The impact of the business rescue moratorium on creditors

Abstract: A temporary moratorium on the rights of claimants against a company during business rescue proceedings is a universally acknowledged measure to facilitate the rehabilitation of a financially distressed company. In this regard, section 133(1) of the Companies Act 71 of 2008 provides for a general moratorium on legal proceedings against a company or property lawfully in its possession. This short dissertation critically analyses the impact of the section 133(1) moratorium on creditors. The moratorium is effective automatically, upon commencement of business rescue proceedings. The legal effect of the moratorium is that the right of creditors to enforce their claims against the company is suspended for the duration of business rescue proceedings. However, the moratorium may be lifted upon the written consent of the business rescue practitioner or the leave of the court. Further, certain proceedings or actions are automatically excluded from the operation of the moratorium. This research analyses the objectives of business rescue, the rationale, scope, and duration of the moratorium, in order to ascertain the possible impact of the moratorium on the creditors. In conclusion, the research analyses measures to mitigate unwarranted prejudice to the interests of creditors within the current legislative scheme of Chapter 6 of the Companies Act 2008 and proposes alternatives thereto, where appropriate.LL.M. (Commercial Law