Interpreting Statutes: The Mashwayi Case and the Voting Rights of Post-Commencement Creditors.

The Supreme Court of Appeal (SCA) in the Mashwayi Projects (Pty) Ltd and Others V Wescoal (Pty) Ltd and Others[1] (Mashwayi) recently handed down a unanimous judgment affirming that post commencement creditors to a business rescue proceeding, are entitled to vote prior to the adoption of the Business Rescue Plan as prepared by the business rescue practitioner (“Practitioner”).

This matter, to the majority of the “turnaround specialists” i.e business rescue Practitioners, arguably brings reform to the importance of Post Commencement Financing (PCF), into resuscitating a financially distressed company from the brim of existence. The Judgement is hailed as a groundbreaking rule which affords post commencement creditors, equal voting rights to pre-commencement creditors.

For a nugget for what this judgement means for the business rescue community as well as the stern reminder of applying meaning to words to interpret a statute, I explain the matter below.

Facts

The Court a quo to the Mashwayi matter was confronted with an application brought by the creditors of Arnot OpCo (Pty) Ltd[2] to declare that the business rescue plan was validly adopted by the majority of creditors in terms of section 152 (2) of the Companies Act[3] (“the Act”). Section 152 (2) of the Act provides that a preliminary business rescue plan will be validly adopted/approved if it is supported by (i) holders of at least 75% of the creditors voting interests and (ii) holders of at least 50% of the independent creditors voting interest.   

The application is brought pursuant to findings by the forensic accountant, appointed by the Practitioner, that there were errors in the tally of votes during the meeting of creditors. The errors being inter alia, the failure to consider emails revoking votes, and the double counting of certain votes. As a result, an inquiry may be necessary to determine whether the requirements of section 152 were successfully met, and if not, the Practitioner would then be obliged to set aside the preliminary business rescue plan and apply a subsequent voting process in accordance to section 153 of the Act.

Ruling

The preliminary business rescue plan afforded both pre-commencement creditors and post-commencement creditors voting rights to participate in the adoption of the preliminary business rescue plan. The findings by the accountant therefore, meant that the process outlined in section 153 of the Act, must also account for creditors who may have a pecuniary interest, post the commencement of the business rescue proceedings.

The Cout aquo had to resolve a legal question being whether on a thorough interpretation of chapter 6 (Business Rescue and Compromise with Creditors) of the Act, are PCF creditors entitled to vote on a preliminary business rescue plan.

The court a quo interpreted the word ‘creditor’ in the Act to exclude post-commencement creditors from voting on the proposed business rescue plan, reserving voting rights for pre-commencement creditors

The Court aquo ruling was appealed to the SCA on the determination of the proper interpretation the meaning of the word “creditor”, in as far as it extends to post-commencement creditors. Notwithstanding this, should the SCA uphold the interpretation as expressed in the Court aquo, it would mean that the section 153 process as adopted by the Practitioner, could be declared as invalid as the requirements of section 152 were not met and therefore the proposed business rescue plan must be rejected.

SCA Remarks

The arguments supporting the interpretation in the court a quo were based on policy considerations regarding the meaning of ‘creditor’ in the context of the Act and insolvency law.

The SCA’ s point of departure was to recite the remarks in Cool Ideas 1186[4] Constitutional Court (“CC”) judgement in examining the language used in the Act. The CC remarked that “a fundamental tenet of statutory interpretation (taking into account the purposive interpretation of the statutory provision; the context in which the provision exists, and its constitutionality) is that the words in a statute must be given their ordinary grammatical meaning, unless to do so would result in an absurdity[5].

The SCA found that the language used in the Act, and the context in which the word “creditor” is applied in chapter 6, is that the legislature did not intend to exclude post commencement creditors for purposes of business rescue. Instead, the value of a voting interest by a creditor, and the classification of their claims, is contingent upon the purposes, mechanisms and procedures pertaining to a specific statute[6]. For purposes of the Act, the legislature intended to balance the rights and interest of all relevant stakeholders and therefore, the word “creditor” extends to the PCF creditors taking into account the commercial realities of PCF[7]. Post commencement financing plays a crucial role in ensuring the efficient rescue and recovery of a financially distressed company.

Conclusion  

This judgment not only establishes a landmark decision on the voting rights of post-commencement creditors in business rescue proceedings but also reinforces the importance of careful statutory interpretation. Litigants must be judicious when attributing meanings from one statute to another.

[1] Mashwayi Projects (Pty) Ltd and Others v Wescoal (Pty) Ltd and Others (1157/2023) [2025] ZASCA 5 (29 January 2025).

[2]  Registration number: 2019/072282/07.

[3] Companies Act, 71 of 2008.

[4] Cool Ideas 1186 CC v Hubbard and Another [2014] SA 474 (CC).

[5] Ibid para 17.

[6] Ibid para 22.

[7] Ibid 26.