On 26 July 2024, the First and Second Companies Amendment Bills were signed into law by the President, amending several sections of the Companies Act, 71 of 2008. The amendments relevant to business rescue proceedings are in respect of section 135, governing post-commencement finance and the ranking of creditors.
These amendments, although signed into law in July 2024, only came into effect on 27 December 2024. They provide some relief for landlords with landlord’s claims for public utility charges being recognised as post-commencement finance.
In terms of the amendments, any amounts that become due by a company under business rescue supervision to its landlord, in terms of a contract, in respect of public utility services (i) incurred during the business rescue proceedings, (ii) that are unpaid by the company to the landlord, and (iii) that are paid by the landlord to third parties during the company’s business rescue proceedings, will be regarded as post-commencement financing. Public utility services include the company’s share of any rates and taxes, electricity, water, sanitation and sewerage charges.
These landlord claims will rank after (i) the business rescue practitioner’s remuneration and expenses, and (ii) the claims of employees in respect of unpaid amounts arising during the company’s business rescue proceedings, but ahead of other secured and unsecured post-commencement finance claims and unsecured concurrent claims against the company.
The amendments are an attempt to clarify the ranking of claims in business rescue proceedings, emphasising the precedence of post-commencement claims over unsecured creditor claims. This ensures that funds provided to support the company during its recovery are prioritised.
It is important to note that:
- landlords are not regarded as post-commencement finance providers in respect of any unpaid rental during the business rescue proceedings. The preference is limited to claims for landlords’ out of pocket expenses in respect of public utility services only; and
- the preference is limited to claims arising during the business rescue and does not include any unpaid amounts for utility services prior to the commencement of the business rescue.
Click here for an analysis of amendments to other sections of the Companies Act.
