A recent court decision from the Supreme Court of Appeal has tackled the issue of fees for business rescue practitioners when a company is facing liquidation.

In the case of Mazars Recovery & Restructuring (Pty) Ltd vs. Montic Dairy (Pty) Ltd (which is now in liquidation), the court looked into what happens to the fees paid to business rescue practitioners when a company ends up in liquidation.

To put it simply, Montic Dairy started business rescue proceedings in November 2015. However, on April 14, 2016, Mazars, a creditor of Montic Dairy, filed a liquidation application against the company. During May and June 2016, the business rescue practitioners of Montic Dairy received their fees. Finally, on June 14, 2016, Montic Dairy was placed under liquidation. It's worth noting that the payments to the business rescue practitioners were made after the date of liquidation, which was April 14, 2016.

Now, here's where it gets a bit tricky. According to Section 341(2) of the Companies Act 61 of 1973, any dispositions of property made by a company after it starts winding up are considered invalid, unless the court says otherwise. This rule is there to make sure that companies being wound up don't dispose of their assets in a way that hurts their creditors. This case, however, delved deeper into how Section 341(2) of the 1973 Act applies when it comes to business rescue, as outlined in Chapter 6 of the Companies Act 71 of 2008.

In this case, the business rescue practitioners argued that they should be allowed to keep the fees they received after the liquidation date. They claimed that they needed to continue their work until the liquidation order was granted, and their fees shouldn't be seen as ‘dispositions’ under Section 341(2) of the 1973 Act. But the Supreme Court of Appeal didn't buy this argument and stuck to the principles of Section 341(2) of the 1973 Act.

It's essential to note that the business rescue practitioners did not ask the court to use its discretion under that section, so we don't know if, in a similar situation, the court might allow such payments when using its discretion.

The passing down of this judgment has of course not been welcomed by business rescue practitioners and now allows liquidators to bring applications against business rescue practitioners for the repayment of fees that were paid to them post the effective date of liquidation.

However, it's not just about keeping an eye on the expiration date of milk when it comes to these fees during this period. Business rescue practitioners have other options too. They can request the court to use its discretion under Section 341(2) of the 1973 Act to avoid declaring these payments invalid. Alternatively, they can submit a claim, which enjoys preference from the free residue available in liquidation proceedings.

This judgment is important because it highlights how Section 341(2) of the 1973 Act is upheld against Chapter 6 of the 2008 Act.