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[2013] ZAGPJHC 316
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Absa Bank Limited v Makuna Farm CC (2012/28972) [2013] ZAGPJHC 316; 2014 (3) SA 86 (GSJ) (30 August 2013)
REPUBLIC
OF SOUTH AFRICA
SOUTH GAUTENG
HIGH COURT, JOHANNESBURG
CASE
NO: 2012/28972
In the matter between -
ABSA
BANK LIMITED
APPLICANT
and
MAKUNA
FARM CC
RESPONDENT
JUDGMENT
BORUCHOWITZ J:
[1] The applicant
applies for an order placing the respondent under final winding up.
It is a substantial creditor
of the respondent arising from various
credit and loan agreements concluded between them. The
respondent has been trading
under insolvent circumstances since at
least 2008, when it was unable to comply with its contractual
obligations to the applicant,
and its outstanding indebtedness is
approximately R14 million.
[2] On 24 April 2013, the
applicant obtained an order placing the respondent under provisional
winding up. The return date
of the provisional order was
extended on two occasions, until 26 August 2013.
[3] That the respondent
is profoundly insolvent and liable to be wound up is uncontested.
The respondent resists the grant
of a final winding up order on the
ground that its sole member has launched an application to place the
respondent under supervision
and commence business rescue proceedings
in terms of s 131(1) of the Companies Act, 71 of 2008 (“the
Act”).
[4] Reliance is placed
upon the provisions of s 131(6) of the Act, which read:
“
(6)
If liquidation proceedings have been commenced by or against the
company at the time an application is made in terms of subsection
(1), the application will suspend those liquidation proceedings
until –
(a)
the
court has adjudicated upon the application; or
(b)
the
business rescue proceedings end, if the court makes the order applied
for.
”
[5] At issue is whether
this Court is precluded from granting a final winding up order in
view of the suspension of “
liquidation proceedings
”
referred to in the abovementioned section of the Act.
[6] The pivotal question
for determination is whether the words “
liquidation
proceedings
” as they appear in the section is a reference
to the substantive application taken by a creditor to obtain a
winding up order,
or to the liquidation proceedings and processes
that follow the grant of such order. If the reference in the
section is to
the application proceedings to obtain a winding up
order, then clearly the suspension envisaged therein would apply to
the grant
of a final winding up order.
[7] The express wording
of the section makes it is plain that the stay contemplated applies
to “
liquidation proceedings
” that “
have
already been commenced by or against the company at the time an
application is made in terms of subsection (1)
”.
Winding up proceedings only commence, albeit with retrospective
effect in terms of s 348 of the 1973 Act, once
a winding up
order is granted (see
Vermeulen & Another v Bauermeister and
Others
1982 (4) SA 159
(T) at 162A-B). In my view, the
aforegoing is an indication that the words “
liquidation
proceedings
” in s 131(6) refer to the proceedings that
follow the grant of a winding up order, and not to the application to
obtain
a winding up order. See also in this regard,
Absa
Bank Limited v Earthquake Investments (Pty) Limited
(unreported
Case No 2012/63190), where a similar view is expressed by Makgoba J.
[8] The launch of
business rescue proceedings does not alter the legal status of the
company in liquidation but merely stays the
implementation of the
winding up order. The manifest purpose of the s 131(6)
suspension is to delay implementation of
the winding up order pending
the outcome of the business rescue application, but the company
remains under winding up, whether
finally or provisionally.
Support for this view is to be found in the judgment of Van der
Bijl AJ in
Absa Bank Limited v Summer Lodge (Pty) Limited and
Others
(unreported Case No 2012/63188), where the learned Judge
said the following at para [19]:
“
[19]
It is not the intention of the section to render a liquidation order
to be set aside or to be discharged by the issue of a
business rescue
application in terms of section 131(6), but to rather suspend the
order so as to delay the implementation of the
order, and it can also
not have the effect that the company can proceed carrying on
business. The company remains to be finally
or provisionally
liquidated, as the case may be, until such time as the business
rescue proceedings have been finalized.
”
[9] For these reasons I
am of the view that it would be permissible for this Court to grant a
final winding up order and to do so
would not be inconsistent with
the object and purpose of 131(6) of the Act.
[10] I turn now to the
question of costs.
[11] When argument
commenced on Monday, 25 August 2013, the Court was informed for the
first time that business rescue proceedings
had been launched by the
sole member of the respondent. Counsel for the respondent had
emailed a practice note to my secretary
at 16h59 on Friday, 23 August
2013, intimating that an application to place the respondent under
business rescue proceedings had
been launched but for obvious reasons
this could and did not come to my attention. I accordingly
directed that the application
be postponed for argument and the
filing of heads of argument until Wednesday, 28 August 2013.
The respondent was directed
to pay the wasted costs occasioned by the
postponement. A rule
nisi
was also issued calling upon
the respondent’s attorney to show cause why it should not be
ordered to pay such costs
de bonis propriis
jointly and
severally with the respondent.
[12] To facilitate a
proper understanding for the reasons for the issue of such rule, it
is necessary to detail the following relevant
facts.
[13] On 12 August 2013, I
addressed a letter to the respondent which at that stage was
unrepresented, in which it was pointed out
that the applicant had
filed a practice note and heads of argument as required in terms of
paragraphs 9.8.1 and 9.8.2 of Chapter
9 of the Practice Manual of the
South Gauteng High Court, but that the respondent had not complied
with these provisions.
The respondent was directed to deliver
the required practice note and heads of argument by not later than
12h00 on Wednesday, 14
August 2013.
[14] On 13 August 2013, a
letter was addressed to me by Attorneys Rothbart Ingham Inc in which
it was stated that they had that
day agreed to represent the
respondent; that their counsel was unavailable and that they
would be seeking an indulgence from
the applicant’s attorneys
for a postponement of the matter for at least two weeks to enable a
supplementary affidavit, heads
of argument and a relevant practice
note to be filed. They also indicated that there was also a new
development which required
a supplementary affidavit to be served and
filed. In paragraph 5 of this letter, the respondent’s
attorney stated the
following: “
We are addressing a
letter to the attorneys of record of the Applicant requesting this
indulgence and once we know their response,
we will revert to the
Honourable Judge
.”
[15] On 27 August 2013,
Ms Elmarie Verster Ingham, the respondent’s attorney, who
practises as a director of Rothbart Ingham Inc,
deposed to an
affidavit in which she explained, among other things: That they
had previously acted for the respondent but
withdrew as attorneys of
record on 4 February 2013 as the respondent had not placed the firm
in funds; that they agreed to
again represent the respondent on
13 August 2013 and on the same day addressed a letter to me and the
attorneys representing the
applicant; that in order not to
incur the additional costs of briefing new counsel it was decided to
retain the same counsel
who had previously dealt with the matter who
was then away on holiday; that on 13 August 2013 she received a
response from
applicant’s attorneys indicating that they would
not agree to a further postponement of the application.
[16] Ms Ingham
further explains that in view of the fact that the applicant is the
sole creditor of the respondent and that
the Department of
Agriculture, Forestry and Fisheries had indicated to the applicant
that it was willing to assist the respondent
with a turnaround
strategy, a decision was taken to bring an application in terms of
s 131 of the Act to place the respondent
under supervision and
commence business rescue proceedings.
[17] She consulted with
counsel for the first time on Tuesday, 20 August 2013 and the
application to commence business rescue proceedings
was finalised on
Friday, 23 August 2013.
[18] It is common cause
that the business rescue application was served by the Sheriff on the
Commission and on the applicant on
26 August 2013. One of the
provisional liquidators was given notice of the application on 23
August 2013 at 16h30, and the
other on 26 August 2013 at 08h30.
[19] Ms Ingham has failed
to explain why the undertaking given to the Court in the fifth
paragraph of her letter dated 13 August
2013 (which is reproduced
above) was not complied with. Nor does she explain why there
was non-compliance with the abovementioned
practice directive of the
South Gauteng High Court and the directive given by me in regard to
the filing of a practice note and
heads of argument. The filing
by counsel of a practice note on Friday, 23 August 2013 at 16h59
clearly does not accord with
the required practice.
[20] More importantly,
Ms Ingham has failed to explain why no prior indication was
given to the Court and the applicant of
the fact that business rescue
proceedings were about to be launched. The unheralded
presentation of the application for business
rescue was the clear
cause of the postponement that occurred on 26 August 2013. Had
the respondent served a practice note
and heads of argument dealing
with the business rescue application and its effect on the present
proceedings immediately after
the decision had been taken to launch
the business rescue proceedings the postponement could have been
avoided.
[21] Ms Ingham’s
failure to comply with her undertaking to the Court and to properly
explain why the practice requirements
regarding the filing of a
practice note and heads of argument were not complied with merits
censure. So, too, does her failure
to explain why no prior
indication was given to the Court and the applicant of the fact that
business rescue proceedings were to
be launched. This is
sufficient reason for the grant of a punitive order as to costs.
[22] The wasted costs
incurred in relation to the hearing on 26 August 2013 ought also not
to be borne by the company in liquidation
or its creditors.
[23] The following order
is granted:
1.
The
respondent is hereby placed under final winding up.
2.
The
wasted costs occasioned by the postponement of the application on 26
August 2013 are to be paid
de
bonis propriis
by Ms Elmarie Verster Ingham on the scale as between attorney
and client. Such wasted costs are to be paid jointly and
severally with the respondent.
P
BORUCHOWITZ
JUDGE
OF THE HIGH COURT
DATE OF HEARING :
26 and 28 August 2013
DATE OF JUDGMENT :
30 August 2013
COUNSEL FOR THE
APPLICANT : Adv M A
BADENHORST SC
INSTRUCTED BY :
SMIT SEWGOOLAM INC
COUNSEL FOR
RESPONDENT : Adv JJ
BITTER
INSTRUCTED BY :
ROTHBART INGHAM INC