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[2011] ZAGPPHC 103
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Swart v Beagles Run Investments 25 (Pty) Ltd and Others (2011 (5) SA 422 (GNP)) [2011] ZAGPPHC 103; 26597/2011 (30 May 2011)
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REPORTABLE
IN
THE NORTH GAUTENG HIGH COURT
PRETORIA
/ES (REPUBLIC OF SOUTH AFRICA)
CASE
NO: 26597/2011
DATE:30/05/2011
IN
THE MATTER BETWEEN
RIAAN
ANTON
SWART
...........................................................................................
APPLICANT
AND
BEAGLES
RUN INVESTMENTS 25 (PTY)
LTD
..............................................
RESPONDENT
FIRSTRAND
BANK LTD.
.........................................................
1ST
INTERVENING CREDITOR
BRIDGING
ADVANCES (PTY) LTD
.........................................
2nd
INTERVENING CREDITOR
BIDEASY
AUCTIONS
CC
.........................................................
3rd
INTERVENING CREDITOR
GLACIS
GAME BREADERS (PTY) LTD
................................
4th INTERVENING CREDITOR
JUDGMENT
MAKGOBA.
J
[1
] The applicant brought this urgent application seeking an order:
1.1
That the non-compliance of the Rules of this Court with regards to
form of service be condoned and this matter be heard as an
urgent
application.
1.2
That the respondent be placed under supervision in terms of the
provisions of
section 131(4)(a)
of the
Companies Act 71 of 2008
and
commencing business rescue proceedings.
1.3
That Johannes Jacobus van Huyssteen with identity number be
appointed as interim practitioner of the respondent in terms of
section 131(5)
of the
Companies Act 71 of 2008
.
[2]
Subsequent to the filing of the application, first, second and third
intervening creditors intervened as creditors and are opposing
the
application for business rescue. The first intervening creditor
(Firstrand Bank Ltd) also seeks an order that a winding-up
application it brought against the respondent under case no 8037/11
in this court, be heard urgently and simultaneously with this
application and that a winding-up order be granted.
[3]
During the course of the hearing of this application on 26 May 2011
the fourth intervening creditor gave notice of its intention
to
intervene as a creditor. The fourth intervening creditor has on this
day concluded a written agreement with the first intervening
creditor
("Firstrand Bank") in terms whereof the fourth intervening
creditor purchased Firstrand Bank's right, title
and interest in the
claim that Firstrand Bank had against the respondent. As a result of
this development the first intervening
creditor withdrew its
liquidation application it has brought against the respondent.
Henceforth the first intervening creditor
ceased to be a party to the
present proceedings.
[4]
On 30 May 2011 the fourth intervening creditor after filing and
serving a formal application, was granted leave to intervene
as such
and duly joined as a party to the present proceedings. In its notice
of motion the fourth intervening creditor seeks an
order that the
main application (that is the present application) be postponed for a
period of three months alternatively that
the respondent be placed
under supervision in terms of
section 131(4)(a)
of the
Companies Act
71 of 2008
and commencing business rescue proceedings. In essence the
fourth intervening creditor supports the present application.
[5]
The applicant is the sole director and the only shareholder of the
respondent. The respondent's business consists mainly of
a chartering
business and dealing in exotic wild life species. As far as the
charter business is concerned, respondent is the owner
of various
aircraft, including a Beechcraft King Air 200 aeroplane and a Bell
Textron 206L-3 helicopter.
As
a result of various reasons the financial affairs of respondent
deteriorated to such an extent that respondent is currently not
in a
financial position to meet its immediate financial obligations.
[6]
The second intervening creditor obtained judgment against the
respondent pursuant to a provisional sentence summons on 9 March
2011. The court order agreed upon by the parties provided inter alia
for a period of thirty days for respondent to market and sell
the two
aircraft referred to above, which was unsuccessful and eventually the
aircraft was put on auction on 6 May 2011 and sold
for a total price
insufficient to pay the outstanding judgment debt with interest.
I
am told that the outstanding debt is presently estimated at R11 000
000.00 with interest accruing at 1percent per week or approximately
R14 000.00 per day.
[7]
The third intervening creditor's claim against the respondent is
estimated at R45 000.00 being in respect of legal costs incurred
when
it opposed the applicant's application to stop the auction for the
sale of the aircraft on 6 May 2011. The third intervening
creditor
acted as an auctioneer in the aforesaid sale.
[8]
The fourth intervening creditor, having substituted the first
intervening creditor, now has a claim against the respondent for
an
amount of R3 100 000,00.
[9]
Consequently, the second, third and fourth intervening creditors are
the affected persons as contemplated in
section 128(a)
of the
Companies Act 71 of 2008
. They have the necessary locus standi to
participate as parties in these proceedings and as creditors of the
respondent.
[10]
The applicant's case is that the respondent is currently financially
distressed in that it lacks the necessary cash flow in
order to be
able to pay all debts as they become due and payable. That the
respondent is financially distressed as envisaged in
section 128(f)
of the
Companies Act 71 of 2008
, as it is reasonably unlikely that
the respondent will be able to pay all its debts as they became due
and payable within the immediate
ensuing six months. The applicant
submits further that if respondent is not placed under supervision
and the execution process
of the second intervening creditor is to
continue, there is no reasonable prospect that respondent can pay its
debts as they became
due, within the next six months.
[11]
The applicant further submits that if the respondent is placed under
supervision, the business rescue proceedings commence
and a business
plan is implemented in order to rescue the affairs of the respondent,
all the creditors of respondent would be fully
paid in due course and
respondent would be granted the opportunity to proceed with its
business.
[12]
The second and third intervening creditors oppose the application on
the grounds that the application for business rescue is
in itself an
abuse of process and is a culmination of a number of attempts to
avoid and postpone payment of the respondent's debts.
That the
applicant demonstrates in this application a complete negation of the
rights of creditors and has carried on the business
of the respondent
company under admittedly insolvent circumstances recklessly and under
circumstances where a number of transactions
ought to be set aside in
terms of the Insolvency Act read together with the Companies Act, 61
of 1973, in turn read together with
the
Companies Act 71 of 2008
.
[
13] The opposing creditors submit that the applicant, Mr Swart, has
used this company (respondent) as if it were his alter-ego
and has
conducted the affairs of the company without paying due and proper
attention as would be expected from a director of a
company to ensure
that creditors are not prejudiced by his actions and in fact simply
ignoring the rights of such creditors and
the company's obligations
to it.
[14]
A business rescue plan is a novelty brought about by the new
Companies Act 71 of 2008
which came into operation on 1 May 2011. The
business rescue proceedings are provided for in Chapter 6 of this
Act. Section 128(l)(b)
defines a "business rescue" as
proceedings to facilitate the rehabilitation of a company that is
financially distressed
by providing for-
(i)
the temporary supervision of the company, and of the management of
its affairs, business and property;
(ii)
a temporary moratorium on the rights of claimants against the company
or in respect of property in its possession; and
(iii)
the development and implementation, if approved, of a plan to rescue
the company by restructuring its affairs, business, property,
debt
and other liabilities, and equity in a manner that maximises the
likelihood of the company continuing in existence on a solvent
basis
or, if it is not possible for the company to so continue in
existence, results in a better return for the company's creditors
or
shareholders than would result from the immediate liquidation of the
company.
[15]
For purposes of this judgment it is appropriate to set out the
provisions of
section 131
of the
Companies Act 71 of 2008
in full:
"131.Court
order to begin business rescue proceedings
(1)
Unless a company has adopted a resolution contemplated in
section
129
, an affected person may apply to a court at any time for an order
placing the company under supervision and commencing business
rescue
proceedings.
(2)
An applicant in terms of subsection (1) must-(a) serve a copy of the
application on the company and the
Commission;
and (b) notify each affected person of the applicalion in the
prescribed manner.
(3)
Each affected person has a right to participate in the hearing of an
application in terms of this section.
(4)
After considering an application in terms of subsection (1) the court
may-(a) make an order placing the company under supervision
and
commencing business rescue proceedings, if the court is satisfied
that-
(i)
the company is financially distressed;
(ii)
the company has failed to pay over any amount in terms of an
obligation under or in terms of a public
regulation, or contract,
with respect to employment-related matters; or
(iii)
it is otherwise just and equitable to do so for financial reasons,
and there is a reasonable prospect for rescuing the company
or
(b)
dismissing the application, together with any further necessary and
appropriate order, including an order placing the company
under
liquidation.
(5)
If the court makes an order in terms of subsection (4)(a), the court
may make a further order appointing as interim practitioner
a person
who satisfies the requirements of
section 138
and who has been
nominated by the affected person who applied in terms of subsection
(I) subject to ratification by the holders
of a majority of the
independent creditors' voting interests at the first meeting of
creditors, as contemplated in
section 147.
(6)
If liquidation proceedings have already been commenced by or against
the company at the time an application is made in terms
of subsection
(1), the application will suspend those liquidation proceedings
until-
(a)
the court has adjudicated upon the application; or
(b)
the business rescue proceedings end, if the court makes the order
for.
(7)
In addition to the powers of a court on an application contemplated
in this section a court may make an order contemplated in
subsection
(4) or (5) if applicable, at any time during the course of any
liquidation proceedings or proceedings to enforce any
security
against the company.
(8)
A company that has been placed under supervision in terms of this
section-fa) may not adopt a resolution placing itself in liquidation
until the business rescue proceedings have ended as determined in
accordance with
section 132(2):
and (b) must notify each affected
person of the order within five business days after the date of the
order."
[16]
The preamble to the Act inter alia reads:
"to
provide for sufficient rescue of financially distressed companies".
[17]
Section 128(1 )(a) defines an "affected person" in relation
to a company and within the context of this application
as a
shareholder or creditor of the company.
[18]
From the definitions referred to above it is clear that the purpose
of Chapter 6 of the Act with regard to business rescue,
is to assist
a financially distressed company by means of a business rescue plan
as contemplated in section 150 of the Act, in
order to maximise the
possibility of the company continuing on a solvent basis, or to
achieve a better return for the company's
creditors or shareholders
in comparison to a liquidation.
[19]
The procedure prescribed by Chapter 6 of the Act are to some extent
similar to liquidation procedure, with the important distinction
that
the aim is to protect the company in that it will continue to exist
on a solvent basis, after payment of creditors. In this
regard the
appointment of a practitioner is similar to the appointment of a
liquidator and the participation of creditors and affected
persons at
a meeting of creditors are similar to the rights accruing to
creditors in the event of liquidation.
[20]
It is common cause in the present case that the respondent is
financially distressed. In the founding affidavit as well as
the
replying affidavit the applicant states that the respondent merely
needs some time in order to dispose of movable assets, in
order to
pay all creditors and continue with business. The applicant then
submits that there will be no prejudice to creditors
if business
rescue proceedings are ordered and commenced.
[21]
The requirements for the granting of an order sought by the applicant
are contained in section 131(4)(a)(i) to (iii) which
can be
summarised as follows:
1.
that the company is financially distressed; and
2.
that with respect to an employment-related matter the company failed
to pay any amount; or
3.
it is otherwise just and equitable to do so for financial reasons,
and there are reasonable prospect of rescuing the company.
[22]
In the event of the requirements as set out and summarised above
being met, the court should exercise its discretion in favour
of
granting the order sought.
In
casu, however, the question arises as to whether the respondent has
met the requirements.
[23]
As pointed out earlier, the aspect of a business rescue plan brought
about by the new
Companies Act is
a new innovation and without
precedent in our law, in particular with regard to case law. In my
view
section 427
of the now repealed Companies Act 61 of 1973 can be
of assistance in this regard.
[24]
Section 427(1) of the old Act provides for the circumstances in which
a company may be placed under judicial management. It
provides that
when any company by means of mismanagement or for any other cause-
(a)
is unable to pay its debts or is probably unable to meet its
obligations; and
(b)
has not become or is prevented from becoming a successful concern;
and
there is a reasonable probability that, if it is placed under
judicial management, it will be enabled to pay its debts or to
meet
its obligations and become a successful concern, the court may, if it
appears just and equitable, grant a judicial management
order in
respect of that company.
[25]
Essentially, in relation to section 427(1) of the old Act, what must
be reasonably probable is that the company is viable and
capable of
ultimate solvency - see Millman NO v Swartland Huis Meubileerders
(Edms) Bpk
1972 1 SA 741
(C) at 774 - and that it will, within a
reasonable time, become a successful concern Porterstraat 69
Eiendomme (Pty) Ltd v PA Venter
Worcester (Pty) Ltd
2000 4 SA 598
(C)
at 616.
By
"successful concern" it is intended, in my view, that it
will be able effectively to carry on its operations in accordance
with its main object and yield a return to its shareholders and
creditors.
[26]
The question whether the applicant in this case has made out a proper
case that the respondent is financially distressed (which
is common
cause) and there exists a reasonable prospect that through business
rescue proceedings respondent can be rescued and
continue business in
solvent circumstances should be weighed against the requirements
and/or principles set out above and the evidence
presented in the
papers before me.
[27]
The opposing creditors submitted that the present application is an
abuse of the process of the court and simply an attempt
to prevent
the sale of the assets and/or the winding-up of the respondent which
must take place. That the applicant, who is in
control of the
respondent, has sought to prevent the first and second intervening
creditors from exercising their rights in terms
of the law inter alia
by:
1.
giving notice of intention to oppose the winding-up application but
never filing papers therein, while on common cause facts,
it is clear
that the respondent is insolvent and has not been able to make
payments of its debts;
2.
making promises to pay to both first and second intervening creditors
but never making payment thereof; and
3.
seeking to prevent the sale of the aircraft by way of auction by
seeking an interdict in this court notwithstanding the court
order
and agreement giving rise to such auction, which application was
dismissed with costs.
The
above submissions made by the opposing creditors are sound, correct
and relevant in the adjudication of this matter.
[28]
It is quite clear that the respondent is insolvent and that the
movable and immovable property belonging to it will be insufficient
to make payment of its creditors. In the founding affidavit the
applicant refers to a proposed agreement which the applicant says
the
respondent attempted to enter into which provided for the sale of the
aircraft, the helicopter, the farm belonging to the respondent
and
all the game for a purchase price of R15 000 000,00. The R15 000
000,00 is insufficient to make payment of the admitted creditors.
On
his own version in paragraph 9 of the founding affidavit the
applicant states that the respondent's total indebtedness is R16
148
000,00.
[29]
The only other asset of any note is a loan account of some R72 343
000,00 (as set out in annexure "RS3") where monies
have
been lent to a related company known as Biz Africa 111 (Pty) Ltd
(trading as Business Solutions Africa) of which the applicant
is the
sole director. The applicant steadfastly refuses to give any
information, does not indicate the nature of the transaction
and
places nothing before court to indicate that such money can or ever
will be repaid.
[30]
If one scrutinises annexure "RS3" being the statement of
assets and liabilities of the respondent as at 30 April
2011, one
comes to a conclusion that the total assets amount to R87 843 000,00
while there are admitted liabilities of R16 148
000,00 and a
shareholder's loan of sum R165 517 000,00, thereby indicating that
the company is hopelessly insolvent. A rhetorical
question may arise
as to whether a business rescue plan as envisaged and sought by the
applicant is feasible in the circumstances.
[31]
Mr Leathern SC, on behalf of the first and second intervening
creditors, correctly submits with reference to the allegations
in
paragraph 45.5 of the first intervening creditor's answering
affidavit that annexure "lAl(a)" thereof indicates that
the
value of the property belonging to the respondent is no more than R15
000 000,00 and that respondent is unable to raise any
finance
whatsoever. The applicant does not join issue with the intervening
creditor in regard thereto, nor is any explanation given
regarding
the huge discrepancy between the figures provided by him and the
value as reflected in annexure " 1A1 (a)".
I agree with Mr
Leathern's submission that the applicant is being less than frank and
lacks the bona fides in bringing this application.
[32]
This application was launched on the basis that the respondent was
possessed of assets which exceed its liabilities and that
it would be
able to continue with the charter business and to sell a substantial
amount of game in order to pay its debts. This
entire basis for the
application falls away inter alia as a result of the following:
1.
the total assets of the respondent, for the reasons set out
hereinbefore, amount to only R1 5 000 000,00, this taking into
account
the movable property, immovable property, aircraft and game;
2.
the second intervening creditor is in possession of the King Air
aircraft as well as the Bell helicopter and in terms of
section
134(l)(b)
of the
Companies Act 71 of 2008
is entitled to retain
possession thereof and thus such will not be available for use in the
charter business to enable the respondent
to earn income; in any
event, the income from the "charter business" has been
ceded to the second intervening creditor
and will not be utilised for
payment of other creditors.
[33]
Mr Leathern furthermore raised an interesting issue regarding the
value of the game owned by the respondent. Apart from the
clear
indication of R15 000 000,00 as the value of all the assets of the
respondent put together, it is also quite clear that the
valuations
on which this application is based hold very little relationship to
reality.
[34]
In this regard Mr Leathern submits: while the female buffalo are
valued in annexure "RS5" to the applicant's founding
affidavit at an amount in excess of Rl 000 000,00 per buffalo, the
respondent in August 2010 sold buffalo, three female together
with
three calves for an amount of R310 000,00 each at one auction. A
buffalo bull which according to applicant is valued at in
excess of
R700 000,00 was sold for R70 000,00 and five buffalo cows for an
amount in excess of R180 000,00 each, none of which
is disputed by
the applicant, thus the cows which were used in the calculation of
the value of the game as thirty in excess of
R1 000 000,00 per price
could have a value as low as R5 400 000,00 (if they still exist) and
the male buffalo (if they exist) instead
of being valued at R5 606
957,00 could be valued at as little as R560 000,00.
[35]
Based on this good argument by counsel, I come to the conclusion that
the value of the game as given by the applicant in annexure
"RS5"
is inflated and thus rejected.
[36]
I need to mention that even the existence of this game is seriously
disputed. In his supporting affidavit the attorney for
the second
intervening creditor stated that very little game could be found
after they had attended at the farm. The manager there
had discussed
the matter for ten minutes with the applicant and his legal advisor.
The only answer is a vague allegation that while
the legal
representative may have visited a farm Klipvlei, there is a denial
that they went to the correct farm.
[37]
The court has a discretion as to whether to order supervision or
business rescue even if it is found that the requirements
therefor as
set out in section 131(4)(a)(i) to (iii) of the Act have been made
out in the application.
In
exercising my discretion in this matter I have to determine whether a
case has been made out that the respondent company will
be able to
carry on business on a solvent basis and/or whether any case has been
made out that the granting of business rescue
will result in
creditors achieving a better dividend.
[38]
The applicant has studiously avoided making payment of the
respondent's debts, incurred further debts and has simply advanced
funds in excess of R72 000 000,00 to Business Solutions Africa while
under insolvent circumstances and steadfastly refuses to give
any
explanation to his creditors, to the respondent's creditors or the
court. On his own version the applicant has steadfastly
refused to
sell any assets to make payment to his creditors.
[39]
In my view it is the applicant himself as sole director and
shareholder who is the only interested party in the continuation
of
the respondent as a going concern but he steadfastly carried on
business in a reckless manner. The applicant does not take this
court
or his creditors into his confidence by giving any detail regarding
the loan of a substantial amount in excess of R72 000
000,00 to an
entity known as Business Solutions Africa, of which he is the sole
director.
[40]
It is common cause that the respondent has been in financial distress
for at least a year. While this was obvious to all involved,
the
applicant did nothing about it, refused to sell any assets, incurred
further debts, making loans and refused to sell any assets
to make
payment to his creditors.
[41]
Where an application for business rescue, as was the case in
applications for judicial management, entails the weighing-up
of the
interests of the creditors and the company (or the applicant in this
case, they being the same) the interests of the creditors
should
carry the day.
[42]
I accordingly come to the conclusion that there is absolutely no
basis for contending that the respondent will be able to carry
on
business on a solvent basis or that there is any prospect thereof.
No
case has been made out that the granting of a business rescue will
place the creditors of the respondent in a better position
than what
they would be in winding-up.
[43]
I grant the following orders:
1.
The application for postponement of these proceedings by the fourth
intervening creditor is refused.
2.
The main application by the applicant, Mr Swart, is dismissed with
costs such costs to include the costs of senior counsel where
applicable.
EM
MAKGOBA
JUDGE
OF THE NORTH GAUTENG HIGH COURT
26597-2011
HEARD
ON; 26 & 30 MAY 2011
FOR
THE APPLICANT: M M W VAN ZYL SC
INSTRUCTED
BY: DIEMONT INC
FOR
1st & 2nd INTERVENING CREDITORS: D M LEATHERN SC
INSTRUCTED
BY: RORICH WOLMARANS & LUDERITZ INC AND LAAS DOMAN INC
FOR
3rd INTERVENING CREDITOR: ADV PRINSLOO
INSTRUCTED
BY: SERFONTEIN VILJOEN & SWART
FOR
4th INTERVENING CREDITOR: ADV R REUBENHEIMER
INSTRUCTED
BY: J A KRUGER ATTORNEYS