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[2015] ZASCA 100
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Richter v Absa Bank Limited (20181/2014) [2015] ZASCA 100; 2015 (5) SA 57 (SCA) (1 June 2015)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
no
:
20181/2014
Reportable
In
the matter between:
DAWID
JACQUES RICHTER
Appellant
and
ABSA
BANK
LIMITED Respondent
Neutral
citation:
Richter v Absa Bank Limited
(20181/2014)
[2015]
ZASCA 100
(01 June 2015)
Coram:
Mhlantla, Leach, Pillay JJA, Fourie and
Dambuza AJJA
Heard:
18
May 2015
Delivered:
01 June 2015
Summary:
Business rescue – application for business rescue
can be made after final order of liquidation – Interpretation
of ‘liquidation
proceedings’ in
s 131(6)
of the
Companies
Act 71 of 2008
– ‘liquidation proceedings’ includes
court proceedings and the complete process of winding up or
liquidation
of a company.
ORDER
On
appeal from:
Gauteng
Division of the High Court, Pretoria (Bam J
sitting as court of first instance):
1
The appeal is upheld with costs and the
order of the court a quo is set aside.
2
The matter is remitted to the court a quo
to determine the application for rescission of judgment.
JUDGMENT
Dambuza
AJA (Mhlantla, Leach, Pillay JJA and Fourie AJA concurring):
[1]
This appeal concerns the issue whether it is competent to apply for
business rescue in terms of section 131 of the Companies
Act 71 of
2008 (the Act) after a final liquidation order has been granted
against a company. The issue comes on appeal within the
context of ss
131 (1) and (6) of the Act. The first of these two sub-sections
entitles an affected party to apply to a court, at
any time, for an
order placing a company under supervision and commencing liquidation
proceedings; the second provides for suspension
of liquidation
proceedings where such an application is brought at a time when
‘liquidation proceedings have already commenced’.
The
crux of the issue is the interpretation of ‘liquidation
proceedings’ within the context of s 131(6); whether
the term
refers only to a pending application for a liquidation order or
includes the process of winding up of a company after
a final
liquidation order has been granted. The court a quo held that it was
not competent to apply for business rescue after the
issue of a final
winding order. The appeal against this decision lies with its leave.
[2]
On 13 September 2012 the Free State High Court, Bloemfontein granted
a final order of liquidation against Bloempro CC (Bloempro).
The
order was granted despite opposition from Bloempro, which had
contended that it should rather be placed in business rescue.
On 12
February 2013 the appellant, Mr Dawid Jacques Richter brought an
application, in the Gauteng Division, Pretoria, (the court
a quo in
this appeal) for an order placing Bloempro CC under supervision and
commencing business rescue in terms of s 131 of the
Act. At the time
Mr Richter, a chartered accountant, was employed by Bloempro as a
general manager. Bloempro was the owner of immovable
property and
derived income from rental received from commercial tenants who
occupied that property. On 18 March 2013 the respondent,
ABSA Bank
Limited (ABSA), filed an application for intervention in the business
rescue proceedings. The application for intervention
also served as
opposition to the application for business rescue.
[3]
Initially Mr Ritcher opposed ABSA’s application to intervene.
However on 12 April 2013 he served on ABSA’s attorneys
a notice
withdrawing his opposition. The interpretation of that notice became
contentious. Mr Richter maintained that the withdrawal
of opposition
was only directed at the application for leave to intervene. ABSA
insisted that opposition was withdrawn in respect
of both the
application for leave to intervene and its opposition to the order of
business rescue sought by Mr Richter. That issue
is, however, not
relevant in this appeal. Following the notice of withdrawal on 6 May
2013 ABSA obtained an order by default granting
it leave to intervene
in the application for business rescue, and dismissing the
application for business rescue.
[4]
In due course Mr Richter applied for rescission of the default
judgment. ABSA opposed that application contending that default
judgment had been granted in the context of Mr Richter having
withdrawn his opposition to ABSA’s application. In opposing
the
application for rescission, ABSA contended that when Mr Richter
brought the application for business rescue, a final order
of
liquidation had already been granted against Bloempro and that it was
no longer open to the court to consider an application
for business
rescue. Thus, there were no prospects of success in the application
for business rescue and, that in any event a similar
application had
previously been dismissed by the Free State High Court.
[5]
The application for rescission of the default judgment served before
Bam J. The learned judge considered two issues which he
viewed as
determinative of the application: (1) whether Mr Richter had locus
standi to bring the application for rescission and
to apply for
business rescue, and (2) whether a business rescue application could
properly be made, given that Bloempro was in
final liquidation.
[6]
The court a quo dismissed the application for rescission. It found
that Mr Richter was an affected party as envisaged in s 128
of the
Act; but that as a final order of liquidation had been granted
against Bloempro, it was not open to any affected party to
apply for
business rescue proceedings. It is against this order that Mr
Richter appeals. Before us counsel were in agreement
that in the
event that the appeal succeeded the matter would have to revert to
the court a quo to determine the application for
rescission.
[7]
Sub-sections of s 131 (1) and (6) of the Act provide that:
‘
(1)
Unless a company has adopted a resolution contemplated in section
129, an affected person may
apply to a court at any time for an order
placing the company under supervision and commencing business rescue
proceedings.
(6)
…If liquidation proceedings have already been commenced by or
against the company
at the time an application is made in terms of
subsection (1), the application will suspend those liquidation
proceedings until-
(
a
)
the court has adjudicated upon the application; or
(
b
)
the business rescue
proceedings end, if the court makes the order applied for.’
[8]
Counsel for Mr Richter submitted that the stay of liquidation
proceedings as provided for in s 131(6) is applicable only in
respect
of a pending application for liquidation; and that once a final
order of liquidation is made no application for business
rescue may
be brought. The submission was that ‘liquidation
proceedings’ in s 131 (6) should be interpreted in
the same
manner as in s 132(1)
(c)
in which, so he argued, the phrase
liquidation proceedings referred to proceedings preceding a final
winding up order. Section 132
(1) of the Act reads:
‘
(1)
Business rescue proceedings begin when-
(a)
the company-
(i)
files a resolution to place itself under supervision in terms of s129
(3); or
(ii)
applies to the court for consent to file a resolution in terms
of
s129 (5)
(b)
;
(
b
)
an affected person applies to the court for an order placing the
company under supervision in terms of s 131 (1); or
(
c
)
a court makes an order placing a company under supervision during the
course of liquidation proceedings, or proceedings to enforce
a
security interest, as contemplated in section 131(7).’
The
argument, as I understood it, was that if it had been the intention
to refer to proceedings after a final winding up order in
s132 (1)
(c)
the provisions of s 132 (1) (b) would be superfluous. The
argument is strained. The fact that legislation may be somewhat
repetitive
does not necessarily mean that a departure from the
otherwise clear meaning of the Act is justified. In my view, the
provisions
of s 132 (1) do not clearly indicate that ‘liquidation
proceedings’ necessarily mean those proceedings leading up to
a
final winding up order and nothing else.
[9]
The definition of ‘liquidation proceedings’ as envisaged
in s 131(6) is at the core of the issue. Firstly, it is
significant
that s 131(1) entitles affected persons to apply to court ‘at
any time’ for an order placing the company
under supervision
and commencing business rescue proceedings
.
In
the same vein section 131 (7) also empowers the court, on application
for business rescue, to grant orders provided for in subsections
131
(4) and (5) ‘at any time’ during the course of ‘any
liquidation proceedings’. Generally, in law and
in business,
liquidation is the exhaustive process by which a company is brought
to an end, and the assets thereof, if any, are
redistributed. The
authors of
Cilliers
and Benade;
Corporate
Law
[1]
describe liquidation as
follows:
(27.01)‘…The
process of dealing with or administering a company’s affairs
prior to its dissolution by ascertaining
and realising its assets and
applying them firstly in the payment of creditors of the company
according to their order of preference
and then by distributing the
residue (if any) among the shareholders of the company in accordance
with their rights, is known as
the
winding-up
or
liquidation
of the company.’(my emphasis)
[10]
The reasoning of the court a quo was motivated by an erroneous
premise that upon liquidation Bloempro ceased to exist; that
it was
‘stripped of its original legal status’. The correct
position is that upon the final order of liquidation being
granted
the company continues to exist, but control of its affairs is
transferred from the directors to the liquidator who exercises
his or
her authority on behalf of the company. As to when liquidation
commences, in terms of s 348 of the Companies Act 61 of 1973
(the
1973 Act) liquidation of a company by the court is deemed to commence
on presentation to the court of the application for
the winding up
and continues until the affairs of the company have been finally
wound up and the Master’s certificate to
that effect is
published in the Government Gazette, thus dissolving the company.
[2]
Similarly s 82 of the Act provides for existence of a company until
deregistered by the Commission.
[11]
Significantly, the terms ‘liquidation’ and ‘winding-up’
have historically been used interchangeably
in the context of
dissolving a company. Thus, for example s 79 (1)
(a)
of the
Act provides for a solvent company to be dissolved by
‘voluntary winding
-
up’ as contemplated in section
80 or ‘winding-up and liquidation’ by a court order as
contemplated in section
81. The terms are also used
interchangeably in ss 80, 81 and 82 in relation to the process of
liquidation both prior to and
subsequent to the final liquidation
order being granted, including the final stages of the
winding-up of a company.
[12]
I do not think the phrase ‘liquidation proceedings’ in
any way alters the significance of what is meant by liquidation.
In
terms s 136 (4) of the Act if liquidation proceedings have been
converted into business rescue proceedings, the liquidator is
regarded as a creditor of the company to the extent of any
outstanding amounts owing to him or her for any remuneration due for
work performed, or compensation for expenses incurred before the
commencement of business rescue proceedings. Under s 1 (1) and
Schedule 5 (9) of the 1973 Act, which applies to liquidation of
insolvent companies,
the
definition of ‘liquidator’ includes a provisional
liquidator and a final liquidator. Consequently, the
conversion of liquidation to business rescue even after a final
liquidation order has been granted, was clearly envisaged by s
136
(4).
[3]
[13]
A review of the background to the introduction of the business rescue
process into our law gives an insight as to the intention
of the
legislature in introducing the procedure. Our business rescue regime
is adapted from similar concepts in other jurisdictions
such as the
United States and Great Britain. In South Africa it was introduced
against the background of general acceptance that
the judicial
management process provided for under chapter XV of the 1973 Act was
failing the local economy because only few, if
any, judicial
management orders resulted in the saving of companies experiencing
financial difficulties. Its purpose is stated
as: ‘to provide
for efficient rescue and recovery of financially distressed companies
in a manner that balances the rights
and interests of all relevant
stakeholders.’
[4]
It is
meant to be a flexible, effective process of extending the lifespan
of companies and businesses.
[5]
A necessary consequence thereof is limitation, to some extent, on the
power of creditors to singlehandedly curtail the life of
a company.
But this is subject to compliance with the procedural and substantive
requirements set out in s 129 of the Act.
[14]
Of significance is the fact that in respect of business rescue, the
Act refers to the interests of ‘stakeholders’
in
contrast to the interests of creditors and shareholders which take
centre stage in liquidation proceedings.
[6]
The rights of employees, through trade unions, as stakeholders, are
expressly recognised in the Act. Section 128(1)
(a)
defines
the following as principal stakeholders and affected persons who may
apply for business rescue in respect of a company:
shareholders,
creditors, registered trade unions representing employees, and
employees not represented by a registered trade union.
Business
rescue therefore seeks to protect interests of a wider group of
persons than liquidation. The role of companies as a means
of
achieving economic and social benefits is given prominence.
[7]
[15]
It takes little to imagine instances developing, after the issue of
the final order, that could lead to the circumstances of
a company
improving radically, such that it would become profitable if allowed
to trade. It could be awarded a contract for which
it had earlier
tendered or secure funding for future projects; a major creditor
might indicate a willingness to subordinate its
claim. Accordingly,
in the scheme of things, where, during liquidation, evidence becomes
available that business rescue proceedings
will yield a better return
for shareholders and creditors and jobs will be retained, there could
be no reason to deny business
rescue only because a company is in
final liquidation. Indeed, to allow it to do so would fall into the
very scheme of business
rescue envisaged by the Act and fulfil the
objectives of providing for revival of a financially distressed
company with all its
attendant social benefits.
[16]
Counsel for ABSA expressed concern that a liberal interpretation of s
131(1) may have negative results for the liquidation
process. These
include repetitive disruptions and uncertainty that may result from
various affected parties making applications
for business rescue at
different times during the winding up process, reversion of business
control to the same directors who may
have been the cause of the
financial distress experienced by the company, and the capacity of a
company under final liquidation
to conduct effective business,
including concluding contracts, during the implementation of the
rescue plan. All these concerns
are valid and appear to have been
uppermost in the mind of Bam J when he considered the issues. Indeed
implementation of the Act
may produce some seemingly awkward results
in the initial stages. However, that does not justify an unduly
restrictive approach
in the interpretation of the provisions of the
Act.
[8]
The simple answer is
that a court can dismiss any application for business rescue that is
not genuine and bona fide or which does
not establish that the
benefits of a successful business rescue will be achieved.
[17]
There is no sensible justification for drawing the proverbial ‘line
in the sand’ between pre and post final liquidation
in
circumstances where the prospects of success of business rescue
exist. The legislature did not do so and to restrict business
recue
to those cases in which a final winding up order has not been granted
is inimical to the Act.
[18]
For these reasons a proper interpretation of ‘liquidation
proceedings’ in relation to s 131(6) of the Act must
include
proceedings that occur after a winding up order to liquidate the
assets and account to creditors, up to deregistration
of a company.
[19]
Accordingly, I make the following order:
1
The appeal is upheld with costs and the
order
of the court a quo is set aside.
2
The matter is remitted to the court a quo
to determine the application for rescission of judgment.
_______________
N
Dambuza
Acting
Judge of Appeal
APPEARANCES
For
Appellant:
RF De Villiers
Instructed
by:
Jacobs
Attorneys, Pretoria
Hanno
Bekker Attorneys, Bloemfontein
For
Respondent:
DM Leathern SC
Instructed
by:
Ririch
Wolmarans & Luderits Inc, Pretoria
Symington
& De Kok, Bloemfontein
[1]
H S Cilliers et al: Corporate Law; 3 ed, 2000, at 494.
[2]
It has been held that the deeming provision only comes into effect
once a liquidation order has been granted, but that is not
relevant
to this appeal. See
Kalil
v Decotex (Pty) Ltd & another
1988 (1) SA 943
A (158/87)
[1987] ZASCA 156
(3 December 1987) ;
Absa
Bank Ltd v Summer Lodge
(Pty)
Ltd
2013 (5) SA 444
(GNP) at 447. (63188/2012, 63189/2012) [2013]
ZAGPPHC 544 (23 May 2013).
[3]
See also: Henoschberg on the
Companies Act 71 of 2008
issue 9 at
479.
[4]
Subsection 7
(
k)
of the Act.
[5]
T H Mangalo. ‘An overview of company law reform in South
Africa: From the Guidelines to the
Companies Act 2008
’: (2010)
Acta Juridica xiii.
[6]
See for example subsection 7
(k)
of
the Act.
[7]
Subsection 7
(d)
of
the Act.
[8]
Section 5 of the Act provides that the Act must be interpreted in a
manner that gives effect to its purposes.[8]