Abstract
This article discusses how foreign companies doing business in South Africa during periods of financial distress and registered locally as external companies are, as a recent High Court decision confirms, denied the formal debt-relief measures of business rescue and therefore a compromise with creditors because of being excluded by the definition of “company” in the Companies Act 71 of 2008. Nor, for the same reason, may these companies, if solvent, rely on the current liquidation procedures. But they may possibly use the procedure preserved in the otherwise repealed Companies Act 61 of 1973 for liquidation as far as the transitional arrangements in the Companies Act 71 of 2008 allow. The purposive solution suggested in this article for the interplay between the two Acts may need legislative attention. This article surveys other possibilities relevant to these companies such as informal voluntary arrangements, applications for winding-up, ordinary debt collection, and perhaps compulsory sequestration applications. Finally, it raises the policy issue for the legislature to consider why these companies should be denied business rescue and/or a compromise with their creditors when these formal debtrelief measures might help them survive their financial stress and emerge stronger, to the advantage of themselves, their creditors, their stakeholders and communities, and the entire nation. It is submitted that these issues could and should be considered as part of the current law reform process of South African insolvency law.
Highlights
Cross-border trade and business typify contemporary economies
Section 13(5) of the 2008 Act allows a foreign company to transfer its registration in order to be recognised in terms of the 2008 Act as though it had originally been incorporated and registered in South Africa. (In the case under discussion, CMC(SA) concluded construction contracts, one of them worth about €255 million, that would contribute to the South African economy and create jobs.) In this article, the term “foreign company”means a company incorporated elsewhere, and the term“external company” means a foreign company that has established a branch in South Africa and meets the definition of an “external company” in South African company laws
As pointed out above,140 the external company registered in South Africa remains part and parcel of the foreign company but for liquidation purposes is deemed to be a separate entity with a view to being eligible to be liquidated in South Africa as provided for in current legislation. (It is submitted that the same way of thinking applied in terms of the former section 311 procedure in terms of the 1973 Act that applied to external companies.141)
Summary
Cross-border trade and business typify contemporary economies Companies expand their reach by establishing a presence in foreign states, investing in property and creating places of business elsewhere while maintaining their main place of business and/or headquarters commonly in the state of their original incorporation. In its judgment the court held that the business rescue procedure in Chapter 6 of the Companies Act 71 of 2008 (“the 2008 Act”) does not apply to a foreign company conducting business in South Africa where it has been recognised and registered as an external company Based on this interpretation, it is clear that the compromise with creditors provided for by section 155 of the 2008 Act will not apply to external companies, and it may even cast doubt on the application of local liquidation procedures in relation to external companies. Within this context a need to liquidate such external branch may arise, either because of its insolvency or because it wants to terminate its presence locally, and the question is whether South African law enables such a process
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