• +27 76 854 6605

CASE NOTE ON VAN ZYL V AUTO COMMODITIES (PTY) LTD (279/2020) [2021] ZASCA 67 (3 JUNE 2021)

CASE NOTE ON VAN ZYL V AUTO COMMODITIES (PTY) LTD (279/2020) [2021] ZASCA 67 (3 JUNE 2021)

  1. In the case of Van Zyl v Auto Commodities (Pty) Ltd (279/2020) [2021] ZASCA 67 (3 June 2021), the Supreme Court of Appeal had to settle the debate of whether or not the surety remains liable for the debt after a successful implementation of the business rescue plan.
  2. In this case Mr Van Zyl (“the appellant”) signed as surety on behalf of the company for the goods supplied on credit to it by the respondent. A year later, the company was placed under business rescue. The business rescue plan was adopted and successfully implemented. The respondent received a portion of its debt from the company. After business rescue proceedings were terminated after successful implementation, the respondent issued summons against the appellant in his capacity as surety for the remaining balance of the debt.
  3. The appellant in his plea denied being liable to the respondent, he argued that in terms of section 154(2) of the Companies Act 71 of 2008 (the “Act”,) when the business rescue plan was successfully implemented, he was released from the debt because suretyship is an accessory obligation. The court therefore had to determine whether the appellant was released from liability when the business rescue proceedings were terminated.
  4. Section 154(2) of the Act provides that if a business rescue plan has been approved and implemented, a creditor is not entitled to enforce any debt owed by the company immediately before the beginning of the business rescue process, except to the extent provided for in the business rescue plan. The business rescue plan in this matter provided that the successful finalisation of business rescue proceedings will only be achieved upon adoption of the business rescue plan in terms of which the company will be released from the payment of some of its debts.
  5. The appellant argued that the words ‘creditor is not entitled to enforce the debt to any extent beyond that provided by the business rescue plan’ means debt is discharged and no longer exists.
  6. The court started by analysing the difference between section 154(1) and 154(2) of the Act. The court held that section 154(1) refers to the discharge of some or all of a debt and requires that the creditor should have ‘acceded’ to such discharge. In terms of section 154(2), creditors whether they have ‘acceded’ to the arrangement or not, they cannot enforce their claims against the company except to the extent provided for in the plan.
  7. The court stated that the appellant’s interpretation of section 154(2) of the Act was incorrect. The court held that section 154(2) qualifies the inability to enforce the debt with the words 'except to the extent provided for in the business rescue plan', it does not exclude enforcement of the whole debt, but restricts it to the benefits provided for in the business rescue plan.
  8. The court stated that it has been a long principle of our law that a discharge of the principal debtor does not liberate the surety if the remedy against the surety is expressly reserved, because in that case the discharge is not an absolute release but is merely a pactum de non petendo(an agreement not to sue).
  9. The court held that the business rescue plan in this case did not mention claims by creditors against sureties, or the exercise of rights of recourse by sureties against the company. Therefore, since section 154(2) is also silent on this issue, it is difficult to ascertain the basis which the appellant contended that the statutory inability to sue the company was inconsistent with the continued existence of a right of recourse against it by the surety. The court further stated that the fact that some creditors may pursue the balance of their claims against sureties, who will have a right of recourse against the company, does not negate the purpose of business rescue.
  10. The further held that although a principal debtor’s discharge from liability ordinarily releases the debtor’s surety, the accessory nature of a surety’s liability is not so rigidly applied in our law as to preclude some derogation by way of agreement between the creditor and the surety. The court dismissed the application with costs on the basis that section 154(2) of the Act only precludes creditors from pursuing the company after successful implementation of the business rescue plan but does not affect or extinguish the liability of a surety for the debt.
  11. It is now settled that the provisions of section 154(2) of the Act does vary the common law principles relating to suretyship agreements. Furthermore, it is now settled that successful implementation of the business rescue plan will not release the surety from their obligations as co-principal debtors.

 

TMA Global on Twitter