By Kaylen Moodley / Associate / Mooney Ford Attorneys
Business rescue remains one of the most significant mechanisms available under the Companies Act for the rehabilitation of financially distressed companies. However, it also raises an important question: in what circumstances can a business rescue practitioner incur personal liability for the debts of a company undergoing business rescue?
The Supreme Court of Appeal recently considered this issue in Africa Agriculture and Trade Investment Fund (SICAV-FIS) SCA v Francois Vienings N.O (74/2024) [2026] ZASCA 19. The judgment provides useful guidance on the threshold for imposing personal liability on a practitioner and clarifies the distinction between mere negligence and gross negligence in the context of business rescue proceedings.
The decision is of particular relevance to business rescue practitioners, creditors, legal practitioners, and professional indemnity insurers involved in restructuring and insolvency matters.
BACKGROUND
The matter concerned Mr Francois Vienings, who had been appointed as the business rescue practitioner of Cape Concentrate (Pty) Ltd, a company involved in the manufacturing and sale of tomato paste.
Cape Concentrate sourced its raw tomatoes from its sister company, Rumibyte (Pty) Ltd, which conducted the farming operations. When Rumibyte experienced difficulties in maintaining a consistent supply of tomatoes and was placed under business rescue, Cape Concentrate’s operations were significantly affected. The disruption to its supply chain resulted in financial distress, and Cape Concentrate was likewise placed under business rescue, with Mr Vienings appointed as practitioner.
The business rescue proceedings commenced on 16 May 2013. During the course of the rescue proceedings, Mr Vienings engaged with various potential funders in an effort to secure capital for the continued operation of the business.
Among other initiatives, he became involved in establishing the Tyefu Community Farming Trust, which was intended to procure funding from the Department of Agriculture, Forestry and Fisheries and the Land Bank. He also entered into discussions with Humansdorp Co-operation Ltd (HDC), a local agricultural co-operative which agreed to provide certain funding and facilities for farming operations.
During November 2013, the Africa Agriculture and Trade Investment Fund (AATIF) became involved as a potential funder. AATIF conducted a detailed due diligence investigation during February 2014, which included inspections of the factory and farming operations, an assessment of staff, and a review of the company’s financial statements and financial model.
Following this process, AATIF and HDC concluded an Investment Partner Agreement on 14 August 2014. Shortly thereafter, on 18 August 2014, AATIF and Cape Concentrate concluded a Facility Agreement in terms of which AATIF undertook to advance funding of US$8 million to finance the company’s tomato farming and processing operations.
HDC subsequently required Cape Concentrate to provide guarantees in respect of its loan exposure. These guarantees were issued by Mr Vienings in his capacity as business rescue practitioner.
On 7 May 2015, HDC called up the demand guarantees in the amount of R22 268 848.85, which was paid out of the loan funds advanced by AATIF.
Shortly thereafter, on 19 May 2015, Mr Vienings resigned as business rescue practitioner and was replaced by Mr Daniel Terblanche. Approximately six months later, Mr Terblanche concluded that the company no longer had reasonable prospects of rescue and Cape Concentrate was ultimately placed into liquidation.
In June 2019, AATIF instituted proceedings in the Eastern Cape Division of the High Court seeking an order declaring Mr Vienings personally liable for the debts of Cape Concentrate owed to AATIF, in an amount of R134 543 413.99.
AATIF alleged that Mr Vienings had acted recklessly, particularly by:
- failing to terminate the business rescue proceedings between August 2014 and January 2015, and
- utilising the loan funds to satisfy HDC’s guarantees.
The High Court dismissed the application, and AATIF subsequently appealed to the Supreme Court of Appeal.
THE LEGAL FRAMEWORK
Two statutory provisions were central to the court’s analysis.
The first was section 424(1) of the Companies Act 61 of 1973, which continues to apply in matters relating to the winding-up and liquidation of companies. The section provides that where the business of a company was carried on recklessly or with intent to defraud creditors, a court may declare any person who was knowingly a party to such conduct personally liable for all or any of the debts of the company.
The second relevant provision was section 140(3)(c)(ii) of the Companies Act 71 of 2008, which provides that a business rescue practitioner may be held liable under applicable law for the consequences of any act or omission amounting to gross negligence in the exercise of their powers or the performance of their functions.
In interpreting these provisions, the court referred to several established authorities.
In Ebrahim and Another v Airport Cold Storage (Pty) Ltd, the court held that section 424 effectively retracts the protection of corporate personality where the level of mismanagement goes beyond mere incompetence and becomes heedlessly gross or dishonest.
In Fourie NO and Another v Newton, the court explained that the concept of recklessness contains both objective and subjective components. The conduct of the defendant must be measured against the standard of a reasonable person in the same position, possessing the same knowledge or means of knowledge.
The court also emphasised that courts should avoid applying the exact science of hindsight when evaluating business decisions that were made in the course of commercial activity.
Finally, in Philotex (Pty) Ltd and Others v Snyman and Others, the court distinguished between negligence and gross negligence. Participation in business inevitably involves risk, and section 424 only penalises conduct where the risk imposed on creditors is grossly unreasonable.
THE SUPREME COURT OF APPEAL’S FINDINGS
The Supreme Court of Appeal ultimately dismissed the appeal.
A key factor in the court’s reasoning was that AATIF itself shared the belief that Cape Concentrate had reasonable prospects of rescue. AATIF had conducted extensive due diligence and had participated actively in the business rescue process. It was fully aware of the company’s operational challenges and financial position and had nevertheless approved the funding arrangements and the business rescue plan.
Importantly, AATIF continued to support the business rescue process even after Mr Vienings resigned, and only later did Mr Terblanche conclude that the company could no longer be rescued.
The court also rejected AATIF’s argument concerning the HDC guarantees. Evidence before the court demonstrated that AATIF was aware of the guarantees and of the use of loan funding to satisfy HDC’s security requirements. Indeed, the issue of the guarantees had already been raised before the conclusion of the Investment Partner Agreement.
Furthermore, AATIF received monthly reports disclosing that funds originally allocated for the purchase of tomatoes had been utilised as a security instrument in respect of HDC’s requirements. Despite this knowledge, AATIF authorised a further draw-down under the loan facility, which the court considered to be indicative that AATIF was satisfied that the funding arrangements were being implemented as contemplated.
While the court accepted that a reasonable practitioner might have terminated the business rescue proceedings earlier, it found that Mr Vienings genuinely believed that the anticipated funding from HDC and AATIF would allow Cape Concentrate to continue trading and ultimately be rescued.
The court emphasised that business rescue is inherently risky and reiterated the warning in Fourie that courts should not hastily categorise commercial decisions as reckless simply because they ultimately proved unsuccessful.
In the circumstances, the court concluded that Mr Vienings’ conduct did not amount to gross negligence or recklessness, and the High Court’s decision could therefore not be faulted.
The appeal was accordingly dismissed with costs.
CONCLUSION
The judgment confirms that the bar for personal liability remains deliberately high. Mere negligence, poor judgment, or unsuccessful commercial decisions will not suffice. What must be established is conduct amounting to gross negligence or recklessness, assessed against the standard of a reasonable practitioner operating in the same circumstances and with the same knowledge.
The case also highlights an important practical consideration: where creditors actively participate in and approve a business rescue process with full knowledge of its risks, it becomes significantly more difficult for them to later contend that the practitioner acted recklessly.
For business rescue practitioners, the judgment provides reassurance that good-faith commercial decisions taken in pursuit of a rescue will not lightly attract personal liability. At the same time, it reinforces the principle that the protection afforded by the corporate structure remains conditional upon the responsible and reasonable exercise of the practitioner’s statutory powers.
Photo by Adeolu Eletu on Unsplash
