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[2015] ZASCA 76
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Panamo Properties (Pty) Ltd and Another v Nel N.O. and Others (35/2014) [2015] ZASCA 76; 2015 (5) SA 63 (SCA); [2015] 3 All SA 274 (SCA) (27 May 2015)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 35/2014
In
the matter between:
PANAMO
PROPERTIES (PTY)
LTD
................................................................
FIRST
APPELLANT
LIEBENBERG
DAWID RYK VAN
DER
MERWE
NO
...........................................................................................
SECOND
APPELLANT
and
JAN
HENDRIK NEL
NO
..................................................................................
FIRST
RESPONDENT
CHARMAINE
NEL
NO
...............................................................................
SECOND
RESPONDENT
(in
their capacities as trustees of the
JAN
NEL TRUST IT 660/86)
THE
COMPANY AND INTELLECTUAL
PROPERTY
COMMISSION OF THE
RSA
..................................................
THIRD
RESPONDENT
TREVOR
PAYNE
.........................................................................................
FOURTH
RESPONDENT
PINK
PARROT INVESTMENTS
(PTY)
LTD
..........................................................................................................
FIFTH
RESPONDENT
FIRSTRAND
BANK
LIMITED
......................................................................
SIXTH
RESPONDENT
Neutral
Citation:
Panamo
Properties (Pty) Ltd v Nel and Another NNO
(35/2014)
2015 ZASCA 76
(27 May 2015)
Coram:
NAVSA ADP, MAJIEDT, WALLIS and ZONDI JJA and
DAMBUZA AJA
Heard
:
14 May 2015
Delivered
:
27 May 2015
Summary:
Business rescue proceedings –
resolution by company in terms of s 129(1) of
Companies Act 71
of 2008
– non-compliance by company with further requirements
of
ss 129(3)
and (4) of the Act – effect –
s 129(5)
of the Act – non-compliance does not automatically result in
the business rescue being terminated – such non-compliance
a
ground for bringing an application to court to set aside the
resolution in terms of
s 130(1)
(a)
(iii)
of the Act – a court will only set aside such resolution if it
is otherwise just and equitable to do so in terms of
s 130(5)
of
the Act – the business rescue terminates in terms of
s 132(2)
(a)
(i)
of the Act once an order setting aside the resolution has been
granted.
ORDER
On
appeal from:
Gauteng Division of the
High Court, Pretoria (Khumalo J, sitting as court of first instance):
1
The appeal is upheld with costs.
2
Paragraphs 2 and 3 of the order of the
court below are set aside and replaced by the following:
‘
The
application is dismissed.’
3
Paragraph 4 of the order of the court below
is renumbered as paragraph 3.
4
The order granted on the counter
application is set aside.
JUDGMENT
Wallis
JA (Navsa ADP, Majiedt and Zondi JJA and Dambuza AJA concurring)
[1]
Business
rescue proceedings under the Companies Act 71 of 2008 (the Act) are
intended to ‘provide for the efficient rescue
and recovery of
financially distressed companies, in a manner that balances the
rights and interests of all relevant stakeholders’.
[1]
They contemplate the temporary supervision of the company and its
business by a business rescue practitioner. During business rescue
there is a temporary moratorium on the rights of claimants against
the company and its affairs are restructured through the development
of a business rescue plan aimed at it continuing in operation on a
solvent basis, or if that is unattainable, leading to a better
result
for the company’s creditors and shareholders than would
otherwise be the case.
[2]
These
commendable goals are unfortunately being hampered because the
statutory provisions governing business rescue are not always
clearly
drafted. Consequently they have given rise to confusion as to their
meaning and provided ample scope for litigious parties
to exploit
inconsistencies and advance technical arguments aimed at stultifying
the business rescue process or securing advantages
not contemplated
by its broad purpose. This is such a case.
[2]
The Jan Nel Trust (the Trust) is the sole
shareholder of the first appellant, Panamo Properties (Pty) Ltd
(Panamo). Its trustees,
Mr and Mrs Nel, who are also the directors of
Panamo, represent it in these proceedings. Panamo is a
property-owning company owning
a large property in Roodepoort. Mr and
Mrs Nel’s home is situated on a portion of the property, and
the balance is let to
various commercial tenants. The property was
mortgaged in favour of Firstrand Bank Ltd, but Panamo fell into
arrears and judgment
was taken against it for amounts totalling some
R3.3 million, plus interest and costs. The hypothecated property was
declared executable.
[3]
In order to prevent a sale of the property
and afford the Nels time to resolve Panamo’s financial
problems, the Trust resolved
on 19 August 2011 to place Panamo in
business rescue. A little over two years later, in September 2013,
the Trust sought an order
declaring that the original resolution to
place Panamo in business rescue had lapsed and consequently that the
entire business
rescue process was a nullity. That was after the
appointment of a business rescue practitioner, (Mr van der Merwe the
second appellant);
the adoption of a business rescue plan; and the
sale of the property pursuant to that plan. It is undisputed that the
sole purpose
behind the application was to prevent the sale of the
property and to prolong Mr and Mrs Nel’s occupation of their
home.
[4]
In advancing its case the Trust relied on
its failure – and hence the failure of the Nels as the moving
spirits behind both
the Trust and Panamo – to comply with
various requirements prescribed by ss 129(3) and (4) of the Act.
In some instances
the non-compliance lay in doing things after the
expiry of the prescribed statutory period for them to be done. In
others it consisted
of straightforward non-compliance with the
statutory injunction. The argument on behalf of the Trust was that
s 129(5)
(a)
of the Act stipulates that the consequences of such non-compliance
are that the resolution to begin business rescue lapses and
is a
nullity, and hence the entire process of business rescue in relation
to Panamo had been a fruitless exercise as the underpinning
for it
fell away in October 2011. Khumalo J upheld these contentions and
issued a declaratory order that the resolution to commence
business
rescue had lapsed and was a nullity, and a further order that the
appointment of Mr van der Merwe as business rescue practitioner
in
respect of Panamo was void. The appeal is with her leave.
[5]
In reaching that conclusion, Khumalo J
expressed her frustration at the straitjacket that she thought
s 129(5)
(a)
imposed upon her. She quite correctly regarded the approach of the
Trust as opportunistic. She said that the Nels had ‘strung
along’ the other parties to the business rescue process and
delayed bringing the application until, for selfish reasons,
they
realised that there was no other way in which to prevent the transfer
of the property to the purchaser. Her conclusion was
that the Nels
‘have acted to the company’s detriment with a disastrous
outcome’. I agree and would go further
to describe their
conduct as a stratagem involving a wholly undesirable exploitation of
legal technicalities for their own advantage.
However, if Khumalo J’s
construction of s 129(5) is correct, that situation was
unavoidable. The issue in this appeal
is whether she was correct.
[6]
The counter argument advanced by Mr van der
Merwe, on his own behalf and on behalf of Panamo, is that s 129(5)
(a)
does not have this drastic effect. It must, so he contended, be read
in the light of the provisions of s 130 of the Act, which
deal
with the circumstances in which a court may be asked to set aside a
resolution to place a company under business rescue. According
to the
argument, those provisions limit both the time within which a
resolution to place a company under business rescue may be
challenged
and, if such an application is brought timeously, the parties who may
bring such an application. Lastly he submitted
that an application
would only succeed if the court thought it just and equitable to set
aside the resolution and bring the business
rescue process to an end.
[7]
In this case the Trust had not purported to
bring an application in terms of s 130(1). The time for bringing
such an application
had passed before the Trust sought to challenge
the validity of the resolution, and its
locus
standi
to bring such an application was
doubtful. Furthermore, it would not have been just and equitable in
the light of the facts relating
to the business rescue proceedings
for a court to have granted such an order Those facts included the
numerous attempts by the
Nels to stultify those proceedings and the
considerable financial prejudice, both actual and contingent, to Mr
van der Merwe and
potentially to creditors, that would ensue from
terminating the business rescue. Accordingly he submitted that the
application
should have been dismissed.
[8]
A resolution of these issues requires a
consideration of the relevant provisions of ss 129 and 130 of
the Act. But first it
is necessary to place them in their proper
setting in the Act. Business rescue is a process aimed at avoiding
the liquidation of
a company if it is feasible to do so. There are
two routes through which a company may enter business rescue, namely,
by way of
a resolution of its board of directors (s 129(1)) or
by way of a court order (s 131(1)). We are concerned with the
former.
[9]
Under
s 129(1) the board of a company may resolve to begin business
rescue proceedings if it has reasonable grounds for believing
that
the company is financially distressed
[3]
and there appears to be a reasonable prospect of rescuing the
company. Such a resolution may not be adopted if liquidation
proceedings
have been initiated against the company.
[4]
Once a resolution is taken it only becomes effective when it is filed
with the Companies and Intellectual Property Commission,
Republic of
South Africa (CIPCSA).
[10]
After
the resolution has been filed with CIPCSA the company is obliged to
take certain steps. They are set out in ss 129(3)
and (4) of the
Act.
[5]
It is common cause that
in this case there was a degree of non-compliance with these
provisions. Thus, the statutory notice sent
to creditors of Panamo
was not accompanied by a sworn statement of the facts relevant to the
grounds on which the board resolution
was founded; Mr van der Merwe
was not appointed within the prescribed time period; and, the notice
of his appointment was not published
to all affected parties. These
are the shortcomings on which the Nels based their application.
[11]
Before examining s 129(5), on which
the court below based its judgment, it is worth noting that s 130
expressly deals
with objections to a company resolution to begin
business rescue. Its provisions relevant to this case read as
follows:
‘
(1) Subject
to subsection (2), at any time after the adoption of a resolution in
terms of section 129, until the adoption of
a business rescue plan in
terms of section 152, an affected person may apply to a 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 has failed to satisfy the procedural requirements set out
in section 129;
…
(2)
An affected person who, as a director of a company, voted in favour
of a resolution contemplated in section 129 may not apply
to a court
in terms of—
(a)
subsection (1)
(a)
to set aside that resolution; or
(b)
…
unless
that person satisfies the court that the person, in supporting the
resolution, acted in good faith on the basis of information
that has
subsequently been found to be false or misleading.’
[12]
Some aspects of this section are worth
highlighting. Firstly, it provides in s 130(1) for three grounds
upon which an application
to set aside the resolution may be brought.
The first two are that the grounds for passing such a resolution set
out in s 129(1)
are absent, and the third is that the procedural
requirements of s 129 have not been observed. In other words,
the first two
bases for challenging a resolution mirror the grounds
for passing the resolution set out in s 129(1), and the third
raises
the issue of non-compliance with the obligations imposed on
the company by s 129 consequent upon passing the resolution and
filing it with CIPCSA. That seems sensible. If the grounds for
passing such a resolution are not present then it is appropriate
to
have a mechanism for setting it aside. If the procedural requirements
to be followed once a resolution has been passed and filed
with
CIPCSA are not followed, that may indicate that there is no genuine
intention to follow the process through to a successful
conclusion
and it is appropriate for there to be a mechanism to set it aside.
[13]
Secondly, the time for bringing such an
application is restricted. An application to set aside the resolution
may be brought at
any time after the date of adoption of the
resolution but, once a business rescue plan has been adopted, the
time for challenging
a resolution is past. Whatever flaws may have
been present before that time become of purely historical importance
thereafter.
[14]
Thirdly, some people are excluded from the
ranks of those who are entitled to bring a challenge to a resolution
and seek to have
it set aside. A director of the company who voted in
favour of such a resolution is precluded from bringing such an
application,
unless they can show that in doing so they acted in good
faith on information furnished to them that was false or misleading.
In
other words there is no room for a director simply to have a
change of heart in the light of altered circumstances. A director who
opposed the resolution is not so restricted, whether they bring the
application as a shareholder or as a creditor. No doubt that
is why
the resolution can be challenged at any time after it is first
passed, even if it has not yet been filed with CIPCSA. A
dissentient
director may immediately challenge the resolution and argue that
there is no reasonable ground for believing that the
company is
financially distressed or, if it is, that there is no reasonable
prospect of rescuing it. In addition the section clearly
contemplates
that such a director, or any other affected person, may bring such an
application on the basis that there has been
non-compliance with the
procedural requirements of s 129. That fact immediately
indicates that the lapsing and nullity arising
from such
non-compliance may be less than absolute.
[15]
These
points are pertinent because the application by the Trust, directed
at setting aside the resolution, sidestepped two of these
constraints. First, it was brought after the adoption of the business
rescue plan, which would not be permissible in an application
under
s 130. Second, in substance, if not form, Mr and Mrs Nel, the
persons who, as the directors of Panamo, passed the resolution
to
place it under business rescue, brought the application. They
would not have been entitled to bring an application under
s 130
and it is an open question whether s 130(2) would permit them to
do so by making the Trust the applicant rather
than themselves.
[6]
However, if they were permitted to do so, that would clearly be
contrary to the underlying purpose of s 130(2), which is that
those responsible for placing the company in business rescue should
not be entitled to challenge that decision merely because they
have
changed their minds, much less because it suits their private
interests to do so. Assuming that they could nonetheless bring
an
application, this is undoubtedly a factor that would have weighed
heavily with a court faced with such an application, in considering
what was just and equitable under s 130(5)
(a)
(ii).
[16]
The Trust argued that it was not obliged to
follow the route of an application to court under s 130(1)
(a)
(iii),
because such a challenge was unnecessary in the light of s 129(5)
(a)
,
which reads as follows:
‘
(5)
If a company fails to comply with any provision of subsection (3) or
(4)—
(a)
its resolution to begin business rescue
proceedings and place the company under supervision lapses and is a
nullity …’
It
contended that the effect of its non-compliance with the provisions
of sub-sections (3) and (4) of s 129 was that the resolution
commencing business rescue in relation to Panamo lapsed and became a
nullity, thereby bringing the business rescue proceedings
to an end.
This was so irrespective of the fact that the non-compliance flowed
from the Trust’s own failures to comply with
these requirements
and without any need to invoke the provisions of s 130.
[17]
Arguments
such as those raised in this case have featured in a number of
decisions of the various divisions of the High Court. The
first of
these appears to be
Advanced
Technologies and Engineering Company (Pty) Ltd v Aeronautique et
Technologies Embarquées SAS
,
[7]
where Fabricius J concluded that:
‘
It
is clear from the relevant sections contained in chapter 6 that a
substantial degree of urgency is envisaged once a company has
decided
to adopt the resolution beginning rescue proceedings. The purpose of
s 129(5) is very plain and blunt. There can be no
argument that
substantial compliance can ever be sufficient in the given context.
If there is non-compliance with s 129(3) or (4)
the relevant
resolution lapses and is a nullity. There is no other way out, and no
question of any condonation or argument pertaining
to ''substantial
compliance”.’
Although
he did not say so expressly, the learned judge appears to have been
of the view that an inevitable consequence of the resolution
having
lapsed would be that the business rescue process would terminate.
[18]
This
approach has been followed in several other cases including the
present one. It has not, however, been universally accepted.
In
Ex
Parte Van den Steen NO
,
[8]
Rautenbach AJ held that Fabricius J was dealing only with
non-compliance with time limits in regard to the appointment of a
business
rescue practitioner and not to other aspects of sub-sections
(3) and (4). He accordingly held that, where there had been
substantial
compliance with those provisions, s 129(5) did not
operate to nullify the resolution. In
ABSA
Bank v Caine NO
[9]
Daffue J pointed out that Fabricius J had not given consideration to
the provisions of s 130(1)
(a)
(iii)
and that his construction led to anomalies as between s 129 and
s 130.
[19]
The
observation by Daffue J is undoubtedly correct. It finds an echo in
the following passage from
Henochsberg
,
where the author identified the very type of problem that has arisen
in the present case:
[10]
‘
The
practical consequences of the resolution that “lapses and is a
nullity” are uncertain … From the wording
of the section
it would appear that the resolution lapses and becomes a nullity
automatically, without any intervention from outside
parties. From a
practical perspective this could create a number of problems,
especially if this has been done intentionally by
the company in
order to gain the protection of Chapter 6 for a brief period of time,
only to exit the procedure due to the resolution
lapsing and becoming
a nullity at a later date. This could also have unintended
consequences where non-compliance with the notice
and publication
requirements have been minor and unintentional … It is not
clear whether non-compliance in such circumstances
means that the
business rescue process lapses and becomes a nullity, even if the
business rescue plan has already been adopted
and is in the process
of being implemented.’
As
regards the relationship between s 129(5)
(a)
and
s 130(1)
(a)
(iii)
the author comments
[11]
that:
‘It is difficult to align the apparent automatic lapsing of a
business rescue resolution under the provisions of s 129(5)
with
this provision [ie with s 130(1)
(a)
(iii)]’.
[20]
The approach of Fabricius J appears to
leave no room for the operation of s 130(1)
(a)
(iii).
There is no point in bringing an application to set aside a
resolution on the grounds of non-compliance with the procedural
requirements of s 129 if that resolution has already lapsed and
been rendered a nullity and the process of business rescue
has, as a
result, come to an end. In order to address this problem counsel
submitted that s 129(5)
(a)
deals with non-compliance with the requirements of ss 129(3) and
(4), while s 130(1)
(a)
(iii)
operates in respect of non-compliance with other procedural
requirements in s 129.
[21]
I do not accept this argument for the
simple reason that I do not think that the expression ‘procedural
requirements’
in s 130(1)
(a)
(iii)
extends to any matter beyond the steps set out in ss 129(3) and
(4). The phrase ‘procedural requirements’
must refer to
obligations of an administrative or procedural nature imposed upon
the company. The steps that have to be taken under
ss 129(3) and
(4) fall naturally in this category. But counsel submitted that it
extended to the need in terms of s 129(1)
for a resolution of
the board of the company to commence business rescue as well as to
the filing of the resolution with CIPCSA
in terms of s 129(2)
that is a prerequisite for the resolution to take effect and business
rescue to commence.
[22]
Counsel
derived support for the first submission from
D
H Brothers
,
[12]
where a resolution to commence business rescue was passed without the
board of directors being properly constituted. The court
said that
this amounted to a failure to comply with the procedural requirements
of s 129(1) of the Act. In my view that was
incorrect. The
consequence of the board not having been properly constituted, (which
was not what occurred in the present case),
would be that the
resolution was not a resolution of the board of directors. As such it
was a nullity and ineffective for the purpose
of commencing business
rescue proceedings. Equally, in the absence of such a resolution,
there was nothing to set aside in terms
of s 130(1)
(a)
(iii).
The court in
D
H Brothers
could
and should have made a declaration to that effect, but in doing so it
would not have been acting in terms of s 130(1)
(a)
(iii).
[23]
The passing of a resolution to commence
business rescue cannot readily be described as a procedural
requirement. It is merely the
substantive means by which the company
may take that step. The board is under no obligation at all to take
such a resolution, although,
if it is financially distressed, it may
be obliged to inform shareholders and creditors of the reasons for
not doing so (s 129(7)).
It cannot then be described as a
‘requirement’, much less a procedural requirement. The
other suggestion by counsel,
that filing the resolution with CIPCSA
is a procedural requirement non-compliance with which may support an
application in terms
of s 130(1)
(a)
(iii),
suffers from a similar flaw. If the board passes a resolution, but it
is not filed with CIPCSA, then business rescue does
not commence and
the resolution is ineffective for any purpose. No point would be
served in setting it aside.
[24]
There are no other procedural requirements
in s 129 in relation to which a circumscribed s 130(1)
(a)
(iii)
could operate and none were suggested to us. The obvious and sensible
meaning of the expression ‘procedural requirements’
in
s 130(1)
(a)
(iii)
is that it refers to the procedural requirements in ss 129(3)
and (4). But, if the resolution lapses and becomes a nullity
in
consequence of such non-compliance, and this brings an end to the
business rescue process, as has been held in the High Court
judgments
mentioned above, no purpose would be served by a provision that
empowered a court to set it aside.
[25]
The language of s 129(5)
(a)
at first reading may suggest that there is an absolute and immediate
nullity of the resolution if there is non-compliance with
the
requirements of ss 129(3) and (4). How then is a court to deal
with the anomaly that such a reading appears to create?
In my view
the problem falls to be solved by having regard to certain basic
principles of statutory interpretation.
[26]
In
Endumeni
[13]
I ventured to summarise the current approach to statutory
interpretation in the following way:
‘
Interpretation
is the process of attributing meaning to the words used in a
document, be it legislation, some other statutory instrument,
or
contract, having regard to the context provided by reading the
particular provision or provisions in the light of the document
as a
whole and the circumstances attendant upon its coming into existence.
Whatever the nature of the document, consideration must
be given to
the language used in the light of the ordinary rules of grammar and
syntax; the context in which the provision appears;
the apparent
purpose to which it is directed and the material known to those
responsible for its production. Where more than one
meaning is
possible each possibility must be weighed in the light of all these
factors. The process is objective, not subjective.
A sensible meaning
is to be preferred to one that leads to insensible or unbusinesslike
results or undermines the apparent purpose
of the document. Judges
must be alert to, and guard against, the temptation to substitute
what they regard as reasonable, sensible
or businesslike for the
words actually used. To do so in regard to a statute or statutory
instrument is to cross the divide between
interpretation and
legislation; in a contractual context it is to make a contract for
the parties other than the one they in fact
made. The “inevitable
point of departure is the language of the provision itself”,
read in context and having regard
to the purpose of the provision and
the background to the preparation and production of the document.’
[27]
When
a problem such as the present one arises the court must consider
whether there is a sensible interpretation that can be given
to the
relevant provisions that will avoid anomalies. In doing so certain
well-established principles of construction apply. The
first is that
the court will endeavour to give a meaning to every word and every
section in the statute and not lightly construe
any provision as
having no practical effect.
[14]
The second and most relevant for present purposes is that if the
provisions of the statute that appear to conflict with one another
are capable of being reconciled then they should be reconciled.
[15]
Is it then possible to reconcile s 129(5)
(a)
and
s 130(1)
(a)
(iii)?
In my view it is possible without doing damage to the language used
by the legislature.
[28]
It
is helpful to start with what the Act says about the termination of
business rescue proceedings. The relevant provision for present
purposes is s 132(2)
(a)
(i),
which provides that business rescue proceedings end when the court
sets aside the resolution that commenced those proceedings.
In other
words, when a court grants an order in terms of s 130(5)
(a)
of
the Act, the effect of that order is not merely to set the resolution
aside, but to terminate the business rescue proceedings.
A
fortiori
it
follows that until that has occurred, even if the business rescue
resolution has lapsed and become a nullity in terms of s 129(5)
(a)
,
the business rescue commenced by that resolution has not
terminated.
[16]
Business
rescue will only be terminated when the court sets the resolution
aside. The assumption underpinning the various high
court judgments
to the effect that the lapsing of the resolution terminates the
business rescue process is inconsistent with the
specific provisions
of the Act. None of those judgments referred to s 132(2)
(a)
(i).
[29]
Once
it is appreciated that the fact that non-compliance with the
procedural requirements of s 129(3) and (4) might cause the
resolution to lapse and become a nullity, but does not terminate the
business rescue, the legislative scheme of these sections
becomes
clear. The company may initiate business rescue by way of a
resolution of its board of directors that is filed with CIPCSA.
The
resolution, and the process of business rescue that it commenced, may
be challenged at any time after the resolution was passed
and before
a business rescue plan is adopted on the grounds that the
preconditions for the passing of such resolution are not present.
[17]
If there is non-compliance with the procedures to be followed once
business rescue commences, the resolution lapses and becomes
a
nullity and is liable to be set aside under s 130(1)
(a)
(iii).
In all cases the court must be approached for the resolution to be
set aside and business rescue to terminate. That avoids
the absurdity
that would otherwise arise of trivial non-compliance with a time
period, eg the appointment of the business rescue
practitioner one
day late as a result of the failure by CIPCSA to licence the
practitioner timeously in terms of s 138(2)
of the Act, bringing
about the termination of the business rescue, but genuine issues of
whether the company is in financial distress
or capable of being
rescued having to be determined by the court. There is no rational
reason for such a distinction.
[30]
The reason for wanting consistency, in all
instances where the question of setting aside a resolution to
commence business rescue
arises, is apparent from s 130(5)
(a)
of the Act. That section deals with the circumstances in which the
court may set aside a resolution and reads as follows:
‘
(5)
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.’
[31]
It
has been suggested that the effect of the inclusion of sub-para (ii)
in this section is to introduce a fourth ground for setting
aside a
resolution to commence business rescue in addition to those set out
in s 130(1)
(a)
.
[18]
I do not think that is correct. This appears to me to be yet another
case in a long line, commencing with
Barlin
,
[19]
in which the legislation uses the disjunctive word ‘or’,
where the provisions are to be read conjunctively and the
word ‘and’
would have been more appropriate.
[20]
Where to give the word ‘or’ a disjunctive meaning would
lead to inconsistency between the two subsections it is appropriate
to read it conjunctively as if it were ‘and’. This has
the effect of reconciling s 130(1)
(a)
and s 130(5)
(a)
and limiting the grounds upon which an application to set aside a
resolution can be brought, whilst conferring on the court in
all
instances a discretion, to be exercised on the grounds of justice and
equity in the light of all the evidence, as to whether
the resolution
should be set aside.
[32]
Insofar
as it may be suggested that the use of the word ‘otherwise’
in s 130(5)
(a)
(ii)
points in favour of this furnishing a separate substantive ground for
setting aside the resolution I do not agree. In my view
the word is
used in this context to convey that, over and above establishing one
or more of the grounds set out in s 130(1)
(a)
,
the court needs to be satisfied that in the light of all the facts it
is just and equitable to set the resolution aside and terminate
the
business rescue. It is not being used in contradistinction to the
statutory grounds, but as additional thereto. This is consistent
with
the meaning ‘with regard to other points’ given in the
Oxford English Dictionary.
[21]
[33]
So construed the different sections are not
only harmonious but also sensible and practical in their application.
Under s 129
the company initiates the business rescue process
and takes the procedural steps that must be followed. Under s 130
an affected
person, excluding, save in special circumstances, a
director who voted in favour of the resolution, may, during the
period from
the date of the resolution until the date of acceptance
of a business rescue plan, apply to set the resolution aside either
on
substantive or procedural grounds. Such an application is made to
court and the applicant must not only establish the statutory
grounds, but also satisfy the court that it is just and equitable
that the resolution be set aside. If the court grants such an
order
that brings the business rescue to an end.
[34]
One further point in favour of this
approach is that it largely precludes litigants, whether shareholders
and directors of the company
or creditors, from exploiting technical
issues in order to subvert the business rescue process or turn it to
their own advantage.
Once it is recognised that the resolution may be
set aside and the business rescue terminated if that is just and
equitable, the
scope for raising technical grounds to avoid business
rescue will be markedly restricted even if it does not vanish
altogether.
That result is consistent with the injunction in s 5
of the Act that its provisions be interpreted in such a manner as to
give effect to the purposes set out in s 7, one of which, as I
said at the outset, is to provide for the efficient rescue and
recovery of financially distressed companies in a manner that
balances the rights and interests of all relevant stakeholders.
[35]
For those reasons I am of the opinion that
the high court erred in its approach and should have dismissed the
application. Accordingly
the following order is made:
1
The appeal is upheld with costs.
2
Paragraphs 2 and 3 of the order of the
court below are set aside and replaced by the following:
‘
The
application is dismissed.’
3
Paragraph 4 of the order of the court below
is renumbered as paragraph 3.
4
The order granted on the counter
application is set aside.
M
J D WALLIS
JUDGE
OF APPEAL
Appearances
For
appellants: B M Gilbert
Instructed
by: Hogan-Lovells South Africa incorporated as Routledge Modise Inc,
Sandton.
Lovius
Block, Bloemfontein
For
respondent: J Vorster
Instructed
by: Magda Kets Inc, Pretoria;
Du
Plooy Attorneys, Bloemfontein.
[1]
Section 7(2)
(k)
of
the Act.
[2]
See the definition of ‘business rescue’ in s 128
(b)
of
the Act.
[3]
Defined in s 128
(f)
in
the following terms:
‘“
financially
distressed
”, in reference to a particular company at any
particular time, means that—
(i)
it appears to be reasonably unlikely that the company will be able
to pay all of its debts as they become due and payable
within the
immediately ensuing six months; or
(ii)
it appears to be reasonably likely that the company will become
insolvent within the immediately ensuing six months;’
[4]
Section 129(2)
(a)
.
[5]
These provide as follows:
‘
(3) Within
five business days after a company has adopted and filed a
resolution, as contemplated in subsection (1),
or such longer time
as the Commission, on application by the company, may allow, the
company must—
(a)
publish a notice of the resolution, and its
effective date, in the prescribed manner to every affected person,
including with
the notice a sworn statement of the facts relevant to
the grounds on which the board resolution was founded; and
(b)
appoint a business rescue practitioner who
satisfies the requirements of section 138, and who has consented in
writing to accept
the appointment.
(4) After
appointing a practitioner as required by subsection (3)
(b)
, a
company must—
(a)
file a notice of the appointment of a
practitioner within two business days after making the appointment;
and
(b)
publish a copy of the notice of appointment to
each affected person within five business days after the notice was
filed.’
[6]
The problem is not confined to trusts. If the only shareholder of a
company was itself a company, which appointed its own shareholders
and directors as the directors of the subsidiary, it would seem
contrary to the purpose of s 130(2) to permit the company,
represented by the same individuals, to bring an application to set
the resolution aside.
[7]
Advanced
Technologies and Engineering Company (Pty) Ltd v Aeronautique et
Technologies Embarquées SAS
(GNP
case no 72522/11). The decision was followed in
Madodza
(Pty) Ltd (in business rescue) v ABSA Bank Ltd
(GNP
Case 38906/12),
Homez
Trailers and Bodies (Pty) Ltd (under supervision) v Standard Bank of
South Africa Ltd
(GNP
case no 35201/2013) and
ABSA
Bank Ltd v Ikageng Construction (Pty) Ltd
(GNP
Case no 61235/2014). In
Newton
Global Trading (Pty) Ltd v Corte
[2014]
ZAGPPHC 628 para 12 it was held that the nullity dates back to the
date of the original resolution and could not be remedied
by a
further resolution.
[8]
Ex
Parte Van den Steen NO (Credit Suisse Group AG Intervening)
2014
(6) SA 29
(GJ). Also
MAN
Financial Services SA (Pty) Ltd v Blouwater Boerdery CC
(GNP
case no 72522/2012).
[9]
ABSA
Bank Ltd v Caine NO, In Re: Absa Bank Ltd v Caine NO
[2014]
ZAFSHC 46
paras 24 to 26. To similar effect was
Vincemus
Investments (Pty) Ltd v Louhen Carriers CC
2013
JDR 0881 (GNP), when the proceedings were adjourned, but on the
adjourned date the approach in
Advanced
Technologies
was
followed. See
Vincemus
Investments (Pty) Ltd v Louhen Carriers CC
(GNP
case no 16550/2013 dated 5 November 2013).
[10]
Piet Delport and Quintus Vorster (authors) with other contributors
Henochsberg
on the Companies Act 71 of 2008
(looseleaf,
Issue 9) at 461.
[11]
Henochsberg
,
supra, at 462(4).
[12]
DH
Brothers Industries (Pty) Ltd v Gribnitz NO
2014
(1) SA 103
(KZP) para 16.
[13]
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[2013] ZASCA 13
;
2012 (4) SA 593
(SCA);
[2012] 2All SA 262
9SCA0
para [18].
[14]
Attorney-General,
Transvaal v Additional Magistrate for Johannesburg
1924
AD 421
at 436;
Commissioner
for Inland Revenue v Shell Southern Africa Pension Fund
1984 (1) SA 672
(A) at 678C - F
[15]
Minister
of Interior v Estate Roos
1956
(2) SA 266
(A) at 271B-C;
Amalgamated
Packaging Industries Ltd v Hutt
1975 (4) SA 943
(A) at 949H.
[16]
The
distinction between the resolution having lapsed and the business
rescue proceedings having ended appears to be recognised
in
s 129(6), although that section may itself give rise to some
practical difficulties that do not arise here and can be
left for
another occasion.
[17]
The language of ss 130(1)
(a)
(i)
and (ii) suggests that the time when the preconditions are not
present is when the application is brought, but I refrain from
deciding that point as it is unnecessary to do so.
[18]
DH
Brothers Industries (Pty) Ltd v Gribnitz NO
supra
para 18.
[19]
Barlin
v Licencing Court for the Cape
1924
AD 472
at 478.
[20]
Ngcobo
v Salimba CC; Ngcobo v Van Rensburg
1999
(2) SA 1057
(SCA) para 11;
SATAWU
v Garvas
2013
(1) SA 83
(CC) para 143;
S
v Sengama
2013
(2) SACR 377 (SCA).
[21]
OED 2
nd
ed, (1989) Vol X at 985, sv ‘otherwise’ (meaning 3).