Supreme Court clarifies concept of binding offer in business rescue
This section allows one affected person to make an offer to purchase at liquidation value, the voting interests of those persons who opposed the adoption of the business rescue plan.
The Supreme Court of Appeal (SCA) has recently crystallised the manner in which this section must be interpreted, in its recent decision of African Banking Corporation of Botswana v Kariba Furniture Manufacturers & Others (228/2014) [2015] ZASCA 69, Dambuza AJA (Leach JA Mpati P, Mhlantla JA and Schoeman AJA concurring).
Initially, the court a quo held that the legislature intended to ensure the 'co-operation' of opposing creditors in business rescue proceedings. The court a quo therefore found that the 'binding offer' envisaged in section 153(1)(b)(ii) "did not anticipate an 'option' or an 'agreement' in the contractual sense, but was rather 'a set of statutory rights and obligations', from which neither party could resile", and that the offer was automatically binding on both the offeror and the offeree once made.
Voting interest
The court a quo also found that dissenting creditors (the bank in this instance), whose voting interest was transferred in terms of a binding offer, would suffer no prejudice as the liquidation value of the transferred voting interest would be determined by an independent expert and would be paid prior to implementation of the revised business rescue plan.
However, on appeal the bank contended that it could not be bound by an offer which it had not been allowed to respond to. It also contended that the offer was improper in that it lacked clarity as to the identity of the offeror, what the amount and terms of payment thereof were and whether there were any conditions attached thereto. The company, the business rescue practitioner and the shareholder on the other hand, maintained that the finding by the court a quo was correct.
The SCA dismissed the judgment by the court a quo, holding that a binding offer in terms of section 153(1)(b)(ii) of the Act is binding only on the offeror, and not on the offeree. It further held that "the terms of an offer must cover the minimum requirements of the proposed contract. A mere regurgitation of the provisions of s153(1)(b)(ii) (that the offer was or would be to purchase the voting interest at a value to be independently determined) could not constitute a proper binding offer".
The SCA emphasised that the bank was entitled to know who exactly was making the offer and what the details thereof were, and that any failure to divulge such information could not have constituted a proper offer.
Unfortunate judgment
Although one can empathise with the bank in the circumstances of this case, this recent judgment is nevertheless unfortunate in light of section 7(k) of the Act, which provides that the purpose of business rescue proceedings is to rehabilitate companies in financial distress in a manner that balances the rights and interests of all relevant stakeholders.
The view that a binding offer in terms of section 153(1)(b)(ii) is in fact not binding on the offeree (even though such offeree will not be prejudiced if the provisions of this section is properly implemented), diminishes the likelihood of achieving the ultimate purpose of business rescue proceedings. That notwithstanding, at least this decision has brought significant clarity to the interpretation of section 153(1)(b)(ii).