The Supreme Court of Appea (SCA) in Mashwayi Projects v Wescoal Mining confirms that post-commencement finance creditors have voting rights in South African business rescue.

Introduction

The SCA has handed down a groundbreaking decision in Mashwayi Projects (Pty) Ltd v Wescoal Mining (Pty) Ltd, reshaping the landscape of business rescue law in South Africa. At the heart of the case was a question that has long troubled practitioners: Do providers of post-commencement finance (PCF) have a say in whether a business rescue plan is adopted?

The SCA’s answer was unequivocal, yes. Post-commencement creditors are recognised as “creditors” under the Companies Act 71 of 2008, and their votes must be counted when a business rescue plan is put to the vote.

The Dispute

Business rescue proceedings rely heavily on post-commencement funding, without which many distressed companies would collapse. Yet the Act had not expressly clarified whether these funders were entitled to vote on rescue plans.

• The appellant’s argument: Excluding PCF providers would undermine the purpose of business rescue and discourage financiers from stepping in to support distressed companies. Section 7(k) of the Act requires that all stakeholder interests be balanced, including those of post-commencement creditors.
• The respondent’s argument: The term “creditor” should be restricted to pre-commencement creditors, in line with traditional insolvency principles. Since Sections 145, 150 and 152 of the Act did not expressly mention PCF creditors, they argued that their exclusion was deliberate.

The SCA’s Findings

The Court rejected the narrow approach urged by the respondents and ruled in favour of a purposive and inclusive interpretation:

1. Definition of “Creditor”: The ordinary meaning of “creditor” applies, namely, any person to whom a debt is owed. This includes post-commencement financiers.
2. Legislative Silence: The absence of explicit reference to PCF creditors does not mean exclusion. If the legislature intended to limit voting rights, it would have said so clearly.
3. Balancing Interests: Section 7(k) of the Act demands equal protection for all stakeholders. To deny PCF creditors a vote would tilt the process unfairly in favour of pre-commencement creditors.
4. Foreign Law: Comparisons with the U.S., U.K. and Australian systems were dismissed. South Africa’s business rescue framework has unique objectives and cannot be read down to mirror foreign regimes.

Consequence for the Rescue Plan

A pivotal outcome was that the business rescue plan in question was not validly adopted. The High Court had initially accepted the plan on the basis that only pre-commencement creditors could vote. The SCA overturned this, holding that PCF creditors should have been included in the vote. Once their votes were considered, the 75% threshold was not reached, meaning the plan was automatically rejected under Section 152(3)(a) of the Act.

Why This Case Matters

The Mashwayi Projects decision carries significant implications for business rescue practice in South Africa:

• Post-commencement creditors have enforceable voting rights. Their votes can determine the success or failure of a rescue plan.
• Business rescue practitioners must include PCF votes when calculating the results of a plan adoption meeting.
• Certainty for funders: PCF providers can now participate meaningfully in the process, encouraging much-needed funding for distressed businesses.
• Strengthening of Chapter 6: The ruling aligns with the purpose of business rescue to balance stakeholder interests and maximise the chances of recovery.

Conclusion

The SCA’s ruling in Mashwayi Projects v Wescoal Mining marks a turning point in business rescue law in South Africa. By confirming that post-commencement creditors are full voting participants, the Court has enhanced the attractiveness of business rescue as a restructuring tool and reinforced the principle of fairness in creditor participation.

For companies in distress, funders, and practitioners alike, the message is clear: post-commencement finance is not just vital, it carries legal weight.

At Mayet & Associates, we advise clients on all aspects of business rescue, insolvency, and restructuring. Whether you are a creditor, a funder, or a company in financial distress, our team can provide strategic guidance to protect your rights and ensure compliance with the Companies Act 71 of 2008.