The current understanding from the Act as well as best practice regarding the ranking order priority of PCF, is as follows:
1. The practitioner’s remuneration and costs/ disbursements are paid first right at the top in terms of section 135(3), including all other costs from business rescue proceedings.
2. All employees who have worked since commencement of business rescue (in terms of the Act sections 134-135), are considered super-priority post-commencement financiers. This provision is unique to SA.
3. Secured lenders or creditors who had security in place prior to business rescue or secured post commencement financiers in the order it was granted. (There is little clarity about whether secured creditors will rank ahead of PCF lenders.) 4. Insolvency creditors. 5. Unsecured PCF lenders claims, in the order they were incurred.
6. All other unsecured creditors (includes employee remuneration before business rescue).
The above ranking order raises concerns for new distressed investors, as they would rank after secured lenders and preferred creditors, and therefore have a lower probability of getting their money back. Therefore even if they provide PCF, they will be lumped in with the remaining pool of unsecured creditors, which provides no advantage or incentive for them to advance PCF.
One of the reasons that this may have been instituted in the Act is that should this ranking change, the creditors who were secured beforehand are prejudiced, as their asset base is depleted. Should financiers advance equity funding, their right to PCF is also lost. The order of ranking of PCF in SA is not the same in the USA and Canada, where post- commencement financiers have a super-priority claim above other lenders/creditors. Therefore until the Act is amended or case law developed to prioritise PCF above other creditors the PCF industry will not develop.