n Stellenbosch Law Review = Stellenbosch Regstydskrif - Averting liquidations with business rescue : does a section 155 compromise place the bar too high?

Volume 25, Issue 3
  • ISSN : 1016-4359
  • E-ISSN: 1996-2193



The Companies Act 71 of 2008 provides in sections 128-155 (Chapter 6) for "business rescue and compromise with creditors", which deals primarily with the "business rescue" of companies. The compromise mechanism, contained in section 155, is distinct from the sections dealing with business rescue, which provide for a fairly comprehensive procedure for ultimately developing and implementing a plan to rescue the company from its financial distress under the supervision of a business rescue practitioner. Section 155, on the other hand, provides for the restructuring of the financial affairs of a company without the involvement of a business rescue practitioner, allowing a company to propose a compromise or arrangement to its creditors in a form that is almost identical to a business rescue plan.

Unlike business rescue, the idea of entering into a compromise or arrangement with creditors is not new to South African company law. The Companies Act 61 of 1973 provided for two mechanisms for this kind of informal restructuring - a "compromise" and an "arrangement" (referred to as a "scheme of arrangement" when used in conjunction). To properly understand the utility of the new section 155 compromise, one must consider the historical background to the concept of compromise in this context, and the way in which these two mechanisms were applied under the previous legislation.
This article will examine in some detail the nature of compromises and schemes of arrangement under the Companies Act 1973 and critically evaluate the new section 155 compromise as an alternative to the business rescue procedure in the Companies Act 2008. It is argued that although the new compromise shows promise, it is in need of some fine-tuning by legislative amendment in order for it to be a viable option for furthering the restructuring of the affairs of companies in financial distress in the context of Chapter 6.

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