The Constitutional Court has ruled that creditors whose claims arise after a company enters business rescue cannot vote on the adoption of its rescue plan, clarifying an important aspect of South Africa’s corporate rescue framework.
The judgment, delivered unanimously on 7 October 2026, followed a dispute involving Arnot Coal, which operates a coal mine in Middelburg, Mpumalanga, and a proposed sale of its business to Ndalamo Coal.
Creditors are individuals or businesses owed money by a company, including banks, suppliers and lenders. During business rescue, eligible creditors can vote on a plan outlining how a financially distressed company will restructure its debts and attempt to continue operating.
The dispute centred on whether creditors whose claims arose or were acquired after business rescue began could participate in the vote and influence the company’s future.
Dispute over Mashwayi Projects’ voting rights
Arnot Coal entered business rescue on 10 October 2022 following financial difficulties. The proceedings involved several parties, including Salungano Group, its subsidiary Wescoal Mining, Ndalamo Coal and Mashwayi Projects.
Salungano Group was involved through its subsidiary Wescoal Mining, which held an indirect 50% interest in Arnot Coal. Ndalamo Coal became involved through its proposed acquisition of the mining business.
Mashwayi Projects was a creditor of Arnot after acquiring claims from several former creditors. Its eligibility to vote became central to the dispute because the claims it acquired were treated as post-commencement claims.
At a creditors’ meeting on 28 July 2023, proposals concerning the future of the mine were considered, including selling the business as a going concern.
The initial voting outcome showed 75.4% support for the sale option. However, the process was challenged after irregularities were identified, including duplicated votes, withdrawn votes and problems involving proxy submissions.
A forensic review subsequently revised support to 70.5%, below the 75% threshold required under section 152 of the Companies Act.
Salungano Group and Ndalamo Coal brought separate appeals before the Constitutional Court, challenging the outcome of the proceedings and the interpretation of creditors’ voting rights.
Court distinguishes creditors and new financiers
Writing for the unanimous court, Justice Mathopo found that creditors whose claims arise after business rescue commences do not have voting rights when a rescue plan is considered.
The court distinguished between voting rights and preferential treatment under section 135 of the Companies Act.
Post-commencement financiers can receive preferential treatment for qualifying funding provided to a company during business rescue. This protection is intended to encourage lenders and suppliers to continue supporting businesses while their finances are being restructured.
However, preferential treatment does not give these creditors the right to vote on the rescue plan.
“Their protection lies instead in section 135 of the Act, which affords them preferential treatment, rather than voting rights,” the judgment stated.
The court explained that business rescue is intended to preserve the value of a financially distressed company and avoid the destruction of that value through liquidation.
The court set aside the Supreme Court of Appeal’s order and found that the amended rescue plan had not obtained the required support from eligible creditors. The matter was referred back to the business rescue practitioner for a fresh vote.
The ruling provides guidance for companies, lenders, suppliers and investors involved in business rescue, particularly where new funding and existing creditor claims intersect.
The process has since moved forward. On 13 October 2026, practitioner Phahlani Lincoln Mkhombo sought creditors’ approval to prepare and publish a new or revised rescue plan.The outcome was in a statement published on 29 October.
The motion received 99.31% support from the voting interests cast.
The practitioner was directed to publish the revised plan by 30 November 2026, after which creditors will be notified of a meeting to consider it.
