1887

n Business Tax and Company Law Quarterly - When statutes collide - The application of section 45 of the Companies Act to a bank under curatorship in terms of section 69 of the Banks Act

Volume 6, Issue 1
  • ISSN : 2219-1585

Abstract

The main issue with which the article is concerned is whether the provisions of section 45 of the Companies Act are applicable to a registered bank which has been placed under curatorship pursuant to section 69 of the Banks Act.


Section 45 of the Companies Act governs the provision of loans and other financial assistance by a company, amongst others to a related or interrelated company. There are stringent requirements that must be satisfied before such financial assistance may be validly given. The board must pass a resolution authorising the financial assistance pursuant to a special resolution of shareholders approving such assistance, and the board must be satisfied that immediately after the provision of the financial assistance the company will satisfy the solvency and liquidity test and further that the terms on which the assistance is provided are fair and reasonable to the company.
In terms of section 11(1) of the Banks Act only public companies that are registered under the Act may conduct the business of a bank. Banks are therefore also companies and are, in general, subject to the provisions of the Companies Act to the extent that such provisions are not inconsistent with any provision of the Banks Act, according to section 51(1) of the Banks Act, save that certain specified provisions of the Companies Act (not here relevant) will not apply to banks.
Banks are therefore normally required to comply with section 45 when they provide financial assistance covered by its provisions. But section 69 of the Banks Act provides for banks to be placed under curatorship in certain circumstances when they are in financial difficulty. On the appointment of a curator, the management of the bank concerned vests in the curator, and any other person vested with its management is divested thereof. Thus a bank under curatorship lacks a crucial characteristic of a company, viz a board of directors who are empowered to run its business.
Where the bank's curator wishes to render financial assistance to a related company (such as a subsidiary) if this is possible, and he/she believes this to be necessary in the best interests of the banking group, its creditors and employees, is the curator bound to follow the prescripts of section 45 of the Companies Act? The article investigates the effect of curatorship on the bank in the light of the relevant provisions of the Banks Act and their impact on the applicability of section 45 of the Companies Act. The conclusion of this exercise in statutory interpretation is that the requirements of section 45 are inconsistent with the powers vested in the curator and the underlying purpose of section 69 of the Banks Act and accordingly that, as contemplated in section 51(1) of the latter statute, section 45 of the Companies Act is inapplicable to a bank which is under curatorship. Support for this view is also drawn from relevant case law.
The article also examines the effect of section 5(4) of the Companies Act which makes provision for what is to happen if there is any inconsistency between a provision of the Companies Act and a provision of any other national legislation. Section 5(4)() requires that any inconsistent provisions must be applied concurrently to the extent that it is possible to apply and comply with one of the inconsistent provisions without contravening the other. Section 5(4)()(i)() expressly provides that to the extent that it is impossible to apply or comply with one of the inconsistent provisions without contravening the second, any applicable provision of the Banks Act shall prevail. The article discusses the application of these unusual statutory provisions and concludes that whether section 5(4)() or 5(4)() applies, section 45 would not apply to the posited financial assistance given by the bank under curatorship to a related company, provided that there is a proper exercise of the curator's powers with the approval of the Registrar of Banks.
The article further discusses the ancillary issue as to whether such financial assistance by the bank under curatorship to a related company that is involved in business-rescue proceedings would qualify as post-commencement financing for purposes of section 135(2) of the Companies Act and thereby enjoy the 'super preference' conferred on such financiers under section 135(3). It is concluded that genuine financial assistance advanced post-commencement by a bank under curatorship to such a company would indeed fall within the ambit of post-commencement financing as contemplated by section 135(2) read with section 135(3)().

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/content/btclq/6/1/EJC172218
2015-03-01
2019-10-16

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