A critical analysis of Panamo v Nel and the consequences of non-compliance with the procedural requirements in business rescue

LL.M. (Corporate Law)Abstract: The Companies Act 71 of 20081 came into force during May 2011 and it brought with it certain thought-provoking new provisions aimed at placing South African corporate law at the cutting edge and on par with many developed countries.2 One of the novelties under the 2008 Act is the introduction of business rescue which replaced its predecessor judicial management in the old Companies Act.3 Business rescue procedure has its sole purpose as underlined in the preamble of the Act, which is to ―provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders‖.4 Chapter 6 allows for the proactive commencement of business rescue by the board of directors when a company is seemingly in financial distress (section 129 of Companies Act) and compulsory commencement by order of court (section 130 of Companies Act).5 This process is aimed at providing temporary measures to assist companies under financial distress. Although the efforts of the legislature must be commended certain provisions in chapter 6 are sadly ambiguous and has therefore prompted plenty litigation.6 One such provision is section 129(5) and difficulty has arisen with regard to the effect of non-compliance with the procedural requirement of section 129(3) and (4)..