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Suspension of agreement in business rescue: What can a creditor do?







By Riza Moosa, Director
Norton Rose Fulbright South Africa Inc.

The powers of a business rescue practitioner to suspend contracts has given rise to concern and speculation as to the effect of the exercise of those rights in business rescue and the implications for creditors. It has been clarified that a creditor whose agreement is suspended in business rescue has the right to withhold the reciprocal services or goods to be delivered under that agreement.

In BP Southern Africa v Intertrans Oil SA, the Gauteng High Court found that any obligation of a debtor company in business rescue can be suspended during business rescue. That includes obligations contractually tied to the reciprocal obligations of the creditor. The common law principle called the exceptio non adimpleti contractus permits a party to stop or suspend performing under a reciprocal contract if the other party has stopped or suspended its performance under that agreement.

In business rescue, the debtor’s obligation to pay amounts under supply or sales agreements may place a financial burden on the company. Suspending those obligations can give the debtor breathing space in which to restructure its affairs under the guidance of the business rescue practitioner. But, creditors who are supplying goods or services (including leasing premises) would be entitled to withhold their supply if their agreement was suspended. Most creditors will be relieved by this interpretation. Unfortunately, there will be other creditors who may not have reciprocal obligations and such a suspension will adversely affect them.

Source: Norton Rose Fulbright South Africa Inc.
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