JOHANN KRYNAUW: Reiscor Two judgment is a win for business rescue

The recent judgment handed down by the Johannesburg high court in the matter of Reiscor Two, trading as Bootleggers Liquor v Anheuser-Busch InBev Africa and Others, marks a milestone for the business rescue profession.

The court’s decision to set aside the vote of the major creditors — which included AB InBev, Distell, Coca-Cola and Heineken — against the proposed business rescue plan not only upholds the integrity of the process but also reinforces the principle that collaboration is at the heart of business rescue.

The applicant, Reiscor Two, owned a liquor trading business and entered into voluntary business rescue in May 2021. The judgment centred on an inappropriate vote cast by the business’s major creditors against the business rescue plan, which had been designed to secure the best possible outcome for all parties.

The business rescue practitioners formulated a plan that projected a better return for creditors than a liquidation would have offered. The plan included the sale of the company’s assets as a going concern that was expected to benefit all creditors.

Just days before the vote on the plan the major creditors requested further access to company documents and records for a due diligence exercise — an action that came too late in the process. When their request for a postponement of the vote was denied, the creditors, using their voting majority, opted to reject the plan without making any substantive amendments or raising their concerns during the meeting.

The court ruled that this vote was inappropriate, underscoring the need for creditors to actively engage in the business rescue process rather than using their position to pursue individual interests at the expense of a collaborative outcome.

Unacceptable

At the heart of this ruling is the expectation that creditors, which are among the most critical stakeholders in any business rescue, must actively participate in the process. The court highlighted that the business rescue plan is a document meant for business people — not a legal pleading — and that creditors have a responsibility to propose amendments or raise concerns in good faith.

The creditors’ failure to engage constructively with the business rescue practitioners, despite opportunities to do so, was deemed unacceptable. The business rescue practitioners had even gone so far as to offer amendments to the plan and to allow for further investigations into the company’s affairs. Yet the creditors declined to make use of these opportunities and instead chose to obstruct the process.

The judgment sends a strong message to creditors: business rescue is not about waiting until the last minute to wield power but rather about engaging with the business rescue practitioners and other stakeholders to achieve a mutually beneficial outcome. The court’s decision reinforces the notion that the business rescue regime is a collaborative effort — one in which creditors are expected to participate meaningfully, not just from a position of authority but from a place of dialogue and compromise.

Another significant point in the judgment was the court’s ruling on creditors’ access to confidential information during business rescue proceedings. The creditors argued that they lacked sufficient information to make an informed decision about the plan. However, the court clarified that business rescue does not entitle creditors to confidential information they would not have had access to prior to the company entering business rescue.

The business rescue practitioners had made reasonable efforts to provide transparency, including offering a controlled mechanism for further investigation, but this offer was refused by the creditors.

Broader implications

This decision is likely to have broader implications for future business rescue proceedings, ensuring that while creditors’ rights are protected, the rights do not extend beyond what is fair and reasonable within the framework of business rescue.

The court clarified the applicability of section 34 of the Insolvency Act, which requires public notice of a business transfer by a trader. The court ruled that section 34 does not apply in the context of business rescue as creditors are already notified and have the power to approve or reject the sale of the business. This provides much-needed certainty for business rescue practitioners and creditors in future cases.

The judgment represents a pivotal win for the business rescue profession. By setting aside the creditors’ inappropriate vote and upholding the principle of collaboration in this judgment, the court has reinforced the core tenets of business rescue: fairness, transparency and engagement.

As a business rescue practitioner I’m encouraged by this outcome. It affirms that our courts are committed to ensuring that business rescue continues to serve its intended purpose — to provide distressed companies with the best possible chance of survival through a fair, collaborative process that benefits all stakeholders.

The ruling will undoubtedly strengthen the business rescue regime in SA, providing much-needed clarity for practitioners, creditors and companies. It is my hope that this precedent will encourage all parties to approach business rescue with the spirit of co-operation it was designed to foster.

• Krynauw is manager at BDO Business Restructuring.