Liquidation

Liquidation or business rescue – what is the difference?
09 August 2017
 

“My family company has been operating successfully for nearly 20 years. Over time I’ve also managed to get a few investors into the business. The last year however has been tough and we are struggling to make ends meet. I feel its decision time about the future of the business, but was wondering whether liquidation is the best route or must I rather look at business rescue? What is the difference between these two options?”

In difficult economic times, many companies are having to come to terms with making tough financial decisions. Filing for liquidation, has in the past been a route considered by many companies. The  Companies Act 71 of 2008 (“Companies Act”), introduced another intervention mechanism, namely business rescue, as an option to be considered by a company that is in financial distress.

In terms of the Companies Act, a company will be considered to be in financial distress, if the company is not in a position to reasonably pay all of its debts as they become due and payable within the immediately ensuing six months or it appears reasonably likely that the company will become insolvent in the immediately ensuing six months. Once it has been established that a company is in financial distress, it must then be considered whether to file for liquidation or undergo business rescue.

To make this decision, the objective of each option must be considered as well as the process to be followed by a company.

With liquidation the objective is to dispose of the assets of the company and apply the proceeds thereof to pay the creditors of the company in terms of a legal order of preference. The purpose of business rescue on the other hand is to rehabilitate the financially distressed company and to rescue it by means of a plan that will help the company to turn its financial distressed position around and trade on a solvent basis again. Liquidation and business rescue proceedings can be launched either voluntarily or by way of an application to court by creditors and affected parties.

To initiate the voluntary liquidation process a company must decide on a date for the institution of liquidation proceedings. As from this date the company will not be allowed to incur any further debt but can continue trading. Any income then derived will go into the insolvent estate, and may not be used by the company. Once the date has been selected the shareholders of the company must resolve, by special resolution, to place the company under liquidation and an accompanying court application has to be submitted to the High Court. The court will first issue a provisional liquidation order before issuing the final order and notice must be given to all creditors before the final liquidation order is granted. Once the provisional liquidation order is granted no creditor may institute any legal action against the company and any legal action instituted will be suspended. The Master of the High court will appoint a liquidator who will determine the assets of the company, hold meetings with creditors, collect outstanding debt, sell assets, pay creditors and finalise the estate, after which the matter will be closed.

To initiate business rescue proceedings voluntarily the board of the company may resolve to place the company under business rescue if the company is financially distressed and there appears to be a reasonable prospect of rescuing the company. The resolution may not be adopted by the board if liquidation proceedings have been initiated by or against the company and will have no force or effect until it has been filed with the Companies and Intellectual Property Commission (“CIPC”). The company must notify all its creditors and appoint a business rescue practitioner (“BRP”) within five days after the resolution has been adopted and filed with CIPC. During business rescue proceedings no legal action including enforcement action may be instituted against the company, except with written consent thereto by the BRP or with leave of a court. The BRP is responsible for assessing the affairs of the company, holding meetings with creditors, other affected persons and management of the company and compiling a business rescue plan which needs to be voted on and accepted by all affected persons. The business rescue plan must indicate amongst others the probable dividends creditors would have received if the company was placed under liquidation and must prove that under business rescue the company is able to generate a better monetary return for its creditors than in the event of liquidation. The plan must further set out the advantages of business rescue over liquidation. Once the business rescue plan is adopted it binds the company, creditors and holders of any securities against the company.

Business rescue compared to liquidation provides for the company’s debt to be managed and contracts restructured and reorganized in order for the company to continue to trade on a solvent basis rather than selling off all of the company’s assets and the company being shut down as in the case of liquidation. If it does happen that business rescue is unsuccessful, the BRP may apply to court to have the company liquidated. The business rescue process is therefore a last lifeline to try and turn a company around before it has to close its doors when liquidated.

In your case, your views on the potential to rescue the company and the degree of financial distress the company is in, will determine which of these proceedings are the most appropriate route (if any) to be followed. Consider enlisting the help of a legal practitioner to help discuss in more detail the pro’s and con’s of these legal options for your company.

 

lawful evictions

lawful evictions
Housing is a vital and primary need for each person. As most of us acquire accommodation by lease or through home loans or even through state housing provided by municipalities, it is important to know your rights and what the correct procedure is for lawful evictions.

With the exclusion of farm land, lawful evictions from residential premises, buildings or structures thereon, which includes any hut, shack, tent or similar structure or any other form of temporary or permanent dwelling or shelter, is governed by the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998, commonly known as the PIE Act.

Who has a right to evict?

The right to evict under the PIE Act is given to a registered owner of premises or to a person in control of the residential premises in question. Persons in control of residential premises include:

A lawful tenant
The executor administrating the estate which includes the premises
Any other agent acting on the lawful instructions of the owner
Who can be evicted?

People who can be evicted include the following people who remain in occupation of the premises:

Defaulting tenants whose lease agreements are terminated
Defaulting mortgagors whose bonds were cancelled and property sold in execution
Unlawful occupiers and squatters
Any other person who does not have the express consent of the owner or person in lawful control of the premises
What are the special considerations?

When dealing with eviction applications our courts are obliged to give special consideration to the elderly, children, people with disabilities and also households headed by women. All facts and circumstances of such persons must be highlighted to the court for the evaluation of such special considerations.

Lawful eviction procedure:

Step 1 – Eviction notice/demand

An eviction notice or demand serves to warn the occupant of the intended eviction and it usually provides the occupant 30 days to vacate the premises. It also affords parties the opportunity to negotiate settlement terms or terms and timeframes for vacating the premises. This letter may be served by the Sheriff of the Court, by hand at the premises or by registered post.

Step 2 – Court application for eviction

A court application by way of a notice of motion with a supporting affidavit, must be served by the Sheriff on the occupant and on the relevant municipality. This will set out the court appearance date and the dates when the occupant must file their opposing court papers if they intend to oppose the eviction application. The occupant must receive the court application papers at least 14 days before the court date.

Step 3 – Appearance in court for hearing of eviction application

A Court is obliged to consider all relevant facts relating to the eviction application at the appointed dated for hearing the application. Legal representatives of the parties will be afforded an opportunity to present oral and written legal arguments on behalf of each respective party. The Court will then through a Court Order, if the application is succesful, provide the occupant sufficient time to vacate which is ordinarily up to 1 month with a provision that should the occupant fail to vacate in that period, the Sheriff is authorized to remove the occupant and all belongings from the premises at the costs of the occupant.

Step 4 – Forced eviction of occupant by Sheriff

The Sheriff will first serve a copy of the Eviction Court Order on the occupants. The Sheriff will then usually be authorized to forcefully remove the occupants after the vacation date appointed by the court has lapsed. The Sheriff may also be authorized to obtain the assistance of the police where necessary and he may also be authorized to remove the belongings of the occupants including to demolish any erected structures. The Sheriff may take up to 3 weeks to execute the eviction Court Order after making necessary arrangements to evict the occupants.

Conclusion

Lawful evictions can take between 2 to 3 months to be concluded and they can become technical and even costly. A landlord, owner or a person in control who wishes to evict, and a tenant or occupant against whom eviction processes are being commenced, are in both instances advised to seek legal advice from an attorney specialising in evictions to ensure that the eviction process is lawful and carried out correctly. Following the correct lawful eviction procedure minimizes frustration, costs and potential further rental losses and avoids the need for conduct like changing locks, disconnecting utilities and even intimidating conduct, which in itself can result in legal action being taken by unlawful occupants against owners or landlords.

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Jurisdiction of the CCMA

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commercial mediation

Commercial Mediation: The long-awaited arrival of mainstream mediation

ABC Grocers has an agreement with Joe Fruit for the supply of apples to ABC Grocers for a year. When the first delivery of apples arrives from Joe Fruit, they are over-ripe and cannot be sold. The second and third batches are no better. ABC Grocers refuses to pay Joe Fruit for these deliveries arguing that the quality was unacceptable and that his company had suffered damages from clients wishing to purchase apples which he could not supply because of Joe Fruit’s failure. Joe Fruit insists that ABC Grocers cannot withhold payment and threatens legal action. ABC Grocers does not want a lengthy litigation process and as a well-known community store wishes the dispute to remain out of the eyes of the media. But what solution besides litigation is available to address this dispute?

In short, mediation could present ABC Grocers with a useful alternative to formal litigation for the following reasons:

• Mediation is an informal and voluntary process, which is convened once both parties to the dispute agree that it is the best course of action to resolve the matter amicably.
• The paramount principle of mediation is confidentiality, meaning that the parties and the mediator may not disclose any information that is discussed during the process. In addition, the mediator may not reveal the discussion points raised in private sessions with one party to the other, unless specifically mandated to do so.
• Mediation is without prejudice, which means that should the mediation fail, whatever offer, admission, or concession that is made during the mediation process may not be used in later court or arbitration proceedings.
• The parties must have settlement authority to help ensure the success of the mediation. For example, ABC Grocers should authorise their representative with a letter of authority to represent the company at the mediation. This is to avoid situations of concessions being made by a representative that a company may later reject.
• The outcome is self-determined by the parties, which differentiates mediation from litigation or arbitration processes which are determined by a presiding officer.
• Mediation is non-binding, in that it only becomes binding once both parties reach and sign a settlement agreement.
It should be noted that an essential feature of mediation, different from litigation and arbitration, is that mediation assists parties in resolving their dispute in an expeditious and cost-effective manner, meaning that a matter could potentially be resolved in as little as one day.

Prior to mediation, parties must agree and sign an agreement to mediate. This agreement sets out amongst other things, the when and where mediation shall take place, the mediator’s fees and payment terms as well as allowing parties the opportunity to furnish the mediator with written statements to allow the mediator to gain a better knowledge of the background of the dispute.

Mediation commences with the mediator confirming the signing of the agreement to mediate and explaining the procedure of the mediation. Thereafter, parties are given the opportunity to make their respective opening statements. This usually takes place in what is known as a joint session. The mediator has the discretion to break the joint session into private or side sessions when he or she deems it fit and where the mediator may speak to each of the parties individually in order to explore the interests of the parties and analyse the dispute in a more meaningful way. Such side sessions are also confidential. However, a party may grant the mediator an express mandate to carry certain information over to the other party. This assists the process to reach an option generating stage where the parties begin to negotiate terms of how their dispute may be resolved. Should this be successful, the mediation shall conclude with the parties finalising a settlement agreement with the help of the mediator.

The purpose of the mediator is to facilitate the mediation. The mediator does not adjudicate, judge, advise or decide the outcome of the mediation. The mediator is an impartial and neutral person to the dispute, whose main duty is to assist both parties to reach the best possible solution to their dispute. In this regard, the mediator explores the issues and options with the parties rather than influence the outcome of the mediation. Ultimately, the mediator controls the process by using his or her experience and discretion to assess when to engage in joint or private sessions with the parties.

During the course of 2014, new and exciting rules regulating the conduct of proceedings of the Magistrates’ Courts of South Africa were published and which provides for the voluntary submission of civil disputes to mediation in selected courts, referred to as court-annexed mediation. At this stage, however, court-annexed mediation has only been implemented in Gauteng and North West Provinces, but the implementation will circle out to all other Provinces in due course. These rules apply to the voluntary submission to mediation of disputes by parties prior to commencement of litigation as well as after litigation has commenced, but before trial. In addition, a court may, prior to or during a trial but before judgment is handed down, enquire into the possibility of mediation and afford the parties an opportunity to refer the dispute to the clerk or registrar of the court to facilitate mediation.

If mediation is successful, the parties conclude a settlement agreement setting out the terms and conditions of their settlement and to which they must adhere to. If summons was issued prior to the mediation, the parties may agree to have their settlement agreement made an order of court.

Mediation, although in its infancy in South Africa, has proven internationally to provide a valuable alternative to litigation for parties embroiled in a dispute. In South Africa the option of mediation can only be welcomed, and the inclusion of court-annexed mediation in the rules of court confirms that this form of dispute resolution is here to stay.
Disclaimer: The above article, procedures and commentary are general in nature and may differ from case to case. No reliance should be placed on the procedures described above and legal advice should be obtained before embarking on any process of mediation to determine the appropriateness thereof to the specific dispute in question.