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
>>
2020
>>
[2020] ZAGPJHC 136
|
|
Matshazi v Mezepoli Melrose Arch (Pty) Ltd and Another; Nyoni v Mezepoli Nicolway (Pty) Ltd and Another; Moto v Plaka Eastgate Restaurant and Another; Mohsen and Another v Brand Kitchen Hospitality (Pty) Ltd and Another (2020/10556; 2020/10555; 2020/10955; 2020/10956;) [2020] ZAGPJHC 136; (2021) 42 ILJ 600 (GJ) (3 June 2020)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 2020/10556
In
the matter between:
MATSHAZI
MHLONIPHENI
Applicant
and
MEZEPOLI
MELROSE ARCH (PTY) LTD
First
Respondent
THE
COMPANIES AND INTELLECTUAL PROPERTY COMISSION
Second
Respondent
CASE
NO: 2020/10555
In
the matter between:
NYONI
LWAZI
Applicant
and
MEZEPOLI
NICOLWAY (PTY) LTD
First
Respondent
THE
COMPANIES AND INTELLECTUAL PROPERTY COMISSION
Second
Respondent
CASE
NO: 2020/10955
In
the matter between:
MOTO,
TONDERAI ROSELYN
Applicant
and
PLAKA
EASTGATE RESTAURANT CC
First
Respondent
THE
COMPANIES AND INTELLECTUAL PROPERTY COMISSION
Second
Respondent
CASE
NO: 2020/10956
In
the matter between:
ABDULLAH
MOHSEN
First
Applicant
AZANIA
HOSPITALITY (PTY) LTD
Second
Applicant
and
BRAND
KITCHEN HOSPITALITY (PTY) LTD
First
Respondent
THE
COMPANIES AND INTELLECTUAL PROPERTY COMISSION
Second
Respondent
JUDGMENT
Weiner
J
[1]
The
applicants in each of the four applications sought orders placing the
first respondent in each application under supervision
and commencing
business rescue proceedings under s 131(4)(
a
)
of the Companies Act 71 of 2008 (the ‘Act’).
[1]
The
applications were supported by various employees
[2]
and
creditors
[3]
of
each respondent company.
The
applicable legislation
[2]
Business
rescue is defined as follows in
s
128
(1)
(b)
of
the
Companies Act:
‘“
Business
rescue” means proceedings to facilitate the rehabilitation of a
company that is financially distressed by providing for –
(i)
a 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.’
[3]
As
stated by the Supreme Court of Appeal (the SCA) ‘…“
business
rescue” means to facilitate “rehabilitation”, which
in turn means the achievement of one of two goals:
(a) to return the
company to solvency, or (b) to provide a better deal for creditors
and shareholders than what they would receive
through
liquidation
….’
[4]
[4]
Section 131(4)(
a
)
of the Act provides that a court may make an order placing a company
under supervision and commencing business rescue proceedings
if it is
satisfied that –
4.1.
the company is financially distressed; or
4.2.
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
4.3.
it is otherwise just and equitable to do so
for financial reasons; and
4.4.
there is a reasonable prospect of rescuing
the company.
[5]
It is noteworthy that any of the grounds
referred to in 4.1, 4.2
and 4.3 above
are sufficient to ground an application for
business rescue.
Urgency
[6]
The
respondent companies in each of the matters before the Court
submitted that the application was not urgent as none of its
creditors
were threatening action against them for payments of
amounts owing. Business rescue proceedings are, in my view,
inherently urgent.
As stated by Binns-Ward J in
Koen
v Wedgewood Village Golf and Country Estate (Pty) Ltd,
[5]
—
‘
It
is axiomatic that business rescue proceedings, by their very nature,
must be conducted with the maximum possible expedition.
In most
cases a failure to expeditiously implement rescue measures when a
company is in financial distress will lessen or
entirely negate the
prospect of effective rescue.’
[7]
I accordingly find that the matters should
be dealt with on an urgent basis.
The
corporate structure
[8]
The first respondent in each case is a
juristic entity which conducts business in the operation of a group
of restaurants in Johannesburg,
which trade under the ‘Mezepoli’
and ‘Plaka’ brands. They are the following:
8.1.
Brand Kitchen Hospitality (Pty) Ltd (‘Brand
Kitchen’), which conducts business as the management company
for the restaurants,
and employs the Chief Executive Officer of the
associated companies, Mr Adriaan Kruger (‘Kruger’), as
well as the Operations
Manager, Mr Mohsen Abdullah (“Mun
Manal”). Brand Kitchen has 5 employees.
8.2.
Mezepoli Melrose Arch (Pty) Ltd (‘Mezepoli
Melrose’), which conducts a ‘Mezepoli’ restaurant
at the Melrose
Arch shopping centre and which has 54 employees.
8.3.
Mezepoli Nicolway (Pty) Ltd (‘Mezepoli
Nicolway’), which conducts a ‘Mezepoli’ restaurant
at the Nicolway
shopping centre and has 49 employees.
8.4.
Plaka Eastgate CC (‘Plaka Eastgate’),
which conducts a ‘Plaka’ restaurant at the Eastgate
shopping centre
and has 50 employees.
[9]
The first respondents in each case conduct
the restaurant businesses, referred to in paragraphs 8.1
to
8.3 above. They will be referred to as the ‘trust companies’.
When Brand Kitchen and the trust companies are
referred to,
they, together will be referred to as the ‘respondent
companies’.
[10]
There is a further entity, Plaka Menlyn
(Pty) Ltd (‘Plaka Menlyn’), which conducts the business
of a ‘Plaka’
restaurant at the Menlyn shopping centre in
Pretoria. It has already been placed under business rescue.
[11]
In addition to the respondent companies and
Plaka Menlyn, there are two other entities which are involved in the
‘Plaka’
and ‘Mezepoli’ businesses, being
Mezepoli Holdings (Pty) Ltd (‘Mezepoli Holdings’) and
Plaka Holdings (Pty)
Ltd (‘Plaka Holdings’). The trust
companies pay franchise fees to these entities. All of the income
derived by Mezepoli
Holdings and Plaka Holdings is thus derived from
the fees which they charge the trust companies and Plaka Menlyn.
[12]
As the management company for the
businesses, Brand Kitchen charges management fees to the trust
companies, as well as Plaka Menlyn,
Mezepoli Holdings and Plaka
Holdings. All of Brand Kitchen’s income is derived from the
fees which it charges to these entities.
It
is not a trading entity.
[13]
All of the respondent companies are
controlled by the KAM Trust (‘the Trust’), of which the
current trustees are FWC
Estate and Related Services (Pty) Ltd
(‘FWC’) – which is represented by Francois Froneman
(‘Froneman’),
Elpida Haitas (“Elpida”), and
Konstantinos Haitas (‘Kosta’). In addition to being a
trustee, Kosta is also
the sole income and capital beneficiary of the
Trust. Kosta supports the relief sought in these proceedings.
[14]
The businesses which are conducted by the
respondent companies were founded by Evangelos Haitas (‘Angelo’)
during July
2005. Angelo passed away on 21 October 2018. Kosta is his
only child.
[15]
Although it is disputed that Angelo’s
then-wife, Margarita Tsangaris-Scherf (‘Margarita’)
founded the businesses
together with Angelo, it is not in dispute
that Margarita played an important role in the businesses until at
least 2012, shortly
before she and Angelo divorced during 2013.
Margarita is Kosta’s mother.
[16]
Shortly
after Angelo’s passing, Froneman and Elpida were purportedly
appointed as directors of the respondent companies, among
others
(collectively, ‘the directors’). The validity of these
appointments is contested by Kosta and this and other
disputes
between the trustees and directors is the subject of proceedings
which were decided in this court.
[6]
An appeal is currently pending before the Supreme Court of Appeal.
Whatever the legal position, Froneman and Elpida have been in
de
facto
control of the respondent companies and the other entities controlled
by the Trust since 23 October 2018.
[17]
The
applicants are each employed as managers of the respondent companies
concerned. In the case of Brand Kitchen, the applicant
is Mun Manal,
who is an employee, creditor and shareholder of Brand Kitchen. The
second applicant (Azania Hospitality) is a shareholder
in Brand
Kitchen.
[7]
[18]
The applicants contended that each of the
respondent companies ought to be placed under business rescue because
all of the requirements
referred to in s 131(4) are met. They
submitted that placing the respondent companies under business rescue
will allow them
reasonable prospects of rescue because:
18.1.
the moratorium which ensues will protect
the respondent companies from their creditors enforcing claims
against them;
18.2.
the post-commencement financing (‘PCF’)
which has been secured will provide funding to the companies until
they are
in a position to resume profitable trade;
18.3.
such funding will allow them to trade and
pay certain costs and a portion of employees’ salaries for at
least 14 months; and
18.4.
the wide powers of the business rescue
practitioner (the ‘BRP’) will allow for the business as a
whole to be streamlined
and for the profitable parts of the business
to support the unprofitable parts of the business until they are able
to return to
profitability.
[19]
The applicants seek to have Mr Cloete
Murray appointed as the interim BRP of the first respondent in each
application in terms of
s 131(5) of the Act.
[20]
The defences raised by the respondent
companies are threefold:
20.1.
First, as a result of the national
lockdown,
force majeure
excuses the respondent companies from their obligations to their
employees and their other creditors, who therefore have no
locus
standi
to bring these applications.
20.2.
Second, other than Plaka Eastgate, the
trust companies are not financially distressed.
20.3.
Third, the PCF referred to by Margarita, is
not available.
[21]
In
the case of Plaka Eastgate, its financial distress is conceded. It
has adopted the position that there is no point in attempting
to
rescue it and that, if it is not sold to Kosta,
[8]
it ought to be would up. The respondent companies referred to a
letter in which it is stated that a decision will be made in regard
to this possible sale on 30 May 2020.
Background
Common
cause facts
[22]
The businesses of the respondent companies
slowed from 16 March 2020 and they have not traded at all since 26
March 2020. The 158
employees of the respondent companies were last
paid their salaries on 28 March 2020. It is not disputed that this
has had a devastating
impact on them and their families.
[23]
None of the respondent companies have
traded since the national lockdown was implemented in response to the
COVID-19 pandemic on
27 March 2020. They did not trade in
food products (which was designated an essential service) during
level 5 of
the lockdown, and the directors of the respondent
companies have taken a decision not to trade on a ‘delivery
only’
or delivery/collection basis under level 4 and level 3 of
the national lockdown. They state that the restaurants will only
resume
operations ‘once the lockdown is lifted’.
[24]
Prior to the issue of these applications,
during April and May 2000, memoranda (the ‘memos’) were
sent by the directors
of the respondent companies and/or Kruger to
the employees of the respondent companies. These contained the
following information:
24.1.
The restaurants are small businesses
which
are in distress
. Applications were
being made to various entities (the landlords, the Department of
Small Business Development, the Small Enterprise
Development Agency,
the UIF’s Temporary Employee Relief Scheme). They would
‘
continue to find ways and
solutions to do all that we can to keep our Plaka and Mezepoli
families supported’
(1 April
2020) [Emphasis added].
24.2.
Applications had been made to landlords for
rental relief ‘
to assist the
cash-flow of the business in support of paying amongst other
obligations, salaries and wages’.
24.3.
That the ‘
UIF
applications went in yesterday’
(17 April 2020).
24.4.
On 28 April 2020, the day on which staff
salaries were to be paid, a memo (the ‘28 April memo’)
was sent, stating
inter alia
that: -
‘
the
company will not be paying you for the month of April 2020
as
a direct result of the down-trading and continued losses incurred
during the recent months exhausting any historic profits there
may
have been.’
[Emphasis
added]
‘
The
company will remain closed for the duration of the lockdown –
we will not be opening for deliveries only at this stage.’
24.5.
On 29 April 2020, the directors stated that
‘
Brand Kitchen will be making a
R1,000 advance to all staff members and R3,000 advance to managers to
assist our staff until the
funds from the UIF arrive. This payment …
is an advance payment made in the absence of having received any
payment from
UIF to date.
’
24.6.
On 4 May 2020, a further memo was sent,
stating
inter alia
that:
‘
The
company will remain closed for the duration of the lockdown –
we will not be opening for deliveries only at this stage.’
‘
Employees
will be notified
in due course
and with sufficient notice as to when they are required to return to
work.’
[Emphasis added].
24.7.
On 5 May 2020, following receipt of the
above memos, a message was sent to Kruger and the directors of the
respondent companies
by Mun Manal, in his capacity as the nominated
employee representative for the trust companies. The memorandum set
out the employees’
grievances in detail and called on the CEO /
directors of the respondent companies to identify the creditors
thereof.
24.8.
On 8 May 2020, after the launch of this
application, two memoranda were sent to the employees of the
respondent companies by Froneman
and Elpida, in response to Mun
Manal’s message stating,
inter
alia
that:
-
(a)
‘
It is with regret that the
company has to inform you and confirm that the temporary layoff as of
1 April 2020 continues to be in
force.’
(b)
‘
The temporary layoff period will
continue until the end of lockdown, when each company’s
circumstances will be reviewed.’
(c)
‘
As a result of the company being
closed and not being allowed to trade as normal,
a
“no work no pay” principle will apply.
’
[Emphasis added]
The
applicants’
locus standi
[25]
Under
the Act, both a creditor and an employee have
locus
standi
to bring an application for business rescue, both being ‘affected
persons’ in terms of s 131(1) of the Act.
[9]
The respondent companies challenged the applicants’
locus
standi
on the basis that, as a result of
force
majeure
,
they are neither employees, nor creditors.
[26]
In
business rescue proceedings, employees have many more rights than
they would have under the winding-up provisions of the Act.
The term
‘creditor’ includes employees to the extent that any
amounts relating to employment that were not paid to
that employee
immediately prior to the commencement of those proceedings, became
due and payable by a company to that employee.
The fact that the
employment contract of such a person might be suspended for any
reason does not have the effect that the employment
contract is
terminated.
[10]
[27]
The employees of the respondent companies
have at all times tendered their services, and the respondent
companies at all times expected
them to remain available to return to
work. Their employment contracts were not suspended; the respondent
companies took a decision
not to operate on any basis during the
lockdown and thus did not require their employees to attend to their
ordinary functions.
[28]
Even if it is accepted that the employment
contracts somehow became ‘suspended’, the effect of that
suspension would
not impact on the standing of the applicants, as the
contracts did not terminate, and they remain employees of the
respondent companies.
This is clear from the various memoranda sent
to the employees. In addition, the trust companies could only apply
for UIF/TERS
on behalf of employees.
[29]
There has never been any indication at all
from the respondent companies that the applicants were no longer
employed by them. On
the contrary, in their memorandum dated 4 May
2020 they expressly stated that ‘
Employees
will be notified
in due course
and with sufficient notice as to when they are required to return to
work.’
[Emphasis added]
[30]
The applicants contended that the
respondent companies’ contention that
force
majeure
applies is unsubstantiated both
factually and in law. Other than the Mezepoli Nicolway lease
agreement and the employment contracts
referred to below, the
respondent companies have not disclosed other written agreements or
the employment contracts, nor have they
alleged any term which
excuses them from their obligations to make payment to their
creditors during the national lockdown. It
is clear from the
affidavits filed by some of the creditors that they do not consider
their contracts with the respondent companies
to be unenforceable.
[31]
The employment contracts which are attached
to the application papers, being those of Mun Manal and Mr Lwazi
Nyoni (‘Nyoni’
– the applicant in the Mezepoli
Nicolway application), do not contain any express provisions dealing
with
force majeure
and both contain whole agreement clauses, demonstrating that no such
provision applies.
[32]
The Mezepoli Nicolway lease expressly
provides that:
‘
Should
the LESSEE be prevented from having access to the PREMISES as a
result of any fire, riot, organised labour strikes, natural
peril
disaster, or any other reason whatsoever, then the LESSEE shall not
have any claim against the LESSOR nor its agents or employees
for any
remission in rental or for any other damages, nor any right of
cancellation of the agreement of lease.’
[33]
The respondent companies sought rental
relief from their landlords. The landlord of Mezepoli Melrose
indicated that it has granted
a level of ‘relief’ and
that a portion of the payment due in respect of May 2020 would be
deferred. Plaka Eastgate’s
landlord addressed a letter to its
tenants, in which it sets out the rental relief which it is offering.
There would be no need
for any rental relief to be requested or
granted if
force majeure
applied. No question of force majeure was raised by the respondent
companies in relation to these lease agreements. Nor have they
raised
this defence when payment has been demanded by other creditors.
[34]
If the respondent companies were of the
view that
force majeure
excused them from their obligations to their employees, it would have
been expected that they would have told them as much in late
March or
early April. Instead, the employees of the respondent companies were
only advised that they would not receive payment
of their April
salaries on the day that they fell due for payment, 28 April 2020.
[35]
It thus appears that the respondent
companies are only raising
force majeure
in relation to the employment contracts.
Impossibility
of performance
[36]
If
provision is not made contractually by way of a
force
majeure
clause, a party will only be able to rely on the very stringent
provisions of the common law doctrine of supervening impossibility
of
performance, for which objective impossibility is a requirement.
Performance is not excused in in all cases of
force
majeure.
[11]
In
MV
Snow Crystal
,
[12]
the Supreme Court of Appeal (per Scott JA) said as follows:
‘
As
a general rule impossibility of performance brought about by vis
major or casus fortuitus will excuse performance of a contract.
But
it will not always do so. In each case it is necessary to “look
to the nature of the contract, the relation of the parties,
the
circumstances of the case, and the nature of the impossibility
invoked by the defendant, to see whether the general rule ought,
in
the particular circumstances of the case, to be applied”. The
rule will not avail a defendant if the impossibility is
self-created;
nor will it avail the defendant if the impossibility is due to his or
her fault. Save possibly in circumstances where
a plaintiff seeks
specific performance, the onus of proving the impossibility will lie
upon the defendant.’
[37]
In
Unlocked Properties 4 (Pty) Limited v A Commercial Properties CC,
[13]
the
court, citing Unibank Savings & Loans Ltd (formerly Community
Bank) v Absa Bank Ltd,
[14]
stated
as follows:
‘
The
impossibility must be absolute or objective as opposed to relative or
subjective. Subjective impossibility to receive or to
make
performance does not terminate the contract or extinguish the
obligation.’
[15]
[38]
In
Unibank
it
was held that—
‘
Impossibility
is furthermore not implicit in a change of financial strength or in
commercial circumstances which cause compliance
with the contractual
obligations to be difficult, expensive or unaffordable.
’
[16]
[39]
The
obligation which the trust companies owed to their employees, to pay
them their salaries, has always been capable of performance
and was
at no time rendered impossible. It is trite that the duty to pay, and
the commensurate right to remuneration, arises not
from the actual
performance of work, but from the tendering of service.
[17]
The Regulations which were in force during level 5 of the National
Lockdown make it clear that employers are not excused
from their
obligation to pay their employees' salaries, because it includes in
the list as an essential service the ‘Implementation
of payroll
systems to the extent that such arrangement has not been made for the
lockdown, to ensure timeous payments to workers.’
[18]
[40]
The applicants contended that the trust
companies have also been permitted to trade in some form throughout
the entire lockdown.
40.1.
During
level 5 of the National Lockdown, from 27 March 2020 to 30 April
2020, they were permitted to conduct limited trade (the
sale of cold
foods, of which there are many on the restaurants’ menus).
[19]
40.2.
The restaurants also operate a deli, which
does not sell hot cooked food and was thus permitted to trade
throughout the level 5
lockdown period.
40.3.
Under
level 4, the respondent companies were entitled to trade in any foods
on a ‘delivery only’ basis.
[20]
40.4.
Under
level 3, which came into force on 1 June, the respondent companies
will be permitted to sell all food for collection or delivery.
[21]
40.5.
The
respondent companies are not excused from its obligations to its
employees because it has decided not to trade in circumstances
where
it is able to do so, but has elected not to, in anticipation that
such trading will not be profitable. Trading may be more
burdensome
or economically onerous, but economic hardship is not categorised as
being a force
majeure
event
;
[22]
it does not render performance objectively and totally impossible.
[41]
In my view,
force
majeure
cannot be relied upon by the
respondent companies as a defence to their obligations owed to their
employees. In any event, the
applicants are clearly ‘affected
persons’ as set out in s 131 and s 128(1)(
a
)
of the Act, who are entitled to bring these proceedings and
participate therein. Thus, they have the necessary
locus
standi
required for these applications.
The
respondent companies have 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
[42]
Once it is accepted that the defence of
force majeure
is
not available to the respondent companies, it follows that, in
failing to pay their employees their salaries on 28 April 2020,
the
respondent companies failed to pay over an amount in terms of an
obligation under a contract, with respect to employment related
matters.
[43]
All that the employees received in respect
of April 2020 was either a R3 000 or R1 000
advance
on funds which the respondent companies hoped to obtain from the UIF
relief scheme. The respondent companies remain liable for
the payment
of the at the employees’ salaries from April 2020.
[44]
The fact that UIF payments were made to
some
of
the employees does not excuse the respondent companies of their
obligations to pay employee salaries, particularly in circumstances
when, on the respondent companies’ own version, cash reserves
and other forms of funding are available.
[45]
The requirement at section 131(4)(
a
)(iii)
of the Act is thus met.
Are
the respondent companies financially distressed?
[46]
Although the respondent companies
strenuously opposed the suggestion that they are financially
distressed, this is contrary to what
they stated to the employees in
the memos:
46.1.
On 1 April 2020, it was stated that,
‘
The
restaurants are small businesses which are in distress’.
43.2
On 28 April 2020, it was stated that, ‘
as a direct result of
the down-trading and continued losses incurred during the recent
months [we have exhausted] any historic profits
there may have been
.’
[47]
‘
Financially distressed’ is
defined in s 128(1)(
f
)
of the Act to mean 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.
[48]
The respondent companies’ admissions
in this regard appear to satisfy both these tests. They have provided
scant information
to demonstrate that they are not financially
distressed. They have not disclosed details of all their creditors,
showing outstanding
balances and age analysis; no financial
statements or balance sheets are disclosed. Other than the relief
granted by the landlords
of Mezepoli Melrose Arch and Plaka Eastgate,
there is no evidence that any creditors regard the respondent
companies’ obligations
as unenforceable. On the contrary, if
regard is had to the affidavits from creditors Meze Foods and Golden
Coast Fisheries, they
regard the debts as overdue.
[49]
In
regard to the affidavits filed by other employees and creditors,
which form part of the proceedings, the respondents contended
that an
application should have been made for them to be admitted.
In
Cape
Point Vineyards
(
Pty
)
Ltd
v Pinnacle Point Group Ltd
,
[23]
Rogers AJ intimated that he did not think the Legislature
contemplated that an affected person would have to apply for leave to
intervene in order to participate in the legal proceedings. He did
however state that courts would need to regulate the procedure
to be
followed, where affected parties wanted to file affidavits relevant
to the application, in order to ensure fairness to all
the parties
involved.
[50]
The respondents were offered the
opportunity to deal with the affidavits of these affected parties.
Having perused the affidavits,
the respondent companies accepted the
contents thereof, save for the amount allegedly owing by Brand
Kitchen to Golden Coast Fisheries,
which they disputed.
[51]
Brand Kitchen produced a Schedule / Income
statement (the ‘Schedule’) for the trust companies.
Taking that information
into account, Mun Manal contended that, even
if one ignores the costs of sales and accepts a reduced liability
insofar as salaries
and wages are concerned and the rental relief
which has been granted, the fixed monthly expenses of the respondent
companies amount
to approximately R2 million.
[52]
Mun Manal prepared various schedules
setting out the income and expenditure of each of the respondent
companies. As a result of
the lockdown and subsequent cessation of
trade, the respondent companies have made significant losses, as set
out below:
52.1.
Brand Kitchen: R238 941.33 for the
period January to March 2020;
52.2.
Plaka Eastgate: R698 758.10 for the
period January to March 2020;
52.3.
Mezepoli Melrose Arch: R385 216.98 for
the month of March 2020.
52.4.
Mezepoli Nicolway: R250 405.82 for the
month of March 2020.
52.5.
Although not set out in the affidavits,
further losses for April and May 2020 must have been incurred in
respect of all the respondent
companies in at least the amounts
referred to for March 2020. Thus, the estimated losses in total from
January to May 2020 for
the respondent companies are in the region of
R3 million.
[53]
The respondent companies dealt with this
contention dismissively, by stating that the monthly expenses are not
relevant because
the obligation to pay them is suspended during the
national lockdown. As set out above, this contention is both
factually and legally
untenable.
[54]
The applicants contended that whether the
expenses which are estimated by Mun Manal or the expenses which are
set out in the Schedule
are used, the respondent companies are
clearly in financial distress because the only funds which they
identify as being available
to them to meet these ongoing expenses
are the following:
54.1.
Cash reserves available to Mezepoli Melrose
Arch in an investment account in the amount of R592 632.52.
54.2.
Funds available from access bonds held by
entities which are not involved in the businesses conducted by the
trust companies, being
Merchant Property (Pty) Ltd, in the amount of
R731 060.14, and Masterprops 388 CC, in the amount of
R610 649.67.
54.3.
Funds which can be borrowed from the KAM
Trust. Even though the Trust’s financial position is not
disclosed, the applicants
contended that the Trust would be unable to
provide any funding because:
(a)
Mezepoli Melrose loaned the Trust
R1 832 406.63. Such loan has not been repaid; the inference
must be drawn that it is
unable to do so;
(b)
Froneman stated the following under oath in
an affidavit deposed to on 25 March 2020:
‘
44.
The Kam Trust attaches hereto the balance sheet of the Kam Trust as
well as its management accounts as annexures GL 2 and GL3.
45.
As is evident from the balance sheets
the
Kam Trust expenses exceed its income
.
If the properties are not sold the Kam Trust will not be able to meet
its financial commitments and the Kam Trust will have to
be wound
up.’
[Emphasis added].
54.4.
Even if it is to be accepted that the
respondent companies have access to the funds, they are insufficient
to service the debts
of all the respondent companies, which are set
out by Mun Manal.
[55]
In the case of Mezepoli Melrose, Froneman
has annexed ‘a cash flow projection’ in which he assumes
that normal trading
will resume from June, July or August 2020. He
also assumes that by December, pre-lockdown sales will be reached.
These projections
are highly speculative having regard to the present
lockdown regulations, the likely contraction of the economy and the
extensive
financial hardship being experienced by many people.
[56]
The decision to remain closed until the end
of the lockdown will result in tremendous financial hardship to the
respondent companies
and their employees, particularly when there is
no indication as to when the lockdown will reach the level at which
restaurants
will be permitted to resume normal trading.
[57]
In respect of Plaka Eastgate, it is common
cause that:
57.1.
it is running at a loss and is financially
distressed;
57.2.
it does not have funds available to pay its
creditors;
57.3.
an offer to purchase the business of Plaka
Eastgate (including its liabilities) was made by Kosta on 27 April
2020.
[58]
From the Schedule and Mun Munal’s
estimates, the applicants submitted that:
58.1.
If the trust companies trade on a
‘delivery’ basis they
will
make a gross profit (even if they make a net loss) because all of
their costs of sales are variable costs, which together constitute
approximately 56% of sales. When trading on a delivery/collection
only basis, the trust companies have a gross profit margin in
the
order of 44%.
58.2.
If they trade on any basis, which
consequently results in a gross profit, there will be some funds
available with which to make
payment of their fixed costs –
which include employees’ salaries and rental. There is
accordingly a benefit to the
affected persons of the trust companies
if trade is conducted on any basis.
58.3.
The undertaking to provide PCF should the
respondent companies be placed under business rescue is such that the
initial funding
of R4 million, which has been provided will fund the
net
losses
which the respondent companies project they will incur from trading
on a ‘delivery only’ basis for nearly 14
months, such
that the respondent companies will not have to rely on their own
resources in order to trade. That, the applicants
submitted, is the
position on the respondent companies’ own projected model.
58.4.
If they do not trade, as the respondents
have decided (until lockdown has been lifted), the trust companies
generate no income at
all. If
force
majeure
does not apply their
obligations in respect of their fixed expenses continue to accrue
each and every month. This cannot be in
the interests of the affected
persons or the trust companies because there is and will be no income
from which to pay the fixed
costs such as salaries and rental, and
their indebtedness thus grows exponentially taking the respondent
companies from ‘financially
distressed’ to both
commercially and factually insolvent.
[59]
The trust companies submitted that they are
not able to trade on a ‘delivery only’ basis, as they
would suffer a loss.
However, the applicants submitted that not
trading at all will result in much greater losses and the ultimate
demise of all of
the respondent companies.
[60]
Despite
having the sources of funding which the respondent companies state
they have, there is no explanation why these funds have
not been used
to pay the employees and/or any other creditors, who are demanding
payment. It is trite that a debtor proves his
solvency by paying his
debts.
[24]
[61]
Another issue which is extremely concerning
and which appears from the financial information disclosed to the
court, is that Mezepoli
Melrose apparently declared or paid a
dividend to the Trust in the amount of R7 438 000 between 1
March and 30 April
2020, just prior to or after lockdown had
commenced. Mezepoli Melrose moved from a position of net profit to a
substantial net
loss. There is no explanation for this from the
respondent companies.
Just
and equitable for financial reasons
[62]
A
court can in any event order business rescue if, in terms of
ss (4)(
a
)(iii),
it ‘is otherwise just and equitable to do so for financial
reasons.’
[25]
In making
this decision, I have considered the PCF provisions contained
in s 135
of
the Act which make specific provision for employee entitlements (for
the period after the business rescue process has commenced)
to be
treated as part of the PCF.
Employees
are afforded special protection under Chapter 6 of the Act. They are
included in the definition of ‘affected persons’
who
enjoy a wide array of powers and rights. Business rescue has no
impact on employment. Employees continue to be employed on
the same
terms and conditions.
[26]
There is, furthermore, in business rescue a statutory preference for
unpaid salary and benefits before all other non-secured
creditors.
[27]
Employees’
salaries due and payable during business rescue, but not paid, form
part of any PCF provided to the company.
[28]
[63]
It is undisputed that by not trading at
all, the respondent companies will not generate any income from which
to pay the salaries
and other fixed monthly expenses which they
continue to incur.
[64]
If the respondent companies are placed in
business rescue, the moratorium will allow them to avoid the
consequences of their failure
to meet these expenses whilst in
business rescue, thereby affording them the time required until
trading recommences and they are
able to trade profitably again.
[65]
The BRP will be in a position to
independently consider the financial positions of each respondent
company, including the decisions
taken not to trade on a
delivery/collection basis. He will be able to use the moratorium to
ensure that whatever funds are available
are used fairly, in order to
pay employees’ salaries (or a portion thereof) and alleviate
the hardship being faced by them.
[66]
The devastating effect that the failure to
pay salaries has had on the employees of the respondent companies
cannot be overstated.
Employees have been unable to
inter
alia
pay their rental, afford basic
necessities like food, and pay their children’s school fees.
This poses a very real threat
to the lives and livelihoods of the
employees who find themselves in a desperate and destitute situation.
[67]
The directors appear to move funds between
all the entities which they control and the Trust, without disclosing
a complete financial
picture, notwithstanding that these are all
separate companies that are all financially distressed. Placing the
respondent companies
under business rescue will allow the BRP to
attain a clear and complete understanding of the financial positions
of the respondent
companies, so that an attempt can be made to rescue
them or, if that is not possible, wind them up.
[68]
It is thus just and equitable for financial
reasons that the respondent companies be placed under business
rescue.
Can
the companies be rescued?
[69]
In April 2020, Margarita ascertained that
the trust companies did not intend to pay anything to their staff on
28 April 2020. She
procured that payments be made to each employee to
the extent of approximately 30% of that employee’s salary. Each
waiter,
who ordinarily only earns commission on sales and no fixed
salary, was paid R1 500.
[70]
The applicants in their founding affidavit
referred to funding which Margarita was willing to provide apparently
in her personal
capacity. She stated that she was prepared to provide
PCF for:
70.1.
Payment of 30% of the employees’
salaries/wages until no longer required.
70.2.
Contributions toward rental obligations.
[71]
The detail surrounding the PCF in the
founding affidavit was sparse. The availability of such funding from
Margarita was challenged
in the respondents’ answering
affidavits. In reply, the applicants contended that having had regard
to the financial position
of the respondent companies as contained in
the answering affidavits (insufficient as it was), they were able to
provide more detail
of the PCF which would be procured by Margarita,
from the Konmar Trust (Konmar) of which she is a beneficiary and
trustee.
[72]
It was stated that
Margarita
has now procured, through Konmar, PCF for the respondent companies in
the event that they are placed under business rescue.
The initial
funding available for this purpose is R4 million.
[73]
The
respondents did not, on receipt of the replying affidavit, seek to
strike out these allegations; nor did they request an opportunity
to
file a further affidavit to deal with the allegations. They did
however, in their heads of argument, request that the Court
ignore
the allegations. They submitted that the applicant’s case must
be made out in the founding affidavit.
[29]
[74]
In
Finishing
Touch 163 (Pty) Ltd v BHP Billiton Energy Coal South Africa Ltd
,
[30]
t
he
court held that the rule was not absolute and that the court has a
discretion to permit new material in the replying affidavit.
[31]
In
considering whether to allow new material introduced for the first
time in the replying affidavit, the court exercises a judicial
discretion. The indulgence of allowing new material in the replying
affidavit will generally be allowed when warranted by special
circumstances.
[32]
[75]
The
rule does not prohibit the applicant from explaining or expanding
upon matters contained in the founding affidavit.
[33]
The
court may also, after permitting the use of new material in a
replying affidavit, allow for a further answering affidavit
by the
respondent.
[76]
The
approach to adopt, in considering whether to allow new matter in the
replying affidavit, was referred to in
Shakot
Investments (Pty) Ltd v Town Council of the Borough of
Stanger
,
[34]
where
the Court held that:
‘
In
consideration of the question whether to permit or to strike out
additional facts or grounds for relief raised in the replying
affidavit, a distinction must, necessarily, be drawn between a case
in which the new material is first brought to light by the
applicant
who knew of it at the time when his founding affidavit was prepared
and a case in which facts alleged in the respondent's
answering
affidavit reveal the existence or possible existence of a further
ground for the relief sought by the applicant. In the
latter type of
case the Court would obviously more readily allow an applicant in his
replying affidavit to utilise and enlarge
upon what has been revealed
by the respondent and to set up such additional ground for relief as
might arise therefrom….’
[77]
In exercising a judicial discretion in this
regard, I take into account the wording of s 131(4)(
a
)
of the Act which provides that a court should, in deciding whether to
place a company under business rescue, have regard to whether
it is
just and equitable to do so for financial reasons and whether the
company can be rescued. The applicants state that only
after receipt
of the answering affidavits, were they given some detail about the
financial position of the companies. They then
expanded upon the
issue of the PCF in their replying affidavit.
[78]
The applications are urgent and by applying
the strict rules relied upon by the respondent companies, this Court
will be flouting
its duties provided for in the Act. This matter
concerns, inter alia, the livelihood of some 158 employees. A refusal
to take into
account the issue of the PCF as set out in the replying
affidavit, and dismissing the application for want of details
relating
to the PCF in the founding affidavit, would be extremely
prejudicial to these employees, other creditors and the respondent
companies
themselves.
[79]
This Court must consider the financial
implications of the respondent companies not paying any salaries and
wages to its employees.
If business rescue can assist them and
prevent disastrous consequences for them and their families, the
Court should indulge the
parties in allowing them to deal in detail
with whether PCF is available to avoid the consequences of
non-payment of the employees’
salaries and wages. I therefore
offered the respondents the opportunity to deal with the allegations
relating to the PCF contained
in the replying affidavit. They
accepted such offer. The applicants were then granted leave to
clarify certain allegations which
the respondent companies disputed
in their response. Both parties filed further affidavits in this
regard. There is no prejudice
to any party in this regard.
[80]
In the replying affidavit, Margarita, on
behalf of Konmar, provided the following undertakings to provide PCF,
on condition that
the respondent companies are placed in business
rescue and Mr Murray is appointed as the BRP:
80.1.
To wholly fund the operations of the
respondent companies so as to immediately permit that trading may
resume on a delivery-only
basis, or on any other basis permitted by
the regulations which are applicable from time to time during the
lockdown, to the extent
that such funding is necessary;
80.2.
Konmar will fund the fixed and variable
costs if trading is resumed on any other basis, to the extent that
such funding is necessary;
80.3.
If harsher restrictions on trade are
instituted in due course, Konmar will continue to make reduced salary
payment to the employees
of the respondent companies to the same
monthly extent as the payments which were made in respect of April
2020, and to pay any
reduced fixed costs (save for those due to other
entities controlled by the KAM Trust) to ensure that the businesses
remain in
good standing and the respondent companies are able to
reopen for trade, should that be possible.
[81]
Margarita stated that:
81.1.
Konmar has an amount of approximately R4
million immediately on hand to provide for the above and has access
to further funding
if necessary.
81.2.
A resolution has been passed by the
trustees of Konmar resolving
inter alia
to provide the above funding, and each trustee has confirmed these
facts.
[82]
The respondents, in their further
affidavit, challenged the allegation that PCF can be made available
from the Konmar Trust. They
submitted that:
82.1.
No trust deed was attached, from where one
can adduce whether the acting trustees are authorised to make this
loan.
82.2.
No financial information is proffered to
determine Konmar’s ability to make the funds available and from
where these funds
will emanate.
82.3.
In regard to the PCF, they submitted that
Konmar does not have the resources to provide the PCF because on the
divorce of Angelo
and Margarita, certain distributions were to be
made to the Konmar Trust from the Kam Trust namely:
(a)
A members' interest in Erf 971 Hurlingham
CC, which only asset is an immovable property described as 8
Middelvlei Hurlingham Manor
Hurlingham Ext 5.
(b)
Zimbali Condominium Suite 114 Sectional
Title Development.
(c)
50% of the shares held in Trashcan Kidz
Ltd.
82.4.
The Zimbali property was transferred to the
Trust, which at the time of the transfer was valued at R2 800 000.00.
82.5.
To date the Konmar Trust has to date failed
to raise the necessary finance to take transfer of the member's
interest in Erf 971
Hurlingham CC which at the time of signature of
the agreement was valued at R2 389 290.19.
82.6.
The Kam Trust is thus still the sole
shareholder in Erf 971 Hurlingham CC. Currently the loan over the
property (over which a bond
is required) is R2 500 000.00.
82.7.
As far as the 50% shareholding in Trashcan
Kidz, they have not been able to find any information regarding this.
[83]
It was thus submitted by the respondent
companies that it is highly doubtful that Konmar is in possession of
the necessary finance
to loan and advance the PCF, and to fund the
business rescue on the terms and conditions as set out in Konmar’s
resolution
to the papers.
[84]
In response to this, the applicants alleged
that:
84.1.
Their attorney had received payment on 28
May 2020 of the amount of R4 million from Konmar, which funds were
held in trust for the
purpose
of providing the PCF.
84.2.
In addition, Konmar has offered to lend and
advance to the first respondent companies such amounts as may be
required to fund the
rescuing of the companies and to—
‘
fund
the payments of all employees of the companies for the duration of
the lockdown and
any
amended lockdown regulations, and
at
a
minimum at
the
level of 30% as was previously paid
by Margarita. Should employees be permitted to return
to
work
to
earn
increased
salaries,
such
funding
shall
be
provided
as
needed and agreed to with the
appointed business rescue
practitioner’.
84.3.
Konmar is permitted to provide the PCF in
terms of the provisions of the Konmar Trust Deed, read with the
definitions of ‘Capital
Beneficiary’ and ‘Income
Beneficiary’ respectively. That is because Kosta is a
beneficiary of both the KAM Trust
and Konmar; and
84.4.
The Trust Deed and necessary resolutions of
the trustees and their confirmatory affidavits were attached to this
response.
[85]
The question before this Court is whether
there is sufficient information before the Court to determine whether
the respondent companies
can be rescued if the PCF is provided. This
issue was succinctly summarised by Brand JA in In
Oakdene
Square Properties (Ply) Ltd v Farm Bothasfontein (Kyalami) (Pty) Ltd
where he stated:
‘
I
have indicated my agreement with the statement in Propspec that the
applicant is not required to set out a detailed plan. That
can be
left to the business rescue practitioner after proper investigation
in terms of s
141.
But the applicant must establish grounds for the reasonable prospect
of achieving one of the two goals in s 128(1)(b).’
[35]
…
‘
Self-evidently
the development of a plan cannot be a goal in itself. It can only be
the means to an end. That end, as I see it,
must be either to restore
the company to a solvent going concern, or at least to facilitate a
better deal for creditors and shareholders
than they would secure
from a liquidation process.’
[36]
[86]
In
Nedbank
Ltd v Bestvest
,
[37]
the following was said:
‘
[It
was]
argued that an application for business rescue should, to all
intents and purposes, contain a summary of the proposed business
rescue
plan.
[It was]
contended that only once this had been
done could a court decide whether there was a reasonable prospect of
the company being saved
from insolvency. I do not agree with that
submission. In my view, it should be left up to the business rescue
practitioner to formulate
the rescue package once he/she has had an
opportunity to properly assess the company, its prospects going
forward and, most importantly,
the reasons for its commercial
distress.’
[87]
The
court in
Oakdene
confirmed
that the achievement of any one of the two goals referred to
in
s 128
(1)
(b)
of
the would qualify as ‘business rescue’ in terms
of
s 131
(4).
Referring
to
Oakdene
,
the appropriate test was described by Maya JA in
Newcity
[38]
as
follows:
‘
It
is plain from the wording of these provisions that a court may not
grant an application for business rescue unless there is a
reasonable
prospect for rescuing the company i.e. facilitating its
rehabilitation so that it continues on a solvent basis or, if
that is
not possible, yields a better return for its creditors and
shareholders than what they would receive through liquidation.
….
As
to what “reasonable prospect” means, Brand JA, in Oakdene
Square Properties (Pty) Ltd, properly described it as a
yardstick
higher than “a mere prima facie case or an arguable
possibility” but lesser than a “reasonable probability”
– a prospect based on reasonable grounds to be established by a
business rescue applicant in accordance with the rules of
motion
proceedings. He elaborated as follows:
“
Self-evidently
it will be neither practical nor prudent to be prescriptive about the
way in which the [applicant] must show a reasonable
prospect in every
case. Some reported decisions laid down, however, that the applicant
must provide a substantial measure of detail
about the proposed plan
to satisfy this requirement … But in considering these
decisions Van der Merwe J commented as follows
in Propspec
Investments (Pty) Ltd v Pacific Coast Investments 97 Ltd and another
2013 (1) SA 542
(FB) para 11:
‘
I
agree that vague averments and mere speculative suggestions will not
suffice in this regard. There can be no doubt that, in order
to
succeed in an application for business rescue, the applicant must
place before the court a factual foundation for the existence
of a
reasonable prospect that the desired object can be achieved. But with
respect to my learned colleagues, I believe that they
place the bar
too high.’
And
in para 15:
‘
In
my judgment it is not appropriate to attempt to set out general
minimum particulars of what would constitute a reasonable prospect
in
this regard. It also seems to me that to require, as a minimum,
concrete and objectively ascertainable details of the likely
costs of
rendering the company able to commence or resume its business, and
the likely availability of the necessary cash resource
in order to
enable the company to meet its day-to-day expenditure, or concrete
factual details of the source, nature and extent
of the resources
that are likely to be available to the company , as well as the basis
and terms on which such resources will be
available, is tantamount to
requiring proof of a probability, and unjustifiably limits the
availability of business rescue proceedings.’
“…
I
agree with these comments in every respect … [Thus] the
applicant is not required to set out a detailed plan … but
must establish grounds for the reasonable prospect of achieving one
or two goals in s 128(1)(b).” ’
[39]
[88]
Having regard to this test, I am satisfied
that the PCF is sufficiently detailed to achieve either of the two
purposes set out in
s 128(1)(
b
)(iii).
[89]
Placing the respondent companies under
business rescue will allow them reasonable prospects of rescue
because:
89.1.
The moratorium which ensues will protect
the respondent companies from their creditors enforcing claims
against them.
89.2.
The PCF will provide funding to the
respondent companies until they are in a position to resume
profitable trade.
89.3.
The wide powers of the appointed BRP will
allow for the business as a whole to be streamlined and for the
profitable parts of the
business to support the unprofitable parts of
the business until they are able to return to profitability.
89.4.
The BRP will be able to investigate the
financial positions of the respondent companies individually and
collectively and restructure
the businesses to increase
profitability. He will further be able to ascertain the circumstances
under which the dividend of some
R7 million was paid to the Trust,
taking Mezepoli Melrose from the position of a net profit to a net
loss of some R5 million.
89.5.
The initial PCF of R4 million is sufficient
to sustain the trust companies’ operations on a delivery and
take-away only basis
for nearly 14 months. This provides some
certainty and relief for creditors and employees. On the basis of the
respondent companies’
model, if opened to trade on a ‘delivery
only’ (or take-away and delivery only) basis.
89.6.
The restaurants will collectively make a
monthly gross profit of at least R490 079.
89.7.
This will be available to make payments
towards the fixed monthly expenses of the trust companies; as well as
to other trade creditors.
89.8.
At least 50% of the salaries and wages will
continue to be paid. That affords a monthly benefit of R300 000
to the employees
of the trust companies.
89.9.
The restaurants will incur a collective net
monthly loss of approximately R280 000 after fixed expenses
(rental, utilities,
salaries & wages and operational costs) have
been paid.
89.10.
The R4 million which Margarita has
procured from Konmar as PCF is sufficient to fund the cumulative net
trading losses of all
the restaurants for almost 14 months.
89.11.
This will undoubtedly be to the benefit of
creditors and employees since employees are currently not being paid
anything at all,
which is, literally, a matter of life or death for
them.
89.12.
The cash reserves that Mezepoli Melrose has
will not need to be utilised, nor will the funds of the Trust and the
unrelated entities
which it controls, need to be accessed.
89.13.
Irrespective of what the future holds for
these restaurants, there will certainly be a better outcome for
creditors, and in particular,
the applicants, in the event that the
respondent companies are ultimately wound up.
89.14.
Due to the fact that Brand Kitchen is
solely dependent on the fees that are payable to it from the other
respondent companies, directly
or via Plaka Holdings and Mezepoli
Holdings, any income generated by these restaurants will in turn
support Brand Kitchen’s
viability.
89.15.
In the case of Plaka Eastgate, which it is
common cause is financially distressed, Froneman alleged that having
regard to Plaka
Eastgate’s ‘trading history there is no
point in re-opening’. He relies in support of this assertion on
the income
statement of Plaka Eastgate for the period June 2019 to
April 2020.
89.16.
The most recent financial statements
available as at the date of Angelo’s passing are those for the
financial year end 31
May 2018. The applicants contended that these
financial statements reveal the following:
(a)
During 2017 and 2018, Plaka Eastgate was
profitable. In 2018, the business made a profit of approximately
R300 000.
(b)
Since Froneman and Elpida took over as
directors, Plaka Eastgate’s financial position has deteriorated
rapidly, to the point
where the directors now allege that it is
incapable of being rescued and ought to be liquidated.
(c)
Renovations to the Plaka Eastgate
restaurant took five months. This had a temporary but material impact
on the revenue generated
by Plaka Eastgate. Revenue improved once the
renovations were complete.
89.17.
Placing Plaka Eastgate under business
rescue will afford it a reasonable prospect of being able to trade
out of its precarious financial
position. At the very least, the PCF
procured by Margarita will allow Plaka Eastgate to break even for at
least 14 months. Much
can be achieved in 14 months and, critically,
its employees (50 of them) will be able to feed their families. The
BRP can also
continue the negotiations for Kosta to purchase Plaka
Eastgate.
[90]
For these reasons, I am of the view that it
is reasonably possible that the respondent companies will be returned
to solvency; alternatively,
there will be a better outcome for
shareholders, and creditors, in particular the employees, than that
which they would receive
through liquidation, thus satisfying the
test set out in s 128(1)(
b
)(iii)
of the Act.
Ulterior
motive
[91]
Finally, the respondent companies submitted
that these applications have been brought for an ulterior purpose in
order to wrest
control from the current management and vest control
in Kosta, Margarita or Mun Manal. The applicants contended that:
91.1.
Business
rescue proceedings are a temporary state of affairs which end in the
circumstances provided for in s 132(2)(
a
)
to (
c
)
of the Act.
[40]
91.2.
Under
business rescue, the existing board of directors will remain in
place. What changes is that the BRP temporarily has full management
control of the company in substitution for its board under
s 140(1)(
a
)
of the Act.
[41]
91.3.
The relief sought by the applicants
accordingly does not have the effect for which the respondent
companies contend.
[92]
I agree with these contentions. The BRP
satisfies the requirements to be appointed. No dispute was raised in
this regard.
For
these reasons, on 1 June 2020, the following order was granted:
1.
The first respondent in:
a.
CASE NO: 2020/10556, MEZEPOLI MELROSE
ARCH (PTY) LTD;
b.
CASE NO: 2020/10555, MEZEPOLI NICOLWAY
(PTY) LTD;
c.
CASE NO: 2020/10955, PLAKA EASTGATE
RESTAURANT CC;
d.
CASE NO: 2020/10956, BRAND KITCHEN
HOSPITALITY (PTY) LTD
is
placed under supervision and business rescue proceedings be commenced
under
section 131(4)(a)
of the
Companies Act, 2008
.
2.
Mr Cloete Murray, practising at Sechaba
Trust (Pty) Ltd, is appointed as the interim business rescue
practitioner of each of the
first respondents referred to in
paragraph 1 above, subject to ratification by the holders of a
majority of the independent creditors'
voting interests at the first
meeting of creditors, as contemplated in
section 147
of the
Companies
Act.
3.
The
costs of this application be paid as an
expense in the business rescue process of each of the first
respondents the first respondents
referred to in paragraph 1 above;
alternatively, be paid as costs in the administration of the
liquidation of each of the first
respondent.
_____________________________
S
E WEINER
JUDGE
OF THE HIGH COURT
GAUTENG
LOCAL DIVISION, JOHANNESBURG
Date
of hearing:
27
May 2020
Date
of order: 1
June 2020
Date
of judgment: 3
June 2020
Appearances:
Counsel
for the Applicants: Adv.
GW Girdwood SC;
Adv.
A Kolloori; Adv. MFB Clark
Instructing
Attorneys: Christophers
& Oosthuizen Inc
Counsel
for the First Respondents: Adv. M
Smit
Instructing
Attorneys: Nance-Kivell
Attorneys
[1]
On
1 June 2020, the order which appears at the end of this judgment was
handed down. I stated that reasons would follow. These
are the
reasons.
[2]
In terms of
s 144(3)(
b
)
of the Act which states: ‘
During
a company's business rescue process, every registered trade union
representing any employees of the company, and any employee
who is
not so represented, is entitled to participate in any court
proceedings arising during the business rescue proceedings’
.
[3]
In terms of s 145(1)(
b
)
of the Act where during a company’s business rescue process
each creditor is entitled to ‘
participate
in any court proceedings arising during the business rescue
proceedings
’.
[4]
Oakdene
Square Properties (Pty) Ltd and Others v Farm Bothasfontein
(Kyalami) (Pty) Ltd and Others
2013 (4) SA 539
(SCA); (609/2012)
[2013] ZASCA 68
(27 May 2013) para
26.
[5]
Koen
& another v Wedgewood Village Golf & Country Estate (Pty)
Ltd and others
2012 (2) SA 378
(WCC) para 10.
[6]
Unreported
judgment of
Haitas,
Konstantinos v Froneman, Gabriel Francois van Lingen and others
2019/13947
ZAGPJHC (11 July 2019).
[7]
Mun Manal explains that his shareholding was transferred to the
second applicant. Brand Kitchen acknowledges that Mun Manal as
shareholder has
locus
standi
but disputes the second applicant’s
locus
standi
qua
shareholder, despite acknowledging that Brand Kitchen’s share
register ‘erroneously reflects the second applicant
as
shareholder’. The shareholder must be the registered
shareholder, even if the entitlement to the shares is disputed.
See
Oakdene
(note
4 above) para 6.
[8]
An
offer was made by Kosta to purchase the trust’s interest in
Plaka Eastgate.
[9]
The
definition of an ‘affected person’ is at s 128(1)(
a
)
of the Act which provides as follows:
'affected
person', in relation to a company, means-
(i)
a shareholder or creditor of the company;
(ii)
any registered trade union representing
employees of the company; and
(iii)
if any of the employees of the company are
not represented by a registered trade union, each of those employees
or their respective
representatives;
[10]
Richter
v Bloempro CC and Others
2014 (6) SA 38
(GP)
para 13; this decision was overturned on appeal on other grounds.
[11]
Glencore
Grain Africa (Pty) Ltd v Du Plessis NO & Others
[2007] JOL 21043
(O); (4621/99)
[2002] ZAFSHC 2
(28 March 2002) at
10.
[12]
MV
Snow Crystal Transnet Ltd t/a National Ports Authority v Owner of MV
Snow Crystal
[2008] ZASCA 27
;
2008 (4) SA 111
(SCA) para 28 (footnotes omitted).
[13]
Unlocked
Properties 4 (Pty) Limited v A Commercial Properties CC
(18549/2015) [2016] ZAGPJHC 373 (29 July 2016) para 7.
[14]
Unibank
Savings & Loans Ltd (formerly Community Bank) v Absa Bank Ltd
2000
(4)
SA 191 (W).
[15]
Unlocked
Properties
(note
13 above) para 7. In
Unibank
,
the court has stated as follows: ‘A contract is …
terminated only by objective impossibility (which always or normally
has to be total). Subjective impossibility to receive or make
performance at most justifies the other party in exercising an
election to cancel the contract.’
[16]
Unibank
Savings
(note 14 above) at 198D.
[17]
Johannesburg
Municipality v O’Sullivan
1923 AD 201.
[18]
As
per the regulations published in terms of s 27(2) the
Disaster
Management Act 57 of 2002
: GN 318 of 2020 in GG No. 43107 (18 March
2020), as amended by
s 6(
e
)
of GN R419 in GG No. 43168 (26 March 2020), Annexure B para 32.
[19]
See
Regulation 11B(1)(
b
)
and (
c
)
read with Annexure B, Category A, para 1(
i
)
and Category B, para 4 of the Regulations (GN 318 of 2020).
[20]
See
Regulation 28(1),
GN
R480 of GG 43258 read with Table 1 to the Regulations, Part I, which
provides as follows: ‘Accommodation and Food Services
Activities Permitted: Restaurants only for food delivery services
(9H00-19H00) and subject to restriction on movement (no sit
down or
pick-up allowed).’
[21]
Regulation
46(1) read with specific economic exclusions set out in Table 2 of
the Regulations, GN 605 of GG 43364 (28 May
2020).
[22]
Unibank
Savings
(note
16 above).
[23]
Cape
Point Vineyards (Pty) Ltd v Pinnacle Point Group Ltd & Another
(Advantage Projects Managers (Pty) Ltd intervening)
2011 (5) SA 600 (WCC).
[24]
Prudential
Shippers SA Ltd v Tempest Clothing Co (Pty) Ltd and Others
1976
(2) SA 856
(W) at 869C-D. The applicants do not however have to
demonstrate that the respondent companies are either commercially or
factually
insolvent – just distressed.
[25]
Tyre
Corporation Cape Town (Pty) Ltd and Others v GT Logistics (Pty) Ltd
(Esterhuizen and Another intervening)
2017
(3) SA 74
(WCC);
[2016] ZAWCHC 124
(21 September 2016) para 17.
[26]
Section
136(1)(
b
)
of the Act.
[27]
Section
135(1) and (3) of the Act.
[28]
Ibid.
[29]
In
Poseidon
Ships Agencies (Pty) Ltd v African Coaling and Exporting Co (Durban)
(Pty) Ltd,
[29]
the court upheld the principle that the applicant in motion
proceedings has to make out his or her case in the founding
affidavit and was not permitted to supplement it in the replying
affidavit unless done due to special circumstances
[30]
Finishing
Touch 163 (Pty) Ltd v BHP Billiton Energy Coal South Africa Ltd and
Others
2013 (2) SA 204
(SCA); (363/2011)
[2012] ZASCA 49
(30 March 2012).
[31]
Body
Corporate, Shaftesbury Sectional Title Scheme
v
Rippert’s Estate and Others
2003 (5) SA 1
(C); (4542/02)
[2002] ZAWCHC 15
(24 March 2002) at
6D-F.
[32]
Faber
v Nazerian
(2012/42735)
[2013] ZAGPJHC 65 (15 April 2013).
[33]
Nedbank
Ltd v Hoare
1988
(4) SA 541
(E)
at 543E.
[34]
Shakot
Investments (Pty) Ltd v Town Council of the Borough of Stanger
1976
(2) SA 701
(D)
at 705H-B.
[35]
Oakdene
(note
4 above) para 31.
[36]
Ibid.
[37]
Nedbank
Ltd v Bestvest 153 (Pty) Ltd; Essa and Another v Bestvest 153 (Pty)
Ltd and others
2012
(5) SA 497
(WCC) para 40.
[38]
Newcity
Group (Pty) Limited v Pellow
NO
2014
JDR 2155 (SCA);
Newcity
Group (Pty) Limited v Pellow N.O. and Others
(577/2013)
[2014] ZASCA 162
(1 October 2014).
[39]
Ibid
paras 15-16.
[40]
Section
132(2) of the Act provides:
(2)
Business rescue proceedings end when-
(a)
the court-
(i)
sets aside the resolution or order that
began those proceedings; or
(ii)
has converted the proceedings to
liquidation proceedings;
(b)
the practitioner has filed with the
Commission a notice of the termination of business rescue
proceedings; or
(c)
a business rescue plan has been-
(i)
proposed and rejected in terms of Part D
of this Chapter, and no affected person has acted to extend the
proceedings in any manner
contemplated in section 153; or
(ii)
adopted in terms of Part D of this
Chapter, and the practitioner has subsequently filed a notice of
substantial implementation
of that plan.
[41]
Section
140(1)(
a
)
sets out that, ‘During a company's business rescue
proceedings, the practitioner, in addition to any other powers and
duties set out in this Chapter has full management control of the
company in substitution for its board and pre-existing management’.