Cases Calendar

 November 2018
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Introduction: Mediation and Arbitration

Mediation is where an independent facilitator assists the parties to reach a mutually acceptable solution to their dispute. A mediator will often assist the parties to identify the outstanding issues, evaluate priorities to open up the possibility of compromise and suggest potential solutions.

Arbitration is where dispute is submitted, by agreement between the parties, to one or more arbitrators who will hear representations from both sides and make a binding decision on the dispute. This process is similar to a court hearing, while effectively being a private dispute resolution procedure.

 

South African Company Law and the Establishment of the Tribunal

The Companies Act 71 of 2008 specifically had as one of its aims the facilitation of growth of the South African economy through the simplification and streamlining of the existing legislation and procedures. The Act also introduced some new innovations, one of which is the Companies Tribunal.

The Companies Tribunal was established to adjudicate in relation to any application made to it in terms of the Act and assist in the voluntary resolution of disputes.

It is required by the Act that the Members of the Companies Tribunal must have suitable qualifications and experience in economics, law, commerce, industry or public affairs and any panel adjudicating a matter must have at least one member who has suitable legal qualifications and experience.

 

Alternative Dispute Resolution at the Tribunal

If a matter is referred to the Tribunal for alternative dispute resolution, the referring party fills in Form 132.1, which is a simple, one-page document which allows the complainant to specify the section of the Act which has been breached and the conduct which has resulted in the breach. The complainant can also select whether they are applying for mediation, conciliation or arbitration.

If the complainant has requested mediation, the Tribunal will, on receipt of Form 132.1, appoint a member of the Tribunal to  mediate the dispute. If the complainant requests arbitration, they will need to follow the normal High Court rules by filing founding, answering and replying affidavits. The parties can then agree whether the matter should be arbitrated solely on the affidavits filed or formally argued before the arbitrator. Depending on the complexity of the matter, the Tribunal will appoint a panel of either one or three presiding officers to arbitrate the matter.

The Tribunal’s services, which include the hiring of a venue and the fee of the arbitrator or mediator, are currently free of charge. In the court system, semi-urgent matters have a waiting period of approximately three months and a matter can take three to four years to reach trial. By comparison, matters heard at the Tribunal typically reach a resolution within 25 working days for alternate dispute resolution and 80 working days for adjudication.

These services can be particularly useful in the contexts of Insolvency and Business Rescue, particularly because South Africa does not have specialised bankruptcy courts.

 

Insolvency

With regards to insolvency, mediation and arbitration can be usefully applied to disputes between insolvent entities and third parties or in the application of insolvency related remedies, such as claims against directors and claims to set aside dispositions. In particular, this will allow the matters to be brought to resolution much quicker than going through the overburdened court system and ensure that costs are limited for everyone involved.

Although liquidators are professionals with their own set of skills, mediation and arbitration brings in a mediator with specialised training in negotiating corporate solutions for parties with widely disparate viewpoints. This allows them to facilitate negotiations between different groups such as shareholders, directors, different categories of creditors and financiers and to search for new and creative solutions for the disputes between them.

Another aspect to consider here is the usefulness of mediation in resolving disputes in cross-border insolvencies where judicial co-operation and transnational litigation can be complicated, time-consuming and expensive.

 

Business Rescue

Business Rescue is another innovation of the Act, which allows for the temporary supervision by a Business Rescue Practitioner of a company that is financially distressed. The Practitioner aims to facilitate the company’s rehabilitation through a temporary moratorium on creditors’ claims against the company and the development and implementation of a Business Rescue Plan. The Plan effectively restructures the company’s affairs to maximise the likelihood of the company being able to trade out of Business Rescue or, if this is not possible, to yield better results for creditors and shareholders if the company is ultimately liquidated.

As with liquidation above, the process of Business Rescue is another area in which the principles of alternative dispute resolution could be used very effectively. Good communication in Business Rescue is very important, and so a mediator would have a very useful role to play in relation to disputes between creditors and the Business Rescue Practitioner, such as disputes relating to the content of the Business Rescue Plan and the decisions taken by the Practitioner on creditors’ claims.

One of the practical problems with the provisions relating to Business Rescue in the Act is that actions or requirements are prescribed in the legislation, but there are often no sanctions or penalties if the requirements are not met. For example, within ten business days of being appointed, the Practitioner must organise meetings with both the creditors and employees of the company. Similarly, the Practitioner is required to publish the Business Rescue Plan within twenty five business days of his or her appointment and any extensions should be approved by the court or a majority of creditors. There is no penalty listed in either of these sections if the Practitioner fails to comply timeously. The lack of sanction or penalty means that there is little legislative incentive for the Practitioner to be proactive about finalising the process. The Tribunal could play an important role in ensuring that these requirements are complied with, which would create an incentive for Practitioners.

The Tribunal, in their capacity as mediators, could provide out-of-the-box solutions to assist those parties in the resolution of their disputes which could prevent unnecessary court action.

In a situation where the ultimate goal is to see the company return to profitable trading, mediators are also useful tools in preserving the working relationships between the parties, which could otherwise be damaged by lengthy adversarial court processes. Mediation and arbitration also has the added advantage, as set out above, of saving or limiting the legal costs and time delays involved in the standard court process. In the context of Business Rescue this is particularly important, as time and money are both in short supply while the Practitioner is trying to develop and then implement the Business Rescue Plan.

 

Conclusion

There are many disputes in the context of insolvency law and the Business Rescue process which could benefit from the involvement of a skilled and well-trained mediator who is capable of finding creative solutions and engaging effectively with the various interested parties. The innovation of the South African Companies Tribunal provides a more efficient process, both in terms of time and money, for the resolution of disputes using alternate dispute resolution in this context.

  • By PJ Veldhuizen