Aspects Of Mercantile Law PDF

ASPECTS OF MERCANTIL E LAW ASML5122  Learning outcomes: Discuss the effect of sequestration of a partnership with specific reference to: Liquidation of the partnership assets The effect of sequestration on the separate estates of the partners; LO11: Define the following c...

ASPECTS OF MERCANTIL E LAW ASML5122  Learning outcomes: Discuss the effect of sequestration of a partnership with specific reference to: Liquidation of the partnership assets The effect of sequestration on the separate estates of the partners; LO11: Define the following concepts: Financially distressed. Affected person. Business rescue proceedings. LO12: Discuss the meaning and purpose of business rescue. LO13: Explain the ways in which business rescue may be initiated; LO14: Discuss the role of the business rescue practitioner; LO15: Explain the potential outcomes of business rescue. LO16: Explain the concepts compromise and composition  Learning outcomes: LO16: Discuss the role of the legal practitioner in advising clients in their capacity as debtors and creditors. LO17: Explain the role of the legal practitioner with respect to winding up proceedings and dissolution of partnerships LO18: Discuss Litigation against directors to hold them personally liable for losses with respect to: Damages Delinquency  All the partners must appear before the court. The application for the sequestration of the estate of the partnership usually also contain the application for the sequestration of the separate estates of the Sequestratio partners (remember, because the partners are personally liable for the debts of the partnership). n of partnerships BUT! If a partner is sequestrated it does not automatically mean that the partnership must be sequestrated. But it will lead to the dissolution of the partnership as that partner must withdraw his share. An individual partner may be rehabilitated (10 years or by application). But the partnership can never be rehabilitated.  Where the partners chose to end the partnership. They can come to an agreement on Winding-up certain things like the obligations still due (ex. Contracts for services). of Usually the original partnership partnerships agreement already includes a clause that applies to the termination of the partnership. Relationship has broken Reasons for down = no trust anymore terminating the Deadlock and they don’t see themselves doing partnership: business with oneanother  The assets of the partnership must be liquidated once contracts have been fulfilled, debts collected and paid. Winding-up of If there is anything left, this gets paid to the partners in partnership proportion to their original contribution (cont.) The process can be formalised by an application to dissolve the partnership and to appoint a liquidator.  What is meant by the term ‘business rescue proceedings?’ Business rescue aims to facilitate the rehabilitation of a company that is "financially distressed" by providing for: the development and the temporary supervision of implementation of a business the company and management rescue plan to rescue the of its affairs, business and company by restructuring its property business, property, debt, affairs, other liabilities and by a business rescue equity. practitioner, a temporary moratorium ("stay") on the rights of claimants against the company or in respect of property in its possession What is the purpose of business rescue proceedings? To facilitate and appears that is in the unlikely to be financial rehabilitation able to pay its distress of a company debts or appears to as they within the become become due following 6 insolvent in and payable months that same time  What does it mean for a person to be ‘financially distressed?’ it appears reasonably unlikely that the company will be able to pay all of its debts as they become In due and payable for the reference upcoming six months to a particular or it appears to be company reasonably likely that the company will become insolvent within the immediately ensuing six months  How can an ‘affected person’ be defined? Affected person A Sharehold Employee registered Creditor (or their er representative) trade union  What two methods can be used to start business rescue proceedings? OR By company By court resolution order Who is responsible for initiating each of these methods respectively? Director s Shareholder s Employe es Trade Unions  Who is the business rescue practitioner? “business rescue practitioner” means: a person appointed, or two or more persons appointed jointly, to oversee a company during business rescue proceedings. A business practitioner must be a member in good standing of a legal, accounting or business management profession, and should have a strong financial background, no conflicts of interest with the business, accredited by the commission and must be licensed by the commission.  What are the duties of the business rescue practitioner? Take Take full control of the company and its affairs Delegate Delegate powers to a director or management Replace Replace persons in management as he sees fit Inform the relevant authorities that the company is under business Inform rescue Investigate Investigate the affairs of the company  What are the duties of the business rescue practitioner? Cont. Draft Draft and implement a business rescue plan If it takes longer than 3 months (or within time Period allocated by court) draft a report on the progress of proceedings and send copies to all relevant parties. If BRP concludes that there is no prospect of rescuing the company – he must apply to court for an order discontinuing the business rescue and placing the company in liquidation. If the company is no longer financially distressed the BRP must apply to court for a termination order or file a notice of termination depending on how the order was initiated. How are business rescue proceedings terminated? a court order on application by an affected person or by the Business Rescue Practitioner (BRP) by a notice of termination filed by the BRP with the Commissioner (CIPC); or by a business rescue plan that has been adopted and substantially implemented or rejected without any further steps being taken. Effects of business rescue: Stay on legal proceedings Property may only be disposed of in very limited instances Employment contracts generally will continue Practitioner may suspend contracts that the company was party to before the proceedings began Practitioner has the power to exercise full control over the company Each director must continue his functions as such, subject to the instructions of the business rescue practitioner. Legal Practitioner for the debtor: When would a debtor contact you? The petitioning creditor serves an application for an interim order on the debtor. The debtor wants a voluntary sequestration. LP acting for debtor in voluntary sequestration: An application for voluntary sequestration must have a founding affidavit. Debtor must indicate in this that his liabilities exceed the value of his assets. It is common for the LP to work with an evaluator/appraiser to establish the value of the debtor’s property. Debtor must provide LP with details of debts (statements, letters of demand, summonses etc). This is annexed to the affidavit. LP acts for debtor in voluntary sequestration (cont) Founding affidavit must set out: Details of the applicant debtor and the application Background that led to insolvency Financial position of the applicant and supporting evidence Advantage to the creditors Parties who will be affected by the sequestration (they must also be served with a copy of the application and affidavit) LP acts for the debtor in voluntary sequestration This application is in essence an ex parte application. As the applicant’s financial position is only really known by him, he must make a full disclosure to court in good faith. The debtor cannot just say that this application would be an advantage for the creditors, when it in fact will only give him some relief from harassing creditors. Court can deny the relief sought if the application was not brought in good faith. LP act for the CREDITOR: When will the Creditor contact the LP for assistance? The creditor requires an application for the compulsory or even friendly sequestration against the debtor. The creditor is aware of the debtor’s notice of surrender and requires advise. LP act for the CREDITOR: Creditor’s affidavit must set out: Details of the applicant, creditor and the application Relationship with the debtor, that he has a claim against the debtor and the facts that led to the act of insolvency Available knowledge of the financial position of the debtor Allegation of advantage to creditors Parties who will be affected by the sequestration (they must also be served)  Can directors be held personally liable for the debt? (Think about damages and declaring a director delinquent)