In the case of Mashwayi Projects (Pty) Ltd (the Appellants) // Wescoal Mining (Pty) Ltd) (the Respondents) [2025] 2 All SA 57 (SCA), the Supreme Court of Appeal (“SCA”) decided whether post-commencement creditors may vote on business rescue proceedings, as the matter as heard by the Gauteng Division of the High Court has been appealed.
The Appellants sought an order to strike out the judgment delivered by the court a quo. The court a quo had decided that post-commencement creditors[1] may not vote on the business rescue plan. Only pre-commencement creditors[2] may vote on same. This was decided by the Johannesburg High Court on the basis of interpretation and reading in legislation, being the Companies Act 71 of 2008 (“the Act”) and various foreign legislation.
The main issue in question was whether the business rescue plan was correctly implemented in terms of section 152 of the Act, which regulated the voting of creditors or stakeholders on the way forward in business rescue proceedings.
Wescoal Mining (Pty) Ltd was a wholly owned subsidiary of Salungano (Pty) Ltd which was the Second Respondent in the matter. The Second Appellant, Arnot Opco (Pty) Ltd, was an entity established as a joint venture between the First Respondent (Wescoal Mining) and Arnot Investco (Pty) Ltd. It owned and operated Wescoal Mining, which itself was under business rescue as of 2023.
Arnot Opco (Pty) Ltd had been placed under business rescue on 10 October 2022 by the demands of Wescoal. The First Appellant was Mashwayi Projects (Pty) Ltd which was a creditor of Arnot. The Third Respondent, Ndalamo Coal (Pty) Ltd, is the party whose offer was accepted at the relevant creditor meeting.
This virtual meeting of the creditors of Arnot Opco (Pty) Ltd was held on the 28th of July 2023. The meeting was convened by the business rescue practitioner under section 151 of the Act in order to adopt a business rescue plan for. For a plan to be approved under section 152 (2) (a) of the Act, it must be supported by at least 75% of the creditors. The plan allowed for both pre- and post-commencement creditors to be afforded voting rights in terms of the above-mentioned sections.
There were four options in which creditors could vote on:
- Option A to expend capital on refurbishing facilities and running Arnot’s business;
- Option B as for the sale of its business as a going concern and the application of the free residue to creditors’ claims;
- Option C was to reject the business rescue plan; and
- Option D was to abstain from voting.
If Option B was approved, creditors had to vote on four alternative purchase offers, one of which was proposed by Ndalamo.
The parties were in favour of Option B accepting Ndalamo’s offer. The votes were tallied and the practitioner’s representative declared that 75.4% of the voting interest present, 50% + 1% of whom were independent creditors all of which had voted in favour of option B. There were, however, errors in the voting system. The creditors were then notified that that the threshold had not been met. In other words, Ndalamos’ offer had not been accepted. The Wescoal parties agreed that the quorum had been met and therefore the plan could be adopted. The Wescoal parties therefore instituted proceedings at the court a quo to obtain a declaratory order requesting that Option B be made an Order of Court and the plan be instituted.
The High Court had to decide whether post-commencement creditors votes should have been taken into account and therefore meet the 75% threshold. This was done by referring to chapter 6 of the Act. They deemed that only those who were creditors at the time Arnot went into business rescue were allowed a voting opportunity. Therefore, Option B was validly constituted and approved.
The High Court’s determination was rejected by the SCA. The Respondents premised their arguments on foreign legislation, interpretation of insolvency legislation and the express conclusion that post-commencement creditors are not defined/mentioned in Chapter 6. In furtherance of these arguments, they proposed that allowing those creditors post-commencement of the institution of business rescue plans would endanger the interests of those creditors who came first.
The SCA stated at paragraph 14 that they do not determine policy considerations, and that task is for the legislature. They reiterated that the role of the court is to interpret legislation and not to postulate what the law should be or what policy considerations should inform it.
The Respondents relied on section 5(2) to incorporate the use of foreign legislation that being from the United States and England. This argument was not considered by the SCA as the foreign legislation where the countries arise from do not take into account our own socio-economic factors, including the generally accepted practical needs and considerations in our country.
The court thereafter analysed the basis of language and interpretation of the appropriate provisions that being sections 128, 135, 144, 150, 151, 152, 153, 154, and 155 of the Act.
All of the above provisions had no specific mention of pre- and post-commencement creditors. The definitions gave a general meaning to creditors, one with no specifics.
The Respondents relied on the idea of concursus creditorum.[3] However, this concept stems from insolvency law and is not altogether applicable to business rescue proceedings, which have a different objective altogether.
The court decided that, on the legal dispute, the Respondents had no claim in law and that no distinction could be made between pre- and post-commencement creditors in this context.
In terms of the factual dispute, there were various issues with the voting systems used. Further, as there were creditors who were excluded from voting, the SCA rules that the poll cannot be conclusive. The creditors would have to start afresh with the voting process. If Mashwayi’s vote were taken into account, the statutory threshold mentioned in section 152 (2) would not have been met.
The SCA ordered that the High Court Order should be set aside. In terms of the business plan to be instituted, the business rescue practitioner would need to seek a vote of approval form the holders of voting interest, to prepare a revised plan. The Declaratory Order had the effect as such that it substituted the votes of the creditors. Therefore, the plan under Option B was rejected. The way forward for the creditors and practitioners would be to proceed under section 153 (1) (a) (i) of the Act to seek a vote of approval from the holders of voting interests to prepare and publish a revised plan.
The judgment affords those creditors who would be previously disadvantaged by lack of voting rights from being excluded from pertinent decisions involving business rescue. Post-commencement creditors now have voting rights in business rescue claims, and this judgment has created certainty in the realm of business rescue. Therefore, the declaration by the SCA has the effect of securing the interests in the business of post-commencement creditors by allowing them to vote on business rescue plans.
- [1] Post-commencement creditors are those creditors who incur debt to a company after the commencement of its business rescue proceedings.
- [2] Pre-commencement creditors are those who have a claim against a company that arose before the commencement of the business rescue proceedings.
- [3] A concept relating to the coming together of the creditors, where a group has preference over the interests of an individual creditors.
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