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[2012] ZAGPJHC 24
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A G Petzetakis International Holdings Ltd v Petzetakis Africa (Pty) Ltd and Others (2011/35891) [2012] ZAGPJHC 24; 2012 (5) SA 515 (GSJ) (6 February 2012)
REPORTABLE
IN THE SOUTH GAUTENG HIGH
COURT, JOHANNESBURG
Case number 2011/35891
Date:06/02/2012
In the application
between
A G Petzetakis
International Holdings
Limited
…..........................................
Applicant
and
Petzetakis Africa (Pty)
Ltd
…...............................................................
1st
Respondent
Sasol Polymers , a
division of Sasol Chemicals Industries Ltd
..........
2nd
Respondent
Emeraude
International
........................................................................
3rd
Respondent
Germani Transport (Pty)
Ltd t/a Heavy Haulage
..................................
4th
Respondent
South African Pipe
Manufacturers CC
..................................................
5th
Respondent
Engen Petroleum
Ltd
............................................................................
6th
Respondent
Marley Pipe Systems (Pty)
Ltd
.............
1st Intervening Party /
Applicant for liquidation
NUMSA
…...................................................................................
2nd
Intervening Party
Judgment by JP Coetzee AJ
BACKGROUND AND THE
PROCEEDINGS DEALT WITH HEREIN
I will refer to the
parties by name. A G Petzetakis International Holdings Limited
(“Petzetakis Holdings”) is the
shareholder of Petzetakis
Africa (Pty) Ltd (Petzetakis Africa”). The latter is clearly
in financial trouble and unable
to pay its debts. In rounded off
figures, its assets are worth some R60 million. Its liabilities
amount to some R225 million.
It ceased trading in 2010. It ceased
paying its employees since the middle of 2011. The rescue
application presently to be referred
to was preceded by the
commencement of litigation against Petzetakis Africa which included
liquidation applications against Petzetakis
Africa amongst others by
Sasol Polymers. It was also preceded by a failed attempt to
compromise the debts due by Petzetakis Africa.
In September 2011
Petzetakis Holdings applied on an urgent basis for an order placing
Petzetakis Africa under business rescue
as contemplated in Chapter 6
of the Companies Act 71 of 2008 (“the rescue application”).
On 23 September 2011 Coppin
J struck that application from the roll
for lack of urgency. After the delivery of further papers that
application came before
me on 03 February 2012 as an ordinary
application.
Sasol Polymers, a
creditor of Petzetakis Africa in an amount of some R32 million, was
cited as a respondent in the rescue application
and opposes that
application. Their preceding liquidation application was also before
me on 03 February 2012. Marley Pipe Systems
(Pty) Ltd (“Marley”)
is a creditor of Petzetakis Africa. When the papers were filed,
their concurrent claim amounted
to some R45 million. They were not
cited as a respondent in the rescue application and sought to
intervene in the rescue application.
Marley counter applies for the
liquidation of Petzetakis Africa. Marley is attempting to acquire
the business or all or some
of the assets of Pertzetakis Africa by
inter alia acquiring claims against it. Emeraude withdrew its
involvement. It was disclosed
to me that, after the filing of
papers, their claim was been acquired by Marley. Like Marley, NUMSA
also sought to intervene
in the rescue application. Unlike Marley,
NUMSA sought a postponement. Petzetakis International also sought a
postponement of
the rescue application. Marley and Sasol Polymers
opposed the applications for postponement and moved for provisional
liquidation
orders.
Marley and NUMSA are
‘affected persons’ as defined in
section 128(1)(a)
of
the
Companies Act. Marley
is a creditor. NUMSA is a registered trade
union which represents employees. In my view it follows that they
have an automatic
right to participate in the proceedings (without
the need for an order authorising them to do so) in terms of
section
130(4)
of the
Companies Act which
provides that:
“
Each affected
person has a right to participate in the hearing of an application in
terms of this section.”
This view accords with
the following remarks of Owen Rogers AJ in Cape Point Vinyards (Pty)
Ltd v Pinnacle Point Group Ltd and Others
2011 (5) SA 600
(WCC):
“
[21] … I do
not think the legislature contemplated that an affected party would
have to apply for leave to intervene in the
proceedings. If the
person is an “affected person” such person has a right to
participate in the hearing. If the person
wishes to file affidavits,
the court will obviously need to regulate the procedure to be
followed to ensure fairness to all concerned.
”
In Engen Petroleum Ltd v
Multi Waste (Pty) Ltd and Others (33401/11
[2011] ZAGPHC 148
(23
September 2011) [30] Boruchowitz J held that
“
Engen, as an
affected person, has a right to participate in the hearing of an
application in terms of s 131(1) of the Act. It would
not require
leave of the Court to intervene. Such leave may, however, be
necessary as a procedural requirement. …”
Following the approach of
Boruchowitz J and in the absence of any objection thereto I made an
order allowing the intervention of
NUMSA and Marley.
The postponement
applications were then argued. The arguments lasted the whole of the
Court day of Friday, 03 February 2012 until
well after 16:00.
Notwithstanding the late hour, the parties urged me to refrain from
reserving judgment. I obliged. The reservation
of judgment in a
postponement application late on a Friday afternoon in effect
constitutes the granting of the postponement.
The application roll
of this Court runs on a weekly basis until the last Court day of a
given week. If I reserved judgment until
the next Monday (as I was
originally minded to do), that would inevitably have resulted in the
matter being heard on a later
date, even if I refused the
applications for postponement.
I refused the
postponement applications with costs. The late hour precluded me
from providing reasons. I now do so.
DISCRETION TO POSTPONE
Van der Westhuizen J
held as follows in Shilubana v Nwamitwa (National Movement of Rural
Women and Commission for Gender Equality
as Amici Curiae)
[2007] ZACC 14
;
2007 (5)
SA 620
(CC) (footnotes omitted):
“
[10] It was made
clear in National Police Service Union that the question is whether
it is in the interests of justice for a postponement
to be granted by
this Court. A postponement cannot be claimed as of right. The party
applying for postponement must therefore show
good cause that one
should be granted. The factors to be taken into account include -
'whether the application
has been timeously made, whether the explanation given by the
applicant for postponement is full and satisfactory,
whether there is
prejudice to any of the parties and whether the application is
opposed'.
[11] In Lekolwane and
Another v Minister of Justice and Constitutional Development this
Court added the following factors to be
considered in granting a
postponement: (1) the broader public interest; and (2) the prospects
of success on the merits. The following
factors could
non-exhaustively be added to the above: the reason for the lateness
of the application if not timeously made; the
conduct of counsel; the
costs involved in the postponement; the potential prejudice to other
interested parties; the consequences
of not granting a postponement;
and the scope of the issues that ultimately must be decided. In
balancing these factors it is of
vital importance to keep in mind
that -
'(w)hat is in the
interests of justice will . . . be determined not only by what is in
the interests of the parties themselves,
but also by what, in the
opinion of the Court, is in the public interest. The interests of
justice may require that a litigant
be granted more time, but account
will also be taken of the need to have matters before this Court
finalised without undue delay.'
[12] A standard way to
mitigate prejudice to other parties is for the party asking for the
court's indulgence to postpone a hearing
- particularly one requested
at the last minute - to offer, or to be ordered, to pay the costs of
the postponement.”
The factors now to be
dealt with are particularly applicable in the present applications
for postponement.
BUSINESS RESCUE
Section 131(4)
of the
Companies Act created
the Court’s power to make an order aimed
at the rescue of a company and provides as follows:
“
(4) After
considering an application in terms of subsection (1), the court may-
(a) make an order placing
the company under supervision and commencing business rescue
proceedings, if the court is satisfied that-
(i) the company is
financially distressed;
(ii) the company has
failed to pay over any amount in terms of an obligation under or in
terms of a public regulation, or contract,
with respect to
employment-related matters; or
(iii) it is otherwise
just and equitable to do so for financial reasons,
and there is a reasonable
prospect for rescuing the company; or
(b) dismissing the
application, together with any further necessary and appropriate
order, including an order placing the company
under liquidation.”
The definition of
‘business rescue’ in
section 128(1)(b)
of the
Companies
Act is
:
“
(b) 'business
rescue' means proceedings to facilitate the rehabilitation of a
company that is financially distressed by providing
for-
(i) the temporary
supervision of the company, and of the management of its affairs,
business and property;
(ii) a temporary
moratorium on the rights of claimants against the company or in
respect of property in its possession; and
(iii) the development and
implementation, if approved, of a plan to rescue the company by
restructuring its affairs, business, property,
debt and other
liabilities, and equity in a manner that maximises the likelihood of
the company continuing in existence on a solvent
basis or, if it is
not possible for the company to so continue in existence, results in
a better return for the company's creditors
or shareholders than
would result from the immediate liquidation of the company;”
The phrase of
section
128(1)(b)(iii)
constitutes an important element of the argument on
behalf of NUMSA. In summary, I understand that part of the argument
to be
this:
In terms of the
definition in
section 128(1)(b)
'business rescue' means proceedings
to facilitate the rehabilitation of a company by providing for (i)
temporary supervision,
(ii) a temporary moratorium and (iii) the
development of a rescue plan aimed at restructuring the company to
enable it:
to continue its
existence on a solvent basis or,
if that object cannot be
achieved, to result in a better return for creditors or shareholders
than would result from immediate
liquidation. I will refer to this
as the ‘alternative object’.
Anderson Viewing the
Proposed South African Business Rescue Provisions from an
Australian Perspective [2008] Potchefstroom Electronic
Law Journal
4 says that Australian Courts on occasion utilised the Australian
equivalent of the alternative object to assist
in interpretation of
sections their rescue provisions. They accepted that it is possible
to use rescue procedure despite there
being no intention to have
the company or its business survive. They considered the
alternative object a worthwhile goal in
itself so as to justify
rescue in preference to moving directly into a liquidation.
The argument on behalf
of NUMSA is that further evidence of Petzetakis Holdings may
demonstrate a prospect of continued existence
of Petzetakis Africa,
but the prospect that the alternative object will be achieved is
more realistic.
In my view the status of
the alternative object in the South African
Companies Act depends
primarily on an interpretation of that Act. The creation of the
alternative object will probably give rise to more litigation.
It
is, for example, strange to create an object for a new remedy in a
definition section. More importantly, it difficult to understand
the
reason behind the disjunctive reference to creditors or shareholders
and the absence of a reference to employees in that
definition. For
present purposes this difficulty does not matter: The employees have
not been paid their remuneration for a number
of months. Even if the
exclusion of employees from the alternative object in section
128(1)(b) is deliberate, the employees in
the present case also
qualify as creditors to the extent of their unpaid remuneration. I
proceed on the basis that the employees,
represented by NUMSA, are
entitled to the benefits of section 128(1)(b).
PROSPECTS OF ACHIEVING
THE OBJECTS OF RESCUE
The granting of a rescue
application predates the rescue plan. The future rescue plan and its
alternative object are certainly
factors which must be borne in mind
when the rescue order is under consideration. For example, if an
achievable draft rescue
plan which has substantial support is
provided at the time of the Court application for the rescue order
that will improve the
prospects of the application. But the absence
of a final plan at the Court application phase will not necessarily
be fatal to
the application. At the time of the Court application,
the provision which is directly relevant is section 131. That
section
is the source of the Court’s power to make a rescue
order. On my interpretation of section 131(4)(a) the prerequisites
for a rescue order are that:
Any one of sub-sections
(i), (ii) or (iii) must be fulfilled; and
The Court must be
satisfied that there is a reasonable prospect of rescuing the
company concerned.
The requirement for a
reasonable prospect of rescuing the Company must be present,
irrespective of which of sub-sections (i),
(ii) or (iii) is
applicable. This interpretation is based on these grounds.
Firstly this
interpretation is supported by the form and wording of the section
as it appears in the Government Gazette. The following
word of
warning is required on this point:
The quoting of section
131 herein above accords with the form of that section as it
appears in Government Gazette 32121 of 9
April 2009, and in
publications such as the English version of Butterworths Statutes
of the Republic of South Africa-Companies
(the well known maroon
loose leave books).
The LexisNexis
pocketsize ‘
Companies Act 71 of 2008
… Updated May
2011’ and the Afrikaans version of Butterworths Statutes are
different. In those publications the
form of
section 131(1)(a)
indicates that the requirement that there must be a reasonable
prospect for rescuing the company is limited to
section
131(4)(a)(iii).
They respectively incorporate the words
“…
and there
is a reasonable prospect for rescuing the company; or …”
and
“…
en
daar ‘n redelike vooruitsig is dat die maatskappy gered kan
word; of
”
as part of subsection
(iii).
I accepted the version
as in the Government Gazette as correct.
The second reason why I
hold that the requirement for a reasonable prospect of rescuing the
Company must be present, irrespective
of which of sub-sections (i),
(ii) or (iii) is applicable is that an interpretation that the
second requirement only needs to
be present if sub-section (iii) is
relied upon would be illogical: On such an interpretation a
financially distressed company
and a company which failed to pay its
debts could be placed under rescue irrespective of the prospects of
their recovery. Yet,
a company which requires rescue for other just
and equitable reasons of a financial nature can only be placed under
rescue if
there is a reasonable prospect of its recovery.
Section 131(4)
does not
incorporate the alternative object of the (at the
section 131
stage
future) rescue plan which is referred to in
section 128
, namely a
plan which could result in a better return for creditors or
shareholders than would result from immediate liquidation.
It seems
that the intention of the legislature on this point is as follows:
The requirements for
the granting of a
section 131
rescue order include that the company
under consideration must have a reasonable prospect of recovery.
Once a company is under
business rescue, its rescue plan may be aimed at the alternative
object, namely a better return than
the return of immediate
liquidation.
To the extent that the
alternative purpose may be sufficient at the time of the
section 131
application, the likelihood of that purpose being achieved must
appear from the founding papers. Eloff AJ said in Southern Palace
Investments 265 (Pty) Ltd v Midnight Storm Investments 386 (Pty) Ltd
(15155/2011)
[2011] ZAWCHC 442
(25 November 2011) is not addressed
in the postponement applications:
“
23. Reverting to
the instant case, ... But, more importantly, there is, on the vague
and undetailed information before me, no reason
to believe that there
is any prospect of the business of the respondent being restored to a
successful one. There is not even a
concrete plan available for
consideration … .
24. Whilst every case
must be considered on its own merits, it is difficult to conceive of
a rescue plan in a given case that will
have a reasonable prospect of
success of the company concerned continuing on a solvent basis unless
it addresses the cause of the
demise or failure of the company's
business, and offers a remedy therefor that has a reasonable prospect
of being sustainable.
A business plan which is unlikely to achieve
anything more than to prolong the agony, i.e. by substituting one
debt for another
without there being light at the end of a not too
lengthy tunnel, is unlikely to suffice. One would expect, at least,
to be given
some concrete and objectively ascertainable details going
beyond mere speculation in the case of a trading or prospective
trading
company, of:
24.1. the likely costs of
rendering the company able to commence with its intended business, or
to resume the conduct of its core
business;
24.2. the likely
availability of the necessary cash resource in order to enable the
ailing company to meet its day-to-day expenditure,
once its trading
operations commence or are resumed. If the company will be reliant on
loan capital or other facilities, one would
expect to be given some
concrete indication of the extent thereof and the basis or terms upon
which it will be available;
24.3. the availability of
any other necessary resource, such as raw materials and human
capital;
24.4. the reasons why it
is suggested that the proposed business plan will have a reasonable
prospect of success.
25. In relation to the
alternative aim referred to in
section 128(b)(iii)
of the new Act,
being to procure a better return for the company’s creditors
and shareholders than would result from the
immediate liquidation
thereof, one would expect an applicant for business rescue to provide
concrete factual details of the source,
nature and extent of the
resources that are likely to be available to the company, as well as
the basis and terms on which such
resources will be available. It is
difficult to see how, without such details, a Court will be able to
compare the scenario sketched
in the application with that which
would obtain in an immediate liquidation of the company. Mere
speculative suggestions are unlikely
to suffice.”
None of the parties
(correctly so) argued that the papers in the rescue application
demonstrate that either of the two objects
referred to in section
128(1)(b)(iii) is achievable. The papers certainly do not
demonstrate the existence of a reasonable prospect
that Petzetakis
Africa can successfully be rescued. On the contrary, the founding
affidavit paints the picture of a company which
is beyond rescue
unless it receives a large financial injection and there is no
indication of a reasonable probability that such
a financial
injection will be received. The papers also do not demonstrate a
reasonable prospect of a rescue plan which will
achieve a better
return than immediate liquidation.
THE POSTPONEMENT
APPLICATIONS
Petzetakis Holdings
wants the postponement to enable it to demonstrate a reasonable
prospect of rescue by way of a supplementary
founding affidavit
which provides information of a restructuring in Europe which
happened after the application had been launched.
NUMSA’s
application for postponement is different from the application of
Petzetakis Holdings. NUMSA wants the postponement
to consider filing
papers. In addition to the possible prospects of the proposed
supplementary affidavit of Petzetakis Africa,
NUMSA also relies on
the more realistic prospect that the alternative object of the
rescue plan may be achieved (with less job
losses than would occur
in the event of liquidation). According to NUMSA the new component
proving this prospect is that the
Competition Commission’s
conditionally approved the proposed acquisition of the business or
assets of Petzetakis Africa
by Marley. NUMSA was aware of the rescue
application and of the application for the approval of the
Competition Commission, but
they only acquired knowledge of the
conditional approval on 17 January 2011. They had elected not to
deliver papers before they
acquired such knowledge.
The application need not
be postponed for evidence proving the conditional approval of the
Competition Commission is not required.
That conditional approval is
already before Court.
PROSPECTS OF SUCCESS
With reference to the
prospect of success on the merits Counsel for Marley and Sasol
Polymers referred to various points of criticism
of the rescue
application. I limit my consideration of this criticism to aspects
which are important for purposes of the postponement
application.
The important defect in the founding papers is that, as pointed out
above, they do not demonstrate a reasonable
prospect that Petzetakis
Africa can be saved or (to the extent that this might have sufficed)
that there us a prospect that
the alternative object is achievable.
Petzetakis Holdings and
NUMSA (correctly so) do not contend that the rescue application as
it stands can be granted. The purpose
of the proposed postponement
is that the application can be amplified with supplementary
affidavit evidence.
Neither Petzetakis
Holdings nor NUMSA provides any detail of the proposed supplementary
evidence. The former’s vague reference
to a company
restructuring in Europe does not begin to demonstrate that the
proposed postponement will enable them to make out
a case which
proves a prospect of rescue or the alternative object. NUMSA’s
postponement application also falls short of
identifying evidence to
be presented which could demonstrate a reasonable prospect of
recovery of the alternative object. To
the extent that they do not
know what the supplementary evidence will be, they cannot be faulted
for not dealing with the detail
thereof. However, a case cannot be
postponed in the hope that evidence of which no detail is known will
help to reach a favourable
result, whatever the reason for the
absence of detail. It is, for example, not good enough to speculate
what the rescue practitioner
may or may not be able to do.
Before a Court can make
the rescue order which would give rise to the practitioner’s
opportunity to work out a rescue plan
it must be satisfied that
there is a reasonable prospect of rescuing Petzetakis Africa or, at
best for NUMSA, that there is a
prospect that the future rescue plan
will achieve the alternative object of section 128(b)(iii), namely a
better result than
immediate liquidation. On the evidence as
presented and the known evidence to be presented in the event of a
postponement as
disclosed, the Court cannot be so satisfied. If all
the disclosed evidence is presented the prospects of success on the
merits
will remain totally against the granting of the rescue order.
Neither of the applicants for postponement provided sufficient
detail as to what evidence they will present if a postponement is
granted to satisfy me that it may create a prospect of success
on
the merits which warrants the postponement. I again refer to the
above quoted remarks of Eloff AJ in Southern Palace.
TIMING OF THE
POSTPONEMENT APPLICATION
The explanation for the
delay of Petzetakis Holdings to bring their postponement application
is that they did not provide the
necessary funds to their attorneys.
If they chose not to do so, this is the poorest of explanations. If
they were unable to do
so, that is an indication of improbability
that they will be able to raise the necessary money injection to
rescue Petzetakis
Africa. They provide no particulars of where and
on what terms such money can be raised.
The explanation of NUMSA
is that they awaited the outcome of the application to the
Competition Commission before deciding on
their course of conduct.
That is understandable. But that also constitutes a deliberate
decision to withhold the delivery of
affidavit evidence when they
had the right to do so. To the extent that they had no evidence to
deliver, their failure is understandable.
However, at present the
only new evidence is the conditional approval of the Competition
Commission which is already before Court.
PREJUDICE
Chapter 6 of the
Companies Act demonstrates
a legislative intention that rescue
proceedings must be conducted reasonably speedily. The reason is
obvious. Pending rescue
proceedings temporarily protects the company
concerned from legal proceedings by its creditors for the recovery
of legitimate
claims without any input of the creditors and removes
the unfettered management of the company from the directors. Delays
will
extend the duration of these temporary statutory arrangements,
of which the duration is restricted by way of the procedure
prescribed
by the Act. For example, section 148 requires the
business rescue practitioner to convene a meeting within 10 business
days after
being appointed. In terms of section 150(5) a business
plan must be published within 25 business days after the appointment
of
the practitioner. Section 151 requires a meeting to be held
within 10 business days after publication of the business rescue
plan. In terms of section 152 the fate of the company is decided at
the section 151 meeting. If the time periods are added up,
it
appears that the protection of the company without the co-operation
of the creditors from the time of a rescue order should
not be more
than 2 to 3 months, even if there are many intervening non-business
days.
I respectfully agree
with the following remarks of Binns-Ward J in Koen and Another v
Wedgewood Village Golf & Country Estate
(Pty) Ltd and Others
(24850/11)
[2011] ZAWCHC 464
(9 December 2011)
“
[10] … It
is axiomatic that business rescue proceedings, by their very nature,
must be conducted with the maximum possible
expedition. In most cases
.a failure to expeditiously implement rescue measures when a company
is in financial distress will lessen
or entirely negate the prospect
of effective rescue. Legislative recognition of this axiom is
reflected in the tight timelines
given in terms of the Act for the
implementation of business rescue procedures if an order placing a
company under supervision
for that purpose is granted. There is also
the consideration that the mere institution of business rescue
proceedings - however
dubious might be their prospects of success in
a given case -materially affects the rights of third parties to
enforce their rights
against the subject company …”
NUMSA attempted to limit
the prejudice to creditors by proposing that I order severely
restricted time periods for the delivery
of further affidavits.
Their proposed order, for example, provides that Petzetakis Holdings
must deliver their supplementary
founding affidavit within 2 weeks.
Counsel for Petzetakis Holdings said that they need 4 weeks in that
evidence needs to be obtained
from Europe. Even if the 2 week
limitation is ordered, it must be borne in mind that the affidavit
to be delivered will be a
supplementary founding affidavit. The
other parties will have a right to answer, whereafter Petzetakis
Holdings will have a right
to reply. It appears unlikely that the
delay caused by the postponement can be limited to less than
approximately 2 months. Although
the attempt of Petzetakis Holdings
to bring this application on an urgent basis is now history, one
cannot totally ignore that,
some 4 months later, this same party
asks for a postponement which allows it another 4 weeks to
supplement its papers.
The refusal of the
postponement would not constitute an absolute and final barrier to
the presentation of further evidence. Marley
and Sasol Polymer asked
for and I granted a provisional (not final) liquidation order. It
follows that further evidence can be
provided for consideration on
the return day.
Section 131(7)
of the
Companies Act also
provides
that business rescue can also be ordered in the liquidation
proceedings.
CONCLUSION
For these reasons I
refused the postponement applications.
Marley and Sasol then
moved for a provisional liquidation order. The other parties did not
oppose. I granted the provisional order.
JP Coetzee AJ
06 February 2012