Reclaiming the Landlord’s power in Business Rescue

Section 133 of the Companies Act 71 of 2008 (“the Act”) makes provision for a moratorium on legal proceedings and enforcement action against a company, or in relation to any property belonging to a company, or lawfully in its possession, being commenced or proceeded with in any forum, during business rescue proceedings, save for certain exceptions.

This presents the obvious question for Landlords as to when they can institute legal proceedings or enforcement actions against a Tenant under business rescue who is in default of their rental obligations.

While the moratorium in the past has been considered as all-encompassing and a bar against instituting legal proceedings and enforcement action during the business rescue process, the case of Kythera Court v Le Rendez-Vous Cafe CC and Another 2016 (6) SA 63 (GJ) has clarified that it does not apply to all legal proceedings and enforcement actions.

This judgment specifically addresses the issue of whether and when a Landlord may evict a Tenant company which has initiated business rescue proceedings and is in arrears with its rental (or for that matter, is in breach of the lease in general).

In short, the judgment found that during business rescue proceedings –

  • Ejectment proceedings may be brought when:
    • the business rescue practitioner has not suspended the obligations of the Tenant under a lease (in terms of s 136(2)(a) of the Act); and
    • the Landlord has validly cancelled the lease due to non-payment,

Note: When the above two conditions are met it will result in the Tenant being placed in the position of an unlawful occupier.

  • The general moratorium contained in s 133(1) of the Act, does not include legal proceedings for ejectment, where the Tenant (in business rescue) is in unlawful possession of the property.

This judgment provides a guideline to Landlords when dealing with potentially defaulting Tenants or those who are about to enter business rescue, namely: placing the Tenant in the position of an unlawful occupier.

The following pre-emptive steps should be considered by Landlords to minimise their risk:

  • Inclusion of resolutive conditions in Lease Agreements as a precautionary measure;
  • Inclusion of unilateral cancellation clauses with short notice periods in the event of default in Lease Agreements; and
  • Ensuring proper cancellation of the Lease Agreement before letters of suspension are sent by the business rescue practitioner.

The business rescue process can be difficult for Landlords and is fraught with legislative requirements and pitfalls. We therefore suggest making contact with a professional who is knowledgeable about the business rescue process in order to ensure your rights and business are adequately protected.

Written By:
Caitlin Gottschalk
Bcom Comms LLB