In the recent case of Caratco (Pty) Ltd v Independent Advisory (Pty) Ltd the Supreme Court of Appeal heard an application for leave to appeal against a decision of the High Court in which the High Court had ordered Caratco to pay a success fee to Independent Advisory for the successful business rescue of Galaxy Jewellers (Pty) Ltd.
Caratco holds the controlling interest in and is a creditor of Galaxy Jewellers and had argued in their application for leave to appeal that section 143 of the Companies Act 71 of 2008 (“the Act”), which deals with the remuneration of a business rescue practitioner by a company under business rescue proceedings, is the only means by which a business rescue practitioner can be remunerated for her services in business rescue proceedings. Caratco had further argued that in terms of section 75(3) of the Act, a business rescue practitioner may not enter into any special fee agreement with a third party and that such agreement also fell foul of section 76 of the Act, which prohibits a director (and business rescue practitioner) from gaining an advantage for himself from his position. Lastly, Caratco had claimed that the agreement for a special fee payable to a business rescue practitioner by a third party creditor (not the company) was contrary to public policy as it subverted the democratic vote of the majority of the creditors who voted for the business rescue plan and that the payment of a success fee from a single creditor offended the business rescue practitioner’s duty of impartiality and independence towards the company under business rescue.
The SCA summarily rejected these arguments, holding that even if one accepted Caratco’s dubious proposition that section 143 of the Act was the sole basis by which business rescue practitioners may be paid, there are no indications in the section suggesting that an agreement that does not fall within its ambit is void. The SCA also held that Caratco had not pleaded why the business rescue practitioner’s conduct in concluding a success fee arrangement with it fell foul of the provisions of either section 75(3) or section 76 and that such arguments were therefore without merit. The SCA further held that Caratco’s arguments regarding public policy were utterly without any merit particularly because Caratco had specifically requested the business rescue practitioner to delete the proposed success fee from the plan so that it could be dealt with in a separate agreement. Caratco’s application or leave to appeal was accordingly dismissed with costs.
The “take home point” from this case is therefore that the SCA has confirmed there is nothing in the Act that prevents a business rescue practitioner from entering into a special fee agreement with a third party creditor of a company under business rescue proceedings which falls outside of the ambit of section 143 of the Act.
