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 356
|
|
The trustees for the time being of the Gamsy Family Trust and Others v Mine Restoration Investments Ltd and Others (20/18130) [2020] ZAGPJHC 356 (13 August 2020)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, JOHANNESBURG
(1)
REPORTABLE:
YES
/NO
(2)
OF INTEREST TO OTHER JUDGES:
YES
/NO
REVISED……DATE:..13.08.2020
CASE
NUMBER : 20/18130
In the matter
between:
THE TRUSTEES FOR THE TIME BEING
OF THE GAMSY FAMILY TRUST BEING:
DENNIS GAMSY N.O., GILLIAN GAMSY N.O.
AND ROB VELOSA N.O.
First Applicant
MICHAEL JAMES MILLER
Second Applicant
ALISTAIR COLLINS
Third Applicant
ULRICH BESTER
Fourth Applicant
And
MINE RESTORATION INVESTMENTS LTD.
First Respondent
COMPANIES AND INTELLECTUAL
PROPERTY COMMISSION
Second Respondent
DANIEL TERBLANCHE
Third Respondent
RICHARD TAIT
Fourth Respondent
QUINTON GEORGE
Fifth Respondent
CHRISTIAN ROED
Sixth Respondent
SYD CADDY
Seventh Respondent
JUDGMENT
BHOOLA
A J:
Introduction
[1]
The applicants have approached this court on an urgent basis in an
application to
set aside a resolution taken by the fourth, fifth,
sixth and seventh respondents ("the respondent directors")
of the
first respondent placing it in business rescue.
[2]
The first applicant is the largest independent creditor of MRI,
totalling 66% of non-trade
creditors and having loaned approximately
R 11 million to the first respondent ("MRI") as at 29
February 2020. It is
an affected person in terms of section 128 (1)
(a) (i) of the Companies Act, 71 of 2008 ("the Act"). The
second, third
and fourth applicants are directors of MRI ("the
applicant directors"). The fourth and fifth respondents
("Tait"
and "George" respectively) were removed as directors on 24
July 2020.
Urgency
[3]
In urgent proceedings before the merits are dealt with the applicants
need to firstly
satisfy the court that the application warrants
enrolment on the grounds of urgency. In this regard Uniform Rule
6(12) (b) provides:
(b) In every affidavit or petition filed in
support of any application under paragraph (a) of this subrule, the
applicant shall
set forth explicitly the circumstances which he avers
render the matter urgent and the reasons why he claims that he could
not
be afforded substantial redress at a hearing in due course.
[4]
Applicants rely on
East
Rock Trading 7 (Pty) Ltd and Another v Eagle Valley Granite (Pty) Ltd
and Others
[1]
and
Wepenaar J's judgment
In
re several matters on the urgent court roll 18 September 2012
and
submitted that they have set out averments relating to why they will
not be
able
to obtain substantial redress at a hearing in due course, should the
matter not be enrolled as urgent.
[5]
These averments are in essence that MRI is in business rescue as a
result of a round
robin resolution taken on 14 July 2020 by the
respondent directors ("the resolution"). Applicants seek to
set aside the
resolution and they allege that these proceedings are
urgent because if the resolution is not set aside and the business
rescue
proceedings continue, MRI will lose the opportunity to act on
a significant share-swap offer from
Langpan
Mining Co (Pty) Ltd ("Langpan"),
which
will result in it being forced into liquidation. MRI has until 15
August 2020 to take advantage of the Langpan offer, failing
which it
will lapse. This is the second offer it has received, the first
having lapsed, it submits on account of the conduct
of the respondent
directors. MRI thus has a second opportunity to exercise its options
but this must be done before 15 August 2020,
i.e. within four days.
[6]
Applicants submit that the only hope for MRI’s survival at this
stage is the
share-swap agreement offered by Langpan. This agreement
is conservatively valued at R550 million but its true value lies
between
R600 million and R1.1 billion. If it is concluded, MRI will
be solvent and be in a position to settle all of its liabilities. If
the agreement is not concluded, then MRI will in all probability be
delisted from the JSE AltX exchange and will have to be liquidated.
This will be to the undoubted prejudice of its creditors, including
the first applicant.
[7]
The respondents do not challenge the urgency on the grounds of
abridged time periods.
It is clear to me on the facts averred that
the applicant will not enjoy substantial redress at hearing in due
course (i.e. should
the business rescue continue) as it is very
likely that should the reconstituted board of directors not decide
before the Langpan
offer lapses on 15 August 2020, MRI faces a real
risk of liquidation and delisting. It is not likely to be able to set
aside the
business rescue in due course, as the respondent directors
submit. I am therefore satisfied that the matter warrants enrolment
as an urgent application.
Grounds
for setting aside a company resolution
[8]
Section 130
(1) of the
Companies Act makes
provision for objections
to a company resolution. It provides that
"[s]ubject to
subsection (2), at any time after the adoption of a resolution in
terms of
section 129
, until the adoption of a business rescue plan in
terms of
section 152
, an affected person may apply to a court for an
order—
(a) setting aside the
resolution, on the grounds that—
(i) there is no reasonable
basis for believing that the company is financially
distressed;
(ii) there is no reasonable
prospect for rescuing the company; or
(iii) the company has failed
to satisfy the procedural requirements set out in
section
129.
[9]
The applicants rely on the grounds listed in
section 130(1)
(i) and
(iii). They allege firstly that there is no reasonable basis for
believing that MRI is financially distressed
.
Secondly, they submit that there was no compliance with the
procedural requirements of section 129 (1) and (3) of the Act. In
regard to section 129 (1) they allege that the resolution was
vitiated by
mala
fides
and was a sham, in that it was taken for selfish reasons, including,
inter
alia
trying to deal with a dysfunctional board, seeking to re-price the
Langpan offer and diverting attention away from the misconduct
of two
respondent directors, Tait and George. In relation to section 129(3)
the applicants allege that even if the resolution is
found to have
been validly taken in terms of section 129(1), it lapsed on 21 July
2020 in accordance with the provisions of section
129(5)
[2]
of the Act, thus rendering the business rescue proceedings a nullity.
Is MRI financially
distressed?
[10]
Section 128(1)(f)
of the
Companies Act 71 of 2008
defines
‘‘
financially distressed’’
to mean
that—
"(i) it appears to be
reasonably unlikely that the company will be able to pay all of its
debts as they fall 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
;"
[11]
The applicants submit that there is no reasonable basis at all to
believe that MRI is financially
distressed. The mere fact that the
liabilities of a company exceed its assets does not constitute
financial distress. MRI is not
a trading entity but is a cash shell
and as such can continue to exist even for a significant period of
time while its liabilities
exceed its assets. Thus, they submit that
it is not enough for the respondent directors to allege, as they
have, that MRI has liabilities
that it is not able to pay at the
present moment. They must show that (a) the debts are currently due
and payable, or shall become
due and payable within the ensuing six
months; and (b) MRI is unable, or shall be unable, to pay those debts
as they become due
and payable within the ensuing six months.
[12]
The
respondent directors submit that there is a dispute of fact as to
whether MRI is in financial distress, and have made averments
to the
contrary on the liabilities of MRI. In this regard the applicants
submit, relying on
Wightman
v Headfour (Pty) Ltd
[3]
that the disputes of fact raised by the respondent directors are
neither genuine nor
bona
fide
,
and that many of the averments made by them are vague or ambiguous
and do not demonstrate the standard of knowledge that one would
expect of a director.
[13]
In this regard the
applicants submit that at present there is no demand from any of
MRI's creditors that it make payment of its
debts immediately. In
particular while MRI may have a liability towards SARS, this is being
addressed with SARS. There is nothing
before this Court to suggest
that SARS requires its liability to be settled forthwith. In
addition, the so-called agreement with
Tertain Investments (Pty) Ltd
is unlawful and does not constitute a debt that is enforceable
against MRI. Even if that were the
case, Tertain has given MRI time
to enter into the share- swap agreement with Langpan, and there is no
requirement that MRI settle
its debt, if any, immediately
.
Furthermore,
Langpan has indicated that it is prepared to settle its debt to MRI
by way of payments of R300 000 per month until
the debt is paid in
full.
Even
if MRI was in financial distress, those payments would be sufficient
to ensure that MRI is able to pay all of its debts as
and when they
fall due.
[14]
In any event, the applicants submit, it is common cause that at this
moment MRI has the Langpan
share-swap agreement open to it and is
valued conservatively at R550 million. The total liability of MRI,
even including the so-called
“syndicated” loans, which it
submits should be invalidated, is approximately R20 million. The
share-swap agreement
will therefore result in MRI’s assets
massively exceeding its liabilities by more than twentyfold. Once the
transaction is
concluded MRI will without any doubt be able to settle
all of its debts as and when they fall due. Applicants accept that
that
Langpan’s operations carry a degree of risk, but submit
that the risk is ameliorated by the fact that the share-swap
agreement
will be evaluated by an independent valuator.
[15] I
agree that even if there is a dispute as to whether or not MRI is in
financial distress, it does appear that the Langpan
transaction it is
the panacea to address its future viability, if of course the
reconstituted board votes in to proceed with it.
This at least
does not seem to be in dispute.
Was
there compliance with
section 129?
[16]
Applicant submits that the resolution approving the business rescue
of MRI was taken by way of
round robin by the respondent directors
acting
mala fide
to exclude the applicant directors. Hence it
did not constitute a decision of the board of MRI as contemplated in
section 129
(1) of the
Companies Act. It
was a sham and therefore
invalid, rendering the business rescue proceedings a nullity.
[17]
Applicants rely in this regard on the email from the sixth respondent
(“Roed”) on
14 July 2020 to the MRI Board of directors,
in which he noted that the four respondent directors, including
himself, had held a
discussion regarding a motion to enter MRI into
business rescue and had reached a unanimous decision. Applicants make
various averments
about the motives behind the adoption of the
resolution and the hasty process by which it was adopted.
Applicants rely on
the fact that it was clear from all of the facts
that the decision was in fact not taken by way of a genuine,
bona
fide
, round robin resolution, but had in fact been taken by the
four respondent directors to the exclusion of the applicant
directors.
Roed’s email makes it clear, they submit, that the
respondent directors were “
unanimous”
in their
decision; that Caddy had already been appointed to administer the
business rescue process, and that a business rescue
practitioner
(Terblanche) had already been nominated. It was a
fait accompli.
[18]
Applicants concede however that
section 74
of the
Companies Act and
clause 6.6.2 of MRI’s Memorandum of Incorporation permit the
MRI Board of Directors to adopt a resolution by way of a round
robin
resolution. However, they say that these provisions obviously
contemplate a genuine and
bona
fide
round
robin process, not an attempt to mask a unilateral decision by the
majority of the board to the exclusion of the other directors.
I
agree however, with the respondent directors that there is no basis
for this contention. The resolution appears to have been validly
taken in accordance with section 74 of the Act and clause 6.6.2 of
the Memorandum of Incorporation. It was sent to all of the directors
and the applicant directors did not, save for Collins (who replied
with a cryptic message), reply thereto or engage the respondent
directors. As the respondent directors submit, section 129 (1) simply
requires a resolution from the company’s board of directors.
Such a resolution, in the instant case, is capable of being adopted
by way of a round robin and a majority vote carries the day.
Did
the resolution lapse on 21 July 2020?
[19]
Having determined that the resolution was validly taken under section
129(1) I turn to consider
whether it nevertheless lapsed. In this
regard
section 129(3)(a)
of the
Companies Act provides
:
“
Within
five business days after a company has adopted and filed a
resolution, as contemplated in sub-section (1), or such longer
time
as the commission, on application by the company, may allow, the
company must publish a notice of the resolution, and its
effective
date, in the prescribed manner to every affected person, including
with the notice a sworn statement of the facts relevant
to the
grounds on which the board resolution was founded”.
Furthermore,
section
129(5)(a) of the Act provides that if the above deadline is not met,
then “
its
resolution to begin business rescue proceedings and place the company
under
supervision lapses and is a nullity”.
[20]
The applicants submit that the date upon which the resolution was
adopted and filed with the
second respondent ("CIPC") was
14 July 2020. The date upon which the notice contemplated in section
129(3)(a) was published
is 24 July 2020. Hence, the notice was filed
three days out of time and in terms of section 129(5) (a) it lapses
and is a nullity.
[21]
Respondent directors submit however that it is clear from the
notification from CIPC dated 17
July 2020 that CIPC was only
satisfied that the resolution complied with the prescribed form on 17
July 2020.
The
Companies Act defines
the word
"
file"
(when used a verb) as “
to
deliver a document to the commission in a manner and form, if any,
prescribed for that document”.
It is clear from the definition, they submit, that the date for
filing of the resolution is when the resolution has been
delivered
and accepted by CIPC in the manner and form required. The consequence
must be that a resolution is only filed with CIPC
when it is finally
accepted as such.
This puts paid, they submit, to the
applicants' contention that the five-day period referred to in
section 129(3)
commenced as of 14 July 2020 and that there was
accordingly non-compliance with
section 129(3).
I do not agree.
Section 129(3)
is unequivocal: the
five-day period within which the notice must be given begins not
after any objections have been resolved, but
rather after the
resolution is adopted and filed. The face of the notice is moreover
clear that the date of filing is 14 July 2020.
[22]
In any event even if the respondent directors are correct, it appears
that they may have resent
the necessary documents to CIPC on 16 July
2020. This would mean that they had until 23 July 2020 to publish the
necessary notice.
The notice was published on 24 July 2020, which is
inescapably still out of time. The delay is fatal to adoption of the
resolution
and it accordingly lapsed and is a nullity. This in my
view is sufficient to dispose of the matter in its entirety.
Order
[23]
In the circ
umstances,
I grant the draft order marked "X" save for my amendment in
regard to costs
U. BHOOLA
ACTING JUDGE OF THE HIGH
COURT
GAUTENG DIVISION, JOHANNESBURG
Date
of hearing:
Heard
on 11 August 2020 by videoconference as per agreement between the
parties in terms of the Judge President's extended Consolidated
Directive of 11 May 2020 extended to 15 August 2020.
Date
of judgment: Judgment handed down electronically by circulation
to the parties’ legal representatives by email
on 13 August
2020.
Appearances:
Counsel for the Applicants: Adv
Reg Willis with Adv Ori Ben-zeev
Instructed by: Dev Maharaj &
Associates, Johannesburg
Counsel
for the Fourth to Seventh Respondents: Adv B J Manca SC
Instructed
by: Edward Nathan Sonnenbergs Inc, Johannesburg
[1]
(11/33767)
[2011] ZAGPJHC 196 (23 September 2011
).
[2]
Section 130
(5)
provides that " If a company fails to comply with any provision
of subsection (3) or (4)—(a) its resolution
to begin
business rescue proceedings and place the company
under
supervision lapses and is a nullity.
[3]
[2008] ZASCA 6
;
2008 (3) SA 371
(SCA) at paragraph
13.