Secured vs Unsecured Creditors
in Business Rescue

Many creditors enter a Business Rescue proceeding without a clear understanding of where they rank in the statutory waterfall — or how the moratorium affects their ability to enforce their claims. This matters enormously when the Business Rescue Plan is voted on and dividends are declared.

The Statutory Waterfall: Who Gets Paid First?

The Companies Act establishes a hierarchy for the satisfaction of claims in Business Rescue proceedings. Understanding your position in this hierarchy determines what dividend you can expect to receive — and therefore how you should vote on the Business Rescue Plan.

The order of preference under a Business Rescue Plan is broadly as follows:

1. Costs of the Business Rescue proceedings (BRP fees, legal costs)
2. Post-Commencement Finance (PCF) providers — statutory super-preference
3. Employees — remuneration and retrenchment benefits up to the prescribed amount
4. Secured creditors — up to the value of their security
5. Unsecured creditors — pro rata from remaining assets
6. Shareholders — only if all creditors are paid in full

The Moratorium and Secured Creditors

On commencement of Business Rescue, a general moratorium on legal proceedings against the company takes effect. This moratorium applies to all creditors — including secured creditors. A bank holding a mortgage bond over the company's property cannot enforce that security during the Business Rescue without the BRP's consent or a court order.

However, the moratorium does not extinguish the security interest itself. A secured creditor's claim retains its preferential status throughout the rescue. If the Business Rescue Plan proposes to sell the secured asset, the secured creditor is entitled to the proceeds up to the value of their claim before unsecured creditors receive anything.

Voting Rights: Who Votes and How?

At the meeting to vote on the Business Rescue Plan, each creditor's voting interest is equal to the value of their claim against the company. A creditor with a claim of R5 million has five times the voting power of a creditor with a claim of R1 million.

Adoption of the plan requires 75% of voting interests in value to vote in favour, and more than 50% of the votes of independent creditors (those unrelated to the company or its directors) to be in favour. If the plan is adopted, it is binding on all affected parties — including creditors who voted against it.

Post-Commencement Finance: The Super-Preference

Creditors who provide Post-Commencement Finance (PCF) — the new money injected into the company during the rescue to keep it operational — enjoy a statutory super-preference over all pre-commencement creditors, including secured creditors. This is designed to incentivise funders to provide rescue capital by giving them priority repayment.

For existing creditors, this means that PCF providers rank ahead of them in the waterfall. Understanding this is critical when assessing whether to vote for a plan that includes significant PCF.

What Should Creditors Do?

If you are a creditor in a Business Rescue proceeding, you should attend the first meeting of creditors, participate in the creditors' committee if one is elected, and engage with the BRP directly to understand your position and the plan's proposed treatment of your claim. A creditor who disengages from the process forfeits the ability to influence it.