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[2018] ZAWCHC 38
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Alderbaran (Pty) Ltd and Another v Bouwer and Others (19992/2017) [2018] ZAWCHC 38; [2018] 3 All SA 71 (WCC); 2018 (5) SA 215 (WCC) (22 March 2018)
REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE HIGH COURT, CAPE TOWN)
CASE
NO: 19992/2017
In
the matter between:
ALDERBARAN
(PTY) LTD
First
Applicant
FAIZEL
NOOR N.O.
Second
Applicant
and
GIDEON
PHILLIPUS BOUWER
First
Respondent
THE
DEEDS REGISTRY, CAPE TOWN
Second
Respondent
TRADE
OFF 118 (PTY) LTD
Third
Respondent
JUDGMENT
DELIVERED ON 22 MARCH 2018
DAVIS,
AJ
1.
This matter
aptly illustrates the potential for abuse of the remedy of business
rescue. There are two related applications before
me:
1.1.
The main
application is one brought by Alderbaran (Pty) Ltd, the first
applicant (“Alderbaran”), and Faizel Noor, the
second
applicant, in his capacity as the business rescue practitioner of
Alderbaran (“Faizel Noor”), to interdict the
transfer to
the third respondent, Trade Off 118 (Pty) Ltd (“Trade Off”),
pursuant to a sale in execution, of an immovable
property belonging
to Alderbaran, and to declare such transfer unlawful in terms of
section 133 of the Companies Act 71 of 2008
(“the Act”)
on the grounds that Alderbaran is in business rescue (“the main
application”).
1.2.
The second
application is a counter-application brought by the first respondent
in the main application, Gideon Phillipus Bouwer
(“Bouwer”),
being the execution creditor in respect of the aforementioned sale in
execution, for the setting aside
of the resolution placing Alderbaran
under business rescue and the termination of the business rescue in
terms of section 130 of
the Act (“the counter-application”).
2.
The
immovable property lies at the heart of the dispute is Portion 241 (a
portion of Portion 63) of the farm Melkhoute Fontein Nr
480, in the
Hessaqua Municipality, Division Riversdale, Western Cape, 79,7029
hectares in extent (“the property”).
3.
For
purposes of this judgment it is necessary to refer in some detail to
the history of the matter. I must at the outset state that
the
averments in the affidavits filed on behalf of the applicants are
bald and vague, and there is a paucity of supporting documentation.
The facts set out hereunder are for the most part gleaned from
Bouwer’s answering affidavit in the main application and his
founding affidavit in the counter-application – neither of
which was answered by the applicants.
THE
RELEVANT BACKGROUND
4.
Alderbaran
purchased the property from Bouwer in 2014 in terms of a written
agreement which stipulated a purchase price of R 1 000 000.00
payable by a way of a deposit of R 50 000.00 and the balance
payable over five years in monthly instalments (“the sale
agreement”). A mortgage bond was registered over the property
in favour of Bouwer as security for Alderbaran’s obligations
in
respect of the balance of the purchase price.
5.
The
property was purchased with a view to development by subdivision
thereof into 50 separate title portions. The subdivision was
delayed,
and Alderbaran failed to pay any of the monthly instalments due to
Bouwer in terms of the sale agreement.
6.
Bouwer sued
for payment of the balance of the purchase price and obtained default
judgment against Alderbaran on 25 April 2016 in
the Riversdale
Magistrates Court for payment of the amount of R 950 000.00,
plus interest and costs (“the default
judgment”).
Pursuant thereto the property was attached and advertised for sale in
execution on 15 September 2016.
7.
On 31
August 2016 Alderbaran launched an application for the rescission of
the default judgment as well as the setting aside of
any warrant of
execution issued in respect of the property and the staying of any
sale in execution pending the determination of
the rescission (“the
rescission application”). As a result the sale in execution
scheduled for 15 September 2016 did
not proceed.
8.
On 13
September 2016 the Riversdale Magistrates’ Court dismissed the
rescission application.
9.
On 13
September 2016, the same day the rescission application was
dismissed, Shaheed Noor, the sole director of Alderbaran, passed
a
resolution in terms of section 129(1) of the Act to place Alderbaran
under business rescue. Annexed to Bouwer’s answering
affidavit
in the main application are a Notice of Beginning of Business Rescue
Proceedings (Form CoR 123.1) and a Notice of Appointment
of Business
Rescue Practitioner (Form CoR 123.2) appointing Faizel Noor as
business rescue practitioner, both dated 13 September
2016 and signed
by Shaheed Noor.
[1]
(I shall
refer to the section 129(1) resolution adopted on 13 September 2016
as “the first resolution” in order to
distinguish it from
a subsequent resolution to place Alderbaran under business rescue
purportedly adopted on 16 August 2017, which
I shall refer to as “the
second resolution”.)
10.
The notices
of commencement of business rescue and appointment of a BRP dated 13
September 2016, referred to above to above, do
not bear the receipt
stamp of the Companies and Intellectual Properties Commission (“the
Commission” or “CIPC”)
but it appears from a
certificate issued by the Commission on 19 June 2017
[2]
that the first resolution was filed on 15 September 2016. In the same
certificate the enterprise status of Alderbaran is reflected
as
“Business Rescue”.
11.
On 14
September 2016, Alderbaran lodged a notice of appeal against the
dismissal of the rescission application. The appeal was dismissed
by
this Court on 21 April 2017.
12.
A second
sale in execution of the property was scheduled for 15 June 2017, and
the property was duly sold to Trade Off on that date
for
R 1 150,000.00 (“the sale in execution”).
13.
On 19 July
2017 Attorney Gavin Langenhoven (“Langenhoven”), acting
on behalf of Faizel Noor, wrote to Bouwer’s
attorneys and gave
notice that the sale in execution of the property was invalid because
Alderbaran was in business rescue, and
the sale in execution was
therefore precluded by the moratorium on “
legal
action or execution of judgments already obtained”.
This was presumably a reference to section 133(1) of the Act, which
states that “
During
business rescue proceedings, no legal proceeding, including
enforcement action, against the company, or in relation to any
property belonging to the company, or lawfully in its possession, may
be commenced or proceeded with in any forum …”.
14.
Attorney
Janse van Rensburg (“Van Rensburg”), representing Bouwer,
on the same day replied to Langenhoven requesting
proof that
Alderbaran was under business rescue. He asked for copies of the CoR
123.1 Form filed with CIPC, the resolution passed
by the board of
directors to commence business rescue proceedings, the affidavit
setting out the facts on which the resolution
was founded, and the
notice of the resolution published to all affected persons. In other
words, Van Rensburg sought proof of compliance
with the requirements
of sections 129(3)(a) and (4) of the Act.
15.
On 27 July
2017 Langenhoven reverted to Van Rensburg with the copies of the
first resolution and the CoR 123.1 and CoR 123.2 Forms
dated 13
September 2016 referred to above. No statement of facts relevant to
the first resolution was furnished; nor was proof
provided of
publication to all affected persons of the notices of commencement of
business rescue and appointment of a BRP, as
required by sections
129(3)(a) and 129(4).
16.
On 31 July
2017 Van Rensburg replied to Langenhoven pointing out that there was
no sworn statement of facts supporting the first
resolution, and that
Bouwer, an affected person, had not received notice from Aldebaran of
the commencement of business rescue
until July 2017. Van Rensburg
stated that the first resolution was nullity in accordance with
section 129(5) of the Act, and that
he had instructions to proceed
with the transfer of the property pursuant to the sale in execution.
Van Rensburg notified Langenhoven
that his client would have to apply
for an interdict, if so advised, to prevent the transfer of the
property to Trade Off.
17.
Faizel Noor
alleges in a supplementary affidavit deposed to on 6 February 2018
(which I deal with below) that Alderbaran’s
legal adviser
conducted an online search of the CIPC website on 10 August 2017 and
discovered that Alderbaran was described as
being “In
Business”, i.e., no longer in business rescue. He believed that
this occurred as a result of a processing
error on the part of CIPC
when Alderbaran’s arrear annual returns were submitted to CIPC
on 22 June 2017.
18.
As proof of
the fact that Alderbaran’s annual returns were submitted on 22
June 2017, a document emanating from CIPC entitled
“Abridged
Certificate for Annual Returns” is annexed to the said
supplementary affidavit. It appears from this document
that
Alderbaran had zero turnover during the years 2014, 2015 and 2016.
The relevance of this will become apparent later on in
this judgment.
19.
Faizel Noor
alleges that, subsequent to the discovery on 10 August 2017 that
Alderbaran was no longer in business rescue according
to the records
of CIPC, and acting in the belief that this was in fact the case, he
advised Shaheed Noor to “
make
a new application [to] place [Alderbaran] into Business Rescue.”
20.
On 16
August 2017 Alderbaran, represented by its sole director Shaheed
Noor, passed another resolution in terms of section 129(1)
of the Act
to being business rescue proceedings (“the second resolution”).
The second resolution was supported by an
affidavit deposed to by
Shaheed Noor on 14 August 2017 (“the sworn statement”) in
which it was alleged that:
20.1.
Alderbaran
conducts business as a services provider in the electrical industry.
20.2.
Alderbaran
was financially distressed because it had fallen into arrears with
payment to certain suppliers/credit providers on account
of cash flow
problems, and would not be able to pay its debts within 6 months.
20.3.
The board
had reasonable grounds to believe that the company could be rescued
because:
“
15.
The Company relies on its debtors to make full and
timeous monthly payments of the amounts payable to the
Company. While
the majority of debtors make proper payments to the Company, certain
debtors have failed to make timeous and/or
full payments of these
amounts to the Company, leading to the negative cash flow presently
being experienced by the Company. It
is envisaged that the Company
will, during the preceding
[sic]
months,
take the necessary steps to obtain payment from these debtors.”
16.
The Director/s can now focus on obtaining and implementing further
contracts in order to
improve the cash flow situation of the
Company.”
21.
A CoR 123.1
form together with the second resolution and the sworn statement, as
well as a CoR123.2 form, was filed with the Commission
on 16 August
2017.
22.
Thereafter
a meeting of alleged creditors of Alderbaran was held on 29 August
2017. The meeting was attended by Shaheed Noor, with
an alleged claim
on loan account in an amount of R 1 490 000.00, Mr Zayd
Noor, the son of Shaheed Noor, with an alleged
claim in the amount of
R 38 000.00, and Mr Faizel Begg with an alleged claim in
the amount of R 5 800.00 for
services rendered. There are
no supporting documents before me substantiating these alleged
claims.
23.
Bouwer was
convinced that the resort to business rescue was not genuine and was
a delaying tactic aimed solely at preventing the
transfer of the
property in satisfaction of the judgment debt. He refused to halt the
transfer of the property pursuant to the
sale in execution, and the
transfer documents were lodged at the deeds office on 24 October
2017. This lead to the launching of
the main application.
THE
LITIGATION HISTORY
24.
The
applicants on 1 November 2017 launched the main application as a
matter of urgency, setting it down for hearing on 2 November
2017. It
was struck from the roll for lack of urgency on that date, and was
subsequently re-enrolled and came before me in the
urgent lane of the
motion court on 22 November 2017. By that time Bouwer had delivered
his answering affidavit in the main application,
which was deposed to
on 15 November 2017.
25.
At the
hearing on 22 November 2017 there was a great deal of confusion about
whether or not Alderbaran was indeed in business rescue,
and if so,
when the business rescue commenced. The applicants’ founding
affidavit did not state when Alderbaran was placed
in business rescue
and the only indication in this regard was an email dated 3 October
2017 annexed to the affidavit in which it
was stated that business
rescue commenced on
16
August 2017
.
Bouwer’s answering affidavit, however, made reference to both
the first resolution (dated September 2016) and the second
resolution
(dated August 2017), and it was not clear at that stage which, if
any, of these resolutions was operative. (I pause
to mention that my
attention had not yet been drawn to the decision of the Supreme Court
of Appeal in
Panamo
Properties (Pty) Ltd and another v Nel NO and others (“Panamo”),
[3]
which would have clarified matters in this regard.)
26.
To add to
the confusion, Mr Monzinger, who appeared for Bouwer, handed up a
Windeed CIPC report in respect of Alderbaran which contained
the
following entry under the history of the company:
“
2017/08/08
Cancellation of Business Rescue
(BR Practitioner not appointed on
time which resulted in nullity)
27.
In these
circumstances I thought it best to grant an interim order preventing
the transfer of the property and to postpone the matter
with
directions to the applicants to file an affidavit containing proof
that Alderbaran was indeed in business rescue and that
the
requirements of section 129 (3) and (4) had been complied with.
28.
When the
matter came before me again on 5 December 2017, Faizel Noor at the
eleventh hour filed a supplementary affidavit alleging
that
Alderbaran had been placed in business rescue on 16 August 2017 and
that the requisite formalities in section 129 (3) and
(4) had been
complied with. Copies of the relevant documents were annexed to the
affidavit. By that time Bouwer had already launched
the
counter-application on 1 December 2017 in which it was sought to set
aside the resolution commencing business rescue proceedings.
29.
At the
hearing on 5 December 2017, Mr Monzinger contended that Alderbaran
could not rely on the second resolution since the effect
of the
judgment in
Panamo
was
that, a) even if the first resolution had lapsed and become a nullity
in terms of section 129(5)(a) of the Act, the business
rescue
commenced thereby had not terminated and would only be terminated if
and when a court set the first resolution aside, and
b), the second
resolution was invalid and inoperative because it was purportedly
passed during the operation of an existing business
rescue. Mr
Monzinger came prepared with written heads of argument and was ready
to proceed with argument then and there.
30.
Ms Khoza,
who appeared for the applicants, was taken by surprise by this line
of argument. The applicants were, by that stage, placing
heavy
reliance on the second resolution – no doubt because they had
been alerted to the difficulties with the first resolution
–
and the
Panamo
judgment
pulled the proverbial rug out from under that particular carpet. It
appears that Mr Khoza was unaware of the decision in
Panamo,
and he
contended that his clients would be prejudiced if the matter were to
be argued without his having had an opportunity to consider
Mr
Monzinger’s written submissions and prepare a response. In the
circumstances I felt it only fair to postpone the matter
to the
semi-urgent roll so as to afford both parties the opportunity to
prepare proper heads of argument.
31.
At the
postponed hearing on 7 February 2018 Mr Khoza sought leave to hand up
the supplementary affidavit deposed to by Faizel Noor
on 6 February
2018, to which I have already made reference. This affidavit
contained relevant facts which should properly have
been included in
the applicant’s founding affidavit. The purported explanation
for the supplementary affidavit reads as follows:
“
5
.
In reading the
heads of argument, it transpired to me that there is a need for the
explanation of the facts and events that led
this matter to court.
6.
My understanding was initially that the counsel for both parties
would only deal
with the law, and there would not need
[sic]
for further facts to be
dealt with. However, after reading the heads of argument, I was
advised by my legal team that I should have
this affidavit placed on
record.”
32.
In the
supplementary affidavit it is explained that the second resolution
was passed because it came to the attention of Shaheed
Noor that the
business rescue initiated by the first resolution appeared to have
been cancelled by CIPC. It is alleged that a draft
business rescue
plan has been prepared but has not yet been adopted, and, more
importantly, has not yet been published to affected
parties as
required in terms of section 150(5). Nor has a meeting been convened
in terms of section 151 for purposes of considering
the business
rescue plan.
33.
It is
further alleged in the supplementary affidavit that there are good
prospects for the rehabilitation of Alderbaran, because
the Hessaqua
Municipality (“the Municipality”) has approved the
inclusion of the property within the urban edge of
Stilbaai with a
view to development thereof, and an application has been submitted to
the Municipality for permission to subdivide
the property into 57
small holdings, each valued at R 650
000.00
after the provision of services on the vacant lots. On this basis, so
it is it is contended, Alderbaran stands to make a
significant profit
on the sale of the plots, and all its creditors will be paid up. The
affidavit does not say, however, that the
proposed subdivision has
been approved; nor is any indication given as to how Alderbaran
intends to finance the costs of installing
services on the land.
34.
At the
hearing on 7 February 2018 Mr Khoza conceded in view of the
Panamo
decision
that the business rescue initiated by the first resolution had not
been terminated and was still operative, and that the
second
resolution was accordingly a nullity. This concession was correctly
made in my view. He changed tack, however, and argued
that the sale
of the property in execution on 15 June 2017 was “
enforcement
action”
which is prohibited in terms of section 133(1) of the Act, and that
this Court should therefore declare the sale in execution null
and
void and prohibit any transfer of the property pursuant thereto.
THE
ISSUES TO BE DETERMINED
35.
On the view
I take of the matter it is not necessary for me to decide whether the
sale in execution of the property constitutes
“
enforcement
action”
for
the purposes of section 133(1). If I had to decide the question, I
would hold that it does, since in
Cloete
Murray and Another NNO v Firstrand Bank Ltd t/a Wesbank,
[4]
Fourie AJA commented, albeit
obiter
,
that “ ‘
enforcement
action’ relates to formal proceedings ancillary to legal
proceedings, such as the enforcement or execution of
court orders by
means of writs of execution or attachment.”
I respectfully agree that with this view. I consider that an
interpretation of section 131(1) which includes sales in execution
within the notion of “
enforcement
action”
is
consonant with the overriding objectives of the remedy of business
rescue. It would, in my view, work against the efficacy of
the remedy
to hold that a sale in execution of property belonging to the company
is not covered by the general moratorium, since
that would permit a
situation where assets essential to the production of company income,
such as plant and machinery, could be
sold in execution to satisfy
prior judgment debts, thereby bringing the business of the company to
a halt and scuppering any prospects
of rescue.
36.
I shall
therefore assume, for purposes of argument, that the sale in
execution of the property on 15 June 2017 constituted “
enforcement
action”
of the type envisaged in section 133(1). The question then, as
I see it, is whether the relief sought in the counter-application
should be granted, more particularly:
36.1.
whether the
first resolution should be declared invalid and set aside, in terms
of section 129(5)(a) read with section 130(1)(a),
and the resultant
business rescue proceedings terminated in accordance with
132(2)(a)(i) of the Act, and, if so
36.2.
whether a
consequential order should be granted confirming the validity of the
sale in execution as a necessary and appropriate
order of the type
envisaged in section 130 (5)(c) of the Act.
SHOULD
THE FIRST RESOLUTION BE SET ASIDE AND THE BUSINESS RESCUE PROCEEDINGS
TERMINATED
37.
Section 130
(1) of the Act provides that:
“
Subject
to subsection (2), at any time after the adoption of a resolution in
terms of section 129(1), until the adoption of a business
rescue plan
in terms of section 152, an affected person may apply to court for an
order –
(a)
setting
aside the resolution, on the grounds that –
(i)
there
is no reasonable basis for believing that the company is financially
distressed;
(ii)
there
is no reasonable prospect for rescuing the company; or
(iii)
the
company failed to satisfy the procedural requirements set out in
section 129.”
38.
Section
130(5)(a) of the Act states that:
“
When
considering an application in terms of subsection (1)(a) to set aside
the company’s resolution, the court may –
(a)
set
aside the resolution –
(i)
on
any grounds set out in subsection (1); or
(ii)
if,
having regard to all of the evidence, the court considers that it is
otherwise just and equitable to do so; …”
39.
As Wallis
JA made clear in
Panamo
,
the provisions in subsections 130(5)(a)(i) and (ii) must be read
conjunctively, and the word “
or”
must be read as if it were “
and
”,
so that
the just and equitable requirement referred to in section
130(5)(a)(ii) must not be understood an independent ground for
setting aside a resolution in terms of section 130(1)(a), but as an
additional requirement to be satisfied along with the need
to
establish one or more grounds for setting aside in terms of section
130(1)(a)(i), (ii) and (iii).
40.
I must
therefore be satisfied that Bouwer has made out a case that a) there
is no reasonable ground for believing that Alderbaran
is financially
distressed,
or
b) there is no reasonable prospect for rescuing Alderbaran,
or
c) Aldebaran failed to satisfy the procedural requirements of section
129,
and
that it would be just and equitable to set aside the resolution
having regard to all the evidence in this particular case.
41.
It is
important to note that there was no statement under oath regarding
the facts relevant to the grounds on which the first resolution
was
based, as required in section 129(3)(a) of the Act. It can be
accepted on the papers that no business plan was adopted pursuant
to
the first resolution. Indeed, it is clear from the supplementary
affidavit that there has been no attempt to have a business
rescue
plan adopted pursuant to the second resolution, let alone the
first.
42.
The real
business of Alderbaran is not clear from the papers. The statement on
oath signed by Shaheed Noor in support of the second
resolution
refers to the provision of services in the electrical industry. The
veracity of this allegation is doubtful, however,
when one considers
that Alderbaran submitted annual returns to CIPC for the 2014, 2015
and 2016 years which indicated
zero
turnover
.
This is incompatible with the notion of a services provider actively
engaged in the electrical industry which has hit upon cash
flow
problems due to non-payment by its debtors. This description of the
business of Alderbaran also appears to be inconsistent
with the
contents of the supplementary affidavit which strongly suggest that
Alderbaran is, in truth, nothing more than a property
holding company
seeking to exploit an opportunity to make a profit through the
subdivision of the property into plots for sale.
43.
The full
extent of Alderbaran’s assets and liabilities has not been
disclosed by the applicants. The only liability of which
one can be
certain is Bouwer’s claim under the default judgment for
R 950 000.00, excluding interest and costs.
In my view the
documents which purport to substantiate the alleged claims of Shaheed
Noor, Zayd Noor, Faizel Begg and Attorney
P F Sonnenberg against
Alderbaran, all dated 21 August 2017, are inadequate and unreliable.
It seems to me that the alleged claims
may well be contrived in an
attempt to lend credence to the second resolution and the subsequent
attempts to comply with the formalities
relating to business rescue.
(At that stage the applicants were evidently not aware that reliance
on the second resolution was
a futile exercise in the light of the
Panamo
judgment.)
44.
What is
clear on the papers is that the procedural requirements set out in
section 129 were not satisfied by Aldebaran in respect
of the first
resolution, for it is not disputed that:
44.1.
no
statement on oath was signed in support of the first resolution, as
envisaged in section 129(3)(a)(i);
44.2.
there was
no publication of the first resolution to affected persons, as
required in section 129(3)(a)(i);
44.3.
there was
no publication of notice of the appointment of Faizel Noor as
business rescue practitioner to affected persons, as required
in
section 129(4)(b).
45.
In the
circumstances I am satisfied that the first resolution falls to be
set aside in terms of section 129(5)(a) read with section
130(1)(a)(iii).
46.
The next
enquiry is whether, in the light of all the facts, it would be just
and equitable to set the first resolution aside and
terminate the
business rescue.
47.
In my view
the enquiry postulated in section 130(5)(a)(ii) is similar to that in
section 344(h) of the Companies Act 61 of 1973
(“the old Act”)
which dealt with the liquidation of companies on the ground that it
appeared just and equitable to
the Court. As in the case of section
344(h) of the old Act, the conclusion that the termination of the
business rescue would be
just and equitable involves the exercise,
not of a discretion, but of a
judgment
on the relevant facts
,
but once that conclusion has been reached, the making of an order to
set aside the resolution and terminate the business rescue
does
involve the exercise of a discretion. (See
Henochsberg
on the Companies Act
,
commentary on section 344(h) of the old Act.)
48.
In my
judgment the following facts and circumstances are relevant in
relation to the question whether or not it would be just and
equitable to set aside the first resolution and terminate the
business rescue.
48.1.
In the
first instance, the timing of the first resolution is suspicious: it
was passed on the same day the rescission application
was dismissed,
which suggests that it was motivated by the ulterior purpose of
warding off execution of the default judgment. That
suspicion is
compounded when one considers that no steps were taken to comply with
the procedural requirements of section 129 after
the passing and
filing of the first resolution. No business rescue plan was drafted
let alone adopted pursuant to the first resolution.
Indeed it appears
that Faizel Noor took no steps whatsoever to implement the business
rescue after 13 September 2016.
48.2.
Second, it
emerges from correspondence attached to the supplementary affidavit
that Faizel Noor, although nominally in control as
the BRP, was not
truly in control of the affairs of Alderbaran, and that the real
driving force behind the efforts to promote the
subdivision and
development of the property was Shaheed Noor, the director of
Alderbaran.
48.3.
Third, the
circumstances referred to in the two preceding paragraphs lead me to
the ineluctable conclusion that first resolution
was not passed in
good faith in that there was no genuine intention to attain the
objectives of the Act in regard to business rescue.
The remedy of
business rescue was used as a stratagem to defeat Bouwer’s
enforcement of the default judgment. (See
Griessel
and another v Lizemore and others
[2015]
4 All SA 433
(GJ) at paras 83 and 84, where it was held that a
resolution to commence business rescue must be passed in good faith,
and that
business rescue must not be used as a “
litigation
strategy”
or
to prevent a creditor from enforcing a claim to the full extent.) In
my view the real reason for the resort to business
rescue in this
case is clear: Alderbaran is desperate to hold onto the property as
it hopes to subdivide the property and make
a handsome profit on the
sale of the subdivided units. Its ambitions in this regard will be
dashed if the property is transferred
to Trade Off pursuant to the
sale in execution, allowing Trade Off to pursue the development and
reap the rewards.
48.4.
Fourth,
Bouwer has not been paid what he is owed for the property. If the
business rescue if not set aside, the result will be that
he is
effectively compelled to act as Alderbaran’s banker against his
wishes inasmuch as he will be prevented from enforcing
his right to
payment in terms of the default judgment. And it is significant in
this regard that no indication is given in the
supplementary
affidavit as to whether the installation of services on the property
has commenced, how this work is to be financed,
when the approval of
the subdivision is anticipated, and how long it will take for the
plots to be sold and sufficient funds generated
to pay Bouwer - and
other possible creditors of Alderbaran.
49.
In view of
these circumstances I consider that justice and equity will best be
served by setting aside the first resolution and
terminating the
resultant business rescue.
SHOULD
AN ORDER BE MADE IN TERMS OF SECTION 130(5)(a) REGARDING THE SALE IN
EXECUTION?
50.
Having
determined that it would be just and equitable to set aside the first
resolution and terminate the business rescue, the next
question is
whether any further order is necessary and appropriate.
51.
Section
130(5)(c) provides that:
“
If
[the Court]
makes
an order
[setting aside a
resolution in terms of section 129(1) [it]
may
make
any
further necessary and appropriate order including –
(i)
an
order placing the company under liquidation; or
(ii)
if
the court has found that there were no reasonable grounds for
believing that the company would be unlikely to pay all of its
debts
as they became due and payable, an order of costs against any
director who voted in favour of the resolution to commence
business
rescue proceedings, unless the court is satisfied that the director
acted in good faith …”
[Emphasis
added.]
52.
I do not
regard the specific orders contemplated in subsections (i) and (ii)
as a
numerus
clausus
of
the orders which a Court may make when setting aside a resolution to
commence business rescue and terminate business rescue.
Furthermore,
because business rescue, once validly initiated, remains operative
until set aside by a Court - even if affected persons
have not been
notified thereof as required in section 129 - I do not consider that
there should be a blanket rule that the setting
aside of a section
129 resolution and termination of business rescue operates
ex
tunc
,
i.e. retrospectively with effect from the date of the section 129
resolution.
53.
In my view
circumstances may differ from case to case, so that a different
approach is required in order to ensure that justice
is done. For
instance, there may be uncertainty regarding the status of legal
proceedings or enforcement action taken against the
company while the
company was in business rescue at a stage when affected persons were
unaware thereof. This is just such a case,
where the sale in
execution occurred on 15 June 2017 at a stage when Bouwer was
ignorant of the business rescue, since he had not
been duly notified
of the first resolution. Or there may be instances where a business
rescue practitioner has taken steps during
the course of the business
rescue which affect the rights of third parties and/or are beneficial
for the company which should not
be invalidated when the section 129
resolution is set aside and the business rescue terminated.
54.
To my mind
the rationale for the wide discretion conferred on the Court in
section 130(5)(c) to grant “
any
further necessary and appropriate order”
is to equip the Court to deal equitably with the various
circumstances which may arise and require regulation following the
setting
aside of a section 129 resolution and termination of business
rescue. The discretion must be exercised judicially, and the only
limit on the further order which may be made is that it must be both
necessary
and
appropriate
.
55.
The
applicants contend that the sale in execution of the property on 15
June 2017 was unlawful because Alderbaran was still in business
rescue at the time and should therefore be declared invalid and set
aside. It is therefore necessary for me to make an order dealing
with
the status of the sale in execution.
56.
The Supreme
Court of Appeal held in
Chetty
t/a Nationwide Electrical v Hart NO and another “Chetty”
[5]
that there was no indication in section 133 that non-compliance
carries with it the implication that the proceedings are a
nullity,
[6]
and that the failure
to obtain the leave of the BRP or the Court to initiate or continue
with legal proceedings does not, in and
of itself, invalidate the
proceedings.
[7]
I therefore do
not accept the submission that the sale in execution was a nullity
which must be set aside.
57.
To my mind
it is both necessary and appropriate, in all the circumstances of
this case, to make an order confirming the validity
of the sale in
execution of the property on 15 June 2017 and authorising the
finalisation of transfer of the property in terms
thereof.
SERVICE
AND NOTICE IN TERMS OF SECTION 130(3)
58.
An affected
person who applies in terms of section 130(1) of the Act to set aside
a company resolution to commence business is obliged
to comply with
the requirements of section 130(3) of the Act, which reads as
follows:
“
An
applicant in terms of subsection (1) must –
(a)
serve
a
copy of the application on the
company
and the
Commission
;
and
(b)
notify
each
affected person of the application
in
the prescribed manner
.
[Emphasis
added]
59.
The Court
in
Engen
Petroleum Ltd v Multi Waste (Pty) Ltd and Others
[8]
considered the meaning of section 131(2) which is identical to
section 130(3) although the context is different. (Section 131(2)
deals with service and notice requirements where an affected person
applies to Court to place a company under business rescue.)
60.
As regards
the requirement of service on the company and the Commission,
Boruchowitz J held that both the company and the Commission
have a
direct and substantial interest in any order the Court might make and
are required to be joined as parties to the business
rescue
application.
[9]
In my view that
applies equally in the case of an application to set aside and
terminate a business rescue in terms of section
130, although I am
prepared to accept that it may be appropriate to dispense with the
requirement of formal joinder of the Commission
as a respondent in
proceedings where the Commission has been properly served with a copy
of the proceedings and the Court is satisfied
that the Commission has
waived any right to be joined as a party to the proceedings.
[10]
61.
Boruchowitz
J accepted that service for purposes of section 131(2)(a) of the Act
means service in terms of Rule 4(1)(a) of the Uniform
Rules of Court
(“the Uniform Rules”), which requires service by the
Sheriff on both the company
and
the Commission.
[11]
This
approach was endorsed by Hartzenberg AJ in
Taboo
Trading 232 (Pty) Ltd v Pro Wreck Scrap Metal CC and Others.
[12]
62.
While I
agree that the word “
service”
in sections 131(2)(a) and 130(3)(a) envisages service by sheriff on
the
company
in terms of rule 4(1)(a) of the Uniform Rules, I do not agree that it
therefore necessarily also envisages service by the sheriff
on the
Commission
.
63.
It has been
drawn to my attention (in the context of an application in terms of
section 131 of the Act) that the Commission is not
willing to accept
service by sheriff of hard copy documents, and insists on service in
electronic format. The reason is not difficult
to fathom: one can
readily appreciate that the logistical burden and expense involved in
storing and retrieving documents in electronic
format is much less
than that involved in storing large volumes of paper documents. The
Commission has issued practice note 9 of
2017 which deals with the
service of subpoenas and other court documents on the Commission. It
reads as follows in relevant part:
“
In
some instances it is required for legal documents such as Notices of
Motion, Subpoenas to provide documentation, etc. to be served
on CIPC
as an interested party, as the outcome of court proceedings may
entail action to be taken by CIPC.
Uniform
Rules of Court, specifically Rule 4 and 4A describes the requirements
of service of legal documents in detail and allows
for service of
documents by way of electronic means. Annexure 3, Table CR3 of the
Companies Act, 2008
details the methods and times for delivery of
documents, and provides for service thereof by electronic means. To
this end, CIPC
has provided for a dedicated e-mail box to receive
legal documentation –
corporatelegalservices@cipc.co.za
.
Any
legal documents where CIPC is stated to be an interested party, and
must be provided with a copy of the document for record
purposes, may
be sent to the dedicated e-mail address as valid service thereof.
With
regard to subpoena’s, where specific action is required by
CIPC, service via
corporatelegalservices@cipc.co.za
is also accepted.”
64.
The
practice note is a clear indication by the Commission of the manner
in which it wishes to receive service and notice of Court
documents.
The practice note refers to
Rule 4A
, which allows for the service of
documents by way of email. The difference between
Rules 4(1)(a)
and
4A
is that
Rule 4(1)(a)
applies to documents initiating application
proceedings, which must be served by sheriff in one of the manners
provided for in
Rule 4(1)(a)
, whereas
Rule 4A
applies to the service
of documents which do not fall under
Rule 4(1)(a)
, and allows for
service by hand delivery, registered post and electronic mail. It
seems to me that where an application is brought
in terms of section
130 or 131 of the Act for relief against a company, the notice of
motion is
vis
a vis
the
company, a document initiating application proceedings, whereas it is
not such a document
vis
a vis
the Commission if no relief is sought against the Commission and it
is only cited as an interested party.
65.
Therefore,
if one interprets the word “
service”
in
sections 130(3)(a) and 131(2)(a) as meaning service in terms of Rule
4, then it is possible to hold that service in terms of
Rule 4(1) is
required in the case of the Company, whereas service in terms of Rule
4A is sufficient in the case of the Commission.
This construction
makes sense, in my view, having regard to the fact that the role and
interest of the Commission in the proceedings
is formal and
peripheral, whereas the company directly affected and may well wish
to oppose the relief being sought. In addition,
this interpretation
of the provisions requiring service on the Commission respects the
Commission’s preference in the matter,
which I regard as an
important consideration.
66.
In my view,
therefore, the word “
service”
in
section 130(3)(a) means service in terms of Rule 4, more particularly
service in terms of Rule 4(1)(a) in the case of the
company
,
that is service by sheriff in one of the manners referred to in Rule
4(1), and, in the case of the
Commission
,
service in terms of Rule 4A (c) as read with practice note 9 of
2017, that is service by electronic mail at the dedicated
email
address provided by the Commission, namely
corporatelegalservices@cipc.co.za
.
67.
Turning to
section 130(3)(b) which requires that notice be given to affected
persons “
in
the prescribed manner”
,
regulation 124 of the Companies Regulations, 2011 (“the
Regulations”) sets out the manner in which an applicant is
required to notify affected persons in terms of section 130(3)(b). It
states that:
“
An
applicant in court proceedings who is required, in terms of either
section 130(3)(b) or 131(2)(b), to notify affected persons
that
an application has been made to a court,
must
deliver a copy of the court application, in accordance with
regulation 7, to each affected person known to the applicant
.
[Emphasis added]
68.
Regulation
7(1), in turn, provides that:
“
A
notice or document to be delivered for any purpose contemplated in
the Act or these Regulations may be delivered in any manner
–
(a)
contemplated
in section 6(10) or (11); or
(b)
set
out in Table CR 3.”
69.
In terms of
section 6(11)(b) of the Act, where a document, such as this
application, is required to be delivered, it may be provided
in
electronic form if it can be printed reasonably quickly and cheaply
by the recipient; alternatively a notice of the availability
of the
document with a summary of its contents may be sent, together with
instructions for receiving the complete document.
[13]
70.
Alternatively,
notice may be given as set out in Table CR 3 of the Regulations,
which lists a number of different delivery methods
for notices or
documents required to be delivered under the Act including,
inter
alia,
fax,
electronic mail and registered post. Importantly for present
purposes, one of the permitted delivery methods set out in Table
CR 3
is “
any
other means authorised by the High Court”.
71.
Also
relevant is regulation 7(3)(a) of the Regulations, which allows for
application to be made to the High Court for an order of
substituted
service if, in a particular matter, it proves impossible to deliver a
document in any manner provided for in the Act
or the Regulations.
72.
Therefore
this Court is empowered, in terms of regulation 124 as read with
regulations 7(1) and 7(3) and Table CR 3, to determine
the manner in
which notice of the application is to be given to affected persons in
terms of section 130(3)(b).
73.
In
Cape
Point Vineyards (Pty) Ltd v Pinnacle Point Group Ltd and Another
(Advantage Projects Managers (Pty) Ltd Intervening
[14]
Rogers AJ (as he then was) criticised Regulation 124 which he said
“
[e]ffectively
… requires service of the whole application on all affected
parties”
and,
in so doing, “
may
well travel beyond what may lawfully be prescribed under
s131(2)(b).”
[15]
This criticism was endorsed by Coppin J in
Kalahari
Resources (Pty) Ltd v Arcelormittal S.A. and Others.
[16]
74.
I
respectfully agree that the regulation 124 might well be
ultra
vires
what
may lawfully be prescribed under section 131 (2)(b) (and 130(3)(a))
if, properly construed, it requires
service
of the whole application on
all
affected parties. However I humbly disagree with this interpretation
of regulation 124. It seems to me that regulation 124 requires
delivery
of a copy of the application
in
accordance with regulation 7
to all affected persons
known
to the applicant
.
Regulation 7 specifically refers to section 6(11) of the Act, which,
in terms of section 6(11)(b)(ii), allows for a
summary
of the contents of the application to be delivered by email where the
whole application cannot be printed conveniently by the recipient,
for instance because it is too voluminous to be printed quickly and
cheaply. Furthermore regulation 7(1) permits delivery in any
manner
referred to in Table CR 3, which provides for a number of delivery
options and includes any method of delivery authorised
by the High
Court. It therefore seems to me inaccurate to say that regulation 124
requires service of the whole application on
all affected parties.
The scope of regulation 124 is limited to affected persons known to
the applicant, and delivery in accordance
with one of the methods
sanctioned in section 6(11) or Table CR 3, read with regulation
7(1), is what is required.
75.
In this
case the counter-application for the setting aside and termination of
business rescue in terms of section 130 was served
on the applicants’
attorneys of record. That constitutes proper service in terms of rule
4(1)(aA) of the Uniform Rules, and
I am therefore satisfied that
there has been due compliance with section 130(3)(a) insofar as
Alderbaran is concerned. However
the Commission has not been joined
as a party to the counter-application and there has been no service
whatsoever of the application
on the Commission. The requirements of
section 130(3)(a) have therefore not been met.
76.
I cannot
grant an order in terms of section 130(5) until I am satisfied that
the Commission has been duly served with a copy of
the
counter-application and that it has waived it right to be joined as a
party to the proceedings. In the circumstances I intend
to deal with
this difficulty by issuing a
Rule
Nisi
with directions regarding service of the counter-application and the
Rule
on
the Commission.
77.
The
requirements of section 130(3)(b) have also not been met inasmuch as
a copy of the counter-application was not delivered in
any manner or
form to any affected persons as defined in section 128 (1)(a) of the
Act. In the nature of things Bouwer cannot reasonably
be expected to
know the identity of the shareholders, creditors and employees of
Alderbaran. However, an attempt could and should
have been made to
obtain the information from Alderbaran through its attorneys. At the
very least Bouwer’s attorney ought
to have furnished a copy of
the counter-application to the alleged creditors of Alderbaran who
were named in annexures “X”
and “Y” to
Bouwer’s answering affidavit, namely Shaheed Noor, Zayd Noor,
Faizel Begg and Sonnenberg & Associates.
I intend to deal with
this omission by directing that the applicants’ attorney
furnish Bouwer’s attorney with email
and/or physical addresses
for these particular creditors and ordering that a copy of the
counter-application and the
Rule
Nisi
be
delivered to these creditors by email or registered post, as
permitted in Table CR 3.
78.
The reason
why I have decided not to dismiss the counter-application for
non-compliance with the peremptory requirements of section
130(3) and
to rather issue a
Rule
Nisi
with
directions as to service and notice, is that there is a good case on
the merits for the relief sought in the counter-application.
I have
found that it would be just and equitable in all the circumstances to
grant the relief, and it follows that it would not
conducive to
justice and equity to refuse the relief on the technical ground of
defective service. I am satisfied that the interests
of all affected
persons can satisfactorily be catered for by way of the service and
notice directions which I intend to make.
COSTS
79.
It follows
from what has been set out above that the application stands to be
dismissed while the counter-application succeeds.
The costs must
follow the event in accordance with the ordinary rule.
80.
Mr
Montzinger requested that costs on the attorney and client scale be
ordered against Shaheed Noor and Faizel Noor in their respective
personal capacities, the one paying the other to be absolved.
81.
For reasons
already referred to in this judgment I consider that both Shaheed and
Faizel Noor have been guilty of an abuse of the
business rescue
process. I have found that Shaheed Noor did not act in good faith in
passing the first resolution. Faizel Noor’s
conduct is, in my
view, equally reprehensible. He took no steps whatsoever to comply
with the requirements of the Act in relation
to the first resolution,
and no attempt has been made to explain his supineness. In my view
the inference is inescapable that he
had no intention of implementing
the business rescue pursuant to the first resolution, and that he was
a party to Shaheed Noor’s
stratagem to prevent Bouwer from
executing the default judgment in order to preserve the property in
the name of Alderbaran.
82.
Another
aspect which requires mention is the failure of both Shaheed and
Faizel Noor to make full disclosure of the real business
and
financial position of Alderbaran. The founding affidavit is woefully
devoid of relevant details pertaining to the business
rescue.
Selective portions of the truth – like the contents of
Pandora’s Box – emerged piecemeal in response
to
pertinent enquiries from the Court and challenges by Bouwer. I am
left with the uneasy feeling that the full story has not been
told.
The supplementary affidavit of 6 February 2018 was a desperate
attempt to ward off the relief sought in the counter-application,
but
even then the facts put up were bald and skimpy and raised more
questions than they answered. More importantly, these facts
should
have been put up in the applicants’ founding affidavit, and
there was no explanation at all – let alone an acceptable
one –
why they had not been disclosed at an earlier stage.
83.
In all the
circumstances I have no hesitation in ordering that the costs of this
application be paid on the attorney and client
scale by Shaheed and
Faziel Noor jointly and severally in their personal capacities, both
as a mark of disapproval at the manner
in which they have abused the
business rescue process, and also because it would not be fair to
saddle Alderbaran (and therefore
possibly its creditors) with these
costs.
84.
There is
another issue in relation to costs which I feel should be addressed.
Given the particular circumstances of this case, I
consider that it
would not be right for Faizel Noor to charge Alderbaran for
remuneration as BRP. But since no relief was sought
in this regard,
and since the issue was not argued, fairness requires that I give
Faizel Noor an opportunity to be heard before
making any order in
this regard in terms of section 130(5)(c) of the Act. He will be
afforded such an opportunity on the return
day of the
Rule
Nisi
which I intend to issue.
CONCLUSION
85.
In the
result I make the following order:
1.
The
Rule
Nisi
issued
on 22 November 2017 is discharged.
2.
The
application is dismissed.
3.
A
Rule
Nisi
is
issued calling upon any interested person to appear before this Court
at 10h00 on TUESDAY 24 APRIL 2018 and give reasons, if
any, why this
Court should not make an order that:
3.1.
It is
declared in terms of section 129(5)(a) of the Companies Act 71 of
2008 (“the Act”), as read with sections 129(3)
and (4) of
the Act, that the first applicant’s resolution dated 13
September 2016 to begin business rescue proceedings and
place
Alderbaran 11 (Pty) Ltd under supervision (“the resolution”)
has lapsed and is a nullity.
3.2.
The
resolution is set aside in terms of section 130(5)(a) of the Act as
read with sections 130(1)(a)(iii) and 129(3) and (4) of
the Act and
it is declared that the business rescue has ended in accordance with
section 132(2)(a)(i) of the Act.
3.3.
It is
declared in terms of section 130(5)(c) of the Act that the sale in
execution on 15 June 2017 of Portion 241 (a portion
of Portion
63) of the farm Melkhoute Fontein Nr 480, in the Hessaqua
Municipality, Division Riversdale, Western Cape, 79,7029 hectares
in
extent (“the property”) to the Third Respondent is
valid and operative.
3.4.
The
Sheriff, Riversdale is authorised to proceed with transfer of the
property to the Third Respondent in accordance with the sale
in
execution.
3.5.
The costs
of the first respondent in the application and the
counter-application are to be paid on the attorney and client scale
by Shaheed Noor, the director of the first applicant, in his personal
capacity, and by Faizel Noor, the second applicant, in his
personal
capacity, jointly and severally, the one paying the other to be
absolved.
3.6.
The second
applicant is precluded from claiming any remuneration from Alderbaran
11 (Pty) Ltd for his services as business rescue
practitioner.
4.
A copy of
the counter-application and of this Order shall be served on the
Companies and Intellectual Property Commission (“the
Commission”) by electronic mail directed to
corporatelegalservices@cipc.co.za
,
or such other electronic mail address as may be sanctioned by the
Commission for purposes of service of legal process.
5.
A copy of
the counter-application and of this Order shall be delivered by
electronic mail or registered post to Shaheed Noor, Zayd
Noor, Faizel
Begg and Sonnenbergs & Associates, and to that end the
applicants’ attorney is directed to furnish the first
respondent’s attorney with electronic mail addresses or
physical addresses for these persons within 7 (seven) days of the
granting of this Order.
6.
A copy of
this Order is to be sent by electronic mail to the second applicant,
whose electronic mail address is to be furnished
by the applicants’
attorney to the first respondent’s attorney within 7 (seven)
days of the date of the granting of
this Order
7.
A copy of
this Order shall be served on Alderbaran 11 (Pty) Ltd by delivery at
the offices of its attorneys of record.
8.
A copy of
this Order shall be published in the Cape Times and Die Burger
newspapers.
9.
A copy of
the counter-application shall be made available on written request by
any shareholder, creditor, employee or registered
trade union
representing any employee, of Alderbaran 11 (Pty) Ltd, directed to
the first respondent’s attorney, Mr Wynand
Janse Van Rensburg
of Attorneys S A Hofmeyr & Son, Riversdale, at
wynand@riversdal.com
or fax number (028)
713-1774. (Telephone number (028) 713-2424.)
________________________
D M DAVIS
Acting
Judge of the High Court
Court
Date:
5 December 2017
& 7 February 2018
Judgment
Delivered: 22 March 208 in Court 25 by Davis AJ
[1]
A
nnexures
“Q” and “R”.
[2]
Annexure “S”
to the answering affidavit in the main application.
[3]
[2015] 3 All SA 274 (SCA).
[4]
2015 (3) SA 438
(SCA).
[5]
[2015] 4 All SA
401 (SCA).
[6]
Id
para
41.
[7]
Id
para
42.
[8]
2012 (5) SA 596
(GSJ).
[9]
Id
para
[15].
[10]
S
ee
Rosebank
Mall (Pty) Ltd v Craddock Heights (Pty) Ltd
2004
(2) SA 353
(WLD) paras 11 – 13.
[11]
Id
para
[18].
[12]
2013 (6) SA 141
(KZP) at para [10].
[13]
Section 6(11)(b)
reads as follows:
“
If,
in terms of this Act, a document, record or statement, other than a
notice contemplated in subsection 10, is required –
(b)
to be published, provided or delivered, it is sufficient if –
(i)
an electronic original or reproduction of that document, record or
statement is published, provided
or delivered by electronic
communication in a manner and form such that the document, record or
statement can conveniently be
printed by the recipient within a
reasonable time and at a reasonable cost; or
(ii)
a notice of the availability of that document, record or statement,
summarizing its content
and satisfying any prescribed requirements,
is delivered to each intended recipient of the document, record or
statement, together
with instructions for receiving the complete
document, record or statement.”
[14]
2011 (5) SA 600
(WCC).
[15]
Id
para
[16].
[16]
[2012] 3 All SA 555
(GSJ) at para
[60].