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20 June 2018
The promulgation of the Companies Act 2008 in South Africa saw the introduction of a company rehabilitation process termed 'business rescue'. As in many other jurisdictions, a company under business rescue enjoys a temporary moratorium on the prosecution of claims with a view to allowing the distressed company breathing space to reverse its financial difficulties and avoid full-scale liquidation.
The business rescue procedure sought to replace the 'judicial management' procedure under the earlier Companies Act 1973, which was generally considered overly burdensome and unwieldy in facilitating effective corporate turnaround plans.
Against this background, admiralty matters have enjoyed special treatment in the context of claims against insolvent companies. Specifically, Section 10 of the Admiralty Jurisdiction Regulation Act 1983 (the Admiralty Act) provides that any property arrested in respect of a maritime claim shall not:
Further, any proceedings in respect of such property shall not be stayed by reason of the owner's winding up or judicial management.
Given that Section 10 was introduced before the new Companies Act, the provision does not make reference to business rescue proceedings, and it was inevitable that the courts would, at some point, be required to rule on the interplay between admiralty matters and business rescue.
The recent case Southern African Shipyard (Pty) Ltd v mfv Polaris is the first judicial pronouncement on the matter and serves to reaffirm the special treatment afforded to maritime creditors in respect of arrested property.
In this case, a local ship repairer sought to recover a debt from the owners of the mfv Polaris for services rendered, by way of the arrest of the vessel in Cape Town in October 2017. The repairers thereafter applied for the judicial sale of the vessel in January 2018, which was opposed by the owners of the mfv Polaris, resulting in the matter being set down for hearing by the court on 15 March 2018. In the period between the filing of the sale application and the hearing date, the owners placed the company into the business rescue by adopting a resolution to that effect in late February 2018.
The matter for determination by the court was whether – as the owners asserted – the business rescue proceedings placed a bar on the continuation of the sale application, as contemplated in the Companies Act.
On consideration of the authorities, the judge made the following findings:
In conclusion, the court was satisfied that a proper case had been made out for the judicial sale of the mfv Polaris and that the arrested vessel fell outside the scope of the moratorium of claims against the owner, because the arrest had occurred before the resolution for business had been passed.
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