In a recent article, we explored the basics of business rescue and unpacked what the benefits are, and how a company could be placed under business rescue.
As a quick recap, “Business Rescue” is defined in section 128(1)(b) of the Companies Act 71 of 2008 (“Companies Act”) as proceedings to facilitate the rehabilitation of a company that is financially distressed. This is done by providing for the development and implementation of a plan to rescue the company by restructuring its affairs, business, property, debt and equity in a manner that maximises the likelihood of the company continuing on a solvent basis
Below, we explore the relationship between business rescue and landlords, and how landlords can protect themselves when a tenant is placed under business rescue.
Business rescue and landlords | What does the law say?
According to the Companies Act, section 134(1)(c), “despite any agreement to the contrary, no person may exercise any right in respect of any property in the lawful possession of the (rescue) company, irrespective of whether the property is owned by the company except to the extent that the practitioner consents to this in writing”.
What does this mean for you, the landlord? Well, without careful amendment of lease agreements, the above section may leave you without the remedies of eviction or suing for rent, in the event that one of your tenants is placed under business rescue.
Typically, leases provide for landlords to be able to cancel leases in the event of liquidation of the tenant. In the case of business rescue such a similar clause would not help, because at the date of business rescue the tenant would be in lawful possession and thus s134 of the Act would prevent any rights being exercised in respect of the property.
So, what can you do?
Because of this, it is critical that your lease contains a carefully drafted clause that renders occupation unlawful from the date that a tenant company is placed under business rescue. This is necessary because section 134 applies only to lawful possession.
If, in terms of your lease agreement, business rescue itself renders possession by a tenant unlawful, then you as a landlord will be free to exercise your rights in respect of their properties. It is thus possible to powerfully mitigate the potentially prejudicial effect of section 134 of the Companies Act.
If you’d like to know more about business rescue and how we can help you, please do get in touch.
Business Rescue Exchange (BRX): +27 11 100 2552 / [email protected]
Gunston Strandvik Mlambo Attorneys: +27 21 702 7763 / [email protected]