The cur­rent un­der­stand­ing from the Act as well as best prac­tice re­gard­ing the rank­ing or­der pri­or­ity of PCF, is as fol­lows:

Finweek English Edition - - INSIGHT: LOCAL -

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.

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