A Critical Re-Examination of the Remuneration of Business Rescue Practitioners after Failed Business Rescue Proceedings

Abstract

The first half of the 2010s marked the dawn of a new corporate rescue mechanism in South Africa. In May 2011, business rescue replaced a remarkably unsuccessful rescue procedure in the form of judicial management in a bid to improve the rescue of financially ill companies. The Diener v Minister of Justice and Correctional Services 2019 4 SA 374 (Diener) case was not a striking exception to the assumed promissory import and apt interpretation of business rescue provisions. The reality of the current rescue mechanism is that it has not only benefited significantly from judicial pronouncements but sparked lively debate about its obscure and poorly drafted provisions. In Diener, the Constitutional Court had to provide clarity on the status of unsettled remuneration and expenses of a business rescue practitioner (practitioner) after business rescue proceedings were converted into liquidation proceedings. The Constitutional Court held that a practitioner has no super-preferential claim to their unpaid remuneration and expenses against the insolvent estate. The finding of the Constitutional Court also means that a practitioner must prove a claim for unpaid remuneration and expenses against the insolvent estate. However, this current order of preference is not barren of criticism based on policy considerations and stakeholder relations under business rescue. This note argues that the current ranking of the practitioner’s unpaid claim undermines the integrity and effectiveness of business rescue and proposes a legislative amendment to restructure the current order of the practitioner’s post-rescue ranking. This note further investigates the possibility of exempting a practitioner from proving a claim against the insolvent estate. By extension, this note extrapolates arguments relating to the oversight of a practitioner’s fees to justify the exemption of proving a claim against the insolvent estate. Ultimately, this note proposes policy-based recommendations to restructure and streamline the practitioner’s post-rescue remuneration framework.