Judge orders sale of arrested ship
IN THE MFV Polaris case, Southern
African Shipyards applied to sell the fishing vessel in terms of section 9 of the Admiralty Jurisdiction Regulation
Act (Ajra). A rule nisi was granted and the matter opposed on the return day.
In a judgment on April 18, the key issue was whether a judicial sale could be ordered when the company that owned the property “under arrest” had been placed under business rescue in terms of the 2008 Companies Act.
The respondents argued that in terms of section 133 of that act, a general moratorium was placed on all legal proceedings. The applicant contended that section 10 of the Ajra excluded property arrested in terms of a maritime claim from assets vesting in a trustee in insolvency or administered by a liquidator or judicial manager.
Southern African Shipyards was instructed to effect repairs, which were completed by March 2016. In April, the owners advised they could not pay. The shipyard refused its release. When debt repayment talks failed, the vessel was “arrested” in October. Its cargo of fish oil was seized in November. The vessel was also under arrest by other creditors. Most of the crew had been repatriated (unpaid) and it was in danger of deteriorating.
Section 9 of the Ajra gives the court wide discretion to order the sale of arrested property. Section 10 has not received much attention from our courts but the court acknowledged that from the few decisions available, its general purpose was to create a statutory preference for creditors with maritime claims.
It was clear the courts interpreted the provisions of the
1973 Companies Act, the prevailing insolvency law and those of the Ajra as capable of existing alongside one another. The provisions of chapter 14 of the 1973 Companies Act dealing with winding up and liquidation have been retained in item 9 of schedule 5 of the Companies Act while those relating to judicial management have not.
The issue, however, was that while section 10 of the Ajra still contains the phrases “judicial manager” and “judicial management”, the words “business rescue” or “business rescue practitioner” do not appear. The Ajra predates the provisions of the Companies Act as it was promulgated in 1983. It has been accepted in several court decisions that the new regime of business rescue replaced the judicial management system. The judge stated that while it was routine for a judicial management order to stay proceedings, it was sensible to hold that reference to “judicial manager” in section 10 of the Ajra should be interpreted to have been replaced by a “business rescue practitioner” and “judicial management” by “business rescue proceedings”.
This was sensible, said the judge, because for judicial management to succeed, the company must be brought back to a state of solvency, while with business rescue even if solvency is not reached, improving the return to be received by creditors upon liquidation is also acceptable.
In the judge’s view, if the legislature saw fit to include a more onerous judicial management system in section 10, why would it exclude a less burdensome business rescue regime where both were aimed at reviving an ailing company?
The judge did say the legislature would do well to amend section 10 by replacing reference to judicial manager/ management with business rescue practitioner and business rescue proceedings.
The provisions of section 10 and section 133 of the Companies Act appear to conflict. One provides for a stay of proceedings, while the other doesn’t. The answer in getting around the conflict lies in the timing of the events sought to be protected by each of the statutes. In terms of section 10 of the Ajra, once maritime property was arrested, it is ring-fenced. It falls under the jurisdiction of the Ajra and must be dealt with in accordance with that statute.
The judge concluded it was clear that admiralty jurisdiction is built on a privilege conferred upon maritime claims. If it were found that business rescue proceedings were not part of section 10, that could have undesirable consequences. In view of the relatively easy procedure to place a company under business rescue, companies whose properties have been arrested and who, in many instances, encounter financial difficulties, would easily place themselves under business rescue proceedings, with the hope of avoiding the Ajra consequences.
The judge was of the view that this would lead to absurdity, particularly in cases where the vessels have been under arrest for months. This could lead to abuse of process by ship owners who have no hope of rehabilitating the company but wish to stall the process entailed in the Ajra.
The judge therefore found section 10 of the Ajra applies to business rescue practitioner/business rescue proceedings in the same extent as it did to a judicial manager/management. In proceeding to order the sale of the vessel by judicial auction, the judge said even if he were to find that these proceedings were stayed by operation of section 133 of the Companies Act, that would not result in the release of the ship. It would remain under arrest and would deteriorate further.
The interim order for the sale was made final.
Govender is a senior associate at Livingston Leandy.