Business rescue moratorium and arbitration proceedings

Section 133(1)(a) of the Companies Act 71 of 2008 (“the Act”) provides that no legal proceedings may commence or continue against a company during business rescue proceedings except with the written permission of the business rescue practitioner.

There is a degree of uncertainty as to whether arbitration proceedings are legal proceedings as envisaged in the Act.

In a recent case before our courts, one Shamla Chetty (“Chetty”), trading as Nationwide Electrical and TBP Building and Civils (Pty) Ltd (“TBP”) referred a contractual dispute relating to a building contract to arbitration. The arbitrator awarded Chetty’s claims against TBP in an amount of R420 573.93 plus interest, but TBP’s much larger counterclaim of R4 238 451.95 plus interest and costs was also awarded. TBP was in business rescue at the time the award was made.

Chetty was disgruntled by the outcome of the arbitration and approached the Kwazulu-Natal High Court in attempt to nullify the award. Chetty based her claim on the fact that the arbitration proceedings had continued without her being aware of the fact that TBP was in business rescue. According to her, this meant that she had neither sought, nor was she granted, the written permission of the business rescue practitioner (who had been appointed to oversee the affairs of the company) to continue the arbitration. TBP opposed the application on the basis that the Section 133 of the Act is inapplicable to arbitral proceedings.

The SCA in Shamla Chetty t/a Nationwide Electrical v O.D. Hart NO on 4 September 2015, upheld the contentions of Chetty relating to the fact that arbitrations are indeed legal proceedings for the purposes of the Act, but nevertheless denied her appeal for the following reasons:

Firstly, the section did not require legal proceedings to be nullified in the instance where written permission of the business rescue practitioner was not sought or obtained, for the proceedings to continue. Secondly, the requirement for the written permission is for the benefit of the company and not one of its creditors. Thus, Chetty did not have the requisite standing to invoke such protection with a view to nullifying the arbitration proceedings.

Should you require any corporate or commercial legal assistance, do not hesitate to contact Ramsay Webber Inc. at info@ramweb.co.za or 011 778 0600.

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