Maritime claims can oust business rescue proceedings

Creditors with maritime claims can avoid the moratorium on legal proceedings against a company in business rescue – but only if they act timeously.

In the mfv Polaris case, a fishing vessel was arrested at Cape Town by several maritime creditors. The owner subsequently tried to enter into business rescue proceedings on the basis that Section 133 of the Companies Act provides a general moratorium on proceedings against a company in business rescue. They believed that entering business rescue would stay the maritime arrests and the sale of the vessel in terms of the Admiralty Jurisdiction Regulation Act (“the Admiralty Act”).

The Admiralty Act allows a court to order the sale of any maritime property that has been arrested. This usually happens when the owner fails to defend the claims or abandons the vessel. The sale proceeds are placed in a fund. Creditors with maritime claims lodge their claims against the fund which are considered by a referee who determines their ranking in terms of the Admiralty Act.

Section 10 of the Admiralty Act ring-fences maritime property which has been arrested or attached and prevents it from forming part of insolvent, liquidated or judicially managed estates. The admiralty sale and claim procedure is also not affected by the subsequent sequestration, winding up or judicial management of the owner of the property. In effect, maritime creditors enjoy a statutory preference over non-maritime creditors (if they act quickly).

In the mfv Polaris, the court had to determine how the moratorium on litigation imposed by the Companies Act must be read with Section 10 of the Admiralty Act which specifically provides that maritime property that has been arrested falls outside of the assets to be vested in or administered by a trustee, liquidator, judicial manager or similar person. The court firstly determined that Section 10 extends to a business rescue practitioner.

Therefore if maritime property has been arrested and the debtor (who owns the maritime property) goes into business rescue, then the maritime property does not fall under the control of the business rescue practitioner and maritime creditors are entitled to proceed by way of the judicial sale procedure set out in the Admiralty Act.

However, if the debtor goes into business rescue before the maritime property is arrested, then the moratorium on proceedings against a company in business rescue will apply and the potential maritime creditors will have to comply with the rules of business rescue.

If a foreign debtor goes into the equivalent of business rescue in a foreign jurisdiction then the ring-fencing in terms of Section 10 of the Admiralty Act will still apply unless the foreign proceedings are recognised by a South African court (prior to an arrest in South Africa), which is not a certainty.

If you have a maritime claim against maritime property in South Africa and you think the owner may go into business rescue, you need to arrest first to protect your maritime claim or you will be stuck with business rescue in terms of the Companies Act.

Carol is a senior associate at Norton Rose Fulbright in the admiralty and transport team based in Durban. She focuses on shipping, admiralty and international trade issues as well as marine, transport & logistics insurance.