Real Estate Investor Magazine South Africa May/June 2019 | Page 61
RYAN SMITH PARTNER AT WEBBER WENTZEL ATTORNEYS
for the full-stop of the expression "; and" at the end of paragraph
(b); and
(b) by the addition in subsection (4) of the following paragraph:
"(c) an owner of property referred to in section 135(2) has a
voting interest equal to the amount referred to in that section.".
Following from this, property owners are likely to have pre-
commencement claims (those that arose prior to the start of the
business rescue proceedings) and post-commencement claims
(those that arose after business rescue proceedings started).
The debate as to whether the amounts which are due post
commencement of the rescue should be considered as PCF often
arises in circumstances where the business rescue practitioner
suspends the obligation to pay rent or equipment lease amounts
but remains in occupation of the property or in possession of
the leased goods. PCF is finance provided to the company once
business rescue proceedings have commenced. The Companies
Act (section 135) sets out the ranking of claims against a company
in rescue. PCF providers have a preferent ranking and are preferred
"in the order in which they were incurred over all unsecured
claims". In other words, PCF is paid before concurrent claims.
Further to that is the question of what rights a provider
of PCF has are in the business rescue proceedings in general
and, in particular, to vote on the proposed business rescue plan.
Given the potentially harsh (and arguably prejudicial) position
a property owner could find itself in, in the event of a business
rescue, the legislature appears to have tried through the proposed
amendment, to provide these creditors with a more secure position
in business rescue proceedings, by elevating their claims to that
of PCF. However, the legislature has gone one step further, by
providing that these owners of property have "a voting interest".
Voting Interest is defined as "an interest as recognised, appraised
and valued in terms of section 145(4) to (6)".
A debate which has long raged is whether PCF providers
are entitled to vote at the various meetings required to be held
in terms of Chapter 6 (and most particularly, the vote to approve
the business rescue plan). A popular view amongst lenders is that
PCF providers are entitled to vote. Their main argument is that
the provisions of section 145(4) refer only to the word "creditor".
Furthermore, section 152(2), refers to the word "creditors". It
follows that these sections refer to all creditors of the company
(regardless of whether they are pre or post commencement
creditors) - which must then by plain meaning include PCF
providers, who are creditors of the company in rescue. The
opposing view is that it was not the intention of the legislature to
allow PCF providers vote for a number of reasons including, that:
• the business rescue plan does not require the details of PCF
providers to be included in the plan;
• calculating the voting interest would be a moving target; and
• PCF is already super preferent so it does not also carry
voting rights and that if PCF providers voted, it could be subject
to abuse. The view is that PCF can be provided to the company
with a view to dictating the outcome of the vote, particularly if
enough PCF is provided such that the voting interest shifts in the
PCF provider's favour.
The proposed amendment set out in the Bill therefore raises
an interesting debate, one which the "pro PCF vote" camp may
not be happy with. That is, if PCF providers vote as they argue,
given the wording of section 145(4), why was it necessary for the
legislature to propose an amendment which specifically records
that "an owner of property referred to in section 135(2) [which
has now been defined as PCF] has a voting interest equal to the
amount referred to in that section". Furthermore, does the fact
that the legislature saw fit to include this amendment mean that
other providers of PCF are not entitled to vote, i.e. because those
funders who have provided PCF in the ordinary course (working
capital for example) are not "an owner of property referred to in
section 135(2)".
The effect of the proposed amendment is that property owners
(who are now considered PCF providers) may be given more
rights than other PCF providers. The intention behind this may
be that those property owners did not choose to find themselves
in that position (as a PCF provider), whereas, a provider of
PCF (probably at a price calculated to take into account the risk
inherent in lending into a company in financial distress), elected to
do so. This situation might result in lenders having a reluctance to
provide PCF, in circumstances where the amendment appears to
restrict the rights in business rescue proceedings which they have
advocated for, whilst at the same time, property owners are given
more rights, despite their claims also being PCF.
The legislature needs to carefully reconsider these amendments
and clarify the many questions that these proposed amendments
create, with particular reference to the position of PCF providers
and their rights in the business rescue proceedings.
LARA KAHN PARTNER AT WEBBER WENTZEL ATTORNEYS
SA Real Estate Investor Magazine MAY/JUNE 2019
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