Companies undergoing business rescue proceedings need the consent of the business rescue practitioner before commencing arbitration proceedings

According to the Companies Act, when a company is undergoing business rescue proceedings no legal proceeding against the company may be commenced or proceeded with in any forum except with the written consent of the business rescue practitioner. The Act does not define the phrase ‘legal proceeding’ and so the Supreme Court of Appeal (SCA), in the recent judgment of Chetty v Hart, had to determine whether arbitrations are included within the meaning of ‘legal proceeding(s)’.

The SCA discussed the importance of business rescue proceedings and how “it gives the company breathing space so that its affairs may be assessed and restructured in a manner that allows its return to financial viability.” The SCA emphasized that arbitrations, like court proceedings, can also be costly and involve a lot of time that may hinder the effectiveness of business rescue proceedings. The SCA therefore decided that to fulfil the objectives of business rescue, arbitrations must be included within the meaning of ‘legal proceeding(s)’ within the Act. Therefore, if a company is undergoing business rescue proceedings, it must receive written consent from the business rescue practitioner before commencing or proceeding with arbitration proceedings.

Read the judgment here: http://www.saflii.org/za/cases/ZASCA/2015/112.html