About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: South Gauteng High Court, Johannesburg
SAFLII
>>
Databases
>>
South Africa: South Gauteng High Court, Johannesburg
>>
2019
>>
[2019] ZAGPJHC 393
|
|
Nedbank Limited v Master of the High Court and Another (43581/16) [2019] ZAGPJHC 393 (31 October 2019)
HIGH
COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, JOHANNESBURG)
Case
No: 43581/16
In
the matter between:
NEDBANK
LIMITED
Applicant
and
MASTER
OF THE HIGH
COURT
First
Respondent
ATKA
TRADING 223 (PTY) LTD
t/a
HOLBOTH BUSINESS
SOLUTIONS
Second
Respondent
Case
Summary
:
Companies Act 71 of
2008
– business rescue proceedings – whether, when
business rescue proceedings converted to liquidation, business rescue
practitioner’s claim for unpaid remuneration and expenses
enjoys a preference over all creditors, secured or unsecured.
Diener
No v Minister of Justice and Correctional Services and others
2018
(2) SA 399
(SCA) ([2018] All SA 317 (SCA)) and
Diener
No v Minister of Justice and Correctional Services and others
2019
(2) BCLR 214
(CC)
(2019 (4) SA 374
(CC) followed and applied.
JUDGMENT
MEYER,
J
[1]
This case concerns the claim for remuneration and expenses of a
business rescue practitioner when business rescue has failed
and been
converted into a liquidation, and particularly the order of
preference of the BRP’s claim on the liquidation of
the company
concerned, which question the Supreme Court of Appeal resolved in
Diener No v Minister of Justice and Correctional Services and
others
2018 (2) SA 399
(SCA) ([2018] All SA 317 (SCA)) prior to
the hearing of this matter. The judgment of the Supreme Court
of Appeal was endorsed
by the Constitutional Court in
Diener No v
Minister of Justice and Correctional Services and others
2019
(2) BCLR 214
(CC)
(2019 (4) SA 374
(CC), also prior to the hearing of
this matter.
[2]
The first respondent, the Master of the High Court, Johannesburg (the
Master), nevertheless persisted in his opposition to the
relief
claimed by the applicant, Nedbank Limited (Nedbank), a secured
creditor with a claim in the amount of R19 993 324.60 against
the
company in liquidation, Fima Films SA (Pty) Ltd (Fima), for the
review and setting aside of the decision and direction of the
Master-
‘
. . . issued on 23 November
2016 in relation to the first and final liquidation and distribution
account in respect of Fima Films
SA Proprietary Limited (in
liquidation) (Master’s reference no. G20419’14 (‘the
company in liquidation’),
signed by and on behalf of the joint
liquidators of the company in liquidation on 11 May 2016 (‘the
revised L&D account’)’
.
[3]
The facts are essentially common cause. In 2010, Nedbank lent
and advanced funds to Fima, which loan was secured by a
mortgage bond
registered in favour of Nedbank over certain immovable property owned
by Fima (the encumbered property). On
9 October 2013, Fima was
placed under supervision and business rescue proceedings commenced.
The second respondent, Atka
Trading 223 (Pty) Ltd t/a Holboth
Business Solutions, an entity controlled by Mr Basil Anthony Holboth,
was appointed as the business
rescue practitioner (the BRP).
[4]
In July 2014, the business rescue proceedings were superseded by a
final liquidation order. Ms Tracy Hill N.O. and
Mr
Bhadrish Daya N.O. were appointed joint liquidators of Fima (the
joint liquidators). At the first meeting of creditors
on 3
March 2015, Nedbank proved its claim in the amount of R19 993 324.60
arising from its loan to Fima, which claim is secured
by the mortgage
bond registered in favour of Nedbank over the encumbered property,
and the BRP proved his claim in the amount of
R706 873.59 for his
remuneration and expenses during the business rescue proceedings.
[5]
The joint liquidators prepared a first and final liquidation and
distribution account, which they lodged with the Master on
1 March
2016 (the initial L&D account). The initial L&D account
reflects the BRP’s claim as a ‘Super
Preferent’
claim to be paid from the proceeds of the sale of the encumbered
property, before Nedbank’s secured claim.
The joint
liquidators sent a circular to the proved creditors advising that the
account would lie open for inspection until 25
March 2016.
[6]
In early April 2016, Nedbank’s attorneys wrote to the joint
liquidators, advising them that they had been instructed to
object to
the initial L&D account, and enquiring whether it had been
submitted to the Master for confirmation. The joint
liquidators
replied, saying that the account was in the process of being
submitted for confirmation, but in the light of
the attorneys’
letter, they would not pursue confirmation of the account then, and
they suggested that before Nedbank lodged
a formal objection with the
Master, it should indicate its objection to the joint liquidators
with a view to resolving the matter.
Nedbank’s attorneys
therefore wrote to the joint liquidators, also in April 2016,
indicating that Nedbank objected to the
treatment of the BRP’s
claim in the initial L&D account and submitted (with reference to
certain statutory provisions
and the high court’s judgment in
the
Diener
matter) that the BRP’s claim was not to be
deducted from the proceeds of the encumbered property, but instead
was a claim
against the free residue, to be paid after deduction of
the costs set out in
s 97
of the
Insolvency Act 24 of 1936
.
They indicated that if Nedbank’s objection was not resolved via
the process proposed by the joint liquidators, they
would lodge an
objection with the Master in terms of s 407 of the Companies Act, 61
of 1973 (the 1973 Companies Act).
[7]
The latter section provides as follows:
‘
407. Objections to account.
(1) Any person having an interest in
the company being wound up may, at any time before the confirmation
of an account, lodge with
the Master an objection to such account
stating the reasons for the objection.
(2) If the Master is of the opinion
that any such objection ought to be sustained, he shall direct the
liquidator to amend the account
or give such other directions as he
may think fit.
(3) If in respect of any account the
Master is of the opinion that any improper charge has been made
against the assets of a company
or that the account is in any respect
incorrect and should be amended, he may, whether or not any objection
to the account has
been lodged with him, direct the liquidator to
amend the account, or he may give such other directions as he may
think fit.
(4) (a) The liquidator or any
person aggrieved by any direction of the Master under this section,
or by the refusal of the
Master to sustain an objection lodged
thereunder, may within fourteen days after the date of the Master’s
direction and after
notice to the liquidator apply to the Court for
an order setting aside the Master’s decision, and the Court may
on any such
application confirm the account in question or make such
order as it thinks fit.
(b) If any such direction given by the
Master under this section affects the interests of a person who has
not lodged an objection
with the Master, such account as amended
shall again lie open for inspection in the manner and with the notice
as prescribed in
section 406, unless the person affected consents in
writing to the immediate confirmation of the account.’
[8]
In May 2016, the joint liquidators lodged a revised first and final
liquidation and distribution account with the Master (the
revised L&D
account), which account reflects the BRP’s claim as a
(preferent) claim against the free residue, rather
than against the
proceeds of the encumbered property. On 2 May 2016, the BRP
wrote to the Master, setting out his objections
to the revisions,
including his contention that, after the conversion of business
rescue proceedings into liquidation proceedings,
s 135(4) and s
143(5) of the Companies Act 71 of 2008 (the 2008
Companies Act)
create
a preference in respect of the business rescue practitioner’s
claim for remuneration and expenses before the claims of all
other
secured and unsecured creditors.
[9]
Section 135 of the 2008
Companies Act deals
with post-commencement
finance that includes the remuneration and expenses of the business
rescue practitioner, and subsection
(4) provides that ‘[i]f
business rescue proceedings are superseded by a liquidation order,
the preference conferred in terms
of this section will remain in
force, except to the extent of any claims arising out of the costs of
liquidation’.
Section 143
deals with the remuneration of
the business rescue practitioner and subsection (5) provides that
‘[t]o the extent that the
practitioner’s remuneration and
expenses are not fully paid, the practitioner’s claim for those
amounts will rank in
priority before the claims of all other secured
and unsecured creditors’.
[10]
On 18 May 2016, the joint liquidators wrote to the Master, recording
that they had been advised by Nedbank’s attorneys
that Nedbank
intended objecting to the initial L&D account, and that they had
requested the attorneys to provide the basis
of Nedbank’s
objection with a view to possibly resolving the dispute without the
potentially protracted process of a formal
objection. They also
addressed the BRP’s objections, and their view, and that of
Nedbank, that the provisions of s
135(4) and 143(5) of the 2008
Companies Act only
elevate a business rescue practitioner’s
claim for remuneration and expenses to a preferential claim against
the free residue
after the conversion of business rescue proceedings
into liquidation proceedings.
[11]
On 14 November 2016, the Master wrote to the BRP, advising Mr Holboth
thus:
‘
Please be advised that your
objection to the amended first liquidation and distribution account
is sustained. This office
will direct the liquidators to amend
the account and comply with Section 143(5) of the New
Companies Act&rsquo
;.
And
on 23 November 2016, the Master also wrote to the joint liquidators,
stating:
‘
I acknowledge receipt of your
email and advise that Section 143 of the 2008
Companies Act regulates
the payment of business rescue practitioner.
Section 143
(5)
reads as follows: “To the extent that a practitioner’s
remuneration and expenses are not fully paid, the practitioner’s
claim for those amounts will rank in priority before the claims of
all other secured and unsecured creditors.” Therefore
we
are of the view that the BRP is entitled to full recovery from the
estate in liquidation, in priority before the claims of all
other
secured and unsecured creditors in terms of
Section 143
as read with
Section 135
and regulation 128(1)(c) of the
Companies Act 71 of
2008
. The
Trevor John Murgatroyd v Theodor Wilhelm van den
Heever N.O. and Others
is in line with the interpretation of the
aforementioned applicable sections.
There is a later judgement Diener N.O.
v Minister of Justice, in this judgement it was found that where the
business rescue is superseded
by liquidation order,
Section 135(4)
of
the
Companies Act 71 of 2008
must read with
Section 97
of the
Insolvency Act 24 of 1936
and the remuneration of the BRP and the
expenses incurred during business rescue that has not been paid
cannot be paid from proceeds
of the secured asset. The BRP fees
are neither administration costs in terms of
section 97
nor
Section
89
costs which can be reflected in an encumbered asset account.
The decision of Diener’s case has been appealed in which
leave
to appeal has been granted, until the appeal court rules otherwise
the principle in Murgatroyd is applicable. Therefore
you have
to amend the First Liquidation and Distribution Account in compliance
with
Section 143
of the
Companies Act 71 of 2008
.’
[12]
The citation of the
Murgatroyd
judgment on which the Master
relied, is
Murgatroyd v Van den Heever NO and others
[2014] 4
All SA 89
(GJ)
(2015 (2) SA 514
(GJ)). That case concerned the
entitlement of a business rescue practitioner to be reimbursed for
expenses incurred and disbursements
made during business rescue
proceedings, and not the order of preference of a business rescue
practitioner’s claim for remuneration
and expenses when
business rescue has failed and been converted into a liquidation.
It is not authority for the Master’s
view that when business
rescue has failed and been converted into a liquidation, a business
rescue practitioner’s claim for
remuneration and expenses
enjoys a ‘super-preference’ in terms of subsections
135(4) and 143(5) of the 2008
Companies Act in
priority to the claims
of all other pre-business rescue secured and unsecured creditors.
[13]
On 7 December 2016, Nedbank, aggrieved by the decision of the Master
sustaining the BRP’s objection, instituted the present
application in terms of
s 407(4)
(a) of the 1973
Companies Act for
an
order setting aside the Master’s decision. Only the
Master is opposing the application, and his answering affidavit
was
filed on 20 February 2017. The replying affidavit was
thereafter filed on 7 March 2017. Because the appeal in
Diener
was due to be heard in the Supreme Court of Appeal on 13 November
2017, the parties agreed to await the decision of the Supreme Court
of Appeal, which was handed down on 1 December 2017. An
application for leave to appeal to the Constitutional Court against
the decision of the Supreme Court of Appeal followed, which was heard
on 6 September 2018. The Constitutional Court endorsed
the
decision of the Supreme Court of Appeal and refused the application
for leave to appeal on 29 November 2018. This application
in
terms of s 407 of the 1973
Companies Act was
accordingly only
enrolled for hearing in this court on 3 May 2019.
[14]
In rejecting an identical contention upon which the Master in this
instance sustained the objection of the BRP, the Supreme
Court of
Appeal in
Diener
(
per
Plasket AJA),
inter alia
,
held as follows:
‘
[42] . . .
Section 135
concerns
itself with post-commencement finance and it is in this context, i.e.
while business rescue proceedings are in place,
that it creates a set
of preferences for the payment by the company of certain of its
unpaid debts. It does so as part of the regulation
of the affairs of
the financially distressed company. It is only
s 135(4)
that is
concerned with the consequences of a failed business rescue,
retaining the preferences created in respect of post-commencement
finance on liquidation, subject only to the costs of liquidation.
This section, to the limited extent that it has to do with
liquidation, says nothing of the ‘super-preference’
contended for over secured assets. To the contrary, it creates
in
favour of those claims listed in the section, a preference over
unsecured claims. . . .
[43]
Section 143
is also not concerned
with liquidation. Instead, it regulates the BRP’s right to
remuneration during business rescue proceedings:
it concerns the
tariff in terms of which BRP’s are remunerated; the additional
contingency-based remuneration that the BRP
may negotiate, and
safeguards in that respect; and the BRP’s claim for unpaid
remuneration, which ranks ‘in priority
before the claims of all
other secured and unsecured creditors’. The reference to
secured and unsecured creditors in the
section must, in my view, be
understood to be a reference back to
s 135:
to those persons who
have, or have been deemed to have, provided the company with
post-commencement finance, both secured and unsecured,
and not to the
company’s pre-business rescue creditors. Simply put, the
preference operates within this limited context.
Henochsberg’s
commentary, referred to in paragraph 37 above, seen in proper
perspective, is consonant with the conclusion.
. . .
[49] For these reasons, I conclude
that
s 135(4)
and
s 143(5)
, whether taken individually or in tandem,
do not create the ‘super-preference’ contended for on
behalf of Diener.
Section 135(4)
provides to the BRP, after the
conversion of business rescue proceedings into liquidation
proceedings, no more than a preference
in respect of his or her
remuneration to claim against the free residue after the costs of
liquidation but before claims of employees
for post-commencement
wages, of those who have provided other post-commencement finance,
whether those claims were secured or not,
and of any other unsecured
creditors.
[15]
Where business rescue proceedings are superseded by a liquidation, as
in this instance, the business rescue practitioner’s
claim for
unpaid remuneration and expenses is against the free residue of the
estate and ranks ahead of the claims of post-commencement
financiers
(including employees in respect of post-commencement wages) and ahead
of other unsecured creditors. The business
rescue
practitioner’s claim, however, is not to be met from the
proceeds of an asset subject to security, which pre-dates
the
business rescue proceedings. (If the proceeds of the secured
asset exceed the claim of the creditor holding security
over the
asset, the surplus will fall into the free residue.) This legal
position is now conceded by the Master in these proceedings.
[16]
But the Master nevertheless persists in his opposition to the relief
claimed in this application based on an
in limine
point that
did not form part of his reasoning in sustaining the BRP’s
objection nor raised before the filing of his answering
affidavit.
The argument is this: Based on Nedbank’s objection, the
joint liquidators amended the initial L&D
account, and submitted
a revised one that reduced the super preferent status of the BRP’s
claim for remuneration and expenses,
which objection and revision
were not in compliance with the provisions of subsections (1) and (2)
of s 407 of the 1973
Companies Act, and
therefore invalid.
Those provisions, it is argued, require the objection to be lodged
with the Master (and not the liquidator)
and if the Master is of the
opinion it should be sustained, for the Master to direct the
liquidator to amend the account (and not
the liquidator to amend it
of his or her own accord). It is argued that only the initial
L&D account is accordingly valid,
and not the revised one.
This application, therefore, so the argument continues, is premature
and the matter ought to be
referred back to the Master for
‘adjudication’. This argument, in my view, has no
merit.
[17]
The requirements of s 407 of the 1973
Companies Act have
been met.
The BRP lodged an objection to the revised L&D account (as
contemplated in
s 407(1))
; the Master sustained the BRP’s
objection and directed the joint liquidators to amend the account (as
provided in
s 407(2))
; and Nedbank, being aggrieved by the
Master’s decision brought the present application to this court
(as contemplated
in
s 407(3)).
The Master knew – because
the joint liquidators’ submissions to the Master clearly set
this out – that
the revised L&D account was a revised
account and that the revisions to the initial L&D account had
come about because
of the representations made on behalf of Nedbank
directly to the joint liquidators. The Master did not suggest
that the revised
L&D account was for any reason invalid or that
the initial L&D account was the only valid one. Instead, he
dealt
with the objection to the revised L&D account as
contemplated in
s 407
, and sustained the objection.
[18]
I am of the view, therefore, that the Master’s opposition to
the relief claimed in this application became unreasonable
once the
Constitutional Court had delivered judgment in
Diener
on 29
November 2018, and he should then have withdrawn the opposition.
The costs order I propose to make reflects this view.
[19]
In the result the following order is made:
(a) The decision and
direction of the first respondent issued on 23 November 2016, in
relation to the revised first and final liquidation
and distribution
account in respect of Fima Films SA Proprietary Limited (in
liquidation) (Master’s reference no. G20419’14)
(‘the
company in liquidation’), signed by and on behalf of the joint
liquidators of the company in liquidation on 11
May 2016, is hereby
reviewed and set aside.
(b) The first respondent
is to pay the costs which the applicant incurred in respect of the
application as from 30 November 2018.
P.A.
MEYER
JUDGE
OF THE HIGH COURT
Date
of hearing: 03 May 2019
Date
of judgment: 31 October 2019
Counsel
for the applicant: Adv MP van der Merwe SC
Instructed
by: Edward Nathan Sonnenbergs Inc., Cape Town
C/o
Edward Nathan Sonnenbergs Inc., Sandton
Counsel
for the 1
st
respondent: Adv KD Mhango
Instructed
by: State Attorney, Johannesburg