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Sureties cannot hide behind the moratorium granted to companies in business rescue

22 November 2011 Julian Jones, Director, and Mpeo Tlhapi, Candidate Attorney, Dispute Resolution practice, Cliffe Dekker Hofmeyr

In the judgment of Investec Bank Ltd v Andre Bruyns handed down last Monday, Rogers AJ set the record straight on the interpretation and application of sections 133(1) and (2) of the new Companies Act, the result being that a surety cannot hide behind the shield of the statutory moratorium, or suspension, provided to principal debtors in business rescue.

Investec Bank launched an application for summary judgment against Mr Bruyns based on various claims, including a claim for money lent to Bruyns on his personal bank account and in respect of suretyships he had executed in Investec's favour. Regarding the claims against Bruyns as surety, Bruyns argued that the court should not give section 133(2) its plain meaning.

He believed this would render it "tortologous, because section 133(1) already provides for a moratorium in respect of claims against the company, and a claim against a company in its capacity as a surety is simply one instance of the claims that would in any event fall within section 133(1)."

Therefore, in terms of the Bruyns' interpretation, during business rescue proceedings, a suretyship given by A in favour of B for the indebtedness of the company, where the company is in business rescue, may not be enforced by B against A without the court's leave.

The court, however, stated that this argument could not hold water. It was held that section 133(2) is not a repetition of section 133(1) as was suggested by Bruyns, and that the section "is so explicit that it is impossible to avoid its plain meaning. It refers to a surety by the company and to its enforcement by another person against the company”. In setting a precedent in the matter, the court dismissed Bruyns' reliance on the moratorium afforded to principal debtors under section 133(1).

It is trite law that a defence, which is purely personal to the principal debtor, may not be raised by the surety. Having regard to old authority and case law, including Standard Bank of SA Ltd v SA Fire Equipment (Pty) Ltd & Another 1984 and Worthington v Wilson 1918 TPD 104, Rogers AJ affirmed that restrictions on the enforcement of claims against parties under sequestration or liquidation fall under the ambit of defences which are purely personal to the principal debtor.

Rogers AJ concluded that the statutory moratorium in favour of a company that is undergoing business rescue proceedings is a defence in personam, and is a personal privilege or benefit in favour of the company only, explicitly excluding Bruyns from the use of the defence.

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