In November 2016, the Gauteng High Court (Pretoria) rejected an application from the SA Property Owners’ Association to amend the Companies Act to give landlords preference over other creditors in business rescue proceedings. Now, says a Financial Mail report, the first substantial amendments to the Companies Act since it was implemented in 2011 – released for comment at the end of September – include a proposal that would give landlords the very rights that were strongly rejected by the High Court.

The report says the High Court action was geared to ensuring rental costs – often including rates, water and electricity – incurred when a company is in business rescue are covered ahead of the claims of other creditors. But if the new Companies Amendment Bill is accepted, it could up-end the business rescue process, introduced in 2011.

‘This opens the door to all the other suppliers who will demand the same sort of preferential rights,’ said one legislator. For one thing, he argued, the proposed amendment would ensure landlords leapfrog all other creditors when a company hits the skids.

‘It raises the issue of moral hazard and encourages landlords to enter into contracts with dubious tenants,’ he said.

Webber Wentzel’s Madelein Burger reportedly told the FM: ‘It is only fair that landlords be protected. A business, even if under business rescue, needs premises to trade from, and unscrupulous business rescue practitioners would suspend payments to landlords, sit in the premises, operate the business and then turn a company over to liquidation but pay their own fees, partly out of what was due to the landlord.

Burger added the proposed amendment is a reflection of what already happens when landlords deal with ethical business rescue practitioners, who generally pay landlords anyway.

Full Financial Mail report

Draft Companies Amendment Bill, including call for comment