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2023
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[2023] ZAFSHC 373
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S E Ventures (Pty) Ltd v Kareeboom Kimberley (Pty) Ltd and Others (6017/2022) [2023] ZAFSHC 373 (4 October 2023)
IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Case
no: 6017/2022
Reportable:
YES/NO
Of
Interest to other Judges: YES/NO
Circulate
to Magistrates: YES/NO
In
the matter between:
S
E VENTURES (PTY) LTD
and
KAREEBOOM
KIMBERLEY (PTY) LTD
[In
liquidation]
MARYNA
ESTELLE SYMES N.O.
REINETTE
STEYNSBURG N.O.
[The
Second and Third Respondents being
cited
herein in their respective capacities as
the
duly appointed and final liquidators of the
First
Respondent]
THE
MASTER OF THE HIGH COURT,
BLOEMFONTEIN
THE
COMPANIES AND INTELLECTUAL
PROPERTY
COMMISSION (“CIPC”)
Applicant
First
Respondent
Second
Respondent
Third
Respondent
Fourth
Respondent
Fifth
Respondent
CORAM:
PR CRONJÉ, AJ
HEARD
ON:
03 AUGUST 2023
DELIVERED
ON:
04
OCTOBER 2023
JUDGMENT
BY:
P
R CRONJÉ, AJ
[1]
The Applicant (“SEV”) is the sole shareholder and a
creditor
of the First Respondent (“Kareeboom”) in the
amount of R19,152,716.00,. Kareeboom was finally liquidated on
28
April 2022.
[2]
SEV seeks the following relief:
2.1
That Kareeboom be placed under supervision and commencing business
rescue proceedings as envisaged in terms
of Section 131(1) as read
with Sections 131(4)(a) and 131(6) of the Companies Act no. 71 of
2008 (“the Act”); and
2.2
Appointing Reinette Pieters (“Ms Pieters”) of BDO
Business Restructuring (Pty) Ltd (“BDO”)
as the interim
business rescue practitioner (“BRP”) of Kareeboom as
contemplated in terms of Section 131(5) of the
Act.
[3]
It is SEV’s case that Kareeboom is financially distressed as
defined
in section 128(1)(f) of the Act. SEV submits that as an
alternative to the section, it is just and equitable that Kareeboom
be placed under business rescue for financial reasons. It
further submits that there is a reasonable prospect of rescuing
Kareeboom as contemplated in Section 128(1)(h) as read with Section
128(1)(b) of the Act. This can be achieved, according
to SEV,
via the adoption and implementation of any of the four (4) recue
plans proposed by SEV. As an alternative, it states
that if it
is found that it is not possible for Kareeboom to continue in
existence, placing Kareeboom under business rescue will
provide for
the facilitation of a better return for the creditors and/or
shareholders of Kareeboom, than would result from liquidation.
[4]
One of the creditors of Kareeboom was Beyond Invest (Pty) Ltd (“BI”)
which was finally liquidated on 19 February 2021. The
liquidators of BI brought an application for liquidation of
Kareeboom,
contending that it was commercially insolvent and indebted
to BI for R7,006,745.88. It is pursuant to BI’s
application
that Kareeboom was placed under final liquidation.
The sole and only asset of Kareeboom is a farm, in extent:
1584,2319
hectares. On 12 September 2022, Kareeboom received an
offer for the farm from Kalahari Land & Cattle Company (Pty) Ltd
(“Kalahari”) for R6,336,927.60. The mortgagee
confirmed the offer. The sale has not yet been approved by
the
second meeting of creditors and/or the Master.
[5]
Kareeboom purchased the farm on 30 June 2015 for R23,940,000.00 which
was bonded to FNB for R10,000,000.00. According to the Tokologo
Municipality, the municipal value of the farm in May 2022
was
R27,960,000.00. On 29 January 2020, the farm was placed in the
market for R15,000,000.00 with FNB expecting between R10,000,000.00
and R13,000,000.00 as forced sale value.
[6]
In an open-market valuation conducted by Capital Harvest on 1 October
2018, it was determined that the farm had a market value of
R9,505,000.00. The intention was to redevelop the farm into a solar
energy facility and an application for an amendment to the Land Use
Rights in terms of the Physical Planning Act (Act 88 of 1967)
was not
successful. The farm is presently zoned as “
Agricultural
1
” and no other Land Use Rights have been approved.
[7]
The liquidators contend that Kareeboom is not only commercially
insolvent
but also factually insolvent. They obtained a
valuation of the farm on 19 May 2022 from Mr JS Hugo who is a
qualified and
professional valuator. The market value and
forced sale was determined at R5,544,800.00 and R3,326,880.00
respectively.
[8]
On 12 September 2022 the liquidators received an offer of
R6,336,927.60,
which offer was accepted by the mortgagee, to wit
FNB.
[1]
Kalahari leases
the farm from Kareeboom at an annual rental rate of R150,000.00.
All the affected entities, being creditors
of Kareeboom, is owed
R27,095,059.76, being
inter
alia
FNB and SARS.
[9]
In a settlement agreement between the liquidators of BI and SEV, SEV
subordinated
its claim against Kareeboom in favour of BI for
R7,006,745.88 and BI undertook not to oppose the current business
rescue application.
[10]
SEV contends that the farm was acquired by Kareeboom for
inter
alia
purposes
of leasing a portion thereof to Rodicon Trading & Investment
(Pty) Ltd (“Rodicon”) and that Rodicon will
undertake the
development and operation of a 150 MW plant on the farm. The
farm would then be leased to a third party developer
for the
construction and operation of the plant.
[2]
[11]
SEV states that the respective permits and approvals were already
obtained by Rodicon
in order to proceed with the construction of the
plant – either by tendering successfully to the Department of
Energy on
the bid submission date for Bid Window 7 during or about
January 2023 (“the seventh bid”) of the South African
Renewable
Energy Independent Power Producer Procurement Program
(“REIPPPP”) - alternatively by engaging in a partnership
with
or being appointed by a private entity to proceed therewith.
[12]
At present the business of Kareeboom is essentially that of a rental
enterprise,
generating income from leasing it to Rodicon and
Zuikerkop. It is alleged that upon the commencement of the
construction
of the plant, the rental payable by
inter alia
Rodicon, will increase exponentially which will facilitate the
continued existence of Kareeboom in a state of solvency. The
rehabilitation of Kareeboom relies primarily on its ability to lease
the farm to Rodicon, alternatively a third-party developer
for
purposes of constructing and operating the plant. BI’s
and FLP’s claims would be settled in full.
[13]
The construction of the plant will be undertaken by Rodicon in two
phases, each phase
being twelve (12) months and intended to run
consecutively.
[3]
The
rental payable by Rodicon to Kareeboom will increase upon the
completion of each phase and thereafter at a rate of 6%
per annum.
Reference is made to forecasted assumptions vis-à-vis the
rental payable by Rodicon to Kareeboom over the
course of the
following twenty (20) years.
[14]
Rodicon previously submitted a tender to the Department for a 75 MW
SPV renewable
energy facility on the fourth bid submission date
(August 2014) and was unsuccessful. In a letter from the
Department of
Energy, dated 5 June 2015, it is
inter
alia
stated
that competing bid responses were ranked on the basis of their
combined score for price and economic development and that
preferred
bidders were appointed based on the ranking of their bid responses
relative to others. Rodicon was ranked below those
bidders.
[4]
SEV’s contention that Rodicon was not selected based on price
only, is not correct as the correspondence refers to price
and
economic development.
[15]
Rodicon intended to submit a seventh bid response in January 2023.
The previous
bid for which Rodicon tendered was for 75 MW whereas the
seventh bid will be for 150 MW. SEV contends that the overall
financing
in respect of the development and construction of the plant
will become available to Rodicon,
inter
alia
“
upon
confirmation
of the acceptance by the Department of the seventh bid
”.
[5]
[16]
SEV strongly relies on Clause 15.2.2 of a Settlement Agreement
concluded between
inter alia
BI and SEV. It reads:
“
15.2.2
In respect of which SE Ventures, the sole shareholder of Kareeboom
Kimberley, has mooted, bringing an application to
convert the
liquidation proceedings, to business rescue proceedings, which
application the liquidators
[6]
will not oppose, SE Ventures herewith subordinating all its claim(s)
(shareholders loans and otherwise) in respect of Kareeboom
Kimberley
for the benefit and in favour of Beyond Invest, which subordination
the liquidators herewith accept, to ensure that Beyond
Invest claims
against Kareeboom Kimberley receive preference to payment of the
claims of SE Ventures against Kareeboom Kimberley,
which
subordination shall endure until the claim of Beyond Invest in
respect of Kareeboom Kimberley, circa R7,006,745.88 has been
settled
in full
.
”
[7]
[my emphasis]
[17]
It is important to note that Kareeboom and/or its liquidators were
not parties to
that agreement. SEV contends that BI is now the “
major
creditor of Kareeboom
”
in respect of voting rights vis-à-vis the plan to be presented
to the creditors of Kareeboom and bearing in mind
the undertaking
provided by BI’s liquidators that they will not oppose the
application, mitigates in favour of granting of
the business rescue
application in that it is an indicator of the likelihood of the
adoption and successful implementation of the
proposed business
rescue plan.
[8]
[18]
It appears that during the first meeting of creditors on 29 August
2022, the claim
of SEV was rejected and it is stated that it appears
that the presiding officer had difficulties with proof of a
subordinated claim,
notwithstanding the provisions of the Insolvency
Act.
[9]
[19]
Kareeboom’s only source of revenue is at present the rental
received and to
ensure that the rental continue and income increase,
the plant will cause Kareeboom when placed under business rescue, to
continue
as a going concern.
[10]
[20]
On SEV’s version, Kareeboom’s total liabilities are
R26,315,170,91, excluding
the claim of Zuikerkop which was already
admitted. SEV concede that Kareeboom is factually insolvent in
an amount of R2,000,415.91.
[11]
[21]
The prospects for success in the application of SEV hinges on the
four (4) plans
it proposes.
[22]
The primary goal of business rescue is to facilitate the continued
existence of the
company in a state of solvency and to provide an
alternative in the event that achievement of the primary goal
provides not to
be viable in that it would facilitate a better return
for the creditors or shareholders than would result from its
immediate liquidation.
[12]
Plan
1: selection of Rodicon as preferred bidder for the supply of SPV to
Eskom
:
[23]
In terms of this plan, Rodicon would proceed with the necessary
preparations for
and consequent submissions of the seventh bid and
the farm will remain available as the prospective site for the
construction of
the plant. The requisite finance will become
available to settle FLP and BI whereafter it will continue trading as
a rental
enterprise vis-à-vis the boundary plant.
[13]
[24]
Importantly, SEV states:
“
113.
With regards to the financing of the construction of the boundary
plant,
SEV and Rodicon are currently engaging with various
financiers in preparation for the submission of the seventh bid
.
114.
Whilst
the details pertaining to such negotiations cannot be disclosed at
this juncture, it is noteworthy, that in respect of the
fourth bid,
the anticipated costs of the development of the 75 Megawatt boundary
plant, was estimated to be in the region of R900,000,000.00
.
”
[14]
[my emphasis]
[25]
The bid guarantee of Standard Bank amounts to R7,500,000.00.
[15]
The Nedbank guarantee refers to the project as the design,
construction, commissioning and operation of a
75
MW
plant.
[26]
The Nedbank warranty furthermore states that the terms and
requirements set out in
the term sheet are
provisional
,
non-exhaustive
and may be
subject
to amendments
necessitated by the terms of reference under the REIPPPP or project
documents and/or amendments to any legislation, regulation,
guidelines or directive governing the REIPPPP.
[16]
[27]
The facility amounts are R1,086 billion (senior debt), R60 million
(VAT), R15 million
(guaranteed working capital facility) and the
maximum amount will be determined having regard to the project’s
ability to
support such gearing. Nedbank will seek approval to
underwrite a maximum of R1,086 million plus VAT plus the working
capital
facility
subject
to credit approval
.
[17]
[28]
SEV continues to state that it is unable to reveal the details
pertaining to potential
financiers in respect of the seventh bid.
Rodicon is currently engaging two commercial banking institutions,
alongside two (2)
well-known and respected international financial
institutions. Once the submission date for the seventh bid is
announced,
Rodicon will be in a position to secure the necessary
guarantee from the institution in respect of which the loan
development finance
agreement is to be concluded, and which will then
form part of the seventh bid tender pack.
[18]
[29]
I pause to state that on 12 February 2014, and still in respect of a
75 MW plant,
the Civil Aviation Authority, after evaluating the site
position and reviewing the information received on 4 October 2013,
had
no objection.
[19]
The correspondence of SRK, dated 22 April 2014, is also in respect of
a 75 MW boundary plant.
[20]
The correspondence from the Department of Environmental Affairs dated
8 August 2014 refers to a 75 MW plant and authorization
was granted
for a generating capacity of up to 75 MW.
[21]
[30]
The conditions for the authorization include
inter
alia
that the activity must commence within a period of three (3) years
from date of issue of the authorization and if not, a new application
must be made.
[22]
[31]
It is therefore not correct to state that all permits and approvals
have been obtained
to proceed with the submission of the seventh
bid.
[32]
It is stated that “
operating
on the
assumption
that Rodicon is selected as a ‘preferred bidder’’
”
the financial forecasts for the ensuring twenty (20) year period is
attached.
[23]
Plan
2: engagement with the private sector:
[33]
SEV is of the view that should the plan as prepared in terms of
option 1 be accepted,
it would be adopted by the creditors and
convert Kareeboom to a state of solvency. It keeps the door
open that Rodicon may
not be the preferred bidder. Rodicon, however,
has the ability to sell power to any customer of its choice and will
continue to
lease the farm which will make financial forecasts under
plan 1 still applicable. SEV states: “
Various
power supply proposals which has been under negotiation
with
various
major customers
,
are now able to be taken forward should it be determined by the BRP
that option 1 not form the basis upon which the plan is to
be
formulated.
”
[24]
Plan
3: third-party developer
:
[34]
Several third-party developers have approached Kareeboom with offers
to take over
the lease from Rodicon where that third-party would
become responsible for the submission of the seventh bid and would
then proceed
with the construction and operation of the plant.
A lease concluded with a third-party developer would include
additional
option fees which would be used to pay FLP and BI. Again
reference is made to confidentiality agreements which may not be
disclosed.
It is conceded that option 3 is not the most
commercially attractive route, but remains available.
[25]
Plan
4: sale of the farm by the BRP’s:
[35]
SEV considered the possibility that plans 1, 2 and 3 may not
materialize. However,
placing Kareeboom under business rescue would
result in a better return for creditors or shareholders.
[36]
The liquidators contend that FNB is still owed an amount of
approximately R143,946.97
plus further interest at prime plus 2%.
SARS is owed R715,786.96. In the liquidator’s report,
dated 2 December 2022,
it is stated that after receipt of the
notification of the business rescue application on 25 November 2022,
the liquidators communicated
with the attorneys of SEV to enquire
whether SEV was willing to take over the property against value.
[37]
They further submit that SEV is well aware of who the creditors of
Kareeboom are,
yet failed to give notice to them.
[26]
They submit that on this basis alone, the application stands to be
dismissed.
[38]
The Act provides that the efficient rescue and recovery of a
financially distressed
company has to be conducted in a manner that
balances the rights and interests of all relevant stakeholders.
To satisfy the
test, it has to be shown that the company is
financially distressed, that it is just and equitable to do so for
financial reasons,
and that there are reasonable prospects of
rescuing the company.
ARGUMENTS
[39]
SEV relies on
PFC
Properties (Pty) Ltd v Commissioner for the South African Revenue
Services and Others (Case no 543/21) and Brita De Robillard
NO and
Another v PFC properties (Pty) Ltd and Others (Case No 409/22)
[27]
where
is was held that there must be a reasonable prospect of rescuing the
company and further, that it must be just and equitable
to place it
under supervision. It also relies on
Oakdene
Square Properties (Pty) Ltd v Farm Bothasfontein (Kyalami)
[28]
where it was held that the question whether there is a reasonable
prospect can only be “
yes
”
or “
no
…
.
”
[40]
For an argument that there would be a better return, it relies on
Commissioner
of South African Revenue Services v Beginsel NO and Others
[29]
where it was held that one of the purposes of business rescue is
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.
[41]
SEV contends that the market-value of the farm is in the region of
R24,314,755.00.
[42]
The liquidators submit that a distinction needs to be drawn between
financially distressed, factually
insolvent or commercially
insolvent. They highlight the tenuous basis on which SEV
submits that the company can be rescued.
The application is
based on nothing more than unjustified reliance on uncertain future
events. The critical question is whether
there is a reasonable
prospect for rescuing of Kareeboom. In
Oakdene
supra
[30]
it was held:
“
[29]
This leads me to the next debate which revolved around the meaning of
‘a reasonable prospect’. As a starting point,
it is
generally accepted that it is a lesser requirement than the
‘reasonable probability’ which was the yardstick
for
placing a company under judicial management in terms of s 427(1) of
the 1973
Companies Act (see
eg Southern Palace Investments 265 (Pty)
Ltd v Midnight Storm Investments 386 Ltd
2012 (2) SA 423
(WCC) para
21). On the other hand,
I
believe it requires more than a mere prima facie case or an arguable
possibility. Of even greater significance, I think, is that
it must
be a reasonable prospect – with the emphasis on ‘reasonable’
– which means that it must be a prospect
based on reasonable
grounds. A mere speculative suggestion is not enough
.”
[my emphasis]
[43]
In
Chauke
and Others v Koedoeskop River Farms Alfa CC and Others
[31]
it
was held that in the absence of a factual basis, the Court would not
be able to find a reasonable prospect.
[32]
[44]
In
FirstRand
Bank v Normandie Restaurants
[33]
it was emphasised that business rescue is a temporary measure:
“
[20]
The temporary measures envisaged by the Act are aimed at
maximising the likelihood of the company continuing in
existence on a
solvent basis and at creating a 10 better return for the creditors
and shareholders. As stated in Oakdene Square
Properties (para 31):
‘The development of a plan cannot be a goal in itself. It can
only be the means to an end. That end,
… must be either to
restore the company to a solvent going concern, or at least to
facilitate a better deal for creditors
and shareholders than they
would secure from the liquidation process.’ The measures
proposed in the business rescue plan
will, in my view, not provide
for a temporary solution as envisaged in s 128(1)(b).
They
do no more than plan a long-term debt management process
.”
[my emphasis]
[45]
The liquidators submit that FNB has not given consent for the sale of
the farm or
that it be further mortgaged. On this basis, the
provisions of Section 136(2) of the Act cannot be satisfied.
[46]
They further submit that Rodicon was already unsuccessful in its bid
for the 75 MW
plant and all the documentation during 2014 is
therefore irrelevant. A lease agreement has still to be
concluded between
Rodicon and the liquidators and there is no lease
agreement before Court. There is furthermore no certainty when the
seventh bid
will open and whether it will be accepted. Rodicon does
not have a generation, transmission or distribution licence that is
required.
The first, second and third plans will therefore be
completely unlawful and/or illegal without the licences. The
guarantees of
Standard Bank lapsed on 18 August 2015.
[47]
The fourth plan constitutes nothing other than an informal
liquidation in terms of
which SEV endeavours to sell the farm.
No indication is given what such a sales price could be.
CONCLUSION
[48]
I carefully perused the four plans proposed by SEV and find them
lacking in detail
and firm foundation. The first three plans are
solely reliant on the approval of a 150 MW plant. The previous
approvals all lapsed
and nothing shows that there is any real
prospect for success by either Rodicon or any of the other entities
to develop a plant.
Even if a plant is to be built, it will take
years to become operative and financially viable.
[49]
SEV relies on confidential negotiations, agreements or prospective
arrangements.
It did not take the liquidators or this Court into its
confidence.
[50]
Its challenges were exacerbated by its failure to place a proper
valuation of the
farm before Court. There is no rational basis for a
price other than the valuation of the liquidators.
[51]
Even if it may be argued that the liquidators did not sufficiently
address all the
aspects in the founding papers, this Court has to be
satisfied that a reasonable prospect exists.
[52]
I cannot find that there are, objectively speaking, any foundation to
support the
relief sought. All the plans and scenarios are in my view
speculative. Previous applications were for a plant of lesser
capacity,
the land is not zoned for the purpose envisaged, the
liquidity of Rodicon - or any other party for that matter - is
uncertain,
and the negotiations are kept secret. Over and above that
is the liabilities that, as matters presently stand, exceed the
value.
As long as the valuation of the liquidators stand, there are
insufficient assets not only to pay the creditors a reasonable
dividend
but also to conclude that better value can be achieved. I
find no basis for the relief on the principle of just and equitable.
[53]
Costs should follow the result.
[54]
I therefore make the following order:
ORDER
1.
The application is dismissed with costs.
P
R CRONJé, AJ
For
the Applicant:
Adv.
A H Cowlin
JP
Joubert Attorneys
Symington
De Kok Attorneys
For
the Second and Third Respondents:
Adv
L Meintjes
Noordmans
Attorneys
For
the Fourth and Fifth Respondents:
No
appearance
[1]
Pleadings, page 631 - 640
[2]
Pleadings, page 18, para 49
[3]
Pleadings, page 20, para 54 - 55
[4]
Pleadings, page 83, para 3.2
[5]
Pleadings, page 21, para 60
[6]
Of BI
[7]
Pleadings, page 230 - 231
[8]
Pleadings, page 26, para 85 - 86
[9]
Pleadings, page 27, para 90; page 28, para 93
[10]
Pleadings, page 29, para 98
[11]
Pleadings, page 32, para 105
[12]
Pleadings, page 32, para 107
[13]
Pleadings, page 33, para 111 - 112
[14]
Pleadings, page 33, para 114
[15]
Pleadings, page 359
[16]
Pleadings, page 389
[17]
Pleadings, page 391
[18]
Pleadings, page 34, para 117 - 118
[19]
Pleadings, page 403
[20]
Pleadings, page 404 - 409
[21]
Pleadings, page 413
[22]
Pleadings, page 418, para 6
[23]
Pleadings, page 35, para 122
[24]
Pleadings, page 37, para 131
[25]
Pleadings, page 38, para 135
[26]
This is denied by SEV
[27]
[2023] ZASCA 111
(21 July 2023)
[28]
(Pty) Ltd (609/2012) [2013] ZASCA 68 (27 May 2013)at para [29]; See
also
African
Banking Corporation of Botswana v Kariba Furniture Manufacturers &
Others
(228/2014) [2015] ZASCA 69; 2015 (5) SA 192 (SCA); [2015] 3 All SA
10 (SCA) (20 May 2015) para [21]
[29]
(15080/12)
[2012] ZAWCHC 194
;
2013 (1) SA 307
(WCC) (31 October
2012)
[30]
See also
African
Banking supra
at para [3]
[31]
(77792/2018) [2019] ZAGPPHC 992 (12 December 2019) at para [20]
[32]
See also
African
Banking supra
[33]
189/2016
[2016] ZASCA 178
(25 November 2016)