Under the Companies Act, 2008 (Act), a business rescue initiated by the board of a company only formally starts once the necessary resolution is filed with the Companies and Intellectual Property Commission (CIPC). As long as a company can file documents with CIPC, it can initiate business rescue proceedings and appoint a business rescue practitioner (BRP). It was practically possible to file documents during the initial lockdown period, which started on 24 March and was extended until 30 April 2020, before commencement of level 4 restrictions.
CIPC announced on 24 March 2020 that only limited electronic services would be available during the initial lockdown period. In particular, CIPC announced that, as regards business rescue proceedings that had not yet begun at the start of the initial lockdown period, does not apply until the end of the initial lockdown period.
As previously noted, the effect of this section of the CIPC notice was not entirely clear, but the implication appeared to be that CIPC would not, during the initial lockdown period, recognise filings to place a company in business rescue. This limitation was very relevant to a number of companies during the initial lockdown period, which was very volatile, because unless a board was willing to take the view that it could make the filing in law under the Act and therefore that the CIPC notice was unlawful, it could not place a company under business rescue.
On 30 April CIPC confirmed what we assumed was implied in their 24 March notice, namely that, in respect of business rescue (both for a company to place itself in business rescue and for the appointment of a BRP), any documents submitted to CIPC during the initial lockdown period would be regarded as not having been filed and would have to be re-submitted from 4 May. The far-reaching consequences of this approach could not be over-emphasised.
It meant the position of companies that were voluntarily placed under business rescue during this time, the position of the BRP appointed during this time, the steps taken by the BRP, the provision of post-commencement finance and any other steps taken under the post-commencement of business rescue provisions of the Act, all of which would have been undertaken on the basis of a filing having been made lawfully, would all be up in the air and open for legal challenge.
This would potentially require a court to intervene and confirm that CIPC lacked the authority not to recognise the commencement of a business rescue proceeding and/or the appointment of a BRP, following a filing made in the prescribed form during the initial lockdown period. However, on 6 May CIPC issued a new notice, stating that, given that business rescue processes and appointment of a BRP require immediate attention during the Covid-19 pandemic, CIPC will approach the matter of business rescue filings made during the initial lockdown period as follows:
- business rescue proceedings commenced on a voluntary basis and appointments of BRPs, which were filed (in the prescribed manner under the Act) during the initial lockdown period, will now be regarded as having been filed on the date of filing; and
- companies that started business rescue proceedings during the initial lockdown period, but have not yet appointed a BRP, will receive an automatic five-day extension for the appointment of the BRP in terms of section 129(3) of the Act.
The revised approach by CIPC is to be welcomed, complies with the Act and will avoid unnecessary uncertainty and potential litigation on the matter.
By Madelein Burger, Partner at Webber Wentzel.