Griessel and Another v Lizemore and Others (2015/24751) [2015] ZAGPJHC 189; [2015] 4 All SA 433 (GJ); 2016 (6) SA 236 (GJ) (31 August 2015)

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[2015] ZAGPJHC 189
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Griessel and Another v Lizemore and Others (2015/24751) [2015] ZAGPJHC 189; [2015] 4 All SA 433 (GJ); 2016 (6) SA 236 (GJ) (31 August 2015)

IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 2015/24751
DATE:
31 AUGUST 2015
In the matter
between:
GRIESSEL,
QUINTIN
JACO
........................................................................................
First
Applicant
ZEMAN, RONALD
FRANK
......................................................................................
Second
Applicant
And
LIZEMORE,
EDWARD
HENRY
................................................................................
First
Respondent
SCHLECHTER,
MATHEUS
JOHANNES
............................................................
Second
Respondent
MINING AND
SLURRY TECHNOLOGIES
(PTY)LTD
.......................................
Third
Respondent
THE COMPANIES
AND INTELLECTUAL PROPERTY COMMISSION
......
Fourth
Respondent
JUDGMENT
SPILG,
J:
APPLICATION
1.
The first applicant is Quintin Griessel. He is the son of the
original founder of the company, Jaco Griessel. The father will
be
referred to as Griessel and the son as Quintin.
The
second applicant is Ronald Zeman who is also a shareholder in the
company.
The
applicants hold together 67% of the shareholding in Mining and Slurry
Technologies (Pty) Ltd (“
the company”)
, with
Quintin the 34% shareholder.
The
first respondent, Edward Lizemore, holds the remaining 33% of the
company’s issued share capital.
2.
On 2 July 2015 Lizemore passed a resolution on behalf of the board of
directors placing the company under business rescue pursuant
to which
Matheus Schlechter, the third respondent who is also a practicing
attorney, was nominated by Lizemore and was subsequently
appointed
the business rescue practitioner (‘
practitioner’
).
3.
The practitioner relies on section 140(1)(a) of the Companies Act 71
of 2008 (‘
the Act’
) to represent the company in
this litigation.
4.
It is common cause that Lizemore passed the resolution without the
knowledge of the other shareholders and despite a meeting
of
shareholders, held three days earlier on 29 June, which rejected his
suggestion that business rescue proceedings be considered.
Lizemore
contends that he did not have to notify the other shareholders of his
intention to pass the directors resolution, since
at that time he was
the sole director of the company and could unilaterally resolve to
begin business rescue proceedings (‘
business rescue
‘)
and place the company under supervision in terms of section 129(1) of
the Companies Act 71 of 2008 (‘
the Act
‘).Reference
to a section only will be to the Act.
Unless
the context otherwise requires the consequences of a section 129(1)
resolution will simply be described as placing the company
under
business rescue.
5.
After becoming aware that the company had been placed under business
rescue the applicants brought the present application as
a matter of
urgency. The case was argued on 15 July and further argument was
presented on 17 and 22 July. The following relief
was initially
claimed;
a.
declaring that the resolution to begin business rescue proceedings
and to place the company under supervision has lapsed and
is a
nullity;
b.
setting aside the resolution passed by Lizemore in terms of which the
company would begin rescue and be placed under supervision;
c.
alternatively,  setting aside the appointment of the second
respondent, Mr Schlechter as business rescue practitioner of
the
company;
d.
removing Lizemore as the director of the company and appointing the
applicants as directors;
e.
directing Lizemore to return to the company all the plugs and
patterns that he removed from its premises;
f.
directing Lizemore to pay the costs of the application and in the
event of Schlechter opposing that he too be responsible for
the costs
jointly and severally.
6.
Before setting out the background facts it is necessary to explain
certain features of the answering affidavit.
7.
Firstly the affidavit is filed on behalf of Lizemore, the
practitioner and the company. They are all represented by the same

attorney. The practitioner states that this is for convenience.
The
practitioner is the deponent to the main affidavit although conceding
that he has no knowledge of the company’s affairs,
whether
prior to or since his appointment. Lizemore has filed a standard
confirmatory affidavit. According to the practitioner
they have done
so also as a matter of convenience since it is their “
common
purpose
” to effect a business rescue and because they are
both cited as respondents. The second point is difficult to follow as
the
applicants only sought costs against the practitioner if he
opposed the application.
It
is evident that the practitioner has elected not to abide the
decision of the court. He has actively engaged in opposing the

application despite confirming that he has no independent knowledge
of the company’s affairs and relies exclusively on the
say-so
of Lizemore. The practitioner did not approach the applicants for
their comments to Lizemore’s version of events or
regarding the
financial position of the company and in particular an injection of
funding by them whether by way of loan or equity.
This is hardly
surprising bearing in mind that the practitioner elected to use the
same attorney who is advising a minority shareholder
for whom
business rescue is not necessarily an end in itself but possibly a
means to an end. I will revert to this later. Suffice
it that one
would have expected both the practitioner, who is a practicing
attorney, and the respondents’ attorney to have
appreciated the
potentially conflicted position each was placing himself in.
It
is also necessary to deal with this aspect more comprehensively when
considering whether the company itself should be saddled
with a costs
order if the opposition is unsuccessful.
8.
Finally the format adopted in putting Lizemore’s version in the
mouth of the practitioner as the main deponent requires
elucidation.
The
answering affidavit generally follows the format of responding to a
paragraph in the founding affidavit with the following preamble:
“
I
am advised by the first respondent as follows:’
The
preamble is followed by a number of sub-paragraphs containing
Lizemore’s version and ending with a self-contained
sub-paragraph
reading: “
The remainder hereof is denied”
.
At
first blush the general denial would appear to be that of Lizemore
and the question is whether the practitioner adopted Lizemore’s

version and associated with the latter in denying everything that was
not specifically admitted in the preceding subparagraphs.
It
is however evident that the practitioner’s opposition is based
exclusively on Lizemore’s allegations. This conclusion
is
derived from the practitioner’s express opposition to the
application, the general explanation provided in the opening

paragraphs of the answering affidavit, the fact that the practitioner
placed Lizemore in effective control of the company as his
delegate
and the failure to obtain any independent verification of certain
crucial allegations made by Lizemore.
9.
There is also cause for concern when one finds a passage in the
answering affidavit of the practitioner which reads; “
I
respectfully direct the court’s attention thereto
(ie to a
resolution of 8 May 2015)
that this resolution is signed by me,
being the only remaining director of the company”
. This is
the first person voice of Lizemore not the practitioner’s.
BACKGROUND
10.
The company manufactures pumps. The component parts are either
manufactured at the company’s own foundry or procured from

outside suppliers.
11.
The business was established in 2007 as a close corporation. In 2009
it was converted into a company with limited liability
and operated
profitably under Griessel until 2011. At one stage it had large cash
reserves (the respondents disputing that it was
larger than R 6
million).
12.
However in 2011 Griessel encountered certain personal difficulties
which prevented him from running or managing the company.
According
to the first and second respondents Griessel was for some time an
unrehabilitated insolvent and therefore could not be
appointed a
director of the company until his rehabilitation in 2014. The
allegation is denied by the applicants. I will accept
the
respondents’ version on this aspect.
13.
This does not mean that the respondents’ averments are accepted
on all disputed matters.   It will depend on
an application
of the well-known test laid down in
Plascon-Evans Paints Ltd v Van
Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634H-635C that;
It
is correct that, where in proceedings on notice of motion disputes of
fact have arisen on the affidavits, a final order, whether
it be an
interdict or some other form of relief, may be granted if those facts
averred in the applicant's affidavits which have
been admitted by the
respondent, together with the facts   alleged by the
respondent, justify such an order. The power
of the Court to give
such final relief on the papers before it is, however, not confined
to such a situation. In certain instances
the
denial by respondent
of a fact alleged by the applicant may not be such as to raise a
real, genuine or bona fide dispute of fact
(see in this regard
Room Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd
1949 (3) SA
1155
(T) at 1163 - 5; Da Mata v Otto NO
1972 (3) SA 858
(A) at 882D -
H). If in such a case the respondent has not availed himself of his
right to apply for the deponents concerned to
be called for
cross-examination under Rule 6 (5) (g) of the Uniform Rules of Court
(cf Petersen v Cuthbert & Co Ltd
1945 AD 420
at 428; Room Hire
case supra at 1164) and the Court is satisfied as to the
inherent
credibility of the applicant's factual averment,
it may proceed
on the basis of the correctness thereof and include this fact among
those upon which it determines whether the applicant
is entitled to
the final relief which he seeks (see eg Rikhoto v East Rand
Administration Board and Another
1983 (4) SA 278
(W) at 283E - H).
Moreover, there may be exceptions to this general rule, as, for
example, where
the allegations or denials of the respondent are so
far-fetched or clearly untenable that the Court is justified in
rejecting them
merely on the papers
(see the remarks of Botha AJA
in the Associated South African Bakeries case, supra at 924A).
(emphasis
added)
In
Fakie NO v CCII Systems (Pty) Ltd
[2006] ZASCA 52
;
2006 (4) SA 326
(SCA) at
para 55 Cameron JA (at the time) distilled the occasions when a court
“
should not allow a respondent to raise ‘fictitious’
disputes of fact to delay the hearing of the matter or to deny the

applicant its order’
. They are an uncreditworthy denial, a
palpably implausible version and “
allegations or denials
that are so far-fetched or clearly untenable”.
The court
cautioned at para 56 that “
the limits remain, and
however robust a court may inclined to be, a respondent’s
version can be rejected in motion proceedings
only if it is
‘fictitious’ or so far-fetched and clearly untenable that
it can confidently be said, on the papers alone,
that it is
demonstrably and clearly unworthy of credence”
.
14.
In 2011 Griessel sold 50% of his shares to First Africa Pumps and a
certain Mr Down became a director and took over the management
and
running of the company. According to the respondents there was a fall
out between the then directors which resulting in First
Africa Pumps
divesting.
15.
Quintin subsequently took over his father’s shares and became
the sole shareholder. On 1 September 2011 Lizemore was engaged
as the
manager and was appointed a director. At the same time the second
applicant, Zeman, became a 33% shareholder via a share
swop involving
East Rand Alloys(Pty)  Ltd (‘
ERA
’) which also
resulted in Quintin acquiring a 67% shareholding in that company. ERA
owns the property on which the company’s
business premises are
situated. It appears that Quintin and the second applicant
effectively hold 80% of the shares in ERA.
16.
The first respondent acquired a 33% shareholding in the company after
he became managing director.
17.
It is common cause that the company’s profitability
subsequently declined. The applicants claim that this was due to
Lizemore employing too many administrative staff members, spending
money on unnecessary and costly control systems and employing
his
children in the company at extravagant salaries. By contrast Lizemore
contends that the company’s profits declined because
of the
strained economy and overall difficult financial times.
18.
The respondents assert that the “
appointment of persons by
the company were done after the first respondent and Griessel had
consulted with each other… and
no appointment was made unless
they both agreed…”.
The statement is significant
because it confirms that Lizemore was obliged to continue reporting
to Griessel. It amounts to a statement
against interest and confirms
that management decisions had to be passed by Griessel even during
the time when Quintin was appointed
as the other director to
Lizemore.
19.
It is also common cause that during mid-2014 the shareholders
received a preliminary offer from Tega Industries for both the
land
and the business. The applicant’s claim that the amount offered
was R35million of which R 18 million was for the property
and R17
million was for the company. The first respondent however avers that
Tega Industries offered $1 million for a 20% stake
in the company.
That may however be an error on the part of the respondents and I
will therefore accept the applicants’ lower
net figure.
20.
The first respondent agrees with the applicants’ contention
that on 8 April 2015 Griessel forwarded a signed handwritten
note to
the shareholders advising that he resigned from the company, that
leave was still due to him and that he would return the
company’s
vehicle and cellphone. The auditors were also instructed to transfer
his shares to Quintin.
On
the same day Griessel prepared a directors and shareholders
resolution which reads:
1.
It was resolved that the resignation of JACO GERHARD GRIESSEL,
and the appointment of QUINTIN JACO GRIESSEL as directors of the
Company be approved and confirmed with effect from 8 April 2015
2.
It was RESOLVED THAT the transfer of 34 (thirty four) ordinary
shares from JACO GERHARD GRIESSEL to QUINTIN JACO GRIESSEL  be

approved and recorded in the books of the Company with effect from 8
April 2015, being new share certificate number 8 .
He
signed and dated it in the spaces provided against his name.
Lizemore’s name was also typed in with spaces provided for
him
to sign and date.
21.
The first respondent claims that Griessel had not discussed the
transfer of his shares but simply sent the manuscript note mentioned

earlier to the first respondent. He however confirms that he did not
sign the resolution as presented. In the answering affidavit
it
is stated that:
“
The
first respondent did not agree that the first applicant was to be
appointed as a director of the company. Such an appointment
had to be
done in accordance with the provisions of the
Companies Act by
the
shareholders.
…
..Griessel
had a resolution drafted which catered for the appointment of the
first applicant as a director of the company, but the
first
respondent refused to sign it…. Further it was a condition of
Multotec that all directors and senior management of
the company
would have to sign restraint of trade agreements and the first
applicant did not want to be in a position where he
would have to
sign the same. He did not therefore want to be a director or senior
manager of the company”
22.
Despite the ambiguous wording of the answering affidavit it is common
cause that Lizemore did not in fact tell Griessel or Quintin
that he
disagreed with the appointment of Quintin or that he had refused to
sign the resolution as presented. On reading the answering
affidavit
as a whole it is apparent that Griessel and Quintin were quite
unaware that the resolution given to Lizemore on 8 April
had not been
signed either in its terms or otherwise.
23.
The reason why the first respondent did not sign the resolution in
its terms or inform Griessel that he was not signing it is
key to
Lizemore’s defence. Although the practitioner simply refers to
Lizemore’s version, he is compelled to adopt
it since his own
defence relies both on the regularity of the subsequent resolution
signed on 2 July 2015 placing the company under
business rescue which
was signed by Lizemore as the sole director and also on Lizemore’s
bona fides
in doing so. This is clear from the contents of
paragraph 17 of the answering affidavit.
24.
On the
8
th
of May 2015 the first respondent passed a resolution of the directors
and shareholders of the company in identical terms to the
resolution
given to him on the 8
th
of April and signed by Griessel save that the words “
and
the appointment of Quintin Jaco Griessel
”
were omitted. The practitioner
[1]
relies on Griessel’s letter of 8 April 2015 to constitute his
resignation as director, thereby leaving Lizemore as the sole

director in the absence of Lizemore signing the directors and
shareholders resolution prepared and signed by Griessel of the same

date.
25.
The effect, according to Lizemore, is that Griessel was no longer a
director but that Quintin was not appointed in his place
thereby
leaving the company with one director only.
26.
The
respondents in their answering affidavit claim that prior to
Lizemore’s resolution of 8 May but  “
after
Griessel resigned as director of the company the first respondent
approached Multotec
(Multotec
(Pty) Ltd)
to
enquire whether it was interested in buying a share in the company or
taking over the company as a whole”
.
This led to a meeting on 10 April at which Lizemore, Quintin and
Zeman signed a resolution of shareholders that they would sell
their
respective shareholdings for a total of R15 million split equally
between them. It is significant that Lizemore did not raise
at this
meeting his refusal to sign the resolution prepared by Griessel. It
would have been a simple matter to do so, which presumably
would then
have been put to a shareholders vote
[2]
at some stage.
According
to the respondents’ affidavit the purpose of the resolution was
to meet Multotec’s requirement that it would
only consider
purchasing an interest in the company if the first respondent
obtained confirmation from the shareholders that they
were willing to
sell their shares at R15 million.
27.
The applicants claim that the company continued to be run by Lizemore
as managing director and its cash flow and turnover continued
to
wane. The reply is elliptical and includes a general denial. On
analysis this fact is not in dispute but, as stated earlier,
Lizemore
puts the blame on the economy.
28.
The first respondent states that the purpose of the meeting on 11 May
was to grant him authority to sign the documents relating
to the due
diligence investigation and report relating to Multotec’s
interest.  For present purposes that is accepted.
However it is
common cause that the meeting was held at the offices of the
applicants’ attorneys and that Mr Berkowitz of
that firm
attended the meeting. It is also evident from the explanation
contained in the answering affidavit, and the inadequacy
of the bald
denial in respect of allegations not dealt with, that the purpose of
the meeting was to discuss the issues between
the shareholders but
that they agreed to await the outcome of the Multotec negotiations
before any definite decision was taken.
29.
It is evident that at this meeting Lizemore did not disclose that he
had refused to sign the Griessel resolution of 8 April
or that he had
passed his own resolution of 8 May which had the effect of leaving
him as the sole director.
30.
Adv Wesley
for the respondents made two points with regard to
the meeting of 11 May; that the resolution passed gave Lizemore the
power to
sign documents relating to the due diligence to be
undertaken by Multotec and also that it described him as the sole
director.
It was submitted that the applicants could not be serious
about wishing to remove Lizemore as director if they were authorising

him to continue negotiations on their behalf and that from the
resolution they must have known that Lizemore had not signed the

Griessel resolution of 8 April appointing Quintin as director.
31.
I am satisfied having regard to the complaints leveled against
Lizemore that the question of his continued directorship was
held
over together with all the other issues pending the outcome of a bid
by Multotec. Lizemore had brought the suitor and was
facilitating
negotiations. It would be equivalent to killing the goose …..
It is also evident from the decision not
to resolve the issues
of concern that a combined front was likely to result in a better
offer.
On
the second point: The submission was made from the bar. However
nowhere in the affidavit does Lizemore state that he at any stage

informed the applicants or Griessel that he was not going to sign the
Griessel resolution but had in fact signed his own resolution

removing reference to the appointment of Quintin. It should also be
borne in mind that Quintin was already recognised as far back
as the
10 April meeting as the shareholder in place of Griessel.
32.
It is one thing to await the formal notification to the Companies and
Intellectual Property Commission ( ‘
the Commission’
)
of a change in directors. It is quite another for a remaining board
member and shareholder not to expressly disclose a refusal
to sign a
resolution that had been presented. In this regard it is evident from
the application and answering affidavits that Zeman
supported the
appointment of Quintin as director. Moreover in its terms the
resolution does not refer to Lizemore as the sole director.
It
provides:
“…
Lizemore
being the only active director is authorised to sign all documents
relating to the Due Diligence to be undertaken by Multotec
in his
capacity as Managing Director…”
While
the term “
active director
” is used by the
Commission, it is not suggested that the reason for using the term
was anything other than the need for it
to receive the formal
documentation of Quintin’s appointment from the auditors.
Although it is accepted that the matter was
brought urgently, the
respondents were in fact afforded two full days to respond. Moreover
the issues of the entitlement of Lizemore
to ignore the resolution
presented to him by Griessel on 8 April, in respect of the
appointment of Quintin as his replacement on
the board, and whether
he ever raised this with Griessel loom large.
33.
It is also evident that the applicants’ contention
that the relationship between the parties had deteriorated

significantly is supported by the purpose of holding the meeting on
11 May 2015 and the agreement to leave the issues between the

shareholders in abeyance pending the outcome of the Multotec
negotiations.
34.
By mid-May Tega Industries reared its head again and made a
preliminary offer to acquire the shares of the company for R19.5

million. According to the respondents the purchase price excluded
taking over the company’s debt. In addition Griessel and
the
second applicant obtained an agreement in principle from the
company’s bankers to borrow R8 million with the property
as
collateral.  As appears later it is common cause that by at
least the subsequent meeting of 29 June Lizemore was aware
of the
approach to the bank and its favourable response.
35.
On 26 June at just before 15h00 Multotec advised Lizemore directly
that they would not be pursuing an offer. Within three quarters
of an
hour Lizemore addressed an email to the company’s auditors
recording that Multotec was no longer interested in the
company, that
he was under pressure from Quintin to draw a huge salary and enquired
about the steps that would be necessary in
order to put the company
under business rescue on a very urgent basis. The reasons given were
an outstanding court case and that
several creditors were knocking at
the door. This communication was not forwarded to either of the
applicants or Griessel.
Lizemore
offers no explanation as to why he did not engage either of the
applicants or Griessel, whether prior to or at the time
the email was
sent, nor inform them that he had approached the company’s
auditors at a time when according to him the relationship
between
them had not yet deteriorated (although it is to be noted that
according to the applicants it had already deteriorated
by April
2015).
36.
On 29 June Quintin convened a meeting between Zeman, Lizemore,
Griessel, Berkowitz and himself to discuss a way forward so that
the
company could run profitably. According to the applicants the
turnover for June was R2.67 million while its debtors’
book was
R5.6 million.
Despite
Lizemore claiming that the book was approximately R6.6 million as of
9 July he confirms that turnover up to 9 July was just
short of
R361 000
[3]
. This is to be
compared with the March turnover of just over R8 million, the April
turnover of some R5.45 million and the May turnover
of R4.56 million.
Once again Lizemore attributes the declining figures to a general
downward trend in the economy. The applicants
contend that there is
no rational explanation for such a significant downturn and conclude
that the only reasons were the actions
or failures of Lizemore.
37.
Lizemore states that he objected to the presence of Berkowitz and
Griessel because the meeting had been convened as a shareholders

meeting.
He
disputes that they had agreed to the appointment of Griessel as
managing director but admits that he told the meeting that “…
he would be willing to resign as director… and to sell his
shareholding … in the sum of approximately R2.5 million.”
Lizemore adds that the draft agreement was forwarded to Berkowitz but
confirms that it was never concluded.
38.
Lizemore also admits that it was agreed at the meeting that Griessel
and Zeman would assist the company in applying for further
financing
either by using the company’s bankers directly or through ERA’s
bankers and utilising the property as collateral
for a loan which
would be used, according to the applicants founding affidavit, “
for
paying the company’s creditors and overcoming the cash flow
difficulties the company was experiencing”
. The applicants
believed that the cash flow difficulties arose because the company
was overstaffed and was not being run economically.
The cash flow
injection would enable the company to meet the cost of retrenching
unnecessary staff and to purchase supplies and
raw material thereby
also bringing about higher monthly turnover.
While
the applicants claim that the company could generate a turnover of
some R12million a month Lizemore claims that the figure
never
exceeded R8million and for present purposes I accept his averment.
39.
Lizemore confirms that at the meeting held on 29 June he mooted the
possibility of business rescue and that the others “
said
that they thought that it was not a good idea”.
The
following is also said by the respondents;
“
by
the time that the meeting happened the first respondent had already
obtained legal advice from MVS (ie his attorney of record)
concerning
business rescue and his duties and obligations as the board of the
company. And he knew that he had the duty to act
as required by
s129
of the
Companies Act&hellip
;. In fact, the first respondent had
already sought advices regarding business rescue from the company’s
auditor on 26 June
2015 because he was already at that point in time
concerned about the matter.”
During
argument Adv Wesley confirmed that, on the papers, the first
respondent never mentioned any of this to the applicants or
Griessel
either before or at the meeting of 29 June. Lizemore fails to explain
why he kept quiet about his concerns or apprise
those present of his
obligations as a director, bearing in mind his claim that he was
alive to all relevant facts when he attended
the meeting. This brings
into question his reason for approaching the auditors prior to the
meeting and his motive and purpose
in signing and submitting, not
more than three days after the meeting, the resolution complete with
all the accompanying documents
and affidavits necessary to place the
company under business rescue.
I
therefore agree with the applicants’ contention that Lizemore’s
conduct at the meeting of 29 June should be considered
against the
background that the respondent had already taken legal advice
regarding his interests. The applicants further contend
that business
rescue is a strategy by Lizemore for his personal benefit. I will
consider this later.
40.
Finally, with regard to the meeting of 29 June, Lizemore denies that
he actually advised those present that he was there and
then
resigning as director. He also denies that when leaving the premises
after the meeting he informed Mr Matlou, who is the chief
financial
officer (‘
CFO’)
,   that he had resigned
his position with the company.
41.
It is apparent from Lizemore’s version that his resignation as
director was dependent on being paid out an amount of some
R2.5
million. According to the applicants the resignation was not
dependent or conditional upon payment of this amount. They also
rely
on an unsolicited email sent at 07h00 the following morning by
Lizemore which  reads:
“
I
think there is a misunderstanding on our arrangement of yesterday.
I
made it clear that I will resign a (sic) agreement in writing to pay
my loan account or alternatively my shares, notice period
and relieve
me from all the sureties I signed. Until then I remain a director of
MST
The
contract for the above is being drawn up by my attorney and he will
have it ready for signature this afternoon. Only on receipt
of the
signed document will I resign”
The
email provided the contact numbers of both his attorney and the
company auditors should there be any queries. It is apparent
from the
Commission’s records that the erstwhile auditors had been
replaced by the present auditors at the time when or after
Lizemore
took over
de facto
management control of the company.
It
is therefore evident from the email that it was sent after he had
consulted his attorney (Koos Bernadie) and that he sent the
email on
advice because of a concern that he had led those present at the
meeting, which included the applicants’ attorney,
to believe
that he had resigned.
42.
In the meanwhile Griessel claims to have
assumed control of the company on 29 June and immediately after the
meeting. It is alleged
that he generated within the next few days
some R4million in orders. Lizemore disputes that any orders were
secured by Griessel.
Neither party produced the proof they claimed
would demonstrate the veracity of their version. While Lizemore could
not dispute
that Griessel took over actual control, he disputes that
the latter became an employee.
43.
The next material event is an email sent by Lizemore’s
attorneys to the applicants’ attorneys on
1
July 2015 attaching a copy of the draft settlement agreement they had
prepared regarding Lizemore exiting the company. They also
refer to
Lizemore’s instructions that he was prevented from entering the
company’s premises and demanded that he be
given unfettered
access.
44.
In response the applicants’ attorneys
sent a letter the following day denying on behalf of their clients
that access had been
denied. They then proceeded to set out, on
instructions received, the grounds upon which Lizemore directly and
through his family
members and close associates was alleged to have
breached his fiduciary duties as a director and shareholder as well
as employee.
If true, the allegations are serious.
The
letter also required Lizemore, by no later than 13h30 on the
following day, to tender his resignation as director with immediate

effect and then to remedy certain of the alleged breaches. The letter
concluded that a failure to accede to the demands would result
in an
urgent court application. Objection was also taken to the attorneys
representing Lizemore on the grounds that they were the
company’s
attorneys and most of the demands made by the applicants in the
letter sought to protect the company’s interests
that were
alleged to have been prejudicially affected by Lizemore’s
actions.
45.
It is apparent, although not disclosed to
the applicants or Griessel, that on 2 July Lizemore passed the
resolution in his capacity
as sole director of the company placing it
under business rescue, nominating Schlechter as the practitioner and
lodging all the
relevant documents with the Commission.
46.
The first occasion the applicants became
aware that the company had been placed under business rescue was on
the following day,
3 July. It was contained in the reply by
Lizemore’s attorneys. In the letter exception was taken to the
claim that they could
not represent the company and Lizemore and the
threat to report them to the Law Society. However the allegations
against Lizemore
were not addressed. Instead they attached
correspondence from Copper Lake Business Rescue Practitioners whose
sole member is Schlechter.
The correspondence confirmed that the
company had been placed under business rescue since the previous day.
That being so it was
contended that no point would be served in
resolving the disputes as matters relating to the company would be
overseen by the practitioner.
47.
Griessel claims that on taking over the
company on 29 June he discovered a number of irregularities which
were set out in the founding
affidavit and included in the letter of
2 July mentioned earlier. It is unnecessary to deal with all. Among
the accusations are
that;
a.
On the 16
th
June public holiday Lizemore together with his son and some close
associates (who are all employees of the company) removed all
the
plugs and patterns utilised for the casting of parts in the
manufacture of the pumps. This resulted in the laying of a criminal

charge.
b.
Also on 16 June Lizemore and his son
accessed the company server and removed all drawings relating to the
manufacture of the pumps
and transferred them to a portable hard
drive which was taken off-site. It was contended that employees
access the company’s
server to obtain drawings during the
manufacturing process. Lizemore’s son subsequently returned the
portable hard drive
after pressure was put to bear on him. The
applicants claim that they were unable to determine at that stage
whether any data had
been removed.
According
to the applicants, the removal of the plugs, patterns and drawings
contributed to the turnover plummeting to R2million
for June, which
was a quarter of the norm.
The
applicants however acknowledge that Lizemore purported to explain in
an email of 1 July to the CFO the removal of the plugs
and patterns
by reference to an email between himself and his son of 11 June. The
applicants claim that there are contradictions
between the two emails
and contend that no justification existed for suddenly removing these
items as there had been no reason
to do so before.
c.
Various company vehicles had been sold
which included a number of forklifts and a truck that collectively
had been written down
in the company’s books to R180 000
but which were sold for R25 000, for which the company only
received R16 000,
the balance being paid in cash to Lizemore
personally.
d.
Substantial amounts were taken out of
company funds to pay for Lizemore’s personal expenses in
respect of a Toyota Land Cruiser
motor vehicle, repairs to a fishing
boat and for family holidays. Moreover certain items were not
included in the list of assets
compiled for the due diligence,
Lizemore having claimed that they were his personal property.
e.
Lizemore had procured a firm, which is
owned by his friend, to supply profile cuttings. The firm has charged
substantially more
per kilogram than the original supplier. The
overall excess cost is alleged to be substantial because some
25 000kilograms
of profile cuttings are ordered monthly.
48.
In the answering affidavit Lizemore attaches the affidavit he
prepared for the police to meet the complaint lodged regarding
the
plugs and patterns. He states that the plugs had previously been
stored with a patternmaker and were returned to the company
because
the patternmaker required space. However an accompanying email
confirms that the plugs were not returned to the company.
In the
email of I July which Lizemore addressed to the applicants’
attorneys he tenders return of the plugs and in the affidavit
to the
police tenders return of the patterns.
49.
Despite Lizemore’s tenders the practitioner does not claim that
the relief for return of the plugs or patterns is moot
whether
because Lizemore has implemented his tender or because the
practitioner in the performance of his duties has accepted the

tender. On the contrary the practitioner contends that the
applicants’ relief for return of these items to the company is

not competent by reason of section 133(1) of the Act.
50.
Lizemore disputed that the drawings had been removed from the
computer server and denied that they are accessed on screen in the

manufacturing process. He however concedes that hard copies are
produced from the server as and when they are needed in the
manufacturing
process. The applicants replied by denying Lizemore’s
version but claimed that even on that version the actions in
transferring
and copying the data were unnecessary and inexplicable.
51.
The response to the alleged fire-sale of certain of the company’s
vehicles is that during the due diligence an appraiser
queried why
they were still at the company. Lizemore claims that he was unaware
that they were reflected as assets in the books
and explains that
they had been earmarked to be cut and sold as scrap metal or had
little or no intrinsic value. The applicants
in reply relied on
evidence to demonstrate that the forklifts were being used and had
been driven under their own power onto the
vehicle that carted them
away. They also aver that the truck was in the process of being
rebuilt.
52.
While it was disputed that the holidays were charged to the company,
Lizemore stated that the boat repairs and the vehicle costs
were
debited to his loan account. The reply was that the amounts are not
reflected in his loan account.
53.
Lizemore explained that the necessity to find a new profiling
supplier arose because the existing one had put the company’s

account on hold. In reply the applicants demonstrated
inter alia
that the original supplier was prepared to continue doing business
with the company and that the new firm was charging some 40%
more for
the same job.
54.
It is unnecessary to decide which version to accept on paper. The
point is that the practitioner was alive to the issues. He
was aware
that Lizemore had tendered return of the plugs and patterns yet the
practitioner took no steps to recover them.
Moreover
the practitioner, through the attorney common to Lizemore, would have
been aware of the serious allegations made regarding
Lizemore’s
conduct but has no difficulty in putting the latter in control of the
company without conducting even the most
cursory of enquiries to
ascertain if Lizemore did in fact breach his fiduciary and other
obligations. These observations are relevant
to the applicants’
persistent claim that the practitioner is conflicted.
55.
At this stage it is also necessary to mention four matters which on a
reading of the papers as a whole require some consideration
because
of the picture they appear to paint.
The
first is the statement made by the respondents’ attorneys in a
letter of 3 July 2015. They claim that;
‘
We
have been acting on behalf of MST
(the company)
as there has
been a dispute between the existing shareholders and a possible sale
of the business that we were facilitating.
”
The
second is the contents of paras 8 and 9 of the affidavit signed by
Lizemore on 2 July and lodged on the same day with the Commission.
It
reads:
“
Mining
and Slurry is conducting business on a daily basis and would be able
to pay a dividend to its creditors that would be higher
than a
liquidation dividend if it is able to come to an arrangement with its
creditors, as provided for in the Act
Negotiations
have already been initiated that will see the assets and/or stock
and/or business of Mining and Slurry be sold and
in so doing keep its
120 employees employed”
The
third is the allegations, albeit responded to in the form of a
confession and avoidance, that certain assets and drawings were

removed and office computers tampered with.
Finally
there is the allegation by Lizemore that on 29 June there were still
two others interested in acquiring the company aside
from Multotec.
They are named as a company with ties to France and an individual.
There is no suggestion that these persons had
been mentioned to the
applicants or Griessel. They certainly were not mentioned in the
email to the auditors when Lizemore enquired
how the company could be
put under business rescue urgently. It will be recalled that he sent
the email within the hour of Multotec
informing him that they were no
longer interested.
56.
The concern is that according to the attorneys they were already
engaged in facilitating a possible sale of the business or
its assets
and that according to Lizemore’s statement these remained
on-going despite his claim on 26 July that Multotec
was no longer
interested. The concern it raises at this stage is whether the
purpose of initiating business rescue is commensurate
with that
provided for in the Act or whether it is a strategy to benefit the
interests of a would be purchaser or that of Lizemore
to remain in
the company or both.
The
concern arises because as a fact the practitioner put Lizemore in
control of the company during business rescue, claims to have
no
information regarding the prospects of the company (despite his own
attorney claiming to know of would be investors) Lizemore
referring
to continuing negotiations and also the fact that since business
rescue proceedings the company has in fact closed its
gates and does
not conduct business.
I
will return to this when considering whether the company should
remain under business rescue and the issue of potential conflict
of
interests.
EVENTS
SINCE BUSINESS RESCUE
57.
On 2 July Lizemore passed a resolution as
the sole director of the board to place the company under business
rescue. He also deposed
to an affidavit regarding the company and the
grounds on which the board adopted that resolution. In para 4 of the
affidavit Lizemore
claims that the company was financially distressed
which in terms of the section 128(1)(f) definition 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;
No
mention was made of the shareholders seeking finance against ERA’s
property.
Lizemore
also nominated the second respondent as business rescue practitioner
and a Notice of Beginning of Business Rescue Proceedings
was filed at
the Commission on 2 July
58.
The parties held a without prejudice
meeting on 6 July which could not resolve any issues and the
respondents stated that they would
not withdraw the business rescue
proceedings.
59.
On the same date the Commission gave notice
of the appointment of the second respondent as business rescue
practitioner. On the
following day the practitioner notified the
applicants of his appointment and advised that he had taken full
management control
of the company in substitution of the board. The
practitioner also advised that under his powers he had delegated
Lizemore “
as part of the board and
pre-existing management”
to take
charge of all business activities and the day to day running of
company.
60.
On 8 July and after Lizemore gained access
to the company’s premises he was advised that ERA as landlord
was cutting off the
supply of electricity for non-payment of
outstanding rentals. The electricity supply was cut off at about
07h00. As a result Lizemore
sent the staff home. However the
applicants claim that they appreciated that they could not spoliate
and the electricity was restored
within three hours.
61.
The practitioner sought to use the brief
power cut as the basis for obtaining an extension of five days from
the Commission to publish
the section 129 notices to affected
parties. He undertook that the company would publish the notices by
no later than Tuesday 14
July 2015. No explanation was tendered as to
the failure to have sent the notices on the previous days or why the
practitioner,
who was not at the premises, was unable to do so or
access the server.
The
Commission however granted an extension to 18 July but only in
respect of section 129(3).
62.
On 8 July one of the company’s
employees obtained a restraining order
ex
parte
against Lizemore and staff
members signed a grievance letter against Lizemore alleging physical
assault, verbal abuse and racism
amongst other things. The
respondents contend that Griessel had concocted the grievances and
compelled staff members to sign, although
the basis for this
statement is not set out.
63.
It is however the respondents’ case
that on the following day, 9 July, the employees, who are apparently
members of NUMSA,
protested at the company’s premises. Lizemore
attributes this to unrest, insubordination and an incitement to
strike. He
claims that the situation turned ugly when he attempted to
deliver notices of suspension to employees and that the shop stewards

took the letters and burnt them. The applicants allege that strike
action occurred because workers were told that they were being

reduced to half-pay.  For the purposes of the case I accept the
respondents’ denial.
Lizemore
alleges that the situation deteriorated rapidly with employees
threatening to burn down the premises. The police however
did not
seem to take the issue that seriously as they refused to attend the
scene. Lizemore concedes that the situation calmed
down and the
workers left. He then locked the gates to the premises. This was done
with the sanction of the practitioner. The company
has not opened its
gates since.
64.
It is clear that no attempt was made by the
practitioner to address the grievances of employees. Moreover it
should have been apparent
to the practitioner that his intervention
was required if he was to fulfil the alleged ground of placing the
company under business
rescue, as set out in Lizemore’s
affidavit purportedly on the company’s behalf; namely to keep
the company running
so as to protect the workforce from the
consequences of closure while negotiating with potential investors to
take over the business
or sell the assets thereby improving the
dividend that creditors could expect. This again brings into question
the real purpose
of placing the company under business rescue and why
Schlechter failed to take any steps, even to the extent of
establishing the
reason for the grievances, re-considering the
advisability of retaining Lizemore as his delegate in running the
company or taking
any other steps short of closing the business down;
which is what he in fact did.
65.
In the most material way he, as a competent
practitioner, would know that his inaction and decision to simply
shut down the business,
less than a week from the date of his
appointment, was likely to achieve the very antithesis of what
Lizemore claimed the business
rescue proceedings would achieve. The
practitioner provides no explanation and it is difficult to fathom
why the spectre of actual
conflict of interest, let alone potential
conflict, was not apparent to the attorney and the practitioner.
66.
It was only on 14 July that the
practitioner attempted to give notice to affected parties including
the
union representing the employees, to non-unionised
employees and to creditors
. He claims that he was
thwarted from doing so by the obstructive behaviour of the applicants
and Griessel. This was the basis on
which an extension was requested
from the Commission. The respondents do not explain why they were
unable to access the company’s
server.
67.
On 15 July 2015 the second respondent
received a list of the company’s creditors from the first
respondent and the Commission
informed the practitioner that the
period for compliance with the provisions of both sections 129(3) and
(4) would be extended
to 22 July 2015 in terms of Regulations 166(1)
and (2).
68.
A peculiar feature of the Commission’s
correspondence is that there is no suggestion that any
representations were made in
addition to those which resulted in the
decision to only extend the time period to comply with the section
129(3) requirements
and that the time period was only until 18 July.
Nor did the Commission’s notification refer to a request for
extension beyond
that already granted.  One would have expected
that a request for any extension would have to be properly and
formally motivated
if regard is had to the Act and Regulations aside
from what I would have considered to be the overarching requirement
of administrative
transparency.
THE
ISSUES
69.
The
applicants had drafted their papers in reliance on a number of cases
which were overruled by the Supreme Court of Appeal decision

delivered in May of
Panamo
Properties (Pty) Ltd v Nel and another NNO
2015
ZASCA 76. The effect of the decision is that even if there has been
non-compliance with section 129(4) (b) business recue proceedings

have commenced and must be set aside by a court even if the
resolution has lapsed and is a nullity under section 129(5)
[4]
.
The applicants then attempted to remedy the situation. This also
necessitated amending the relief claimed. The initial relief

did not deal with  the grounds provided for in section
130(5)(a)(ii), namely that it is just and equitable to set the
resolution
aside
70.
The respondents contend that the attempts to remedy the situation
were inadequate and raised the following preliminary points;
a.
Schlechter should have been cited in his nominated capacity, not
personally;
b.
The applicants failed to give notice of the application to affected
persons including creditors and  trade
unions or employees as
required under sections 130(3)(b), 144(3)(a) and 145(1)(a) of the
Act;
c.
The applicants had not relied on the substantive ground, as required
under section 130(5)(a)(ii), that it is
otherwise just and
equitable to set aside the resolution which placed the company under
business rescue;
d.
The
locus standi
of the applicants to seek an order for return
of the company’s assets.
71.
The issues regarding the merits are:
a.
Whether the Commission can grant an extension of time for compliance
with section 129(4), it being common cause that the practitioner
had
failed to publish a copy of the notice of his appointment to
affected persons within the five business day period provided
for in
that subsection. If the Commission cannot grant an extension then one
of the grounds for applying to set aside the resolution
will be met
(namely that contained in section 130(1)(a)(iii) as read section
130(5)(a)(i) ;
b.
Whether there were other failures to comply with the requirements of
section 130(1) and in particular whether there was any reasonable

basis for believing that the company is financially distressed and
whether there was no reasonable prospect of saving the
company in
terms of section 130(1)(a)(i) and (ii) respectively as also read with
section 130(5)(a)(i) ;
c.
Whether having regard to all the evidence it is just and equitable to
set aside the resolution as required under section 130(5)
(a) (ii).
72.
It is evident from both the contents of the respondents’
affidavits and Adv Wesley’s submissions that there is no

defence to the claim for return of the plugs and patterns other than
the point taken regarding the applicants’ standing.
73.
Prior to dealing with the issues it is advisable to consider the
applicable provisions of Chapter 6.
THE
TWO OBJECTIVES OF BUSINESS RESCUE UNDER SECTION 128(1)(b)
74.
It is unnecessary to trace the genesis of the business rescue
provisions or its rationale. They are set out in a number of reported

cases. For present purposes it is only necessary to consider whether
a director is required to act in good faith when passing a
resolution
placing a company under business rescue and if so what that means in
the context of Chapter 6.
75.
The
primary objective of the introduction of Chapter 6 was to afford a
company that is in financial difficulties (and satisfies
the
threshold requirement of being ‘
financially
distressed’
[5]
)
a period of time to regain viability by being allowed to formulate
and implement a rational plan to rehabilitate itself. However
the Act
also contemplates business rescue if the company cannot continue in
existence but can obtain a better return for creditors
or
shareholders than if the company was immediately liquidated.
76.
In the course of argument Adv Wesley contended that obtaining a
better return is to be construed as an alternative main objective
of
business rescue proceedings to the rehabilitation of a company
through the development and implementation of a business plan
to
secure the continued existence of the company on a solvent basis.
77.
In order to address this argument it is necessary to set out the
definition of the term ‘
business rescue’
contained
in section 128(1)(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;
78.
The primary objective is to
to prevent a
viable company from closing down
by allowing it an opportunity
to regain solvency through the mechanism of business rescue provided
it can be achieved within a
reasonable time. In particular the
preamble to the definition speaks of rehabilitating the company.
79.
In my view the words “
or, if it is not possible for the
company to so continue in existence”
qualify when the
alternate objective of providing a better return may be relied upon.
In other words it is for the person who wishes
to place a company
under business rescue on this alternative ground to satisfy three
criteria;
a.
that the company is financially distressed as required under section
129(1)(a);
b.
that it is not reasonably likely (or perhaps possible)for the company
to be rehabilitated and continue in existence on a solvent
basis as
contemplated in section 128(1)(b)(iii). (It was not necessary to
argue the appropriate threshold test); and
c.
that the development and implementation of a plan to rescue the
company would result in a better return for creditors or shareholders

than would occur from its immediate liquidation.
80.
If the second ground for business rescue is not a qualified
alternative to the first then the interests of employees will be

ignored. The reason is that, if unqualified, the second ground is
only concerned with determining whether creditors and shareholders

will receive a better return under business rescue than on
liquidation, leaving out of the equation the employees’
interests
in retaining jobs via rehabilitating the company. Such a
result would be inimical to one of the fundamental paradigm shifts
provided
for in the new Act; the recognition of the rights and
interests of employees alongside those historically accorded to
shareholders,
directors and creditors in matters affecting the
affairs of a company both internally and externally.
It
could hardly have been the intention of the legislature to permit the
interests of employees to be by-passed in cases where a
dividend
return under business rescue through say asset stripping would be
better for only creditors or shareholders than liquidation
without
first considering whether the survival of the company as a going
concern was feasible (given a reasonable time). By giving
full weight
to what in any event is couched as a qualification, the interests of
employees in the continued existence of the company
(whether under
original or new control), are properly taken into account.
81.
Moreover, in order to give content to the purpose of business
rescue it is necessary to establish, before considering the paying

out of creditors or shareholders in the form of a dividend through a
business rescue plan, whether the company has access to investor

funding that may tide it over or whether creditors are prepared to
support the rehabilitation of the company instead of closing
it down.
There may be sound commercial reasons why suppliers
within
the manufacturing and service industries would wish to support the
continued existence of a company (and possibly under existing

ownership) in order to avoid the knock-on effect to their own
commercial viability if a major manufacturer to whom they supply
and
have given credit, or from whom they receive essential components or
product for on-sale, closes down.
GOOD
FAITH
82.
The various requirements for placing a company under business rescue
and when it will be taken out of business rescue presuppose,
in the
case of a directors resolution under section 129(1), that the
resolution is taken in good faith. This arises from a number
of
considerations which are dealt with in the following paragraphs.
83.
The
most obvious is the requirement that there must be a legitimate
business purpose in resolving to place the company under business

rescue. Moreover a requirement of good faith is implicit in the
scheme of Chapter 6 which seeks to balance the interests of affected

parties including creditors and employees. The requirement for good
faith is expressly mentioned in the context of a director who
may be
liable for costs under section 130(5) (c) if the directors resolution
placing the company under business rescue is set aside
and he fails
to satisfy the court that he acted in good faith when claiming that
the company was financially distressed
[6]
. It is also mentioned in the case of a director who seeks to set
aside a resolution he had supported under section 129 which placed

the company under business rescue
[7]
.
84.
In my view bad faith will be demonstrated if, for instance, the
intention of the directors in passing a section 129(1) resolution
is
found to be an abuse. This would be considered in conjunction with
other factors such as the attitude of major creditors, whether
the
company has assets, whether there are other sources of funding and,
depending on the circumstances of the case, whether there
was an
intention to implement a business plan that meets the avowed
objectives of the Act and a reasonable prospect of the plan
being
implemented.
The
corollary is that a company should not be placed under business
rescue as a litigating strategy or to prevent or discourage
a
creditor from enforcing a claim to the full extent. This brings into
focus the intention of the party seeking business rescue
and whether
that person genuinely seeks to attain the objectives of Chapter 6.
Good faith, or rather the lack of it, is therefore
an essential
element in determining what is just and equitable under section
130(5) (a) (ii).
85.
There is a further reason why want of good faith should be relevant
in determining whether it is just and equitable to set aside
a
section 129 resolution under section 130(5) as read with section
130(1). It provides the necessary basis to distinguish the type
of
case such as
Panamo
, where the facts cried out for the
continued operation of business rescue despite the failure to comply
with the procedural requirements
of section 129(3), from those cases
where the passing of a section 129 resolution by directors of a
company is used for an ulterior
purpose including personal advantage.
86.
While good faith does not necessarily mean that a resolution will be
saved from being set aside, want of good faith while not
the sole
factor to be taken into account should certainly play a significant,
if not determinative, role in weighing up whether
it is just and
equitable to set aside the resolution. For the purposes of this  case
it is unnecessary to consider the full
scope of the term “
just
and equitable
” in the context of business rescue where
there are different groups of affected parties (as defined) whose
interests
do not necessarily coincide and where both micro- and
broader socio-economic implications informed the introduction of
Chapter
6.
87.
This
conclusion is reinforced by the complimentary provisions of section
76(3) which deal with the standards of conduct required
of a
director. The section provides that subject to subsections (4) and
(5) a director must exercise his powers and perform his
functions in
that capacity in good faith and for proper purpose. In addition he
must do so in the best interests of the company
[8]
88.
I proceed to deal with the preliminary points taken.
CITATION
OF THE PRACTIONER
89.
The point of the incorrect citation of the practitioner was not
raised in argument. It is however apparent that the real bone
of
contention was that Schlechter should only be before the court in his
official capacity as the duly appointed practitioner.
90.
Once again the issue arises because prior to
Panamo,
the
judgment of Fabricius J in
Advanced Technologies and Engineering
Company(Pty) Ltd v Aeronautique et Technologies Embarquees SAS
(
unreported but referred to in
Panamo
at para 17
)
was generally followed in this Division. There the court held
that a failure to comply with either section 129(3) or (4) resulted

in the resolution being null and void
ab initio
, thereby
incapable of sustaining business rescue proceedings.
91.
The decision in
Panamo
which was only handed down on 27
May, and which may not have been readily accessible save on the
Supreme Court of Appeal website
at the time the application was
drawn, held that both sections 129(3) and (4) requirements are
procedural as that term is applied
in section 130(1)(a)(iii) and
therefore in order to end business rescue under the Act (as provided
for in section 132(2)(a)(i))
it is necessary for a court
determination through the mechanism of a section 130(1) application;
which in turn requires the court
to be satisfied that the
requirements set out in section 130(5) are met before considering
whether a court, in the exercise of
its discretion, should set aside
the resolution.
However
inelegantly formulated, the intervention of a court is necessary and
although the order is granted under section 130(1)
to set aside the
resolution, by reason of section 132(2) (a)(i) business rescue comes
to an end
ex lege
. At paras 28 and 29 of the judgment Wallis
JA said;
[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. 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 s132(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.
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.
(See
also paras 20, 21, 23, 24, 27 and 31 of the judgment)
92.
The present matter came by way of urgency and, applying
Panamo
,
the company remains in business rescue under the practitioner in his
official capacity.
93.
However the issue regarding the practitioner does not end there. The
case made out by the applicants is that he was conflicted
and should
never have been appointed. The case is also made out that Lizemore
acted in bad faith and for an ulterior and self-serving
purpose in
placing the company under business rescue.
94.
In terms of section 130(5)(c)(ii) a director who voted in favour of
the section 129 resolution may be personally liable for
costs if its
requirements are satisfied and the director did not act in good
faith.
95.
If it
is found that the practitioner effectively aligned himself with the
interests of Lizemore in circumstances where Lizemore
is to be held
liable for the costs, there is no good reason for the company to be
saddled with his costs of opposition when he
simply had to bring to
the courts attention such facts as he knew and abide the decision. If
it is found that he descended into
the litigation, not qua
practitioner
[9]
then the company
should not be responsible for his costs. I do not read section 140(3)
(c) as depriving the court of its ordinary
power to deal with costs
on a
de
bonis
basis when warranted.
COMPLIANCE
WITH SECTIONS 130(3) (b), 144(3) (a) and 145(1) (a)
96.
The applicants produced proof that they had given notice of the
application to all affected persons including the union and

shareholders, save that in the case of creditors the applicants could
only give notice to those whose names they were able to procure.

Notice was given to a substantial number, including the main
creditors.
97.
None of the applicants have access to the company and they were
dependent on the co-operation of the respondents. The inability
to
identify the balance of the creditors was due to the obstructive
conduct of the latter. Moreover it hardly lies in the respondents’

mouths to complain that notice was not given to all creditors when
the practitioner had yet to give notice to any or, as conceded
by the
respondents, to have approached any creditor (save for Lizemore).
98.
Nonetheless I am satisfied that there has been compliance with the
requirements of notice to the unions, employees and shareholders
and
that there has been substantial compliance, in all the circumstances,
with notice to creditors by number and certainly by value
and
importance.
FAILURE
TO RAISE ‘
JUST AND EQUITABLE
’ IN FOUNDING
AFFIDAVIT
99.
The respondents seek to rely on
Swissborough Diamond Mines (Pty)
Ltd and Others v Government of the Republic of South Africa and
Others
1999 (2) SA 279
(T).
100.
There is an acceptable explanation for not expressly identifying the
just and equitable requirement of section 130 (5) (in
order to end
business rescue by a court order setting aside the section 129
resolution).
101.
Swissborough
is not necessarily a panacea for respondents
where there are enough facts set out in the founding affidavit to
support a legal argument
and where the basis of the legal argument is
then corrected in reply; (which in turn would overcome any concern
that the respondents
were unaware of the legislation upon which the
applicants relied).
102.
In the present case; as soon as the applicants were made aware of
Panamo
they rectified the situation and the respondents dealt
fully with the allegations contained in the founding affidavit on
which the
applicants subsequently relied to support the just and
equitable argument. The respondents also filed further affidavits and
therefore
had the opportunity to add any further facts relevant to
the just and equitable issue.
STANDING
IN RESPECT OF RETURN OF COMPANY PROPERTY
103.
The respondents contend that section 133(1) provides for a moratorium
which precludes the applicants from seeking to enforce
return to the
company of its own property.
The
section provides:
133
General moratorium on legal proceedings against company
(1)
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, except-
(a)
with the written consent of the practitioner;
(b)
with the leave of the court and in accordance with any terms the
court considers suitable;
104.
In my view the section is intended to protect the company from claims
or recovery of assets against it. It does not in its
terms deal with
orders that seek to protect or recover company property for its
benefit.
105.
In any event, on the facts, the practitioner has adopted a supine
attitude and despite the tender to return the items in question
has
done nothing about it. For reasons that appear later, the applicants
could not expect the practitioner to divorce himself from
the
interests of Lizemore; at least for as long as they shared the same
attorney. If it was necessary I would have had no hesitation
in
granting leave to the applicants under subsection (b) if they had
requested it. The urgency of the matter and the lack of any
defence
to the merits of the claim for return (which is hardly surprising
considering the tenders made but not implemented) justify
the court
in acceding to the relief sought under this part.
SECTION
129(4)
106.
The respondents contend that the Commission can grant an extension to
the company for complying with the time periods under
section 129(4).
They initially placed reliance on section 129(3) which allows the
Commission to grant a longer time for compliance.
107.
The difficulty confronting the respondents is that the dispensation
is contained in section 129(3) and deals with the Commission’s

power to extend the period within which the company must appoint a
practitioner and publish a notice of the section 129(1) resolution
to
every affected person.
108.
A similar power is not to be found in section 129(4) in relation to
either publishing a copy of the notice of appointment of
the
practitioner to each affected person or to the filing of a notice of
the practitioner’s appointment.
109.
In my view if the legislature intended to provide in section 129(4) a
similar dispensation to that in subsection (3) it would
have said so.
Consistency of application would require the legislature to have
followed the same formula in successive subsections
if the Commission
was also to have the power to grant an extension under subsection
(4). The subsections are sufficiently proximate
that the possibility
of a
casus omissus
may be disregarded.
110.
Adv Wesley sought to then rely on Regulations 166(1) and (2) which
concerns the extension of time limits under the Act. In
my view the
regulations do not cover the situation under consideration. If it
were otherwise a regulation which constitutes delegated
legislation
would trump an express primary statutory provision, which is not
possible.
SECTIONS
130(1) (a) (i) and (ii)
.
111.
The question is whether in addition to the failure to comply with
section 129(4) there was no reasonable basis for believing
that the
company is financially distressed or there was a reasonable prospect
of saving the company.
112.
The
applicants set out the steps taken to procure funding from the banks
and how it would be utilised
[10]
.
It is common cause that Lizemore was aware of this before he passed
the resolution. Moreover he nowhere sets out a basis as to
why the
company was unable to pay all its debts as they became due within the
immediately ensuing six months. On the contrary the
applicants had a
plan that would see the exit of Lizemore and cut costs as well as
regain orders. Finally Lizemore confirmed that
there were still other
suitors interested in acquiring the company as a going concern. The
figures that were mentioned indicate
that provided the landlord
subordinated its claim (as it clearly was doing) the company had good
value and its turnover was in
the millions of Rand.
113.
There is no concrete evidence placed before the court by the
respondents to demonstrate that the company would be unable to
pay
all its debts when they became
due
(which term would exclude
subordinated debt) within six months particularly as it was in the
process of obtaining funding from its
bankers, a fact which the
respondents could not gainsay. In turn this impacts on their
inability to demonstrate that it was reasonably
likely that the
company would become insolvent within the immediately ensuing six
months.
114.
In my
view a particularly telling fact is that, two weeks into business
rescue, the practitioner could not produce one creditor
or other
affected party aside from Lizemore who supported business rescue
[11]
.
On his own say so he had not spoken to any of the major creditors to
establish their views. Since the time of his appointment,
and by his
own showing, the practitioner adopted a supine attitude and failed to
take any of the steps one would expect of a practitioner
in such
circumstances. His appointment of Lizemore does not appear to be
anything more than keeping the latter in management. This
is no
longer the de facto position since the business was closed by the
practitioner.
JUST
AND EQUITABLE
115.
I have already mentioned that the resolution of 8 April was signed by
Griessel and, accepting the respondents’ version,
was given to
Lizemore for signature. Lizemore claimed that he had refused to sign
that resolution because of the interest being
shown by Multotec to
acquire the company, it being a condition (if such transaction was to
take place) that all directors and senior
managers would have to sign
a restraint of trade agreement. Lizemore stated that Quintin did not
want to be in a position where
he would have to sign such a restraint
and therefore Quintin did not want to be a director or senior manager
in the company. The
first respondent did not give any details
regarding where or when such a conversation might have taken place.
In the replying affidavit
it is clear that the first applicant had
agreed to take over as director of the company from his father who
held the majority shares
in the company.
116.
Quintin’s averments are significant. In para 22 of the founding
affidavit he claims that Lizemore;
a.
had him sign certain documentation  and forms for the purpose of
appointing him as a director;
b.
held a meeting with the entire staff compliment indicating that
Quintin was to be appointed as director in the place of Griessel;
c.
agreed to arrange the filing of the necessary documents with the
Commission so that Quintin would be registered as a director.
Unlike
the other paragraphs, the respondents’ reply was not contained
in a self standing paragraph. It was combined with a
reply to another
paragraph. Although the contents of the other paragraph were
purportedly addressed, the first respondent contented
himself with a
bald denial to the entire contents of this paragraph to the founding
affidavit. That is inadequate in circumstances
where a specific
allegation is made that the necessary forms were signed by Quintin to
the knowledge of Lizemore and that he had
introduced Quintin to staff
as the new director. Allegations of this nature, bearing in mind the
general nature of the defence
raised, require to be addressed
specifically. A bald denial in the circumstances does not suffice.
117.
There
is another aspect. The document prepared by Griessel in its terms
provided for his replacement by Quintin as director; not
as severable
and unrelated events
[12]
.
118.
Nowhere does Lizemore claim that there would be only one director or
that the majority shareholders would relinquish their
seat on the
board.
A
difficulty facing Lizemore is that the 8 May resolution purports to
be of both the directors and shareholders of the company.
However
only he signed it. None of the other shareholders did.
119.
There is a further difficulty with Lizemore’s 8 May resolution.
It is clear from the papers, and it is conceded by the
respondents
counsel , that Lizemore did not inform Griessel that the resolution
had not been signed in the form prepared by the
latter or that
Lizemore would redraft the resolution and omit the appointment of
Quintin; nor did he otherwise precognise Griessel
or Quintin that he
would effectively refuse to sign the resolution in its form or
frustrate the majority shareholders’ appointment
of their
chosen director to the board.
120.
There is also a damaging statement by Lizemore. He states that
“
after Griessel
resigned as director of the
company the first respondent approached Multotec to enquire whether
it was interested in buying a share
in the company or taking over in
the company as a whole.
(emphasis added)
This
statement is significant because it contradicts the first
respondent’s claim that Quintin did not want to become a
director
because of a requirement by Multotec that a restraint be
signed; however Multotec only entered the picture, according to
Lizemore’s
statement, after Griessel had resigned.
121.
The applicants did not raise the question of whether Lizemore could
in fact competently pass the resolution of 8 May when the
resolution
placed before him, the board and shareholders (ie the resolution of 8
April) was a composite resolution that required
consideration. This
issue may in turn disentitle Lizemore from being able to represent
the board as its sole director, thereby
rendering the subsequent
section 129 resolution a nullity on ordinary principles. The point
was not argued and I therefore make
no finding on it.
122.
Nonetheless, in the context of just and equitable, it is evident that
the section 129 resolution was taken behind the back
of the
co-shareholders and when Lizemore knew that they, as majority
shareholders,  were entitled to have a director on the
board and
would not have approved business rescue.
123.
There are in addition important factors which cumulatively, and
together with the stealing of a march, favour setting aside
the
resolution on the grounds that it is just and equitable to do so.
They are based on the facts set out earlier which demonstrate,
on the
respondents own version ( save where I have expressly rejected that
version on identified grounds), that;
a.
Lizemore was prepared to resign on 29 June and ostensibly had no
further interest in the running of the company aside from being
paid
out. There was no reason for him  to have a genuine interest in
the company ;
b.
He never pertinently raised his concerns that the company was
financially distressed. Despite access to the books of the company

the answering affidavit essentially contains only submissions without
concrete facts. This despite the fact that Lizemore had already

sought advice on how to put the company under business rescue.
Together with the picture painted by the facts set out earlier it
is
evident that Lizemore was using business rescue to suit his personal
interests and not in a bona fide way. In particular he
was aware that
the shareholders were raising substantial funding to cover debt and
increase turnover. He was also aware that there
were suitors who did
not require a business rescue process before showing interest. It is
also evident that creditors were happy
to assist the company once
approached without the necessity of business rescue.
c.
The practitioner, working hand in glove with Lizemore, effectively
abdicated his responsibilities to Lizemore. He failed to consult
with
creditors or the other shareholders. He has been supine and within a
week of his appointment closed the business. He failed
to engage the
workers and the work force are now unemployed despite the very reason
for business rescue, according to Lizemore’s
affidavit of 2
July, being to protect jobs. This again demonstrates that Lizemore
could not have been
bona fide
but was abusing business rescue
for his own ends.
124.
Lizemore and the practitioner are represented by the same attorneys.
The business practitioner does not consider this problematic.
And
therein lies the rub since it is difficult to appreciate how the
attorney dealing with the matter can represent Lizemore, to
whom he
has given advice and clearly has strategised the business rescue,
while at the same time is representing another party
who is obliged
to bring a very different set of considerations to bear on the
matter. This is not only a criticism of the attorney
but also of the
Schlechter. Schlechter must bring an independent mind to bear on the
question of whether there are reasonable grounds
to believe that the
company is, was not, or is no longer financially distressed as
provided for in section 141.
125.
There is no Chinese Wall that I am aware of which renders the
same
attorney in the same firm impervious from being conflicted in a case
of this nature; a case where to the attorney’s knowledge
the
practitioner has conducted no independent investigation and is only
provided with Lizemore’s version.
126.
The practitioner effectively precludes himself from adopting anything
other than a supine position because on his own say-so
he knows
nothing about the affairs of the company, has not asked the main
shareholders and funders whether they have a plan nor
has he
approached any of the main creditors to establish their views and has
allowed the business to simply close.
127.
There are other features that should have given cause for concern to
the practitioner. This was not a case where his appointment
was
pursuant to a court order or a decision of the board supported by the
shareholders. It would have been evident from the most
cursory
enquiry as to how Lizemore came to sign the resolution without taking
his co-shareholders into his confidence. He should
also have
scrutinized the resolution that Griessel had prepared to satisfy
himself that Lizemore was not stealing a march and looking
after his
self-interest.
128.
The failure to engage creditors or establish what the shareholders
had in mind for re-financing simply adds grist to the mill.
Instead
the practitioner only sought extensions of time to notify creditors.
If he engaged creditors and the shareholders it would
have been
evident that the first respondent had stolen a march. He was supine
and effectively shut down the company within a week
of his
appointment. His conduct has achieved the very opposite of the
grounds relied upon by Lizemore for placing the company under

business rescue. Business rescue is intended to be engaged with
sufficient vigour by the practitioner in order to facilitate the

rehabilitation of a company by engaging affected parties or, where
that cannot be attained, to avoid liquidation by expeditiously

facilitating a deal which will yield a better return. The conduct of
the practitioner in this case falls far short of this and
he
effectively did little or nothing to pursue the objectives of
business rescue.
129.
The only interests not yet taken into account are those of Lizemore.
I however have found that his motive is self-serving.
The employees
are clearly better off by having the company open its gates, which
will not occur under Lizemore or the practitioner.
130.
In all the circumstances it is also just and equitable to set aside
the resolution.
I
am therefor satisfied that each of the requirements to set aside the
resolution in terms of section 130(5)(a) read with 130(1)(a)have
been
met.
131.
The effect of setting aside the resolution under section 130(1)(a)
means that the business rescue proceedings have ended. It
is however
appropriate that the effect be contained in the order as it will be
disseminated to affected parties who may be laypersons
and unaware of
the consequence of setting aside such a resolution. I accordingly
redrafted para 2 of the order so as to explain
this.
REMOVAL
AND APPOINTMENT OF DIRECTORS
132.
In terms of 163(2)(f) oppressive or prejudicial conduct entitles the
court to appoint directors in place of or in addition
to those in
office.
133.
I am satisfied on the facts that the requirements for invoking its
provisions are satisfied. The facts supporting this ought
to be clear
from what has been set out earlier.
134.
The applicants sought an order removing Lizemore and placing
themselves on the board.
135.
In my view Lizemore should be allowed to protect his shareholding
interests by remaining on the board. He is unlikely to disrupt
its
day to day functioning as he will be in the minority. The applicants
can always approach the court again should he frustrate
the proper
operation of the board and act in a manner that does not have regard
to the company’s best interests. They are
also at liberty to
invoke the proper machinery under the Act if they wish to remove him.
COSTS
136.
The legislature in allowing the business rescue proceedings to
commence, even where the resolution was a nullity for want of

compliance with section 129(4), has opened the door to a practitioner
being entitled to charge the company for remuneration and
expenses in
terms of the prescribed tariff as provided for in terms of section
143(1) as read with subsection (6). It also appears
that no provision
is made for the forfeiture of remuneration; only a reduction as
provided in the circumstances set out under section
143(4).
137.
There is no order sought to preclude the practitioner from recovering
from the company remuneration under the tariff or setting
aside any
agreement that may have been concluded, certainly none was disclosed.
Accordingly
that issue was not before me and this judgment does not prevent the
applicants from challenging the practitioner’s
right if the
latter seeks to raise, or has raised, any amount of remuneration
against the company or has recovered any such amount
from it.
138.
However in so far as litigation costs are concerned, Adv Wesley did
not suggest that the first respondent should not be responsible
for
the costs even if I should find in favour of the applicants. I was
not referred to section 130(5)(c)(ii) which provides that
in the
circumstances enumerated in the subsection the court will order costs
against a director unless satisfied that the director
acted in good
faith and on the basis of information he was entitled to rely upon in
terms of section 76(4) and (5).
139.
It appears that the legislature was concerning itself with a specific
situation which it considered required addressing, not
that it is the
only situation where costs may be awarded against the director
personally. Nonetheless this certainly is the situation
which
prevailed in the present case and I am satisfied that the first
respondent did not act in good faith let alone that he actually

relied on information supplied by others as envisaged by sections
76(4) and (5). Quite the contrary. I am satisfied for reasons
set out
earlier that the first respondent acted in bad faith knowing full
well that a properly constituted board of director’s
would not
have passed the resolution. Moreover he was director in name only
when signing the resolution but he did so as part of
a stratagem to
look after his self-interests; not those of the company, its
creditors or employees.
140.
I would in any event consider that the overall conduct of the first
respondent was not in good faith when he passed the resolution
behind
the back of his co-shareholders in circumstances where he knew he was
not entitled to. He also failed to tell them that
he had not
co-signed the appointment of Quintin as director thereby leading them
to believe, until it was too late, that he could
not act without
their concurrence; or at least forewarning them of his proposed
actions as director. Moreover he signed the resolution
placing the
company under business rescue despite the matter being raised at the
meeting of 29 June and being rejected and despite
Griessel informing
him that they would provide funding for the company utilising the
property as collateral.
COSTS
141.
The applicants did not ask for any special order for costs against
the first and second respondents. There is however the consideration

that the company should not be obliged to bear any of the costs
whether directly or indirectly of the business rescue proceedings.
ORDER
142.
I accordingly granted an order, which was since revised by
introducing in para 2 the clarification mentioned earlier for the

benefit of any interested party, in the following terms;
1.
In terms of section 129(5) read with section 129(4) of the
Companies Act 71 of 2008 (‘the Act’) it is declared that
the resolution to begin business rescue proceedings and place the
company under supervision (‘the said resolution’)
has
lapsed and is a nullity.
2.
In terms of section 130(5)(a) of the Act  the said
resolution is set aside on the grounds set out in terms of section
130(1)(a)(i)
and (iii) read with 129(4) and it being just and
equitable to do so as contemplated in section 130(5)(a)(ii) thereof;
with the
result that, as a matter of law under section 132(2)(a)(i)
of the Act, the business rescue proceedings are ended.
3.
In terms of section 163(2)(f) of the Act the first and second
applicants are appointed directors of the company in addition to the

first respondent.
4.
The first respondent is directed to forthwith return to the
company all the plugs and patterns that he removed from the company’s

premises, and failing compliance within five days of this order the
sheriff or his lawful deputy is authorised and instructed to
require
the first respondent to point out where such items are and to there
and then seize them and return them to the company.
5.
The first and second respondents are to pay the costs of the
application, jointly and severally, the one paying the other to be
absolved.
SPILG
J
POSTEA:
1 September 2015
SPILG,
J:
1.
This is an application for leave to appeal.
2.
I have again considered my judgment in light of the grounds raised by
the respondents in their application.
3.
While issue may have been taken with my application of
Plascon-Evans
in respect of one or two findings it does not militate against
the overwhelming considerations that led me to set aside the section

129 resolution under
section 130
of the
Companies Act 7
1 of 2008 and
grant the order I did.
4.
Furthermore, insofar as setting aside the
section 129
resolution is
concerned I exercised a discretion in granting the order and
consequently the scope for appeal is limited. So too
in regard to the
appointment of the applicants as additional directors pursuant to the
exercise of the court’s discretion
under
section 163(2).
In my
view the threshold requirements for appealablity have not been
satisfied.
5.
That leaves the order for return of assets to the company. Since the
first respondent had tendered return but failed to deliver
and raised
no defence on the merits an appeal would serve no purpose.
6.
I do not wish this judgment to be construed as an acceptance that the
order setting aside the resolution and thereby ending the
business
rescue proceedings is appealable in cases where a court has acted
within the four corners of the legislation (which would
distinguish
Panamo Properties (Pty) Ltd v Nel and another NNO
2015 ZASCA
76).
7.
There are certain features of the business rescue process which may
be construed as precluding an appeal in cases where the court
has
acted
intra vires
the legislation when setting aside the
resolution.
8.
Setting aside the resolution may not be of final effect as it does
not preclude creditors or any affected party from immediately

bringing their own application before a court. The effect of the
order is only to preclude the company, through its board of directors

from doing so again within a period of three months; and even then it
would be permissible prior to that date if good cause is
shown. See
section 129(5)(b).
1
50%">
9.
Since the point was not argued and only occurred to me when preparing
judgment, I leave it open as I am satisfied that even if
the decision
to set aside the resolution is appealable that leave should be
refused on the grounds that it does not have a reasonable
prospect of
success and there is no other compelling reason why the appeal should
be heard. I therefore also do not have to consider
whether my
decision falls within the ambit of
section 16(2)(a).
15
0%">
10.
Once again the costs are not to be borne by the company.
11.
Accordingly leave to appeal is refused with costs, the first and
second respondents to pay such costs personally and jointly
and
severally, the one paying the other to be absolved.
SPILG,
J
DATES
OF HEARING: 15, 17 and 22 July 2015
(Leave
to Appeal: 28 August 2015)
DATE
OF ORDER: 31 July 2015
DATE
OF JUDGMENT: 26 August 2015 (revised 28 August)
(Leave
to Appeal: 1 September 2015)
LEGAL
REPRESENTATION:
FOR
APPLICANTS: Adv LAVINE
JM
BERKOWITZ INC
FOR
1
st
-3
rd
RESPONDENTS: Adv CP WESLEY
NEL
VAN DER MERWE & SMALMAN INC.
[1]
The
relevant paragraph in the answering affidavit is advanced by the
practitioner in his own right. See para 17.
[2]
See
sections 66(4), as to the provisions that must be contained in a
Memorandum of Incorporation
(‘MOI’)
.See
also section 68(1) and section 70(3) read with section 60(3) as to
voting in a director unless the MOI provides for a direct

appointment as envisaged by section 66(4)(a)(i). Section 66(7) sets
out when an appointment becomes effective.
[3]
Para
45.2 of the answering affidavit.
[4]
Panamo
at
para 31
[5]
See para 57 supra
[6]
Section 130 (5): When considering an application in terms of
subsection (1) (a) to set aside the company's resolution, the court

may-
(a) …
(b) …
(c) if it makes
an order under paragraph (a) or (b) setting aside the company's
resolution, may make any further necessary and
appropriate order,
including-
(i) … ;
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 and on the basis of
information that the director was
entitled to rely upon in terms of section 76 (4) and (5).
[7]
Section 130(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) subsection
(1) (b) to set aside the appointment of the practitioner appointed
by the company,
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.
[8]
Section 76 (3) Subject to subsections (4) and (5), a director of a
company, when acting in that capacity, must exercise the powers
and
perform the functions of director-
(a) in good
faith and for a proper purpose;
(b) in the best
interests of the company; and
(c) with the
degree of care, skill and diligence that may reasonably be expected
of a person-
(i) carrying out
the same functions in relation to the company as those carried out
by that director; and
(ii) having the
general knowledge, skill and experience of that director.
(4) In respect
of any particular matter arising in the exercise of the powers or
the performance of the functions of director,
a particular director
of a company-
(a) will have
satisfied the obligations of subsection (3) (b) and (c) if-
(i) the director
has taken reasonably diligent steps to become informed about the
matter;
(ii) either-
(aa) the
director had no material personal financial interest in the subject
matter of the decision, and had no reasonable basis
to know that any
related person had a personal financial interest in the matter; or
(bb) the
director complied with the requirements of section 75 with respect
to any interest contemplated in subparagraph (aa);
and
(iii) the
director made a decision, or supported the decision of a committee
or the board, with regard to that matter, and the
director had a
rational basis for believing, and did believe, that the decision was
in the best interests of the company; and
(b) is entitled
to rely on-
(i) the
performance by any of the persons-
(aa) referred to
in subsection (5); or
(bb) to whom the
board may reasonably have delegated, formally or informally by
course of conduct, the authority or duty to perform
one or more of
the board's functions that are delegable under applicable law; and
(ii) any
information, opinions, recommendations, reports or statements,
including financial statements and other financial data,
prepared or
presented by any of the persons specified in subsection (5).
(5) To the
extent contemplated in subsection (4) (b), a director is entitled to
rely on-
(a) one or more
employees of the company whom the director reasonably believes to be
reliable and competent in the functions performed
or the
information, opinions, reports or statements provided;
(b) legal
counsel, accountants, or other professional persons retained by the
company, the board or a committee as to matters
involving skills or
expertise that the director reasonably believes are matters-
(i) within the
particular person's professional or expert competence; or
(ii) as to which
the particular person merits confidence; or
(c) a committee
of the board of which the director is not a member, unless the
director has reason to believe that the actions
of the committee do
not merit confidence.
[9]
Ie;
that in actually litigating rather than playing a passive role by
assisting the court with information, he acted in a manner

inconsistent with the duties and obligations of a practitioner as
set out in section 140 and other provisions in Chapter 6 such
as
section 152(1)(b)
[10]
See
para 38
[11]
The
need to demonstrate major creditor support does not lose its
significance because the company itself passes a resolution to
place
itself under business rescue; on the contrary it is more likely to
gain relevance. See
Oakdene
Square Properties (Pty) Ltd v Farm Bothasfontein (Kyalami) (Pty) Ltd
2012 (3) SA 273
(GSJ) at para 49 (point no.7) which was upheld on
appeal (upheld on appeal
2013 (4) SA 539
(SCA)) and applied in
Nedbank Ltd v Bestvest 153 (Pty) Ltd; Essa v Bestvest 153 (Pty) Ltd
2012 (5) SA 497
(WCC) at para 60.
[12]
See the terms of the first resolution supra and the fact that there
was to be a simultaneous transfer of shares.