The impact of the capacity provisions in the Companies Act 71 of 2008 on the insolvency-remoteness of limited capacity special purpose vehicles used in securitisation schemes

Abstract

The insolvency-remoteness of a special purpose vehicle (SPV) used in a securitisation scheme is of critical importance, because insolvency of the SPV can interrupt the payment streams due to the investors in such schemes. Several contractual methods are implemented to achieve insolvency-remoteness. In this article, it is argued that pacta de non petendo (non-petition clauses), limited recourse provisions, and subordination clauses, all common insolvency-remoteness provisions, do not violate public policy. It is also argued that the capacity provisions in the Companies Act 71 of 2008 (the Act) do not reduce the insolvency risk of a limited capacity SPV used in a securitisation scheme. The fact that ultra vires contracts concluded by limited capacity companies will be provisionally valid under the Act means that provisions in a company’s MOI that limit a company’s capacity will have very little external significance. It is argued that the right to restrain ultra vires contracts in terms of s 20(5) of the Act, in conjunction with the right to ratify such actions in terms of s 20(2), do not provide reliable legal certainty or protection to the investors in assets securitised through a limited capacity SPV.