RESCUE SCHEME AND THE PROTECTION OF COMPANY’S CREDITORS

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Abstract

The concept of business rescue has been acknowledged as one of the innovative paths towed by the South African Companies Act 71 of 2008. The primary purpose of business rescue, as set down by the law, is to facilitate the rehabilitation of a company that is in financial distress. Attaining that purpose could, however, come at a price to the company’s creditors. The law imposes a temporary restriction on legal proceedings, enforcement actions and the property rights of creditors. Unless the written consent of the business rescue practitioner or the leave of the court is first sought and obtained, the creditors cannot have any recourse against the company. The paper argues that the statutory moratorium could constitute an affront on the constitutional right of property, and further contends that while the business rescue practitioner whose governance role naturally supplants that of the board, would not ordinarily grant such consent, the courts are seemingly more neutrally disposed for recourse by the creditors who seek to exercise their rights against the company. In weighing the competing interests, greater consideration should be accorded to the creditors, the protection of whose interests are generally more compelling whenever the company is in financial distress.

Keywords: Moratorium, Business Rescue, Creditors, Business Rescue Practitioner, Statute, Courts

JEL Classification: G34, K20

Received: 14.12.2016

Accepted: 06.02.2017

How to cite this paper: Nwafor, A. O. (2017). Moratorium in business rescue scheme and the protection of company’s creditors. Corporate Board: role, duties and composition, 13(1), 59-67. https://doi.org/10.22495/cbv13i1p6