By: Pat Pattinson
It is a well-known fact that certain debts prescribe after a period of 36 months, it is further accepted that this is not for all debt and that a range of requirements exist for this prescription to start.
For the purposes of this debate article, let’s assume that the debt considered is one that would prescribe after 36 months and that there has been no interruption in this case.
Let’s now consider that a business owes this debt to a creditor who has taken no action to collect for 30 months into the 36 month period and as such has a period of 6 months left to take the required action to interrupt prescription.
The debtor being Business A, duly files for business rescue in terms of Chapter 6 of the Companies Act in month 30 and the creditor being Business X now needs to know what will happen to its debt during business rescue.
It is of common cause that Business A now enjoys the protection as provided for in Section 133 of the companies act, resulting, at face value, that Business X cannot institute legal action against the business whilst it is in business rescue.
The question is now whether or not Business X’s debt will prescribe during business rescue if the process takes longer than 6 months and the practitioner does nothing to acknowledge this debt.
1) Business X cannot enforce or take legal action as a result of Section 133, “except –“ Section 133 (a), (b), (c), (d), (e) and (f) provides certain exceptions, including but not limited to the practitioner providing consent or with the leave of the court, thus clearly Business X is not completely without options.
2) In addition to this we must consider section 13 of the Prescription Act 68 of 1969 that provides for “Completion of prescription delayed in certain circumstances”. In this section it provides for certain instances where the period of prescription is interrupted.
This section does refer to instances of insolvency and liquidation. It does however not refer to Business Rescue. Here the argument could be that insolvent circumstances and liquidation proceedings could include business rescue, after all, Corporations are now covered in the Companies Act. The defence here is that in no instance are liquidation proceedings seen in the same light as liquidation proceedings and that if Section 13 would have rather included instances of Judicial Management, this could have been extending to business rescue, but it does not.
Based on the above, it is reasonable to assume that a prescription period would continue during business rescue, and that should a creditor not receive consent from the practitioner to take actions to prevent the debt from prescribing, they would have to approach the court for such leave to act.
This is simply an article written for the purposes of debating the matter and I look forward to comments about this topic, but let's keep it legal.
“The views and opinions expressed in this article belong solely to the author and are not in connection with or associated with his business, organization, committee, association or other group or individual. The contents of this article are for informational purposes only and are not intended to be legally binding or constitute advice in any manner whatsoever and is provided without prejudice.”