On 28 April 2023 the Supreme Court of Appeal delivered a reportable Judgment in the matter of Louis N O and Others v Fenwick N O and Others which dealt primarily with the consequences of when a binding offer in terms of section 153(1)(b)(iii) of the Companies Act 71 of 2008 (“the Act”) is rejected, and the interpretation of how this affects s153(4) of the Act.
Section 153 of the Act contemplates a scenario in which a proposed business plan is rejected in the meeting held in terms of s152 of the Act and provides for a two-step process to be followed. Section 153(1)(a) of the Act provides that the Business Rescue Practitioner (“the Practitioner”) may either seek a vote of approval from the holders of voting interests to prepare and publish a revised plan or advise the holders of voting interests that the company will apply to a Court to set aside the result of the vote on the grounds that it was inappropriate. If the Practitioner does not make either election in terms of s153(1)(a) then, in terms of s153(1)(b)(ii) an affected may make a binding offer to purchase the voting interests of one or more persons who opposed the adoption of the plan, at a value independently and expertly determined to be a fair and reasonable estimate of the return that those persons would receive if the company were to be liquidated.
Section 153(4) of the Act thereafter provides that “if an affected person makes an offer contemplated in subsection (1) (b) (ii), the practitioner must –
(a) adjourn the meeting for no more than five business days, as necessary to afford the practitioner an opportunity to make any necessary revisions to the business rescue plan to appropriately reflect the results of the offer; and
(b) set a date for resumption of the meeting, without further notice, at which the provisions of section 152 and this section will apply afresh.’”
The Supreme Court of Appeal in Louis N O and Others v Fenwick N O and Others was tasked with determining the interpretation of whether the Practitioner is bound to proceed in terms of s153(4) of the Act in the circumstances where a binding offer has been rejected. The Appellants, who made the binding offer, which was rejected, believed that s153(4) of the Act should be interpreted to mean that the Practitioner must follow the prescripts of s153(4) even when a binding offer is rejected. The respondents however, believed that s153(4) only becomes applicable in the event that a binding offer is accepted because then there has been a change in ownership of the voting interests and thus a new vote in terms of s152 of the Act would only then be appropriate.
The Supreme Court of Appeal found that the wording of s153(4) was vague, and that the appellants interpretation would lead to absurd results and found in favour of the respondents’ interpretation and therefore dismissed the appeal.
The upshot of this is now clarity has been given to the wording of s153(4) and that it will only be applicable when binding offers are accepted and should be borne in mind when an affected party elects to make a binding offer.
Source: Louis N O and Others v Fenwick N O and Others (598/2021) [2023] ZASCA 59 (28 April 2023)
The Companies Act 71 of 2008
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