The High Court confirms the powers of a BRP to cancel shares under an adopted business rescue plan

Introduction 

Business rescue often requires difficult commercial compromises, particularly where the recapitalisation of a distressed company depends on restructuring existing shareholder rights.

On 6 February 2026, the Gauteng Division of the High Court delivered a judgement in the matter of White Rivers Exploration (Pty) Ltd and Others v Polsun Limited (Case No. 2025/001669) [2026] ZAGPJHC, which dealt with whether a business rescue practitioner has the statutory authority to cancel existing shares and issue new ones as part of an adopted business rescue plan.

The judgement delivers a clear message: business rescue practitioners are empowered to restructure shareholding, including the cancellation and reissue of shares, where this is contemplated in an adopted business rescue plan.

The court provides important clarity on the scope of a business rescue practitioner’s statutory powers, the binding nature of an adopted business rescue plan, and the finality that follows once business rescue proceedings have terminated.

Background 

White Rivers Exploration (Pty) Ltd (“WRE”), a mineral exploration company with significant tenement interests on the Witwatersrand gold fields, entered business rescue in January 2023. Representatives of BDO Business Restructuring were appointed as the business rescue prctitioners of WRE. 

The business rescue plan (“BR plan”), adopted in April 2023 with the requisite statutory majorities, included a central restructuring mechanism: the cancellation of all the existing issued shares and the issue of 100 new ordinary shares to Lexington Gold South Africa, coupled with a capital injection of €300,000 to pay creditors, employees and SARS. There was in effect a recapitalisation of the business. 

The respondent in this matter, Polsun Limited (“Polsun”), a foreign peregrinus and former minority shareholder of WRE, had instituted substantive proceedings (“the main application”) challenging the cancellation of its shares pursuant to WRE’s BR plan, arguing that it amounted to an unconstitutional deprivation of property under section 25 of the Constitution.

Polsun sought the following relief in the main application:

• A declaration that the cancellation of its shares was unlawful and unconstitutional;
• An order setting aside the business rescue proceedings of WRE; and
• Reinstatement of its shareholding as it existed prior to the BR plan.

The present judgement arose in the context of an application by WRE and others for security for costs, requiring the court to assess Polsun’s prospects of success in the main application.

Key Legal Issues

The court was required to consider several important questions:

1. Whether section 137 of the Companies Act 71 of 2008 (“the Act”) authorises the cancellation of shares by the business rescue practitioner (“BRP”) under an adopted BR plan.
2. Whether such cancellation constitutes an unconstitutional deprivation of property.
3. Whether relief could be granted after substantial implementation and termination of the business rescue.
4. Whether Polsun’s non-joinder of other affected creditors and shareholders was fatal.

Court’s Findings 

Statutory Authority of a BRP to Cancel Shares: Sections 137 and 152(6)

A central aspect of Polsun’s case was that the cancellation of its shares amounted to an unconstitutional deprivation of property under section 25 of the Constitution. The court rejected this contention decisively, and referred to sections 137 and 152(6) of the Act. 

Section 137 of the Act regulates the effect of business rescue on the shareholders and directors of a company. Section 137(1) provides that, “[d]uring business rescue proceedings an alteration in the classification or status of any issued securities of a company, other than by way of a transfer of securities in the ordinary course of business, is invalid except to the extent – (a) that the court otherwise directs; or b) contemplated in an approved business rescue plan." (emphasis added)

Section 152(6) of the Act provides that, “[t]o the extent necessary to implement an adopted business rescue plan - (a) the practitioner may, in accordance with the plan, determine the consideration for, and issue, any authorised securities of the company despite section 38 or 40 to the contrary… "

The court held that the cancellation of shares (of all existing shareholders in WRE) together with the issue and allotment of new shares “falls squarely within the scope of section 137”. 

The court explained that section 137 must be interpreted purposively against the backdrop that business rescue is invoked only in circumstances of acute financial distress, where the very object of the process is the injection of new funding to rescue the company either as a going concern or to provide a better dividend for creditors. It follows axiomatically that any genuine rescue will require a fresh infusion of capital. The court noted that it is contrary to commercial reality to suppose that an external investor would inject funding into a financially distressed company absent a capital restructuring or a restructuring of the existing shareholding.

The court held that, properly construed, section 152(6) is the operative bridge between the approval of the BR plan and the exercise of the BRP's powers under section 137.

Defective Constitutional Challenge 

The court also found the constitutional challenge to be procedurally defective, and the reliance on section 25 of the Constitution was rejected. 

Polsun had not properly pleaded the constitutional invalidity of section 137. The court held that section 137 constitutes a law of general application authorising cancellation, and the deprivation is not arbitrary.

Finality of an Adopted and Implemented BR Plan

Another significant aspect of the judgment is its emphasis on the finality of business rescue.

The court stated that the Act establishes a structured sequential process which confers defined rights and obligations on affected parties at each stage, culminating in a binding collective outcome once the prescribed majorities are achieved. Once a BR plan is adopted, it becomes binding on the company and all affected persons (including dissenting shareholders) in terms of section 152(4) of the Act, whether or not they supported it. At that point, the statutory process is intact, and the adopted BR plan replaces prior rights and claims with a new regime created by the plan. In other words, the rights and obligations of all affected persons are then regulated exclusively by the statutory regime.

Once the BR plan is implemented and the BRP files a notice of substantial implementation, or the BRP files a notice of termination, business rescue terminates by operation of law (in terms of section 132(2)(c)(ii) or section 132(2)(b), as the case may be). The court held that the termination of business rescue marks finality and as such, the completed process is not susceptible to retrospective undoing.

The court stated that it is legally and factually impossible to set aside a business rescue process which no longer exists. The relief sought by Polsun ignores the reality that the business rescue has been fully implemented, payments have been made to creditors and other parties under the BR plan, the rights and obligations of shareholders have been fundamentally restructured, and a new shareholding arrangement has been put in place.

The court held that Polsun’s attempt to “undo” the business rescue process more than two years later was conceptually incoherent: there was no longer an extant rescue capable of being set aside, and the completed commercial transactions could not realistically be unwound.

Non-joinder of Affected Parties

Polsun’s application was further undermined by its failure to join affected creditors and shareholders whose rights would be materially affected in the matter. The court confirmed that such non-joinder is fatal, relying on authoritative SCA precedent that affected persons must be joined where their interests are directly implicated.

Outcome of the Hearing

Given Polsun’s limited prospects of success in the main application and its status as a foreign peregrinus with no disclosed assets within the jurisdiction, the court ordered that Polsun must furnish security for costs in an amount determined by the Registrar, and that the main application is stayed pending provision of security.

Significance of the Judgement and Practical Takeaways 

This judgement reinforces several critical principles:

• Section 137 of the Act read with section 152(6) expressly authorises BRP to cancel shares in accordance with a duly adopted BR plan. Minority shareholders are bound by majority-approved rescue outcomes, in accordance with the statutory framework, even where rights are adversely affected.
• Constitutional challenges cannot override the express statutory powers granted under Chapter 6 of the Act.  
• Once a BR plan is implemented and business rescue proceedings come to an end, the business rescue cannot be retrospectively undone. There is finality in the business rescue. 
• Affected parties must be joined where their rights are implicated.

Conclusion

The judgement confirms that equity restructurings – including the cancellation and reissue of shares – are competent where authorised by an adopted BR plan, and that BRPs are empowered to implement such measures in accordance with Chapter 6 of the Act. 

Affected persons are afforded procedural protections during the business rescue process, but once the statutory voting thresholds are met and the BR plan is adopted, the BRP is empowered – and obliged – to implement it. 

The case serves as a valuable precedent supporting the enforceability of adopted BR plans and the legitimacy of recapitalisation mechanisms essential to restructuring success. The court’s decision accordingly reinforces the binding and final nature of BR plans and strengthens confidence in equity restructuring as a legitimate and often essential tool in achieving successful rescue outcomes.

It is noteworthy to mention that BDO's professional business rescue practitioners have since the inception of the Act been advocating for the restructuring of the shares in a company under business rescue as a vital tool that should be available to BRPs in restructuring the affairs of financially distressed companies. BDO is accordingly delighted that the High Court of South Africa has now recognised that this is indeed an essential and valuable restructuring tool available to BRPs in a business rescue.