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[2017] ZAGPJHC 32
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Gqwaru and Another v Magalela Architects CC and Another (19959/2016) [2017] ZAGPJHC 32 (23 February 2017)
THE
HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 19959/2016
Reportable:
NO
Of
interest to other judges: NO
Revised.
23
February 2017
In
the matter between:
DUMISANI
WILLIAM
GQWARU First
Applicant
MONWABISI
PATRICK
RWEXU Second
Applicant
And
MAGALELA
ARCHITECTS
CC First
Respondent
CHUKWUMA
MTSHALI
Second
Respondent
JUDGMENT
RATSHIBVUMO
AJ
:
1.
This is an application wherein the applicants seek relief in terms of
which the first respondent is placed under supervision
and commencing
business rescue proceedings. They further seek an appointment of the
interim practitioner under section 131 (5)
of the Companies Act, 71
of 2008 (the Act). The application is opposed by the respondents;
with the second respondent acting in
his personal capacity and also
on behalf of the first respondent, a close corporation in which he
holds 51 % majority members interest.
The remaining 49 % is held by
the applicants who assert themselves as experienced businessmen.
2.
In support of the application, the applicants allege that the first
respondent is unable to pay all its debts when they become
due;
[1]
something conceded to by the second respondent in his application for
liquidation of the first respondent.
[2]
The applicants further allege that the first respondent is in
financial distress and as such, it is just and equitable for it to
be
placed under business rescue. In support of this, they aver that
there are reasonable prospects of rescuing its business.
3.
According to the sale agreement, the overall management of the first
respondent is directed by the parent company named R&G
Consultants which is owned by the applicants. As a result, the
applicants direct the overall management of the first respondent
and
only they (the applicants) could be nominated as its accounting
officer.
[3]
With this background, the applicants aver that there are reasonable
prospects of rescuing the first respondent for the following
reasons:
i.
Other
than the sum of R25 000.00 owing to PKF Accountants, the balance of
the first respondent’s indebtedness is to R&G
Consultants
and the first respondent members.
ii.
As
owners of R&G Consultants, the applicants undertake that R&G
Consultants will not demand payment of the sum of R696 263.56
due to
it, until the first respondent is in a position to make payment
thereof.
iii.
The
applicants also undertake not to demand the sum of R919 323.68 due to
them, until the first respondent is in a position to make
payment
thereof.
iv.
The
sum of R448 451.60 owing to the second respondent in respect of
outstanding salary should properly, be set off against his debit
loan
account in the first respondent.
v.
There
is every likelihood that the first respondent will be paid about
R8.78 million in respect of projects underway and the possibility
of
a further payment of R2.5 million having regard to its appointment to
the Department of Health’s Panel of Professional
Service
Providers.
vi.
In the event that the
first respondent is liquidated, the appointment will be nullified
causing the six other members to suffer,
impoverished communities in
dire need of health care services will be left to wait even longer
and the first respondent may be
liable to civil claims.
[4]
4.
As indicated above, the application is opposed by the respondents.
The second respondent avers that the application constitutes
an
abuse of the process because of the following reasons:
i.
This application is in
response to the second respondent’s application for the
liquidation of the first respondent, issued
in April 2016 and served
on the applicants in May 2016.
[5]
ii.
The
first respondent is factually insolvent and it is just and equitable
for it to be liquidated.
iii.
The
applicants had assumed total control of the first respondent and were
acting fraudulently and illegally; “misapplying
and wasting”
the first respondent’s property, to the detriment of the
creditors.
iv.
There
was a breakdown of trust between the applicants and the second
respondent.
v.
The
applicants are not professionally qualified architects and hold a
combined members interests of only 49 %. The second respondent
was
the only member who is duly admitted architect and he is precluded
from participating in the management of the first respondent
including banking and scrutinizing the contracts between the first
respondent and the third parties.
vi.
The
second respondent holds 51 % members interests and will not support
nor participate in any business rescue operation.
5.
It is common cause that the first respondent is in financial distress
in that it is unable to meet its financial obligations
to its
creditors. The dispute is whether liquidation would be the viable
option as opposed to a business rescue. Coupled with this
is the real
predicament on how any of these would be implemented given the
breakdown in trust between the parties. There are accusations
levelled against the applicants by the second respondent whereas he
in return is unwilling to take part in the business rescue.
Finally,
the second respondent seems more interested in having a liquidator
investigate the fraud allegations because he/she can
also make
recommendations for criminal prosecutions if necessary.
6.
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.
[6]
7.
Business rescue can be
initiated by a court order or as a voluntary decision by a company
following a resolution by its board.
[7]
If however the rescue is
initiated by a court order, no prior resolution by the company is
necessary. An affected person can apply
to court for an order to
place the company under supervision and to commence business rescue
proceedings. Every affected person
must be notified. The court
can grant the order if it is satisfied that – the company is
financially distressed; the company
has failed to pay over any amount
in terms of an obligation under or in terms of a public regulation or
contract, with respect
to employment-related matters; or it is
otherwise just and equitable to do so for financial reasons; and
there is a reasonable
prospect for rescuing the company.
[8]
8.
“
Affected
person”
in
relation to business rescue means a shareholder creditor of the
company; any registered trade union representing employees of
the
company; and if any of the employees of the company are not
represented by a registered trade union, each of those employees
or
their respective representatives.
[9]
Whereas the willingness of the company shareholders is determinative
in voluntary business rescue, it is not a consideration for
purposes
of a business rescue through a court order, hence the application can
also be brought by persons who are not shareholders
but just
“affected persons.”
9.
There is no dispute that the first two
requirements have been met for placing the first respondent under
business rescue. The first
respondent is financially distressed and
it has failed to pay over any amount in terms of an obligation under
the contract. There
is however dispute as to whether there is a
reasonable prospect for rescuing it. The applicants make a good case
which if it is
to be believed, it would make a reasonable prospect
for rescuing it. They inter alia make an undertaking not to claim
monies legally
due to them in excess of R1 million. The second
respondent casts doubt on the allegations by the applicants for the
reasons that
he has no knowledge of them since he has been excluded
in the running of the first respondent.
10.
The second respondent
confirms though that the applicants have settled an obligation to
SARS to the value of R829 900.00 which would
otherwise have had to be
paid from funds then unavailable to the first respondent.
[10]
Again, the fact that the second respondent is not aware of the
contracts signed on behalf of the first respondent does not mean
that
there are no such contracts. This could just mean that he is not
aware of their existence owing to the fact that in terms
of the sale
agreement, the second respondent cannot be nominated as an accounting
officer.
[11]
For these reasons, the lack of knowledge on the part of the second
respondent cannot on its own negate what the applicants averred.
11.
As for the submission by the second respondent that the applicants
were supposed to be responding to the liquidation application
initiated by the respondents, the Act permits the halting of
liquidation process through a court order placing the business under
rescue.
[12]
The court also noted the second respondent’s concern that with
business rescue, his accusations of fraudulent activities
against the
applicants may not be investigated the way the liquidator would have
been able to. There is no merit in this argument
given the powers
that the business rescue practitioner has. Sec 141 (2) of the Act
provides,
“
2. If, at any time during
business rescue proceedings, the practitioner concludes that-
(c) there is evidence, in the dealings of the company
before the business rescue proceedings began, of-
(ii) reckless trading, fraud or other contravention of
any law relating to the company, the practitioner must-
(aa) forward the evidence to the
appropriate authority for further investigation and possible
prosecution; and
(bb) direct the management to take
any necessary steps to rectify the matter, including recovering any
misappropriated assets of
the company.
12.
The second respondent voiced his intention not to support the
business rescue. Although this is not for consideration currently,
it
cannot be ignored. In their papers, the applicants and the second
respondent voiced their willingness to buy each other’s
interests out of the first respondent. The Act empowers the business
rescue practitioner on several steps he could consider to
implement
in case of failure to have a business plan adopted by the
company.
[13]
In
Copper Sunset
Trading 220 (Pty) Ltd v Spar Group Ltd and another
[14]
the court set aside the
rejection of business plan that was “irrational and
unreasonable” as being inappropriate.
13.
The applicants also have plans to buy out the second respondent as
envisaged above. In so doing they rely on the provisions
of sec 153
(1) (b) (ii) of the Act which provides,
“
any affected person, or
combination of affected persons, may make a binding offer to purchase
the voting interests of one or more
persons who opposed adoption of
the business rescue plan, at a value independently and expertly
determined, on the request of the
practitioner, to be a fair and
reasonable estimate of the return to that person, or those persons,
if the company were to be liquidated.”
In
this approach, the applicants interpret the Act as empowering the
Business rescue practitioner in forcing the shareholders into
selling
their shares or interests. This is the interpretation adopted in
African
Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers
(Pty) Ltd and others
.
[15]
14.
In setting aside this decision, the SCA held in
African
Banking
Corporation
of Botswana Ltd v Kariba Furniture
Manufacturers (Pty) Ltd and others
[16]
that,
“
The term “binding
offer” must be appreciated against the meaning of “offer”
as hitherto understood in South
Africa. In everyday use, the word
“offer” signifies a presentation or a proposal to someone
for acceptance or rejection.
The settled meaning, both in the general
use and in the more technical legal use of the word “offer”
is that it is
only on acceptance that an offer creates rights and
obligations. It is a well-established principle of our law that an
ambiguous
proposal cannot be classified as an offer. A mere
regurgitation of the provisions of section 153(1)(b)(ii) (that the
offer was
or would be to purchase the voting interest at a value to
be independently determined) could not constitute a proper binding
offer.”
A
binding offer remains predominantly similar in nature to the common
law offer, save that it may not be withdrawn by the offeror
until the
offeree responds thereto
.
A binding offer made to a
creditor who opposes a business rescue plan is not automatically
binding on the offeree.
In
my view, it would be absurd to start considering whether the
second
respondent
would
accept the offer before one is even made to him.
15.
If after the appointment of a business rescue practitioner, it
appears that there is no reasonable prospect of the company being
rescued, liquidation can follow immediately thereafter.
[17]
If however, the company is liquidated, that process would wind up the
business and there cannot be business rescue thereafter.
16.
With all the above, I am satisfied that
the
first respondent is financially distressed; that it has failed to pay
over any amount in terms of an obligation under the contract
and that
there is a reasonable prospect for rescuing it. The following order
is therefore made.
16.1The first respondent is placed
under supervision commencing business rescue proceeding;
16.2Eugene Nel is appointed as the
interim business practitioner under
sec 131
(5) of the
Companies Act,
71 of 2008
.
16.3The costs of this application
shall be costs in the business rescue proceedings.
_____________________
T.V.
RATSHIBVUMO
ACTING
JUDGE OF THE HIGH COURT
Date
Heard:
30 January 2017
Judgment
Delivered: 23
February 2017
For
the Applicant:
Adv. PJ Wallis
Instructed
by:
David Vicek / Dougas de Jager – Cox Yeats
Durban
For
the Respondent: Adv.
CE Boden
Instructed
by:
JJS Manton Attorneys
Durban
[1]
See page 14, para 30 of the
Founding Affidavit.
[2]
See page 214 – Annexure
A to the Answering Affidavit, para 38.
[3]
Sale agreement, page 40.
[4]
See page 28 para 103 of the
Founding Affidavit.
[5]
See page 202, the Founding
Affidavit in the liquidation application.
[6]
See sec 128 (1) (b) of the
Act.
[7]
See sec 129 (1) of the Act
[8]
See sec 131 of the Act.
[9]
See sec 128 of the Act.
[10]
Page 179, para 36 of the
answering affidavit.
[11]
See footnote 3
supra
.
[12]
See sec 131 (6) & (7) of
the Act which provides,
“
(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.
(7) In
addition
to
the
powers
of
a
court
on
an
application
contemplated
in
this
section,
a
court
may
make
an
order
contemplated
in
subsection
(4),
or
(5)
if
applicable,
at
any
time
during
the
course
of
any
liquidation proceedings or proceedings to
enforce any security against the company.” See also
Firstrand
Bank Ltd v Imperial Crown Trading 143 (Pty) Ltd
[2012]
2 All SA 560 (KZD)
[13]
Sec 153 of the Act provides,
“
(1)
(a)
If a business rescue plan has been rejected as contemplated in
section
152
(3)(a)
or (c)(ii)(bb) the practitioner may-
(i) seek a vote of approval from the
holders of voting interests to prepare and publish a revised plan;
or
(ii) advise the meeting that the
company will apply to a court to set aside the result of the vote by
the holders of voting interests
or shareholders, as the case may be,
on the grounds that it was inappropriate.
[14]
2014 (6) SA 214 (LP)
[15]
[2013]
4 All SA 432 (GNP)
.
[16]
[2015] 3 All SA 10 (SCA)
[17]
Sec 141 (1) of the Act
provides,
“
As soon as practicable after
being appointed, a practitioner must investigate the company’s
affairs, business, property,
and financial situation, and after
having done so, consider whether there is any reasonable prospect of
the company being rescued.
(2) If, at any time during business
rescue proceedings, the practitioner concludes that-
(a) there is no reasonable prospect for the company to
be rescued, the practitioner must-
(i) so inform the court, the company, and all affected
persons in the prescribed manner; and
(ii) apply to the court for an order discontinuing the
business rescue proceedings and placing the company into
liquidation;
(b) there no longer are reasonable grounds to believe
that the company is financially distressed, the practitioner must so
inform
the court, the company, and all affected persons in the
prescribed manner, and-
(i) if the business rescue process
was confirmed by a court order in terms of
section
130
, or
initiated by an application to the court in terms of
section
131
, apply
to a court for an order terminating the business rescue proceedings;
or
(ii) otherwise, file a notice of
termination of the business rescue proceedings;