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[2023] ZAKZPHC 104
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Standard Bank of South Africa Limited v RA Govender Close Corporation and Others (7128/22) [2023] ZAKZPHC 104 (29 March 2023)
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IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Case
No: 7128/22
In
the matter between:
THE
STANDARD BANK OF SOUTH AFRICA LIMITED
APPLICANT
and
RA
GOVENDER CLOSE CORPORATION
FIRST RESPONDENT
(IN
BUSINESS RESCUE)
(Registration
Number: 1997/036599/23)
IGOLKISSHORE
RAGUNANDAN N.O.
SECOND
RESPONDENT
(Identity
Number: 5[...])
COMPANIES
AND INTELLECTUAL PROPERTY
THIRD
RESPONDENT
COMMISSION
ORDER
The
following order is made:
1.
It is declared that:
1.1
the business rescue proceedings of the first respondent terminated in
terms
of
section 132(2)(c)(i)
of the
Companies Act, 2008
on 19 May
2022; and
1.2
all actions taken by the second respondent and all proceedings in the
business
rescue of the first respondent, after 19 May 2022, are null
and void.
2.
A rule nisi is issued calling upon all persons interested to show
cause to this
Court on the 3rd May 2023 at 09h30 or so soon
thereafter as the matter may be heard, why the first respondent
should not be finally
wound-up.
3.
This order operates, with immediate effect, as a provisional order
for the windingup
of the first respondent.
4.
Service of the order to be effected by:
4.1
Publication forthwith in both the Government Gazette and the Mercury;
4.2
Service on the South African Revenue Service;
4.3
Service on the registered address of the first respondent at 5[...]
D[...] Street, Jacobs,
Durban;
4.4
Service on the employees of the first respondent, if any; and
4.5
Service on every registered trade union that represent any of the
employees of the first
respondent, if any.
5.
The second respondent is directed to pay the costs of this
application personally.
JUDGMENT
Z
P Nkosi J
[1]
The applicant seeks an order declaring the business rescue
proceedings to be at an
end in terms of s 132(2)(c)(i) of the
Companies Act 71 of 2008 ("the Act") and for the issuing of
a rule nisi provisionally
winding-up the first respondent. The
application is resisted by the second respondent purely on the
interpretation of s 153 of
the Act.
[2]
The following facts seems to be common cause or not in dispute. The
applicant is a
creditor of the first respondent. The first respondent
was placed in business rescue, on 14 January 2022 and the second
respondent
was appointed as its business rescue practitioner. The
second respondent published a business rescue plan, on 5 May 2022.
The plan
was introduced at a meeting, on 19 May 2022. for
consideration by creditors. The second respondent did not invite
discussion, and
entertain and conduct a vote on motions to amend the
proposed plan. Instead, he called for a preliminary approval of the
proposed
plan.
[3]
The plan was rejected by the creditors. The second respondent did not
seek a vote
of approval to prepare and publish a revised plan. He
invited creditors to make binding offers to purchase the voting
interests
of the applicant and FirstRand Bank. No affected persons
called for a vote of approval requiring the practitioner to prepare
and
to publish a revised plan.
[4]
The first respondent's member (Govender) made a binding offer which
was summarily
rejected whereafter, the second respondent adjourned
the meeting for five days. The meeting resumed on 26 May 2022 after
the second
respondent unilaterally republished a revised plan and
proposed a fresh vote.
[5]
The plan was again rejected. Govender again made a binding offer
which was summarily
rejected. Thereupon, the second respondent again
adjourned the meeting. Thereafter, on 31 May 2022 the second
respondent again
unilaterally published another revised plan. The
meeting resumed on 1 June 2022 and was adjourned for the applicant to
bring this
application.
[6]
The issue that requires determination is whether, after a business
rescue plan has
been rejected by the holders of creditors voting
interest at the meeting held in terms of s 151 of the Act, and a
binding offer
made by affected persons to purchase the voting
interest of a person who opposed the adoption of the plan, at a value
independently
and expertly determined in terms of s 153(1)(b)(ii) of
the Act, is rejected, the business rescue proceedings are at an end,
or
whether the whole process is locked in an ongoing cycle by virtue
of the wording of s 153(4) of the Act. In short, the issue concerns
an interpretation of s 153, particularly s 153(4).
[7]
It is submitted on behalf of the applicant that where a binding offer
is made, the
practitioner cannot invokes 153(4) to unilaterally make
substantive changes to the plan at a reconvened meeting. It is
contended
on the applicant's behalf that the second respondent did so
unlawfully on two occasions.
[8]
Counsel for the applicant argues, in his heads of argument that in
terms of s 153(4)
of the Act, the practitioner is faced with two
scenarios. Firstly, where the binding offer is rejected, the plan
requires no necessary
revisions to appropriately reflect the results
of the offer. In other words, he can do no more than make necessary
revisions appropriately
reflecting the result and can certainly not
fundamentally amend the plan unilaterally since the rejection of the
offer does not
affect voting interests. Necessary revisions, in this
context, do not equate to "prepare and publish a revised plan.".
[9]
Secondly, where the binding offer is accepted the practitioner must
make any necessary
revisions to the business rescue plan to
appropriately reflect the results of the offer. It is submitted by
the applicant that
this is limited to reflecting the change in the
voting interests and, by virtue of such change, s 152 applies with
regards to a
fresh vote on the existing business rescue plan and s
153 applies where the plan is again rejected.
[10]
It is the contention of applicant's counsel that applying the
principles of interpretation as
set out in Natal Joint Municipal
Pension Fund v Endumeni Municipality
2012 (4) SA 593
(SCA), s
153(4)(b) of the Act finds application only where the binding offer
is accepted. Otherwise, any other interpretation and
application will
result in the endless cycle advocated by the second respondent.
Counsel submits that in terms of s 132(2)(c)(i)
business rescue
proceedings end when the plan has been proposed and rejected and no
affected person has acted to extend the proceedings
in any manner
[11]
In reply, counsel for the second respondent submits that the
practitioner acted to adjourn the
meeting as expressed in peremptory
terms of s 153(4) after an affected person made a binding offer and
while the process to fix
the value provided for in s 153 (1)(b)(ii)
is attended to, the meeting had to be adjourned for no more than five
business days
to afford the practitioner an opportunity to make any
necessary revisions to the business rescue plan to appropriately
reflect
the result of the offer. Counsel contends that the binding
offer cannot be rejected before the fair and reasonable estimate of
value is determined independently and expertly, because to do so
would undermine the process and frustrate the purpose of the Act
and
the section in achieving that purpose. Put differently, it is part of
the structure of the Act in business rescue proceedings
for further
things to be done in relation to the binding offer before it can be
rejected.
[12]
In support of this contention, counsel has cited
DH Brothers
Industries (Pty) Ltd v Gribnitz NO and Others
2014 (1) SA 103
(KZP) para 60, which aptly held:
'...
The acceptance or rejection need only take place once the value has
been finally determined. The independent expert is therefore
obliged
to reach a determination by the date of adjourned meeting.'
[13]
In terms of s 132(2)(c) of the Act, business rescue proceedings end
when:
'(c)
a business rescue plan has been –
(i)
proposed and rejected in terms of Part D of this Chapter, and no
affected person
has acted to extend the proceedings in any manner
contemplated in section 153; or
(ii)
adopted in terms of Part D of this Chapter, and the practitioner has
subsequently
filed a notice of substantial implementation of that
plan.'
[14]
In terms of s 151(1) of the Act, the practitioner 'must convene and
preside over a meeting of
creditors and any other holders of a voting
interest, called for the purpose of considering the plan'. It
provides in subsec (2)
how such a meeting should be convened. In
subsec (3) it further provides that such a meeting 'may be adjourned
from time to time,
as necessary or expedient, until a decision
regarding the company's future has been taken in accordance with
sections 152 and 153'.
[15]
Section 152 of the Act, which regulates the proceedings during
consideration of the business
rescue plan, provides:
'152
Consideration of business rescue plan
(1)
At the meeting convened in terms of section 151, the practitioner
must -
(a)
introduce the proposed business plan for consideration by the
creditors and, if applicable,
by the shareholders;
(b)
inform the meeting whether the practitioner continues to believe that
there is a reasonable
prospect of the company being rescued;
(c)
provide an opportunity for the employees' representatives to address
the meeting;
(d)
invite discussion, and entertain and conduct a vote, on any motions
to –
(i)
amend the proposed plan, in any manner moved and seconded by holders
of creditors'
voting interests', and satisfactory to the
practitioner; or
(ii)
direct the practitioner to adjourn the meeting in order to revise the
plan for further
consideration; and
(e)
call for a vote for preliminary approval of the proposed plan, as
amended if applicable, unless
the meeting has first been adjourned in
accordance with paragraph
(d)
(ii).
(2)
In a vote called in terms of subsection (1) (e), the proposed
business rescue plan will
be approved on a preliminary basis if –
(a)
it was supported by the holders of more than 75% of the creditors'
voting interests that
were voted; and
(b)
the votes in support of the proposed plan included at least 50% of
the independent creditors'
voting interests, if any, that were voted.
(3)
If a proposed business rescue plan –
(a)
is not approved on a preliminary basis, as contemplated in subsection
(2), the plan is rejected,
and may be considered further only in
terms of section 153 ... '
[16]
Section 153 of the Act, regulates the proceedings in instances of
failure to adopt the business
rescue plan. The relevant provisions
are captured below:
'153
Failure to adopt business rescue plan –
(1)
(a) If a business rescue plan has been rejected as contemplated in
section 152 (3) (a) or
(c) (ii)
(bb)
the practitioner may -
(i)
seek a vote of approval from the holders of voting interests to
prepare and
publish a revised plan; or
(ii)
advised the meeting that the company will apply to a court to set
aside the result
of the vote by the holders of voting interests or
shareholders, as the case may be, on the grounds that it was
inappropriate.
(b)
If the practitioner does not take any action contemplated in
paragraph (a) –
(i)
any affected person present at the meeting may –
(
aa
) call
for a vote of approval from the holders of voting interests requiring
the practitioner to prepare and publish a revised
plan; or
(bb)
apply
to the court to set aside the result of the vote by the holders of
voting interests or shareholders, as the case may
be, on the grounds
that it was inappropriate; or
(ii)
any affected person, or combination of affected persons, may make a
binding offer
to purchase the voting interests of one or more persons
who opposed adoption of the business rescue plan, at a value
independently
and expertly determined, on the request of the
practitioner, to be a fair and reasonable estimate of the return to
that person,
or those persons, if the company were to be liquidated.
(2)
If the practitioner, acting in terms of subsection (1) (a) (ii), or
an affected person,
acting in terms of section 1 (b) (i) (
bb
),
informs the meeting that an application will be made to the court as
contemplated in those provisions, the practitioner must
adjourn the
meeting –
(a)
for five business days, unless the contemplated application is made
to
the court during that time; or
(b)
until the court has disposed of the contemplated application.
(3)
If, on the request of the practitioner in terms of subsection (1) (a)
(i), or a call by
an affected person in terms of subsection (1) (b)
(i) (
aa
), the meeting directs the practitioner to prepare and
publish a revised business rescue plan –
(a)
the practitioner must –
(i)
conclude the meeting after that vote; and
(ii)
prepare and publish a new or revised business rescue plan within 10
business
days; and
(b)
the provisions of this Part apply afresh to the publishing and
consideration of that new or
revised plan.
(4)
If an affected person makes an offer contemplated in subsection (1)
(b) (ii), the practitioner
must-
(4)
If an affected person makes an offer contemplated in subsection (1)
(b) (ii), the practitioner
must-
(a)
adjourn the meeting for no more than five business days, as necessary
to afford the practitioner
an opportunity to make any necessary
revisions to the business rescue plan to appropriately reflect the
results of the offer; and
(b)
set a date for resumption of the meeting, without further notice, at
which the provisions of
section 152 and this section will apply
afresh.
(5)
If no person takes any action contemplated in subsection (1), the
practitioner must promptly
file a notice of the termination of the
business rescue proceedings '
[17]
On the facts which are common cause, the practitioner, on 19 May
2022, and at the meeting convened
in terms of s 151, called for a
preliminary approval of the proposed plan. The plan was rejected by
creditors and neither the practitioner
nor affected persons present
sought a vote of approval in terms of s 153(1)(a)(i) or 153(1)(b)(i)
to require the practitioner to
prepare and publish a revised plan.
[18]
Instead, Govender made a binding offer to purchase the applicant's
voting interest for a nil
amount, in terms of s 153(1)
(b)(ii)
which had been independently and expertly appraised and valued at
the request of the practitioner (Annexure "FA12"). The
offer was summarily rejected. Thereafter, the second respondent
adjourned the meeting for five days to resume on 26 May 2022, and
unilaterally republished a revised plan and proposed a fresh vote.
The plan was again rejected. At the second meeting, Govender
again
made a binding offer which was summarily rejected.
[19]
It appears to be common cause that the first offer made by Govender,
on 19 May 2022, constitutes
a proper binding offer in terms of the
provisions of s 153(1
)(b)(
ii) which was only binding on the
offerer and not the offeree. Once the offer had been rejected, it was
not necessary to afford
an opportunity to the practitioner to proceed
in terms of s 153(4), as there were no revisions to be made to the
business plan,
since the status quo remained the same. For all
intents and purposes the business rescue ended in terms of s
132(2)
(c)(
i).
[20]
What the second respondent did thereafter was ultra vires his
statutory powers. Section 153(4)(a)
of the Act, on a plain and/or
purposive reading, only empowers the practitioner to make the
necessary changes to the plan, and
not to unilaterally effect
substantive changes to it and put it to the meeting reconvened in
terms of s 153(4)(
b)
. That means, the adjournment must
be necessary to afford the practitioner an opportunity to make
necessary revisions for
the business rescue plan to appropriately
reflect the results of the offer, only when the binding offer has
been accepted. Otherwise,
no revisions are required if the binding
offer has been rejected, as such an interpretation opens a revolving
gate with no stopper,
and does not lead to sensible, business-like
results. Such consequences would be untenable.
[21]
Business rescue proceedings, by their very nature, must be conducted
with maximum possible expedition.
A business rescue plan should be
developed and implemented within a reasonable period (
Alderbaran
(Pty) Ltd and Another v Bouwer and Others
2018 (5) SA 215
(WCC)
paras 60 and 74;
Koen and Another v Wedgewood Village Golf and
Country Estate (Pty) Ltd and Others
2012 (2) SA 378
(WCC) para
10).
[22]
It follows, therefore, that on 26 May 2022, at the resumed meeting,
at which on a fresh vote
the revised plan was again rejected, and
another binding offer made and also rejected, the second respondent
was acting beyond
the scope of his functions. I consider that
whatever happened after the meeting, on 19 May 2022 should be
considered null and void.
[23]
The second respondent deliberately disregarded his statutory duties
in unlawfully adjourning
the meeting, in the manner that he did, not
once but twice, and improperly amended the plan in the manner he did,
and thereafter
sought a new vote for the amended plan at the resumed
meetings, on 26 May 2022 and 1 June 2022. There can be no excuse for
his
unlawful conduct, in particular since the unlawfulness of his
conduct had been brought to his attention, on several occasions, at
those meetings, but was simply ignored. In these proceedings, he has
sought to defend his reckless conduct, after having totally
disregarded the boundaries of his statutory duties and displayed a
clear bias or partial attitude against the applicant's interests
(
African Banking Corporation of Botswana Ltd v Kariba Furniture
Manufacturers (Pty) Ltd and Others
2015 (5) SA 192
(SCA) para
38). I am of the view that the second respondent has to pay the costs
of the application.
[24]
The application to liquidate the first respondent satisfies the
requirements for a winding-up
order albeit on a provisional basis.
The first respondent owes the applicant approximately R6 million plus
interest and is undeniably
unable to pay its debts, as contemplated
ins 345 of the Companies Act 61 of 1973 ("the Companies Act").
[25]
The court's power to grant a winding-up order is discretionary
irrespective of the ground upon
which the order is sought (
F&C
Building Construction Co (Pty) Ltd v Macsheil Investments (Pty) Ltd
1959 (3) SA 841
(N) at 844). This discretion must be exercised on
judicial grounds; and in its exercise the court should have regard to
the grounds
and the reasons for the purposed winding-up (
Irvin and
Johnson Ltd v Oelofse Fisheries Ltd; Oelofse v Irvin and Johnson Ltd
and Another
1954 (1) SA 231
(E) at 244;
Leca Investments (Pty)
Ltd v Shiers
1978 (4) SA 703
(W) at 705). Section 347(1) of the
Companies Act provides that 'the Court shall not refuse to make a
winding-up order on the ground
only that the assets of the company
have been mortgaged to an amount equal to or in excess of those
assets or that the company
has no assets'.
[26]
The first respondent currently operates its engineering business in
business rescue, in attempts
to trade itself out of its predicament.
It is averred that the business is functioning productively, yet no
payment has been tendered
to the applicant to stave off liquidation.
With business rescue having come to an end its liquidation has become
unavoidable.
Order
[27]
I therefore make the following order:
1.
It is declared that:
1.1
the business rescue proceedings of the first respondent terminated in
terms
of section 132(2)(
c
)(i) of the
Companies Act, 2008
on 19
May 2022; and
1.2
all actions taken by the second respondent and all proceedings in the
business
rescue of the first respondent, after 19 May 2022, are null
and void:
2.
A rule nisi is issued calling upon all persons interested to show
cause to this
Court on the 3rd May 2023 at 09h30 or so soon
thereafter as the matter may be heard, why the first respondent
should not be finally
wound-up.
3.
This order operates, with immediate effect, as a provisional order
for the winding
up of the First Respondent.
4.
Service of the order to be effected by:
4.1
Publication forthwith in both the Government Gazette and the Mercury;
4.2
Service on the South African Revenue Service;
4.3
Service on the registered address of the first respondent at 5[...]
D[...] Street, Jacobs,
Durban;
4.4
Service on the employees of the first respondent, if any; and
4.5
Service on every registered trade union that represent any of the
employees of the first
respondent, if any.
5.
The second respondent is directed to pay the costs of this
application personally.
Z
P NKOSI J
CASE
INFORMATION
DATE OF HEARING:
10 FEBRUARY 2023
DATE JUDGMENT:
29 MARCH 2023
COUNSEL FOR THE
APPLICANT:
R.M VAN ROOYEN
INSTRUCTED BY:
EDWARD NATHAN
SONNENBERGS
1
RICHEFOND CIRCLE
RIDGESIDE OFFICE
PARK
UMHLANGA
TEL: 031 536 8639
EMAIL:cschoon@ensafrica.com
C/O STOWELL &
CO
295
PIETERMARITZBURG
(REF: NAVEN
MOODLEY)
COUNSEL
FOR THE 1
st
and 2
nd
RESPONDENT'S:
M PILLEMER SC
INSTRUCTED BY:
K MAKHANYA INC.
6TH FLOOR, ROYAL
TOWERS
30 DOROTHY NYEMBE
STREET
(GARDINER) DURBAN
C/O CAJEE SETSUBI
CHETTY
195 BOSHOFF STREET
PIETERMARITZBURG
TEL: 033 345 6779