Summary of Judgment

1. Introduction

This matter concerned an application in the High Court of South Africa, KwaZulu-Natal Local Division, Durban, seeking an order placing the first respondent under business rescue in terms of section 131(4) of the Companies Act 71 of 2008.

The applicant was Revfin (Pty) Ltd, a creditor of the first respondent. The first respondent was IMC Distributors Africa (Pty) Ltd trading as International Marketing Concepts. The second respondent was the Companies and Intellectual Property Commission; no substantive relief was sought against it.

The matter’s procedural history included an earlier appearance in motion court where Olsen J raised a concern about this court’s jurisdiction and granted leave to the applicant to supplement its papers. The applicant filed a supplementary founding affidavit directed at jurisdiction, and the first respondent initially admitted jurisdiction in its answering affidavit. Subsequently, the first respondent challenged jurisdiction in a supplementary answering affidavit, relying on the location of its registered office.

The dispute’s general subject matter was whether the first respondent should be placed under business rescue due to alleged financial distress, arising from alleged arrears under equipment hire/rental agreements, and whether the Durban court had the necessary jurisdiction to entertain the business rescue application.

2. Material Facts

It was undisputed that the applicant was a creditor of the first respondent and therefore an affected person as defined in section 128 of the Companies Act 71 of 2008. It was also not disputed that the first respondent was liable, in principle, to pay monthly rentals to the applicant for the hire of equipment.

The applicant alleged that the first respondent was substantially in arrears with rental payments and relied on this as the core factual basis for asserting that the first respondent was financially distressed. The first respondent disputed this characterisation. It maintained that there was a dispute about the amount owing, asserted that it was able to pay its debts, and denied that it was financially distressed.

On jurisdictional facts, it was undisputed before the court that the first respondent’s registered address was in Sasolburg. The applicant nonetheless contended (including in a supplementary founding affidavit) that the first respondent’s principal place of business was within the Durban court’s territorial jurisdiction, at a specified address in Durban, and that this sufficed for jurisdiction. The first respondent’s stance evolved: it first admitted jurisdiction in its answering affidavit but later challenged it, asserting that it resided at its registered office in Sasolburg for jurisdictional purposes.

On the merits, a key chronological fact was a communication in September 2020 in which the first respondent’s managing director offered to pay R850 000 in settlement of the rental agreements and indicated that the company required working capital and might obtain a loan. The communication also mentioned that failing a resolution, the first respondent would “probably have to consider business rescue.” The applicant relied on this as indicative of financial distress.

The first respondent’s managing director, however, provided additional contextual facts relied upon by the court in assessing financial distress: the reference to business rescue was said to have been motivated by concerns about the potential impact of the Covid-19 pandemic; the non-payment over approximately seven months was attributed to an ongoing dispute about what was owed; the parties had agreed to a moratorium pending negotiations; the first respondent asserted it remained profitable and had met its financial commitments in the prior financial year; and the first respondent had terminated the agreements and tendered payment of settlement figures.

3. Legal Issues

The court was required to determine, first, a jurisdictional question: whether the KwaZulu-Natal Local Division, Durban had jurisdiction to hear and decide a business rescue application concerning a company whose registered office was outside the division but whose principal place of business was alleged to be within it. This was primarily a question of law, involving statutory interpretation and the application of jurisdictional principles to largely common-cause jurisdictional facts (notably, the location of the registered office).

A related legal issue was whether a party’s admission of jurisdiction in affidavits could confer jurisdiction on a court in the absence of an established ground of jurisdiction. This was treated as a legal question of principle.

In the alternative (in the event that the court was incorrect on jurisdiction), the court considered merits-based issues requiring application of law to fact: whether the applicant had shown that the first respondent was “financially distressed” as defined in section 128(f) of the Companies Act 71 of 2008; and whether there was a reasonable prospect of rescuing the company as required for a court-ordered commencement of business rescue under section 131. These issues involved evaluation of the evidence placed before the court, and the application of the statutory definitions and thresholds to that evidence.

4. Court’s Reasoning

Jurisdiction

The court approached jurisdiction by emphasising that consent, acquiescence, or an admission by a party does not itself confer jurisdiction where none exists on recognised grounds. Although the first respondent had initially admitted jurisdiction, the court held that this could not cure an absence of jurisdiction if the statutory and common-law jurisdictional requirements were not met.

The central interpretive difficulty identified by the court lay in section 23(3)(b) of the Companies Act 71 of 2008, which requires a company to register the address of its office (or principal office if it has more than one). That registered address constitutes the company’s registered office as defined in section 1 of the Act. The court adopted the approach in Sibakhulu Construction (Pty) Ltd v Wedgewood Village Golf Country Estate (Pty) Ltd 2013 (1) SA 191 (WCC), namely that section 23 should be interpreted so that a company resides only at its registered office for purposes of jurisdiction in business rescue matters, thereby ensuring that a single court has jurisdiction over business rescue proceedings in relation to that company. The court noted that this conclusion had been endorsed by Rogers J in Mfwethu Investments CC t/a Recharger Prepaid Meters v Citiq Meter Solutions (Pty) Ltd t/a Citiq Prepaid 2020 (6) SA 578 (WCC).

The applicant urged the court not to follow Sibakhulu and Mfwethu and relied on authorities concerning liquidation proceedings under the Companies Act 61 of 1973. The court rejected this analogy. It accepted the distinction articulated in Mfwethu: liquidation jurisdiction is informed by section 12 of the Companies Act 61 of 1973, which provides that a company is deemed to reside at both its principal place of business and its registered office, whereas the Companies Act 71 of 2008 contains no equivalent dual-residence jurisdictional provision for business rescue. On the court’s reading, section 23(3)(b) of the 2008 Act means that the company’s registered office is the relevant location for residence for jurisdictional purposes in business rescue applications.

The court further addressed the submission that section 21 of the Superior Courts Act 10 of 2013, granting jurisdiction over persons “residing or being in” the area, could ground jurisdiction because the first respondent’s principal place of business was factually within the court’s area. The court held that this did not assist the applicant. Referring to authority under the identically worded section 19(1)(a) of the Supreme Court Act 59 of 1959, and in particular Bisonboard Ltd v K Braun Woodworking Machinery (Pty) Ltd [1990] ZASCA 86; 1991 (1) SA 482 (A) (with reference to the statement of Trollip J in Gulf Oil Corporation v Rembrandt Fabrikante en Handelaars (Edms) Bpk 1963 (2) SA 10 (T)), the court reasoned that jurisdiction remains determined by the common law and relevant statutory provisions, and that mere presence in the area is not, on its own, a sufficient ground. It also stated that a court does not obtain jurisdiction over a company merely because it has a branch office in the area if its registered office and principal place of business are elsewhere.

On the facts, because the registered office was Sasolburg, the court concluded that the first respondent resided there for jurisdictional purposes in business rescue matters, with the result that the Durban court lacked jurisdiction.

Merits (considered in the alternative)

Although the jurisdictional conclusion disposed of the matter, the court briefly addressed the merits on the assumption that it might be wrong on jurisdiction.

The applicant sought to establish financial distress primarily from rental arrears and contended it lacked access to information about the first respondent’s financial position. The court rejected the applicant’s reliance on section 131(4)(a)(ii) as misconceived, holding that the subsection expressly relates to employment-related matters and did not apply to the applicant’s claim.

The court then applied the statutory definition of “financially distressed” in section 128(f). It noted that there was no evidence that the first respondent was reasonably likely to become insolvent within the ensuing six months. The operative inquiry was therefore whether it appeared reasonably unlikely that the company would be able to pay all of its debts as they became due and payable within the immediately ensuing six months. The court observed that there was no evidence of unpaid creditors other than the applicant, so the focus narrowed to the alleged indebtedness to the applicant.

In evaluating the September 2020 communication, the court accepted that it could not be read in isolation. It took into account the explanation that business rescue was mentioned due to Covid-related concerns, that non-payment was tied to a dispute about amounts owing, that a moratorium had been agreed pending negotiations, and that the first respondent claimed profitability and continued satisfaction of other financial commitments. In this context, the court held that it could not find on the evidence that the first respondent was financially distressed as contemplated by the Act.

On the requirement of a reasonable prospect of rescue, the court rejected the applicant’s approach of asserting that it lacked information and that a business rescue practitioner could be appointed to investigate. The court held that this was not the correct approach to business rescue applications. Relying on Prospec Investments (Pty) Ltd v Pacific Coast Investments 97 Ltd 2013 (1) SA 542 (FB) and Oakdene Square Properties (Pty) Ltd v Farm Bothasfontein (Kyalami) 2013 (4) SA 539 (SCA), it stated that an applicant must place before the court a factual foundation for the existence of a reasonable prospect that the objectives of business rescue can be achieved, and that the prospect must be based on reasonable grounds, not on speculation or a hoped-for investigation after commencement.

The court therefore concluded that, even if jurisdiction existed, the application would have failed on the merits.

5. Outcome and Relief

The court held that it lacked jurisdiction to determine the application for business rescue because, for jurisdictional purposes in business rescue proceedings, the first respondent resided where its registered office was located, namely Sasolburg, outside the Durban court’s area of jurisdiction.

In the alternative, the court held that the application would in any event have failed on the merits because the applicant had not established that the first respondent was financially distressed as defined, nor had it put up a sufficient factual foundation to show a reasonable prospect of rescuing the company.

The application was dismissed with costs.

Cases Cited

Veneta Mineraria SPA v Carolina Collieries (Pty) Ltd (In liquidation) 1987 (4) SA 883 (AD)

Sibakhulu Construction (Pty) Ltd v Wedgewood Village Golf Country Estate (Pty) Ltd 2013 (1) SA 191 (WCC)

Mfwethu Investments CC t/a Recharger Prepaid Meters v Citiq Meter Solutions (Pty) Ltd t/a Citiq Prepaid 2020 (6) SA 578 (WCC)

Van der Merwe v Duraline (2013) ZAWCHC 213

Lonsdale Commercial Corporation v Kimberley West Diamond Mining (2013) ZANCHC 11

Wild and Marr (Pty) Ltd v Intratek Properties 2019 (SA) 310 (GJ)

Bisonboard Ltd v K Braun Woodworking Machinery (Pty) Ltd [1990] ZASCA 86; 1991 (1) SA 482 (A)

Gulf Oil Corporation v Rembrandt Fabrikante en Handelaars (Edms) Bpk 1963 (2) SA 10 (T)

Prospec Investments (Pty) Ltd v Pacific Coast Investments 97 Ltd 2013 (1) SA 542 (FB)

Oakdene Square Properties (Pty) Ltd v Farm Bothasfontein (Kyalami) 2013 (4) SA 539 (SCA)

Legislation Cited

Companies Act 71 of 2008, sections 1, 23(3)(b), 128, 131(4), and Part D of Chapter 7

Superior Courts Act 10 of 2013, section 21

Supreme Court Act 59 of 1959, section 19(1)(a)

Companies Act 61 of 1973, section 12

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court found that, for purposes of a business rescue application under the Companies Act 71 of 2008, the company’s residence is determined by the location of its registered office as contemplated in section 23(3)(b), and not by an alleged principal place of business in another jurisdiction. As the first respondent’s registered office was in Sasolburg, the Durban court lacked jurisdiction, and the application fell to be dismissed.

The court further held, in the alternative, that the applicant had not established the statutory requirements for business rescue. The evidence did not justify a finding that the first respondent was financially distressed within the meaning of section 128(f), and the applicant failed to place a sufficient factual basis before the court to demonstrate a reasonable prospect of achieving the objectives of business rescue.

LEGAL PRINCIPLES

A party’s admission to jurisdiction, consent, or acquiescence cannot confer jurisdiction on a court where none exists on recognised jurisdictional grounds; jurisdiction must be established by reference to the common law and relevant statutory provisions.

In business rescue proceedings under the Companies Act 71 of 2008, section 23(3)(b) supports an interpretation that a company resides only at the location of its registered office for jurisdictional purposes, so that business rescue matters pertaining to that company are dealt with in a single competent jurisdiction.

The jurisdictional approach applicable to liquidation proceedings under the Companies Act 61 of 1973, including the concept of residence at both the principal place of business and the registered office under section 12 of that Act, is distinguishable from business rescue proceedings under the Companies Act 71 of 2008.

An applicant seeking a court order commencing business rescue must place before the court a factual foundation establishing (i) that the company is financially distressed as defined in section 128(f) (or that other statutory grounds are met) and (ii) that there is a reasonable prospect of achieving the objectives of business rescue; a request to appoint a practitioner to investigate in order to discover whether such prospects exist is insufficient.