Van Den Heerden N.O. and Others v Van Tonder (A5076/2018; 407461/2015) [2021] ZAGPJHC 486 (20 April 2021)

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[2021] ZAGPJHC 486
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Van Den Heerden N.O. and Others v Van Tonder (A5076/2018; 407461/2015) [2021] ZAGPJHC 486 (20 April 2021)

REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
APPEAL
CASE NO: A5076/2018
CASE
NUMBER: 407461/2015
REPORTABLE:
YES
OF
INTEREST TO OTHER JUDGES: YES
REVISED.
2021/4/20
In
the matter between:
THEODOR
WILHELM VAN DEN HEEVER N.O.

First Appellant
GERT
LOURENS STEYN DE WET
N.O.

Second Appellant
LUKE
BERNARD SAFFY
N.O.

Third Appellant
SELWYN
TRACKMAN
N.O.

Fourth Appellant
SUMAIYA
ABDUL GAFFAR KHAMMISSA N.O.

Fifth Appellant
JACOLIEN
FRIEDA JANSEN VAN RENSBURG N.O.

Sixth Appellant
and
JACOBUS
MICHIEL VAN
TONDER

Respondent
JUDGMENT
WINDELL
J (MIA J and MDALANA-MAYISELA J concurring)
INTRODUCTION
[1]
On 12 September 2014, the respondent was appointed the business
rescue practitioner to rescue a group of companies. He was unable
to
do so. The group of companies were finally liquidated on 25 November
2014, following the rejection of the respondent’s
business
rescue plans. One of those companies was Boabab Holdings (Pty)
Limited ("Boabab").
[2]
The appellants are the joint liquidators of the group of companies.
They instituted a claim against the respondent in his personal

capacity in the sum of R24, 228,315.61 for an alleged loss suffered
by Boabab, whilst the respondent was carrying out the performances

and functions of a business rescue practitioner. The court
a quo
(Modiba J sitting as court of first instance) dismissed the claim
with costs.
[3]
The group of companies, (hereinafter referred to as “the
companies” or “the Group”) consisted of the
IFC
Group (Pty) Ltd (“IFC Group”); Kalahari Mining Logistics
(Pty) Ltd (“Kalahari”); Independent Freight
Carriers
(Pty) Ltd (“IFC”); IFC Development (Pty) Ltd
(“Development”); IFC Logistics (Pty) Ltd (“IFC

Logistics”); and Boabab. The companies operated as mining
logistics solution providers. In essence, they provided the
transportation
of bulk commodities from mines in various parts of the
country to the harbour in Port Elizabeth
[1]
for onward export. Each of the six companies within the Group,
provided a specific function. They operated together and were
interdependent.
[2]
In order to
render services to the mines the companies required contracts with
Transnet to rail the bulk commodities; trucks to
move the commodities
via road; leases of various sidings along the rail network and
warehousing facilities to store the bulk commodities
from time to
time; equipment to assist in shunting the commodities from the mines
to the wagons on the rail or trucks; and hundreds
of employees
located at various areas including at the mines, sidings, and the
harbour. There was not one company in the Group
that had all of the
aforementioned assets or employees. Each company provided certain
services and performed certain functions
for the Group to operate as
a whole. Thus, for example, employees were by and large employed by
IFC Logistics whereas the assets
were owned by IFC Development. IFC
in turn held the contract with Transnet to rail the commodities along
Transnet’s rail
infrastructure.
[4]
In the case of Boabab it employed 101 people; had six lease
agreements and held a contract with Kudumane
Manganese
Resources (Pty) Ltd (“Kudumane”), a mine in the Northern
Cape,
to transport commodities from the
mine to the harbour in Port Elizabeth. Traditionally, the Group’s
trading company was Kalahari.
From 2013 onward that changed, and
Boabab became the trading company within the Group. This stemmed from
the Group’s expansion
into the manganese logistics business. It
was resolved to house the Group’s assets and contracts in
separate companies. The
Kudumane contract was one of the largest
contracts serviced by the Group, and serves as a good example of how
the Group operated.
Whilst Boabab was the party who concluded the
contract, it had no rail agreements and no trucks, and could
therefore not service
the Kudumane contract without all of the other
companies in the Group providing assets and/or services. So, whilst
Boabab was the
only company that invoiced Kudumane, and as the other
companies did not invoice Kudumane or Boabab, the monies so received
were
used to pay the expenses of all of the companies.
[5] The Group’s
financial difficulties started approximately twelve months preceding
the business rescue. Transnet had previously
allowed the Group
twenty-four trains per week to move manganese from the mines to the
harbours and that was reduced to one train
per week. The companies
were reliant on rail transport and because Transnet reduced the
Group’s loads, it was forced to adjust
its business strategy
and become increasingly reliant on road transport. The consequence of
this change was a massive capital expenditure
programme in
circumstances where the Group was already experiencing cash flow
pressure due to the rail service delivery failure.
The Group had to
purchase trucks, trailers and containers on installment sale
agreements. This resulted in the Group being indebted
to several
financiers, including FirstRand Bank. Several industrial strikes by
drivers also hampered the Group’s ability
to operate
profitably. The above notwithstanding, the revenue generated by the
Group increased after the re-structure, which is
evident from the
financial statements of the Group.
[6] As a consequence of
the foregoing, Mr Driscoll, a director of the companies and the
person who ran the companies, engaged with
a potential third party
investor, being Vancor Participants SA and the Efferton Group
(“Efferton”), in an attempt to
re-capitalise the Group so
as to fully implement the expansion programme and change in strategy,
which was to place more reliance
on road transport. In May 2014, a
sale agreement was concluded between Mr Driscoll and Efferton.
Efferton took control of the Group,
including its bank accounts and
management. The Group’s financial director, Mr Bryan
Scannell left the Group’s
employ and Efferton commenced with
its own management. In about August 2014, Efferton pulled out of the
sale, leaving the companies
in a worse financial position than they
had been, prior to the sale. More importantly, the previous
administration had no accounting
or books or software accounting for
what transpired during Efferton’s tenure in charge of the
Group.
[7] Shortly after
Efferton pulled out of the sale, the respondent was contacted in
relation to assuming the responsibilities of
a business rescue
practitioner. He has a B.Proc degree and is a senior business rescue
practitioner. He was appointed, along with
his company, Eripio
Business Rescue Consultants, to attend to the business rescue. On 12
September 2014, the Group went into voluntary
business rescue.
[8] When the respondent
was initially approached he was under the impression that there was
only one company involved in the business
rescue, only to find that
there were six companies that had to be rescued. Notwithstanding the
fact that there were six companies,
he was of the view that the
companies could continue to be profitable if they scaled down, made
use of Kudumane’s rail allocation,
or if they used trucks or a
combination thereof. The respondent testified during the trial that,
although each company initially
had a separate business plan, the
business rescue plan for Boabab could not be considered independently
and had to be considered
together with the consolidated business plan
for the companies because of the interdependency of the companies and
how they operated.
He was also of the view that the moratorium
contemplated in section 133 of the Act would ensure that Transnet had
to continue providing
services. He took legal advice in this regard
from an attorney, Mr Van Deventer, as well as counsel. The respondent
testified that
he was provided with financial documents that were
incomplete, but nevertheless endeavoured to distill the true
financial position
of the companies from these documents. He stated
that he was not supported by the previous directors of the Group,
save for the
financial manager, Mr Bryan Scannell and, to a lesser
extent, by Mr Driscoll, the only remaining director of the Group,
through
e-mail correspondence.
THE ISSUE
[9]
This appeal centers on the respondent’s use of Boabab’s
funds to discharge the debts of the Group.
It
was established during the evidence of the respondent that R24
228 315. 61 was collected from Kudumane and Black Magic
Logistics, both debtors of Boabab, during business rescue.
Boabab
operated an Investec Bank account. However, subsequent to business
rescue, Mr Driscoll instructed Kudumane to utilise
a bank
account operated by African Mining Logistics (“AML”) held
with Standard Bank. Monies were accordingly deposited
into this bank
account.
The
respondent applied these funds to extinguish obligations of the
companies in the Group (hereinafter referred to as “the

disposal”), whilst knowing that Boabab had ceded all its book
debts to,
inter
alia
,
Lombard Insurance (“Lombard”).
[3]
A
balance sheet, handed in during the trial, set out the amounts
received by the Group and the amounts paid out in respect of each
of
the companies. For example, R400 000.00 was paid to Fidelity Security
for security for the leased premises, and approximately
R4 000
000.00 was paid in relation to salaries for all the companies. The
funds were also used to pay for cell phone accounts
and internet in
respect of all the companies, including Boabab. The respondent
testified that all of the payments were made in
order to service the
Kudumane contract. He believed that Boabab’s funds ought to be
used to pay immediate operating expenses
of the Group until such time
as the business rescue plans were approved, after which further
investigations could be conducted.
He testified that without the
payments, Boabab would have been unable to continue trading. He
denied that the amounts paid by Boabab
in respect of the other
companies’ expenses constituted loans, but were rather payments
for services rendered.
[10]
The disposal, so the appellants alleged, was effected without
compliance with section 45 and section 134 of the Act, and was
in
breach of the respondent's fiduciary duties to Boabab in terms of
section 76(3) of the Act. As a result of the contraventions,
so it
was alleged, Boabab had suffered a loss of R24 228 315.61 and the
respondent should be held liable for the loss in terms
of section
218(2), alternatively section 77(2)(b)(ii) of the Act.
[11]
The respondent denied liability, but pleaded that in the event of the
court finding that he is liable to Boabab for any loss,
that he acted
in good faith in the course of the exercise of the powers and
performance of his functions as a business rescue practitioner
and
was thus excused from liability in terms of section 140(3)(c)(i) of
the Act. The respondent further pleaded that if it is found
that he
breached his fiduciary duties that he acted honestly and reasonably
and should therefore be excused from any liability
in terms of
section 77(9) of the Act.
[12]
The court
a quo
dismissed
the claim against the respondent with costs.
Modiba
J found that there was no factual basis to find that that the
respondent advanced loans to companies associated with Boabab
and
therefore did not contravene section 45 of the Act. She, however,
found that the respondent contravened section 134 of the
Act as he
“
did not obtain Lombard’s
consent as required by section 134 ……when he utilised
Boabab’s book debts to
pay expenses incurred by the other
companies to service contracts in Boabab
”
.
He was therefore liable in terms of section 77(2)(b)(ii) of the Act,
but his liability was excluded in terms of section 77(9)
of the Act.
She further found that the respondent was not additionally excused in
terms of section
140(3)(c)(i)
of
the Act, as the defence available in terms of this section was
excluded by section 140(3)(b). In respect of the allegation that
the
respondent breached his fiduciary duties, the court
a
quo
found that “
to
the extent that the transactions that he
(the
respondent)
made using the ceded assets
relate to expenses incurred by the other five companies to service
contracts located in Boabab, they
were made in good faith, for a
proper purpose and in the interests of Boabab.
”
In
addition, she found that the appellants had not established any loss
by Boabab and that section 218(2) was impermissibly used
by the
appellants to attempt to circumvent the indemnity a business rescue
practitioner enjoys under the provisions of section
77(9).
THE CLAIM
[13]
The claim in the court
a
quo
was divided into four separate and
distinct claims, each seemingly pleaded in the alternative and for
the same amount of money.
The appellants’ heads of argument are
less clear but appear, following the appellant’s notice of
appeal, to pursue
all four claims. It is agreed between the parties
that s
ections 45, 77, 134, 140 and 218 of
the Act therefore find application in this appeal as a result of the
pleadings and evidence
in this matter. A convenient place to start
for purposes of the present matter is section 140 of the Act.
General
duties and powers of a business rescue practitioner
[14]
In
order to enable the business rescue practitioner to prepare a
business plan, the Act provides the company (and the business rescue

practitioner) with several rights and safeguards. One of those rights
relate to a moratorium against legal proceedings as provided
for in
section 133 of the Act, and another is the right to suspend the
rights of any creditors under any agreements, as set out
in section
136 of the Act. One of the safeguards available to business rescue
practitioners is that provided for under section
140(3) of the Act.
Section
140
of the
Act states as follows:
“
General
powers and duties of practitioners
140 (1) During a
company's business rescue proceedings, the practitioner, in addition
to any other powers and duties set out in
this Chapter-
(a)
has full management control of the company in
substitution for its board and pre-existing management;
(b)
may delegate any power or function of the
practitioner to a person who was part of the board or pre-existing
management of the company;
(c)
may-
(i) remove from office
any person who forms part of the pre-existing management of the
company; or
(ii) appoint a person
as part of the management of a company, whether to fill a vacancy or
not, subject to subsection (2); and
(d)
is responsible to-
(i) develop a business
rescue plan to be considered by affected persons, in accordance with
Part D of this Chapter; and
(ii) implement any
business rescue plan that has been adopted in accordance with Part D
of this Chapter.
(1A) ............
(2) ............
(3) During a company's
business rescue proceedings, the practitioner-
(a)
is an officer of the court, and must report to
the court in accordance with any applicable rules of, or orders made
by, the court;
(b)
has the responsibilities, duties and
liabilities of a director of the company, as set out in sections 75
to 77; and
(c)
other than as contemplated in paragraph (b)-
(i) is not liable for
any act or omission in good faith in the course of the exercise of
the powers and performance of the functions
of practitioner; but
(ii) may be held
liable in accordance with any relevant law for the consequences of
any act or omission amounting to gross negligence
in the exercise of
the powers and performance of the functions of practitioner.
(4) If the business
rescue process concludes with an order placing the company in
liquidation, any person who has acted as practitioner
during the
business rescue process may not be appointed as liquidator of the
company.
[15]
In terms of section 140(1)(a) a business rescue practitioner
has
full management control of the company in substitution for its board
and pre-existing management. Section 137(2), however, provides
that
the directors of a company under business rescue must continue to
exercise the “functions” of a director, subject
to the
authority of the practitioner and have a duty to the company to
exercise any management function within the company in accordance

with the express instructions or direction of the practitioner, to
the extent that it is reasonable to do so.
[4]
If the board of a company during business rescue proceedings, or one
or more directors of the company, purports to take any action
on
behalf of the company that requires the approval of the practitioner,
that action is void unless approved by the practitioner.
[5]
A business practitioner alone determines the manner in which he (or
she) will carry out his function. The business rescue practitioner

has free rein to adopt any management, oversight, and control
functions which he thinks appropriate to the carrying out of his

duties under the Act.
[6]
If the business rescue practitioner abuses the office he can be
removed by the court on application by an interested person.
[7]
[16]
It is common cause that when the companies went into business rescue
there was only one director of the Group left, namely
Mr Driscoll,
and he was in Dubai. There is no evidence to suggest that the
respondent formally delegated any of his powers or functions
to Mr
Driscoll, or that Mr Driscoll participated in any of the decisions
complained of. The respondent took over the day to day
management of
the Group and was saddled with the same duties, responsibilities and
liabilities of a director of the Group. It is
important to note that
the respondent did not become a director: he took full management
control of the company in substitution
for its board. He did so in
the performance of his duties as a business rescue practitioner.
[8]
[17]
Section 140(3)(b) states that a business rescue practitioner has the
responsibilities, duties and liabilities of a director
of the
company, as set out in sections 75 to 77, and section 140(3)(c)
states that the business rescue practitioner, “
other than as
contemplated”
in section 140(3)(b):
(i) is not liable for any
act or omission in good faith in the course of the exercise of the
powers and performance of the functions
of practitioner; but,
(ii)
may be held liable in accordance with any relevant law for the
consequences of any act or omission amounting to gross negligence
in
the exercise of the powers and performance of the functions of
practitioner.
[9]
[18] The court
a quo
found that section 140(3)(c) is not applicable because of the words
“
other than as contemplated in paragraph (b)
”. The
learned Judge found that section 140(3)(b) excludes the defence in
section 140(3)(c) where a business rescue practitioner
has breached
his fiduciary duties as the “
ex officio director of the
company.”
[19]
In interpreting section 140(3) the court must
attribute
meaning to the words used in the legislation, having regard to the
context provided, by reading the particular provision
or provisions
in the light of the document as a whole and the circumstances
attendant upon its coming into existence. Whatever
the nature of the
document, consideration must be given to the language used in the
light of the ordinary rules of grammar and
syntax; the context in
which the provision appears and the apparent purpose to which it is
directed. Where more than one meaning
is possible each possibility
must be weighed in the light of all these factors. The process is
objective, not subjective.
A sensible meaning is to be preferred to
one that leads to insensible or unbusinesslike results or undermines
the apparent purpose
of the document. The "inevitable point of
departure is the language of the provision itself", read in
context and having
regard to the purpose of the provision and the
background to the preparation and production of the document.
[10]
In
City
of Tshwane Metropolitan v Blair Atholl Homeowners Association,
[11]
the SCA reiterated that a restrictive consideration of words without
regard to context has to be avoided and the words have to
be
interpreted sensibly and not have an unbusiness-like result. These
factors have to be considered “
holistically,
akin to the unitary approach”.
[12]
[20]
Was it the intention of the legislature to differentiate between a
business rescue practitioner being liable as
ex
officio
director
of the company on the one hand and being liable as business rescue
practitioner in the performance and exercise of his
duties on the
other hand? To answer this question this court needs to examine what
is meant by the “duties, responsibilities
and liabilities”
of a director in section 75 to 77 of the Act and determine if it
differ from that of a business rescue practitioner.
Section 75 states
that a director (practitioner) must disclose any financial interest
in the company.
[13]
Section
76(3) states that a director (practitioner) must exercise its
functions;
(a)
in good faith and for a proper purpose; (b) in the best
interests of the company; and
(c)
with
the degree of care, skill and diligence that may reasonably be
expected of a person carrying out the same functions in relation
to
the company as those carried out by that director; and
having
the general knowledge, skill and experience of that director. Section
77(2) provides that a director (practitioner) may be
held liable, in
accordance with the principles of the common law relating to breach
of a fiduciary duty, for any loss, damages
or costs sustained by the
company as a consequence of any breach by the director (practitioner)
of a duty contemplated in section
75, 76(2)
[14]
or
76(3)(a) or (b); or in accordance with the principles of
the common law relating to delict for any loss, damages or
costs
sustained by the company as a consequence of any breach by the
director of: (i) a duty contemplated in section 76 (3)(c);

(ii) any provision of this Act not otherwise mentioned in this
section; or, (iii) any provision of the company's Memorandum
of
Incorporation.
[21]
The legislature intended for the business
rescue practitioner to have protection as he comes into a financially
distressed company,
clearly facing difficulties, with no board and
often with no assistance at all. The words
“
other
than”
(used in section 140(3)(c))
is defined in the Oxford Dictionary to mean “apart from”
or “differently from”.
Taking
into consideration the context of Chapter 6 and specifically the
intention of the legislature to afford the business rescue

practitioner tailor made protection when he performs his duties as a
business rescue practitioner, the words “other than”
in
section 140(3)(c), are in my view intended to mean that apart from
the liabilities which a business practitioner may incur in
terms of
section 77, the business rescue practitioner will also be liable if
he fails to perform his duties as business rescue
practitioner in the
circumstances set out in 140(3)(c)(ii) of the Act.
The duties
of a business rescue practitioner would for instance include the
failure to convene meetings or to develop or implement
the business
rescue plan, or a failure to report to the creditors and other
affected parties. That is why provision is made in
section 139 of the
Act to remove a business rescue practitioner if he neglects his
duties as a business rescue practitioner
or where he fails to
deal with matters requiring attention in a regular and timeous
fashion. (Emphasis added).
[22]
Therefore, the business rescue practitioner will not be liable for
any act or omission in good faith in the course of the exercise
of
the powers and performance of the functions of a business rescue
practitioner, except
if the act or omission
amounts to gross negligence. But such protection does not apply to
the liabilities the business practitioner
may incur in terms of
section 77, including the protection the court may afford to the
business practitioner in terms of section
77(9).
[23]
Section 77(9)
provides
that in any proceedings against a director (practitioner), other than
for wilful misconduct or wilful breach of trust,
the court may
relieve the director (practitioner), either wholly or partly, from
any liability set out in this section, on any
terms the court
considers just if it appears to the court that- (a) the director
(practitioner) is or may be liable, but has
acted honestly and
reasonably; or (b) having regard to all the circumstances of the
case, including those connected with the appointment
of the director
(practitioner), it would be fair to excuse the director
(practitioner).
[24]
The appellants contended
before the court
a
quo
, and before this court, that the
respondent was not entitled to rely on section 77(9) because,
although the section was mentioned
in the plea, the facts in support
of the defence was not pleaded. The appellants contend that, as a
consequence, there was non-compliance
with Rule 18(4) of the Uniform
Rules of Court, and the defence ought to fail.
[25]
The court
a
quo
correctly
found that this argument was unsubstantiated. In
Improfed
(Pty) Limited v National Transport Commission,
[15]
the Appellate Division, (as it then was) held that the whole purpose
of pleadings is to bring clearly to the notice of the court
and the
parties to an action the issues upon which reliance is to be placed.
The issues were clearly pleaded by the respondent.
Evidence in
support thereof need not have been pleaded.
[26] But, the appellants’
contention must also fail for another reason. The respondent led
extensive evidence on what he did
during his tenor as a business
rescue practitioner. Not only was evidence led in this regard, but he
was also examined in an attempt
to illustrate that he did not act
reasonably and without negligence. In the circumstances the
appellant’s reliance on Rule
18 has no merit. The respondent
was entitled to rely upon the provisions of section 77(9) of the Act.
[27]
With these principles in mind it is this court’s task to
evaluate the evidence and to establish whether the court
a quo
erred in dismissing the claim against the respondent.
The
section 134 claim
[28]
While a company is subject to business rescue proceedings, it may
dispose of property in the following circumstances: in the
normal
course of its business;
[16]
in
a
bona
fide
transaction
at arm’s length and for fair value;
[17]
or if it is undertaken as part of a business rescue plan.
[18]
Section 134(3) further regulates the position where property disposed
of by the company is held by a creditor as security for its
claim, or
has a title interest over the property. The section stipulates
that
if a company under business rescue proceedings wishes to dispose of
any such property, the company must,
inter
alia
,
obtain the prior consent of the creditor.
[29] Lombard had security
over and title interest in all Boabab’s book debts. The
respondent was aware of this. It is common
cause that he did not seek
Lombard’s consent before he disposed of the book debts. He also
did not make payment to Lombard
in order to discharge Boabab’s
indebtedness to Lombard. It is further common cause that the disposal
was not in the ordinary
course of Boabab’s business and not in
terms of a
bona fide
arm’s length transaction or for
fair value.
[30] The circumstances
prevailing at the time of the disposal were the following: On 22
September 2014, Mr Pratt of Fasken Martineau
Attorneys (instructed by
Lombard) wrote to the respondent demanding an amount of R8,700,000.00
(which would increase to R10,400,000.00
at the end of the month) and
informed the respondent that all present and future book debts had
been ceded and constituted Lombard’s
outright collateral
security. Mr Pratt further informed the respondent that because of
the cession of book debts he needed to obtain
written consent from
Lombard in terms of section 134 of the Act, before he disposed of any
book debts. On 26 September 2014, a
certain Mr Kanarek responded to
Lombard on behalf of the Group and requested Lombard to wait before
enforcing its rights as “its
claim was premature”. In the
interim, the respondent called for the first meeting of creditors
which was held on 6 October
2014. At the meeting he told the
creditors that he was of the opinion that the companies were
rescuable.
[31]
On 6 October 2014, Mr Pratt wrote another letter in which the
respondent was,
inter
alia,
reminded
of his obligations under section 134, and wherein he was specifically
referred to the judgment of
Kritzinger
& Another v Standard Bank of South Africa
[19]
in
which the Free State High Court held that a cession of book debts was
a cession
in
securitatem
debiti
and
not an outright cession; that section 134 was therefore applicable to
book debts; and that he had to obtain Lombard’s
consent before
disposal of any funds. The respondent testified that he did not, at
the time, read the
Kritzinger
judgment,
but handed it to Mr Van Deventer, his attorney, who advised him of
the judgment’s import and impact.
[32] On 7 October 2014,
the respondent received a letter from Werksmans Attorneys. In the
letter a demand was made on behalf of
FirstRand Bank to pay over the
book debts of the Group to FirstRand Bank by virtue of the cessions
executed by the Group in favour
of the Bank. On 10 November 2014,
Lombard launched an urgent application for, amongst others, an order
that the respondent account
to it for the book debts collected by him
since his appointment. An agreement was, however, reached between the
parties, and Lombard
abandoned its claim to the monies paid by trade
debtors of the Group, but retained the right to obtain the
accounting. The respondent
testified that he was still of the view
that he was entitled to utilise the funds that had been deposited
into AML’s bank
account by Boabab’s trade debtors because
of the wording of the cessions and the impact of the moratorium
against the enforcement
of rights by creditors under business rescue.
As set out above, the respondent obtained legal advice regarding the
cessions from
his attorney Mr van Deventer and which advice was
endorsed by both senior and junior counsel (the timing of this advice
is not
common cause).
[33] On 25 November 2014,
Werksmans Attorneys brought a liquidation application on behalf of
FirstRand Bank. On the same day, the
respondent published the
business rescue plans that indicated the respondent’s view that
the Group was rescuable. The respondent
accordingly opposed the
liquidation application but, subsequent to filing an answering
affidavit, Transnet sought leave to intervene
in support of the
liquidation of the Group. On 10 December 2014, there was an order
issued out of the High Court placing the Group
and all its
constituent companies into liquidation. The appellants were appointed
as joint liquidators of the companies. They later
convened an inquiry
into IFC Logistics and subpoenaed the respondent and various other
persons to give documents and evidence.
[34]
The respondent submits that section 134 of the Act
has
no application to a
cession of book debts
,
because such a cession does not constitute
“property” as contemplated in the section, and the use of
the funds by the
respondent did not represent a “disposal”
of such property. T
he respondent contends
that cession of book debts, and in particular a cession
in
securitatem debiti
, is irreconcilable
with the use of the words “
disposal
”
and “
sale
proceeds
”
in
section 134(3)(a) and (b) of the Act. It is contended that the words
“
sale proceeds attributable to
that property
”
, can only imply
two things: the first is that disposal is used in the context of a
property that is sold; and the second is that
it is not used in the
context of defraying operating expenses or even advancing a loan, for
there are no proceeds of a loan that
may be given to the security
holder.
The respondent further contends
that the legislature refers to “
the
company
”
in section 134(1)(a) and
(b) of the Act, whereas in section 134(1)(c) of the Act, the
legislature speaks separately of the “
practitioner
”
.
As section 134(1)(c) contemplates the “
company
”
securing the written permission of the
practitioner in respect of the “
company
”
wishing to dispose of property, it is arguable
that section 134 as a whole is intended to regulate the circumstances
where the company
as opposed to the practitioner wants to effect a
disposal of the company’s assets.
[35]
As
a starting point it is important to keep in mind that
the
purpose of business rescue is to throw a lifeline to a company in
financial distress in order to help keep it afloat in a manner
that
balances the rights and interests of
all
relevant stakeholders
(emphasis
added).
[20]
Meskin
[21]
states that various mechanisms have been built into the system in
order to ensure that the development and implementation of the
plan
takes place in a fair and equitable basis in regard to all
stakeholders.
The
purpose of section 134 is to strike a balance between the interests
of the company and third parties, and to specifically protect
secured
creditors from any potential prejudice that may flow from the actions
taken by the company (or the business rescue practitioner)
during the
course of its business rescue proceedings.
[22]
In
order to enable the business rescue practitioner to prepare a
business plan, the Act provides the business rescue practitioner
with
several rights and safeguards. As stated, one of those rights relate
to the right to suspend the rights of any creditors under
any
agreements, as set out in section 136 of the Act. It is, however,
noteworthy that if a business recue practitioner suspends
a provision
of an agreement relating to security granted by the company, that
provision nevertheless continues to apply for the
purposes of section
134.
[36] The first issue that
needs to be considered is the use of the words “
the company
”
in section 134(1)(a) and (b) of the Act, whereas in section 134(1)(c)
of the Act, the legislature speaks separately of the
“
practitioner
”.
Does this mean, as contended by the respondent, that section 134 as a
whole is intended to regulate the circumstances where
the company as
opposed to the practitioner wants to effect a disposal of the
company’s assets?
[37]
When the Group was placed under business rescue the respondent took
over the management control of the companies in substitution
of the
board.
The word “
company”
in the context of section 134(1) therefore refers
to the directors (if they are still involved in any management
function of the
company) and, if they are no longer involved, as in
the present matter, it refers to the business rescue practitioner ex
officio
director of the company. In terms of section 134(1)(a)(i) the
“
company”
may
dispose of property in the ordinary course of business, seemingly
without the business rescue practitioner’s consent.
If,
however, property is disposed of in a “
bona
fide
transaction at arm’s length”
(section 134(1)(a)(ii)) the transaction must be approved in advance
and in writing by the
practitioner. Reference to the practitioner in
this subsection clearly contemplates a situation where the directors
are still involved
in the company and have either been given a
management function by the practitioner or where they are exercising
the “functions’
of directors.
[38]
The second issue raised by the respondent is the interpretation of
section 134(3) and the meaning of the word “property”
and
“sale proceeds”.
In the
Kritzinger
matter,
the court held that the book debts of a company could not be treated
as the property of the company any longer. This is
so because the
company ceded the book debts in favour of the bank to secure,
inter
alia
, overdraft and other banking
facilities. The court, however, still found that section 134 was
applicable and stated as follows:
“
The
law is settled. Where a creditor holds security over a debtor’s
property, in this instance the company’s debtors,
the
practitioner cannot dispose or use such incumbent property without
the secured creditor’s consent unless he first discharges
the
debtor’s debt in favour of the creditor (Section 134(3)). In
this instance the business rescue practitioner has done
neither.
Instead he has drastically subverted the secured creditor’s
security”.
[39]
In
BP
Southern Africa (Pty) Ltd v Intertrans Oil SA (Pty) Ltd,
[23]
Van der Linde J relied upon the finding in the
Kritzinger
judgment
to come to the conclusion that
whenever
book debts arose they belonged to the cessionary, and may not be
disposed of in terms of section 134(3) of the Act without
the
cessionary’s consent.
[40]
Counsel for the respondent, Advocate Chohan SC, contends that the
dictum in
Kritzinger
(quoted
above) is incorrect because a company’s debtors do not
constitute the company’s property. It is the right to
claim the
debt owing that constitutes an asset of the company but where that
right has been ceded, it no longer resides with the
company and
section 134(1) is not applicable. Adv Chohan SC further submits that
the
BP
Southern
judgment was handed down in relation to an
application to set aside business rescue proceedings and the question
of book debts was
considered only insofar as the creditor’s
position was concerned. The conclusion by Van der Linde J, so it was
argued, was
therefore
obiter
.
[41] The conclusion of
Van der Linde J, in
BP Southern
was, in my view, not merely an
obiter
statement. In paragraph 42 to 47 of the judgment the
learned Judge specifically dealt with the status of the book debts in
the context
of section 134 of the Act and held:
“
[46] No
further obligation on the part of the cedent exists or is required to
be performed become subjected to the rights of
the cessionary,
including, for instance, to recover the debt from the debtor. Even
the reversionary right was ceded to the creditor
in this agreement.
That being so, there was no obligation of the first respondent
arising from the cession of book debts that
was capable of being
suspended, certainly not as regards the right of the cessionary to
enforce the debts, albeit that they arose
only in business rescue,
and to allocate the proceeds towards the cedent's indebtedness to the
cessionary.
[47] In consequence,
whenever the first respondent's book debts arise, now or in the
future, they belong to the applicant, at
least to the extent of
the first respondent's indebtedness to the applicant. They may not be
“disposed of” without
the applicant's consent, as
provided in s 134(3)(a)”.
[42]
I agree
with the reasoning and conclusion
in both the
Kritzinger
and
BP Southern
matters,
and I intend on following it. I am of the view that the cession of
book debts constitute property for the purposes of section
134 of the
Act. I say so for the following reasons set out more fully here
below.
[43]
The respondent admitted in his plea that Lombard
had security over and title interest in Boabab’s book debts.
Section 134(3) states that if the company, during
business rescue proceedings, wishes to dispose of any property over
which another
person has any security or title interest, the company
must
obtain prior consent. Firstly, the
legislature did not state that it must be the
“company’s property” that is disposed of in section
134, but
any property
over
which another person has a title interest or security. If a sensible
meaning is given to the words “any property”,
it would
therefore cover the current scenario and include the cession of book
debts. Any other interpretation will leave a creditor
in a similar
position without any protection. The respondent contends that to make
cession of book debts subject to section 134
would not make business
sense, because most companies in financial distress have cession of
book debts, and the possibility of
creditors agreeing to the use of
book debts is slim, which will ultimately result in the failure of
the business rescue. It is,
unfortunately, not that simple. There are
many companies that are successfully rescued, despite having ceded
their book debts.
It is, however, an aspect that must be weighed in
considering whether the business rescue has prospects of
success, and whether
there is recourse to short-term capital. But, as
stated by Van der Linde J in
BP
Southern
:
“
[80]
Where a company is distressed, it is not always the solution to deny
principal creditors — without whose preparedness,
to have
extended working capital in the first place, the business would
not have existed at all — the entitlement to
realise the very
security that persuaded them to extend the working capital in the
first place. If courts are not prepared to enforce
commercial
securities, investment, the essential precursor to employment
opportunities, will seek other pastures.”
[44]
Secondly, as far as the “disposal” is concerned, it
is
not only the actual, physical disposal of property that is covered by
this section.
[24]
If the
legislature intended to only cater for the “selling” of
property, it would have said so. The legislature, in
my view,
purposefully used the word “dispose” which,
according
to Collins dictionary means “to deal with or settle”, “to
give”, “sell” or “transfer
to another”.
On
a proper reading of section 134 it is clear that the word “dispose”,
is not limited to the selling of property.
[25]
[45]
In
African
Corporation of Botswana Ltd v Kariba Furniture Manufacturers (Pty)
Ltd & Others,
[26]
Leach JA remarked
that
many of the provisions of the Act relating to business rescue,
were shoddily drafted and have given rise to considerable

uncertainty. The use of the words “sale proceeds” in
section 134(3) is, in my view, one of those provisions and there
is a
need for it to be examined closer. In
Panamo
Properties
(Pty)
Ltd and Another v Nel and Others NNO
,
[27]
a decision of the Supreme Court of Appeal (“SCA”) which
also deals with business rescue proceedings, Wallis JA pointed
out
that:
“
When
a problem such as the present one arises the court must consider
whether there is a sensible interpretation that can be
given to the
relevant provisions that will avoid anomalies. In doing so certain
well-established principles of construction apply.
The first is that
the court will endeavour to give a meaning to every word and every
section in the statute and not lightly construe
any provision as
having no practical effect. The second and most relevant for present
purposes is that if the provisions of
the statute that appear to
conflict with one another are capable of being reconciled then they
should be reconciled......”
[46]
Section 134(3)(a)
states that prior consent
must be obtained,
unless
the
proceeds would be sufficient to fully discharge the indebtedness.
When it is accepted that the word “dispose” used
in
section 134 does not only contemplate the physical selling of
property, but also the transfer of funds to another, there can
be no
“proceeds” or “sale proceeds” that can be
paid over to the creditor. In that instance the company
must provide
“
security for the amount of those
proceeds, to the reasonable satisfaction of that other person
”
as contemplated in section 134(3)(b)(ii) of the
Act. From a reading of the section as a whole, it was the intention
of the legislature
that the rights of the creditor will only be
terminated on payment or the provision of other security. Neither
have been complied
with. It is therefore clear, in my view, that the
respondent breached the provisions of section 134 by disposing of the
book debts
without obtaining the prior consent of Lombard.
[47]
Section
77(2)(b)(ii)
of
the Act provides that a director of a company (practitioner) may be
held liable in accordance with the principles of the common
law
relating to delict for any loss, damages or costs sustained by the
company as a consequence of any breach by the director of any

provision of this Act not otherwise mentioned in section 77.
The
court may, however,
other
than for wilful misconduct or wilful breach of trust,
relieve
the director (practitioner) in terms of section 77(9) from such
liability if it appears to the court that the business practitioner

may be liable, but has acted honestly and reasonably or, having
regard to all the circumstances of the case it would be fair to

excuse the business practitioner.
[48]
Before
I turn to
section 77(9), it is apt at this stage, to briefly deal with the
applicability of section 218 of the Act in the present
matter.
The appellants relied on section 218(2) of the Act
in support of their claim against the respondent. The court
a
quo
found that their reliance on this
section was inappropriate and was an attempt to circumvent the
indemnity a business rescue practitioner
enjoys in terms of section
77(9).
[49]
Section 218(2) states as follows:
“
(2)
Any
person who contravenes any provision of this Act is liable to any
other person for any loss or damage suffered by that person
as a
result of that contravention.
(3) The provisions of
this section do not affect the right to any remedy that a person may
otherwise have.”
[50]
In
Hlumisa
Investment Holdings (RF) Limited and Another v Kirkinis and
Others,
[28]
Molopa
-Sethosa
J
found
that the appellants could not rely on section 218(2) of the Act for
their reflective loss claim.
The
court reasoned as follows:
“
Where
a statute expressly and specifically creates liability for the breach
of a section, then a general section in the same statute
cannot be
invoked to establish a co-ordinate liability; see Gentiruco AG v
Firestone SA (Pty) Ltd
1972
(1) SA 589
(A)
at
603. This is the result of the generalia specialibus non
derogant maxim in terms of which general provisions do not

derogate from special provisions.”
[29]
[51]
On appeal, the SCA,
[30]
quoted
the court
a
quo
with
approval and stated, with reference to,
inter
alia
,
section 77(2)(b), that these provisions of the Act make it clear that
the legislature decided where liability should lie for conduct
by
directors in contravention of certain sections of the Act and who
could recover the resultant loss.
[52] The court
a quo
in the present matter found that the appellants’ reliance
on section 218(2) of the Act to claim damages from the respondent
was
inappropriate and misguided. I am in agreement with the finding of
the court
a quo
. Section 218 of the Act is a general section
that must submit to the specific section that caters for the
wrongdoings of a director
(and a business rescue practitioner). The
legislature provided for the manner in which a business rescue
practitioner would be
liable in terms of the Act. That is,
inter
alia
, section 77 and 140(3) of the Act.
[53] I now turn back to
section 77(9) of the Act. Section 77(9) of the Act bears resemblance
to section 248(1) of the Companies
Act, 1973 (“the 1973
Companies Act”), which reads:
“
Relief
of directors and others by Court in certain cases
If in any proceedings
for negligence, default, breach of duty or breach of trust against
any director, officer or auditor of a company
it appears to the Court
that the person concerned is or may be liable in respect of the
negligence, default, breach of duty or
breach of trust, but that he
has acted honestly and reasonably, and that, having regard to all the
circumstances of the case, including
those connected with his
appointment, he ought fairly to be excused for the negligence,
default, breach of duty or breach of trust,
the Court may relieve
him, either wholly or partly, from his liability on such terms as the
Court may think fit”.
[54]
Whereas section 77(9) allows a director to be relieved from liability
either because he acted honestly and reasonably or if
it would be
fair to excuse the director,
[31]
section 248(1) of the 1973 Companies Act required both that the
director has acted honestly and reasonably
and
that
he ought to be fairly excused having regard to the circumstances.
[55]
In
Ex
Parte Lebowa Development Corporation Ltd,
[32]
the court provided guidance on the interpretation and application of
section 248(1) of the 1973 Companies Act. In this matter the
creditor
requested the court to order a meeting of creditors to consider a
proposal of judicial management and cession of the creditors’

claims. Section 248 was not directly invoked (as the question of
personal liability had not yet arisen) but the court considered
its
application in circumstances of fraud and negligence giving rise to
liability. The court held that the requirement that the
director
acted honestly excludes the possibility of a director being relieved
of liability for fraudulent conduct; and with reference
to English
authority, it held that section 248 cannot operate to relieve a
director of liability to a third party – the section
applies
only to claims against the director by the company (or its
liquidator).
[56] Section 248 of the
1973 Companies Act was substantially the same as section 448 of the
1948 United Kingdom (UK) Companies Act
and section 727 of the 1985 UK
Companies Act. The successor in the 2006 UK Companies Act is section
1157(1) which reads as follows:
“
(1)
If in proceedings for negligence, default, breach of duty or breach
of trust against—
(a)
an officer of a company, or
(b)
a person employed by a company as auditor (whether he is or is not an
officer of the company),
it
appears to the court hearing the case that the officer or person is
or may be liable but that he acted honestly and reasonably,
and that
having regard to all the circumstances of the case (including those
connected with his appointment) he ought fairly to
be excused, the
court may relieve him, either wholly or in part, from his liability
on such terms as it thinks fit
.”
[57]
Reasonableness is a factual enquiry. In
Re
Pro4Sport Ltd (in liquidation),
[33]
the
court found that there was no breach of duties by a director and even
if there had been, it would be appropriate to grant the
relief under
section 1157. In coming to this conclusion the court held that the
question of whether the director acted honestly
is subjective, and
the question whether he acted reasonably was objective. The court
held that the director bears the
onus
of
proof to satisfy the court that he acted honestly, reasonably and
should be excused from liability in the circumstances. Only
once
honesty and reasonableness have been proved does the court need to
consider whether it would be fair to excuse the director
from
liability.
[58]
In the present matter the previous practices of the company have a
bearing when assessing the respondent’s conduct.
[34]
The respondent’s evidence in relation to the disposal of the
book debts was uncontested.
The
respondent testified that when he took over the management of the
Group, he realized that all six companies had always operated

together and were completely interdependent on each other. Although
Boabab had the Kudumane contract, it had been unable to service
the
contract in the past without the other companies. As discussed
earlier,
each
of the six companies within the Group, provided a specific function
and there was not one company in the Group that had all
of the assets
or employees to service the Kudumane contract. Boabab invoiced
Kudumane, but the monies so received were used to
pay the expenses of
all of the companies. The respondent made the decision to proceed in
the same way the companies operated in
the past, namely by using
Boabab’s funds to pay the expenses of the other companies, and
in so doing, serviced the Kudumane
contract. He was of the
bona
fide
belief
that Boabab’s funds ought to be used to pay immediate operating
expenses of the Group until such time as the business
rescue plans
were approved, after which further investigations could be conducted.
He testified that without the payments, Boabab
would have been unable
to continue trading. This would have been detrimental to Boabab as
well as the other companies.
[59]
All of the foregoing must further be evaluated against the backdrop
of the purpose of a business rescue and the chaotic position
the
respondent found himself in when he took over the management of the
companies. Firstly, with regards to the purpose: business
rescue
proceedings are aimed at rehabilitating companies in distress. The
Act provides for this through the appointment of a business
rescue
practitioner, who must be registered in accordance with and meet the
requirements set out in section 138 of the Act.
It
is axiomatic that business rescue proceedings, by their very nature,
must be conducted with the maximum possible expedition.
[35]
Legislative recognition of this is reflected in the relatively short
time periods which are provided for in the Act for the implementation

of such proceedings
[36]
.
Leach
JA elucidated this aspect in
African
Corporation:
[37]
“
As
its very name suggests, the purpose of a business rescue plan is to
throw a lifeline to a company in financial distress in order
to help
keep it afloat in a manner that balances the rights and interests of
all relevant stakeholders. The process involves the
preparation of a
rescue plan designed either to assist the company's return to
solvency or, should that goal be impossible, to
provide a better
return for creditors and shareholders than would be the case were the
company to be immediately wound up. This
plan is considered at a
meeting of creditors and other holders of 'a voting interest' as
defined in s 128(1)(j) of the Act at which
inter alia representatives
of the employees of the company are entitled to express their views.
Should the plan be approved by
those having a voting interest, the
formal process comes to an end and the plan becomes binding. But if
it is not approved, various
options become available under s 153 of
the Act, including an affected person acquiring the voting interest
of a person opposed
to the plan.
[60] Secondly, the
respondent was appointed as business rescue practitioner for six
companies with 400 creditors across the Group.
He had no, or little
assistance from the director and previous directors of the Group. In
about August 2014, when Efferton pulled
out of the sale, there was no
accounting or books or software accounting for what transpired during
Efferton’s tenure in
charge of the Group. The financial
documents that were available was incomplete. He testified that there
was an enormous amount
of paperwork generated daily (on average 600
pages) and that there were between 50 and 100 telephone calls a day,
which included
five of the biggest law firms in Johannesburg. He
stated that all of this was discussed with Mr Van Deventer, his
attorney, on
a regular basis and the business rescue team worked up
to 14 hours a day, including Saturday and half of Sunday. He
testified that
he did not ignore the letters which were sent by
Fasken Martineau and Werksmans Attorneys, but that he did not have
the time available
to send detailed letters. He considered his
telephone calls with Mr Pratt to be sufficient. He stated that he
also had a consultation
with Mr Pratt on 30 September 2014, during
which he informed Mr Pratt that he was using the income for the
continuation of the
business rescue and that there were several other
cessions which he had received, not in relation to Lombard. He also
informed
Mr Pratt that he did not agree that Lombard was entitled to
claim all the monies paid from Kudumane on the strength of a cession.

The respondent testified that although he did not read the
Kritzinger
judgment himself, he handed it to Mr van Deventer, who advised him
that it was not applicable to a cession of book debts.
[61] On a conspectus of
the evidence presented, it cannot be said that the respondent
committed wilful misconduct or that he acted
in willful breach of
trust. The respondent was reasonable, honest and
bona fide
in
his attempts to rescue the companies, as was his mandate. He could
not treat Boabab and the remaining companies as separate
entities for
the reasons set out above. For one to function, the remaining
companies had to function. It would be counterintuitive
to the role
of the business rescue practitioner to stop trading where he
determined the company/companies could be rescued. He
is excused from
any liability in terms of section 77(9) of the Act. In the
alternative, he ought to be excused on the basis of
the principles of
fairness. A business rescue practitioner, such as the respondent,
ought not to be held personally liable under
the circumstances.
The fiduciary
duties claims
[62]
The
second and fourth claims against the respondent are similar in that
they both allege a breach of the respondent’s fiduciary
duties
to Boabab and therefore allege that he is liable to the appellants.
In addition, the appellants allege that the respondent
was negligent.
The appellants allege further that at the time of making the
disposal, the respondent knew the companies were financially

distressed and a business rescue plan had neither been proposed nor
approved in relation to any of the companies. Consequently,
the
respondent was in breach of the respondent’s fiduciary duties
to Boabab and/or a breach of section 76(3) of the Act.
[38]
In their response to the respondent’s request for further
particulars, the appellants, in addition, alleged that the respondent

was reckless in effecting the disposal as: the company was
financially distressed and/or insolvent; the disposal amounted to an

undue preference; there was no certainty that the business rescue
plans would be approved; Transnet already refused to provide
services
to the Group; the respondent was aware that the debtors’ book
had been ceded to creditors; and the Companies were
financially
distressed and/or insolvent. The appellants contend that upon
realizing that Boabab was not rescuable, the respondent
had an
obligation to inform all innocent parties and stop the business
rescue.
[63] Section 76(3) of the
Act states that a director must exercise the powers and perform the
functions of director:
(a) in good faith and
for a proper purpose;
(b) in the best
interests of the company; and
(c) with the degree of
care, skill and diligence that may reasonably be expected of a
person:
(i)
carrying out the same functions in
relation to the company as those carried out by that director; and
(ii)
having the general knowledge, skill and
experience of that director.
[64]
Section 76(4) states that a director will have satisfied the
obligations of subsection (3)(b) and (c) if: the

director has taken reasonably diligent steps to become informed about
the matter; and the director made a decision… and
the director
had a rational basis for believing, and did believe, that the
decision was in the best interests of the company.
[39]
The director is entitled to rely on one or more employees of the
company whom the director reasonably believes to be reliable and

competent in the functions performed or the information, opinions,
reports or statements provided; legal counsel, accountants,
or other
professional persons retained by the company, the board or a
committee as to matters involving skills or expertise that
the
director reasonably believes are matters within the particular
person's professional or expert competence.
[65]
Henochsberg
[40]
in the commentary on section 76(3) of the Act states as follows:
[41]
“
The
common law position is that a director has to act bona fide and
in the best interests of the company. This is the
fundamental duty
which qualifies the exercise of any powers which the directors in
fact have . . . . The duties to act bona
fide and in the
best interests of the company are now entrenched in the Act . . . .
With regard to the duty to act in the
best interests of the company
and who the beneficiary of a director's duty is, the common law
position is as follows: At common
law directors owe fiduciary
duties to the company . . . . Such duties are owed even by
non-executive directors . . .
. Where, therefore, a director acts in
breach of a fiduciary duty he may, depending on the circumstances,
also act in breach of
his duty of care, skill and diligence . . . It
is accepted that when considering the best interest of the company
the directors
should take a long-term view, but not necessarily in
preference to the short-term benefits....”
[66]
The duty of “good faith and for a proper purpose” and the
duty to act for the benefit or best interests of the
company are two
separate duties. The "proper purpose" duty entails in the
first instance that the director must not exceed
the limitations of
his own authority and must not exceed the limitations of the company.
In the second instance a director must
exercise the duties only for
the purpose for which they were conferred and not for an "improper"
purpose.
[42]
In respect of the
duty of care, skill and diligence an objective test is applied to
determine what the reasonable director would
have done in the same
situation as well as a subjective test which takes into account the
general knowledge, skill and experience
of the specific director.
[67]
Should the respondent have realized that Boabab was not rescuable,
and was there an obligation to inform all innocent parties
and stop
the business rescue? Consideration should be given to what transpired
in
Commissioner
for the South African Revenue Service v Beginsel and Rennie NNO and
Others.
[43]
In that case the business rescue practitioners concluded that there
was no longer any reasonable prospect for rescuing the company
they
were appointed to supervise. Instead of informing the court and all
affected persons of this fact and applying to court for
an order
discontinuing the business rescue proceedings in terms of section
141(2)(a), the business rescue practitioners proposed
a plan in terms
of which the assets of the company would be sold and in so doing
demonstrated that a better return to creditors
as a whole would be
obtained than would be the case if the company was immediately
liquidated. In terms of the proposed business
rescue plan, which was
later adopted by the majority of creditors as required by the Act,
the claim by the South African Revenue
Service (SARS) was treated as
unsecured and would consequently only receive a concurrent dividend
in terms of the plan. However,
if the company were to be placed in
liquidation, the SARS claim would be treated as preferent under
section 99 of the Insolvency
Act and would probably be paid in full.
As a result, SARS argued that there was an obligation on the part of
the business rescue
practitioners to apply to have the company wound
up when they realised it was no longer possible to rescue the
company. Fourie
J came to the conclusion that the secondary objective
of business rescue, namely, to ensure a better return for the
company’s
creditors than would be the case if the company was
to be liquidated, would be achieved in this case, especially
considering the
additional costs that would result if the company
were to be placed in liquidation. Consequently, the court ordered
that the business
rescue practitioners did not have to apply for the
liquidation of the company in terms of section 141(2)(a).
[68] By parity of
reasoning, the respondent was engaged from 12 September 2014 to
November 2014 with attempting to rescue six companies.
He took
strides in reducing their workforce, their wage bills and other
expenses. He entered into negotiations with Transnet to
resume rail
transportation and whilst admittedly, he initially met with
resistance, he was
bona fide
of the view that with Mr Driscoll
gone, the way was open to resume constructive dialogue and,
ultimately, a beneficial rail concession.
The suggestion by the
appellants that the respondent ought immediately to have advocated
for the liquidation of the Group is to
adopt retrospectively an
armchair approach devoid of the realities of business rescue. This
is, as submitted by the respondent,
not surprising because there is
likely always to be tension between a business rescue practitioner
who is trying to save a company
and a liquidator who is responsible
for the winding up of the company.
[69] During the short
time he was in control of the Group, the respondent dramatically
reduced the number of employees by retrenching
the entire work force
of 650 and re-hiring 150 employees. As a consequence of the
foregoing, the salary bill went from R7 million
to between R3 million
and R3.5 million. Assets, in the form of leased properties, were
reduced from 17 to 5 or 6, and trucks
and trailers, which were not
strictly required for the service of the contracts, were returned to
the banks which held security
over those vehicles. The respondent
always acted pursuant to legal advice, including that of an attorney,
a junior and a senior
counsel.
[70] In respect of the
allegation that the respondent breached his fiduciary duties, the
learned Judge found that “
to the extent that the
transactions that he
(the respondent)
made using the ceded
assets relate to expenses incurred by the other five companies to
service contracts located in Boabab, they
were made in good faith,
for a proper purpose and in the interests of Boabab.
The court
a
quo
also found that the respondent’s conduct is “
what
a reasonable director, acting with care, skill and diligence would do
in the circumstances to ensure that there is still business.”
[71]
I am in agreement with the court
a quo’s
finding. As alluded to above, the respondent
genuinely held the belief that he could trade the companies out of
business rescue.
He took
reasonably
diligent steps to become informed about the cession and had a
rational basis for believing that the funds should be used
to pay for
the debts of the Group. He had a
bona
fide
believe that it was in the best
interests of the company.
Had he not
utilised the amounts received from Boabab’s debtors to pay
Group expenses, including those of Boabab, Boabab would
not have been
able to trade and satisfy its obligations under the Kudumane contract
and thus generate further revenue. The Group
including Boabab would
have perished and as the business rescue practitioner, his aim was to
save them from such peril. In the
circumstances, he was not reckless
nor was he negligent. He acted reasonable, in good faith and in the
best interest of the company
.
[72] In any event, the
respondent is excused from any liability in terms of section 77(9) of
the Act.
The Section 45
claim
[73]
As stated previously, it is common cause that the
respondent
applied Boabab's funds to extinguish obligations of IFC Group and/or
Kalahari and/or IFC and/or Development and/or Logistics.
[74]
Section 45 reads as follows:
“
45
Loans or other financial assistance to directors
(1) In this
section,
'financial assistance'
-
(a)
includes lending money, guaranteeing a loan or
other obligation, and securing any debt or obligation; but
(b)
does not include-
(i) ……
(ii)……
(iii)…..
(2) Except to the
extent that the Memorandum of Incorporation of a company provides
otherwise, the board may authorise the company
to provide direct or
indirect financial assistance to a director or prescribed officer of
the company or of a related or inter-related
company, or to a related
or inter-related company or corporation, or to a member of a related
or inter-related corporation, or
to a person related to any such
company, corporation, director, prescribed officer or member, subject
to subsections (3) and (4).
[75]
The appellants alleged that the disposal constituted “financial
assistance” to an “inter-related company”,
as
provided for in section 45 of the Act and that the respondent
contravened section 45 because he failed to consider and comply
with
the requirements of section 45. The requirements include,
inter
alia
,
a special
resolution of the shareholders, which must be adopted within two
years preceding the financial assistance;
ensuring that the
company will satisfy the solvency and liquidity test
immediately after providing the financial assistance; and
that
the terms under which the financial assistance is provided are fair
and reasonable to the company.
[44]
In
addition to satisfying the requirements of subsection (3), the board
must ensure that any conditions or restrictions respecting
the
granting of financial assistance set out in the company’s
Memorandum of Incorporation have been satisfied.
[76]
The respondent conceded that he did not attempt a solvency or
liquidity test and that the company did not pass a special resolution

as required by section 45(3)(a)(ii) and 45(3)(b) of Act.
The
respondent, however, submitted that there was no need to comply with
the requirements as section 45 of the Act is of no application
to
proceedings under business rescue, and even if it was applicable, it
was limited to the provision of financial assistance to
a director,
which in the present instance, did not occur. The respondent further
contended that if it is found that section 45
was applicable, he is
in any event excused from liability in terms of section 77(9) of the
Act, because
he acted honestly and
reasonably, alternatively, it would be fair for him to be excused. I
will deal with each of these submissions
under separate headings
hereunder.
Is section 45 limited
to a director/prescribed officer?
[77]
Section 45 (2) provides that ‘
the
board may authorise the company to provide direct or indirect
financial assistance to a director or prescribed officer of the

company or of a related or inter-related company,
or
to a related or inter-related company or corporation,
or to a member of a related or inter-related
corporation, or to a person related to any such company, corporation,
director, prescribed
officer or member, subject to subsections (3)
and (4).”
(Emphasis added).
It
follows accordingly, and on an ordinary grammatical reading of
section 45(2), that although
section 45 of
the Act is titled “
Loans or other
financial assistance to directors”
,
it is clearly not limited to directors. It also includes financial
assistance to related or inter-related companies. It is common
cause
on the pleadings that Group, Kalahari, IFC, Development and IFC
Logistics are related, or interrelated companies of Boabab
as defined
in the Act.
Is section 45
applicable to companies under business rescue?
[78] The respondent
submits that the provisions of section 45 of the Act are at odds with
the ambit and purview of Chapter 6, and
is only applicable to those
companies that are not under business rescue. It is submitted that
this is so for the following reasons:
firstly, when a company is
under business rescue, it is always financially distressed, else it
would not be under business rescue,
ergo
section 45 is
inappropriate and inapplicable; secondly, the object of the section
is redundant in relation to companies under business
rescue, because
Chapter 6 has its own safeguards regarding disposals made by the
company during business rescue; thirdly, the respondent
is deemed to
have the responsibilities of a director of the distressed company,
but he is not a director. Although the financially
distressed
company’s directors remain directors, they do not have
management control and can take no resolution regarding
financial
assistance.
[79] I
disagree.
Financial assistance, in terms of
section 45(1),“
includes lending
money, guaranteeing a loan or other obligation, and securing any debt
or obligation”
.
The
use of the word 'includes' in section 45(1)
(a)
is
wide-ranging and indicates that the types of transactions referred to
are not an exhaustive list of what constitutes financial
assistance.
If the list was intended to be exhaustive, the legislature would have
said so. Financial assistance therefore includes,
but is not limited
to, the lending of money, guaranteeing a loan or other obligation,
and securing any debt or obligation.
[80]
Whilst a company is under business rescue a situation might arise
where it is asked to provide ‘financial assistance”
to a
director or to an interrelated company. Section 45 is not excluded by
Chapter 6 and when such a situation arises, there has
to be
compliance with the requirements set out in section 45.
[45]
[81]
The provision of financial assistance or any agreement in respect of
such assistance, is void to the extent that such financial
assistance
is contrary to Section 45 of the Act or any provision of the
Memorandum of Incorporation of the company. The consequence
is that
the directors of the company may be held personally liable for any
loss, damage, or costs
sustained by
the company as a consequence of any breach by the director in terms
of section 77(2)(ii) of the Act.
Did
the respondent provide “financial assistance”?
[82] The appellants’
case in relation to section 45 is predicated on journal entries
between the companies that reflect inter-company
loans between them.
The appellants, in order to succeed, had to demonstrate that when the
respondent utilised the funds received
by him to discharge the
Group’s obligations, he rendered financial assistance to the
other companies in the Group.
[83]
The
respondent testified that when he took over the management of the
Group, he soon realized that all six companies operated together
and
were completely interdependant on each other. Although Boabab had the
Kudumane contract, it was unable to service the contract
without the
other companies. As discussed earlier, e
ach
of the six companies within the Group, provided a specific function
and there was not one company in the Group that had all
of the assets
or employees to service the Kudumane contract. Boabab invoiced
Kudumane, but the monies so received were used to
pay the expenses of
all of the companies. The respondent further testified that without
the payments, Boabab would have been unable
to continue trading. He
denied that the amounts paid by Boabab in respect of the other
companies’ expenses constituted loans,
but were rather payments
for services rendered.
[84]
There
is no evidence to gainsay the respondent’s testimony. In the
matter of
Treasurer-General
v Lippert
,
[46]
Smith J held that a court should look to what a transaction is
intended to be, and really is, rather than to what it is described
as
being. Paying the expenses of the other companies is not “financial
assistance” as contemplated in section 45. But,
even if it was,
I am of the view that the respondent should be excused in terms of
section 77(9) as he acted honestly and reasonably,
alternatively it
would be fair to do so.
THE LOSS
[85] The court
a quo
found that the appellants had not established any loss by Boabab. The
appellants do not attempt to deal with this considerable
hurdle in
their heads of argument.
[86] The appellants claim
the sum of R24, 228,315.61 from the respondent on the basis that this
is the amount representing Boabab’s
loss. It is, however,
evident on the common cause facts that Boabab did not suffer a loss
of R24, 228,315.61. The appellants simply
adopt the figure that
represents the actual receipt by the respondent of proceeds of the
book debts as the loss suffered by Boabab.
This, as correctly pointed
out by counsel for the respondent, is an erroneous assumption. The
appellants, firstly, failed to consider
the fact that as a result of
the respondent’s use of those funds, sales in an amount of
approximately R18 million were generated
post business rescue.
Secondly, it ignores the fact that Lombard’s claim was for
approximately R18 million and that it received
a distribution of
approximately R14 million from the liquidators leaving a deficit of
only R4 million. Thirdly, it ignores the
fact that some of the
expenses paid by the respondent were directly those of Boabab and
should be accounted for. Fourthly, it fails
to consider that the
respondent had utilised some of the monies received by him before he
even received any demands from Lombard
or FirstRand Bank. These
monies, should likewise be discounted. Lastly, despite the fact that
the respondent requested further
particularity from the appellants as
to why Boabab’s funds were irrecoverable and what steps were
taken to recover Boabab’s
funds, there was no evidence that the
amounts utilised by the respondent were irrecoverable.
[87] The appellants had
not established that the funds were irrecoverable or that they have
attempted to recover Boabab’s
funds. On this basis alone, the
appellants have failed to make out a case.
CONCLUSION
[88] The respondent is
not liable to the appellants and the appellants’ appeal should
be dismissed with costs, inclusive of
the costs occasioned by the
employment of two counsel.
[89] In the result the
following order is made:
“
The
appeal is dismissed with costs of two counsel, which includes the
costs of senior counsel.”
L.
WINDELL
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
Electronically
submitted therefore unsigned
I
agree.
S.C.
MIA
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
Electronically
submitted therefore unsigned
I
agree.
M.M.P.
MDALANA-MAYISELA
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
Electronically
submitted therefore unsigned
Delivered:
This judgement was prepared and authored by the Judge whose name is
reflected and is handed down electronically by circulation
to the
Parties/their legal representatives by email and by uploading it to
the electronic file of this matter on CaseLines. The
date for
hand-down is deemed to be 20 April 2021.
APPEARANCES
Counsel
for the appellants:
Advocate E.L. Theron SC
Attorneys
for the appellants:
De Vries Incorporated
Counsel
for the respondents:
Advocate M.A. Chohan SC
Advocate L.J. Choate
Attorneys
for the respondents:       Webber
Wentzel
Date
of hearing:

30 November 2020
Date
of judgment:

20 April 2021
[1]
Port
Elizabeth was renamed Gqeberha on 23 February 2021.
[2]
A
schematic was prepared by the respondent describing the companies
and the way they functioned.
[3]
There
was also a cession of book debts in favour of FirstRand Bank.
[4]
Section
137(2)(a) and (b).
[5]
Section
137(4).
[6]
See
Klopper
NO v Ragavan
2018
JDR 1258 (GJ).
[7]
Section
139.
[8]
See
in this regard
Knoop
and
Another NNO v Gupta (Tayob Intervening)
(116/2020)
[2020] ZASCA 163
;
[2021] 1 All SA 726
(SCA) (9 December 2020)
at
[34]
[9]
Section
140(3)(c).
[10]
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA) at [18].
[11]
[2019]
1 ALL SA 291
(SCA) at [61] to [68].
[12]
At
par [61].
[13]
See
in this regard
Knoop
supra
at [35]
[14]
Section
76
(2):
A director of a company must-
(a)
not
use the position of director, or any information obtained while
acting in the capacity of a director- (i) to gain an advantage
for
the director, or for another person other than the company or a
wholly-owned subsidiary of the company; or (ii) to knowingly
cause
harm to the company or a subsidiary of the company; and
(b)
communicate
to the board at the earliest practicable opportunity any information
that comes to the director's attention, unless
the director-(i)
reasonably believes that the information is-
(aa)
immaterial
to the company; or
(bb)
generally
available to the public, or known to the other directors; or (ii) is
bound not to disclose that information by a legal
or ethical
obligation of confidentiality.
[15]
1993
(3) SA 94A
at 107C – E.
[16]
Section
134(1)(a)(i).
[17]
Section
134 (1)(a)(ii).
[18]
Section
134(1)(a)(iii).
[19]
(3034/2013)
[2013] ZAFSHC 215
(19 September 2013).
[20]
Section
7(k)
[21]
Section
128
[22]
See
Diener
NO v Minister of Justice and Correctional Services and Others
[2018]
ZACC 48
[23]
2016
JDR 2258 (GJ)
[24]
Henochsberg
on the Companies Act, Meskin, vol 1, at page 134.
[25]
It is
noteworthy that Van der Linde J in
BP
Southern
,
in dealing with the disposal of book debts, put the words “disposal
of” in inverted commas.
[26]
2015
(5) SA 192 (SCA)
[27]
Panamo
Properties (Pty) Ltd and Another v Nel and Others NNO
2015
(5) SA 63
(SCA) at [27]
[28]
2019
(4) SA 569 (GP) (31 August 2018).
[29]
At
[30].
[30]
Hlumisa
Investment Holdings RF Ltd and Another v Kirkinis and Others
2020
(5) SA 419
(SCA)
at
[50].
[31]
(a)
the
director is or may be liable, but has acted honestly and reasonably;
or
(b)
having
regard to all the circumstances of the case, including those
connected with the appointment of the director, it would be
fair to
excuse the director.
[32]
1989
(3) SA 71 (T)
[33]
[2015]
EWHC 2540
(CH) (also reported as
Hedger
v Adams
)
[34]
In
In
Re
Duomatic
Ltd
[1969] 1 All ER 161
the Court (Chancery Division), the court
held that the previous practices of the company had a bearing when
assessing whether
the conduct of a director was reasonable in the
circumstances.
[35]
Koen
and Another v Wedgewood Village Golf & Country Estate (Pty) Ltd
and Others
2012
(2) SA 378 (WCC)
at
[10].
[36]
Section
132(3)
[37]
2015
(5) SA 192
(SCA)
[38]
The
section does not exclude the common law duties.
[39]
Section
76(4)(a)(i) and (iii).
[40]
At
page 298(8).
[41]
In
Hlumisa
Investment Holdings supra,
the
SCA cited the commentary on section 76(3) with approval.
[42]
Henochsberg
at page 298(9).
[43]
2013
(1) SA 307 (WCC).
[44]
Section
45(3)(a) and (b).
[45]
See
Henochsberg
at page 510(3) where the author discusses the application of section
46 and section 48 in respect of a company under
business rescue.
[46]
(1880)
ISC 291 (per Smith J)