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[2023] ZAKZPHC 102
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Usher N.O v Abrina 284 (Pty) Limited and Another (15185/22P) [2023] ZAKZPHC 102 (6 October 2023)
FLYNOTES:
COMPANY – Winding up –
Business
rescue terminated
–
Property
holding company with rental as source of regular income –
Practitioner of view that amended business rescue
plan incapable
of implementation – Dependent on associated companies
providing capital injection – Despite creditors
granting
extension for funds to be raised, this not forthcoming –
Various avenues the intervening creditor submits
were worth
exploring are speculative and, in some instances, have no factual
foundation – Business rescue proceedings
terminated and
company placed under final liquidation –
Companies Act 71 of
2008
,
s 141(2)(a)(ii).
REPUBLIC
OF SOUTH AFRICA
KWAZULU-NATAL
HIGH COURTS
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL LOCAL DIVISION,
PIETERMARITZBURG
CASE NO: 15185/22P
In the matter between:-
GLEN VIVIAN
USHER N.O.
APPLICANT
and
ABRINA
284 (PTY) LIMITED (IN BUSINESS RESCUE)
(Registration
No.
2004/034518/07)
RESPONDENT
LESLIE
JOHN BOTHA
INTERVENING
CREDITOR
JUDGMENT
A.
M. ANNANDALE, AJ
:
[1]
The respondent was placed in business
rescue in March 2020 pursuant to an application brought by the
intervening creditor, who is
its sole director and one of the
trustees of the trust which owns its shares. The applicant is the
company’s duly appointed
business rescue practitioner.
[2]
This is an application in terms of
section
141(2)(a)(ii)
of the
Companies Act 71 of 2008
for orders
discontinuing business rescue and winding up the respondent brought
by the business rescue practitioner. He has concluded
that there is
no reasonable prospect for the respondent to be rescued because the
amended business rescue plan is incapable of
implementation. It was
dependent on one of the respondent’s associated companies
providing a capital injection of R 1,5 million.
Despite the
respondent’s creditors having granted an extension of over a
year to raise these funds, they have not been forthcoming.
[3]
The intervening creditor opposes the
application on the basis that the applicant’s conclusion
regarding the respondent’s
prospects is neither reasonable nor
justifiable. The gist of the intervening creditor’s case is
that the applicant has misread
the company’s financial
situation and should in any event have explored options short of
liquidation even if the respondent
cannot be rescued.
[4]
Section 141
of the Act reads in relevant
part as follows:-
‘
141. Investigation
of affairs of company.
—
…
(2) If,
at any time during business rescue proceedings, the practitioner
concludes that—
(
a
)
there is no reasonable prospect for the company to be rescued,
the practitioner must—
(i)
so inform the court, the company, and all affected persons in the
prescribed manner; and
(ii)apply
to the court for an order discontinuing the business rescue
proceedings and placing the company into liquidation;…..
(3) A
court to which an application has been made in terms of subsection
(2)(a)(ii) may make the order applied for,
or any other order that
the court considers appropriate in the circumstances.’
[5]
The primary issue in this application is
whether the threshold required by
section 141(2)
of the Act for an
order winding up the respondent has been met. An ancillary issue
which arises if the threshold has been met,
is whether the respondent
should be placed in provisional or final liquidation.
[6]
Two matters of principle need to be dealt
with before considering the facts and then evaluating the opposing
parties’ contentions
in the light thereof. The first relates to
the onus and second to whether it is necessary for a business rescue
practitioner to
consider options short of liquidation after an
approved business rescue plan has failed.
The nature and
incidence of onus
[7]
There was a dispute as to the incidence and
the nature of the onus and how it stood to be discharged.
[8]
The intervening creditor submitted
that a business rescue practitioner bears the onus to prove that
their conclusion that a company
could not be rescued was based on
justifiable and reasonable grounds and that he was accordingly
entitled to the relief sought.
The applicant on the other hand
contended that the intervening creditor bore the onus to prove that
the relief sought should be
refused. This onus was said to emanate
from the obligation imposed on a business rescue practitioner by
section 141(2)(a)
to apply for liquidation when they have concluded
that there is no reasonable prospect of rescue and, as articulated in
the heads
of argument filed on behalf of the applicant, because ‘the
intervening creditor has not taken any steps to set aside the
applicant’s decision which in any event is unassailable.’
[9]
Despite his initial position on this issue,
during the hearing of the application counsel for the applicant
disavowed reliance on
the notion that the applicant’s decision
needed to have been set aside by the intervening creditor. He also
moved from his
stance that the applicant bore no onus. Ultimately, he
submitted that it was for the applicant to prove
prima
facie
that there was no reasonable
prospect for the company to be rescued, and if this threshold was
met, the intervening creditor would
need to rebut that
prima
facie
case.
[10]
Such an approach is, in my view, contrary
to the language of
section 141(2)(ii)
and runs counter to the
judgment of the Supreme Court of Appeal in
Oakdene Square
Properties v Farm Bothasfontein (Kyalami)
2013 (4) SA 539
(SCA)
(
Oakdene
)
on the meaning of “
reasonable
prospect
” of rescue.
[11]
Although
Oakdene
was concerned with the use of that phrase in
section 131
and not 142,
both sections form part of Chapter 6 of the Act which deals with
business rescue and compromise with creditors and
both employ the
phrase “
reasonable prospect”
in relation to the rescue of a company. The identical phrase ought to
be interpreted consistently, unless the context in which
it is used
warrants a different meaning being accorded to the same phrase in
different sections of the Act. Even more so, when
the phrase appears
throughout the chapter, including, for example, in
sections 128
and
129
.
[12]
Section
131
deals with the circumstances in which a court may order the
commencement of business rescue proceedings.
Section 131(4)
empowers
a court to grant an application placing a company under supervision
and commencing business rescue proceedings if it is
satisfied that at
least one of three jurisdictional facts exist and ‘there is a
reasonable prospect for rescuing the company’
In that context
Oakdene
held
that demonstrating a reasonable prospect that a company can be
rescued requires ‘more than a mere
prima
facie
case or an arguable possibility’ but less than proof on a
balance of probabilities.
[1]
What is required is-
‘
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.’
[2]
[13]
There is nothing about the context in which
the concept of a reasonable prospect of rescue is used in
section 141
which, in my view, warrants attaching a different meaning to that
phrase than it was accorded in
Oakdene
.
Consequently, a business rescue practitioner bringing an application
in terms of
section 141(2)(a)(ii)
is required to place before the
court a factual foundation to demonstrate that there are grounds for
his conclusion that there
is no reasonable prospect for the company
to be rescued, in the sense described above.
[14]
Where an opposing party disputes the facts
upon which the business rescue practitioner relies and/or contends
that the business
rescue practitioner should have taken other steps
or explored other possibilities, they would need to do more than
simply raise
bare denials or engage in vague averments and
speculative suggestions given the application of the
Plascon-Evans
rule.
[15]
Turning
to how the burden might be discharged,
Oakdene
cautioned that it was neither practical nor prudent to be
prescriptive about the way in which an applicant must show a
reasonable
prospect in every case.
[3]
The Supreme Court of Appeal did however endorse the comments of Van
Der Merwe J in
Propspec
Investments (Pty) Ltd v Specific Coast Investments 97 Ltd and Another
2013 (1) SA 542
(FB)
that
demonstrating a factual foundation for the existence of a reasonable
prospect that the desired objects of business rescue could
be
achieved did not ‘require, as a minimum, concrete and
objectively ascertainable details of matters including the likely
availability of the necessary cash resources in order to enable the
company to meet its day to day expenditure, or concrete factual
details of the source, nature and extent of the resources that are
likely to be available to the company’. The same is true
mutatis
mutandis
when
considering whether there is no reasonable prospect that those
objectives can be achieved.
[16]
By virtue of the intrinsic nature of
business rescue and the impact it has on affected parties, whether a
prospect of recovery is
reasonable entails considerations of the
timelines involved and the effect of continued business rescue on all
stakeholders.
[17]
As to the first of these matters,
Koen
and Another v Wedgewood Golf and Country Estate (Pty) Ltd and Others
2012 (2) SA 378
(WCC) para 10 stressed that:-
‘
It
is axiomatic that business rescue proceedings, by their very nature,
must be conducted with maximum possible expedition. In most
cases a
failure to expeditiously implement rescue measures when a company is
in financial distress will lessen or negate the prospect
of effective
rescue’.
[18]
Counsel
for the intervening creditor submitted that the Act must be
interpreted through the prism of the Constitution and stressed
that
the regime of business rescue does not accord exclusive primacy to
the interest of creditors and instead places special value
on the
preservation of companies in financial distress.
[4]
Both submissions are correct, but they do not mean that the interests
of the company override those of its creditors.
[19]
The
‘legislative preference for proceedings aimed at the
restoration of viable companies rather than their destruction'
revealed
by the business rescue provisions in the Act
[5]
does not elevate the interests of companies above those of all other
stakeholders. Indeed, the imperative that
under
our democratic order all legislation must be interpreted through the
prism of the Constitution,
[6]
requires the balancing of all competing rights and interests.
[20]
Section
7 of the Act which provides for the efficient rescue and recovery of
financially distressed companies, does so in a manner
which balances
the rights and interests of all relevant stakeholders, for the
benefit of all of whom business rescue practitioners
are consequently
obliged to execute their duties.
[7]
Although the term stakeholder is not defined in the Act, creditors
fall within its ambit. As Gorven J explained in
DH
Brothers Industries (Pty) Ltd v Gribnitz NO & Others
2014
(1) SA 103
(KZP)
(
Gribnitz
)
para 54,:
‘
Although
“stakeholders” is nowhere defined in the Act, creditors
must surely fall within its ambit. The business rescue
mechanism
recognises throughout that they, too, contribute to the lifeblood of
the economy. It is important that business rescue
must be done in a
manner which balances the rights and interests of stakeholders,
including creditors. If the rights of creditors
were to be ridden
over roughshod, this would undoubtedly detract from other overarching
purposes of the Act, such as promoting
the development of the South
African economy, promoting investment in the South African
markets, creating optimum conditions
for the investment of
capital in enterprises and providing a predictable and effective
environment for the efficient regulation
of companies, to
mention only a few.’ (footnotes omitted)
[21]
Whilst the interests of companies are
important, where a company has no employees and conducts an
enterprise that is not dependent
on special skills, so the
contribution it might make to the economy is not dependent on its
continued existence, the interest
of the company, may weigh
less heavily in the scale. More so when considered against the impact
its continued existence in business
rescue has on the ability of its
creditors to contribute to the economy.
Obligation to explore
options short of liquidation
[22]
It is necessary to deal with the question
of whether a business rescue practitioner is required to consider
options short of liquidation
where a business rescue plan has failed
before he can reasonably conclude that there is no prospect of
rescuing the company. That
issue arises from the intervening
creditor’s submission that such an investigation is required,
whilst the applicant’s
stance is that once the approved
business rescue plan has failed, he has no option but to bring the
present proceedings.
[23]
The
intervening creditor’s submission accords with the concept of
rescue as articulated in the Act, which encompasses not
only a return
to solvency but, if that primary goal is unattainable, facilitating a
better return for creditors or shareholders
than would result from
liquidation.
[8]
Evaluating
whether there are prospects of rescue in this sense, must perforce
entail consideration of both these facets of the
concept of rescue.
Such an obligation is also consistent with business rescue
practitioners’ obligations in terms of section
140 and 141
which include the duty to undertake a proper investigation into the
company’s affairs and its prospects of being
rescued
[9]
[24]
It is however unnecessary to decide the
question as a matter of legal principle due to the facts of this
matter because the revised
business plan obliged the applicant to
consider whether the continuation of business rescue would be more
advantageous for creditors
than liquidation. It provides that if the
business rescue practitioner concluded at any time after the adoption
of the plan that
it was no longer capable of implementation, but
continued to believe that business rescue would yield a better return
for creditors
than liquidation, he would be obliged to call a meeting
of all affected persons for the purpose of considering whether or not
a
revised plan should be formulated and published. It is apparent
from this provision, that the applicant was obliged to consider
whether business rescue would yield a better return for creditors
than liquidation if the revised business rescue plan could not
be
implemented. The applicant could not therefore simply regard the
failure of the plan as automatically requiring an application
for
winding-up to be brought.
[25]
Although the applicant formed the view that
liquidation was inevitable due to the failure of the amended business
rescue plan, in
his replying affidavit, he dealt with the
alternatives to liquidation suggested by the intervening creditor and
explained why none
of them was such as to alter the conclusion to
which he had originally come. The adequacy of those responses can
therefore be considered
in determining whether the applicant has
demonstrated a reasonable basis for his conclusion that there is no
reasonable prospect
of rescuing the respondent, in the dual-faceted
sense in which that term is employed in the Act.
[26]
I propose to consider the parties’
competing contentions on that basis, against the facts regarding the
company, its operations
and the events leading up to business rescue
and the present application, which are not in dispute.
The facts
[27]
The respondent is one of four associated
companies, all wholly owned by the BND Family Trust. The other
companies in the group are
Gentle Wind Investments (Pty) Ltd (Gentle
Wind), Moneyline 327 (Pty) Ltd (Moneyline) and Orion Properties 115
(Pty) Ltd (Orion).
The intervening creditor is the sole director of
all the associated companies and one of the three trustees of the BND
Family Trust.
[28]
The respondent is a property holding
company which owns four units in a sectional title scheme called
Torino Court. The sections
comprise commercial premises in Hillcrest,
KwaZulu-Natal which are let to various enterprises. The rental so
derived is the respondent’s
sole source of regular income,
which has been supplemented in the past by loans from the
intervening creditor and Gentle
Wind. The respondent has no employees
and owns no assets other than the sectional title units.
[29]
The respondent became financially
distressed when some of the units fell vacant in 2018 and 2019. The
Standard Bank of South Africa
Limited (Standard Bank) extended three
facilities to the respondent in terms of which they loaned it various
amounts all of which
were repayable by 28 February 2019. The amounts
due on the facilities were not repaid. In October 2019, Standard Bank
brough an
application to wind up the respondent on the basis that it
was unable to pay its debts as contemplated by section 344(f) read
with
section 345(1)(c)
of the
Companies Act, 61 of1973
which still
applies to the winding up of insolvent companies by virtue of item
9(1) of Schedule 5 of the Act.
[30]
In February 2020, whilst that liquidation
application was still pending, the intervening creditor brought an
application to place
the respondent under business rescue, to which
Standard Bank consented in March 2020, thus suspending that
liquidation by virtue
of
section 131(6)
of the Act.
[31]
When it entered business rescue, the
respondent was receiving rental income of approximately R144 000 per
month inclusive of VAT
which was insufficient to meet its routine
expenditure. The instalment due to Standard Bank was R70 000 per
month and could
not be paid consistently and in full.
[32]
At that stage, creditors’ claims
amounted to some R10.2 million, whilst the four sectional title units
had been valued at
R12.7 million on the open market, and R8.9 million
on a forced sale basis by a professional valuer introduced to the
applicant
by the intervening creditor.
[33]
Standard Bank was the major creditor with a
claim of nearly R5.4 million giving it a little over 80% of the
voting interest. The
intervening creditor’s claim on loan
account was around R 560 000 and subordinated to the claims of
independent creditors.
By virtue of the subordination of his claim,
the intervening creditor would not receive a dividend if the company
were liquidated,
and consequently, no voting interest attaches to his
claim. The same is true of Gentle Wind’s claim of R 3 million,
which
is second in magnitude to that of Standard Bank and exceeds the
quantum of the other creditors’ claims by a considerable
margin.
[34]
The first business rescue plan apparently
required the sale of Unit 4 Torino Court by no later than 31 December
2020 either by private
treaty or, failing that, by public auction. No
sale by private treaty was secured, and no offers were received in
an auction
of the property on 9 December 2020. The first business
rescue plan could therefore not be implemented.
[35]
On 12 April 2021 a revised business rescue
plan was adopted which contemplated the respondent continuing in
business under the control
of the intervening creditor after the
termination of business rescue. The revised business rescue plan no
longer envisaged the
sale of any of the units in Torino Court. It was
instead predicated on R1.5 million being introduced into the
respondent as loan
funds by one of its associated companies, Gentle
Wind, which was already owed some R 3 million. The envisaged source
of the funds
was sales of units in a sectional title development
called Morningside which Gentle Wind was undertaking.
[36]
The R 1.5 million capital injection was to
be used to reduce the respondent’s indebtedness to
Standard Bank and allow
part payments to other creditors
pro-rata
.
From the start of business rescue, the plan required payments to
Standard Bank of R45 000 per month, which were
only
sufficient to service the interest on the facilities. The revised
business plan envisaged R500 000 of the loan funds being
paid to
Standard Bank and the remaining bank debt being refinanced over a
fixed term.
[37]
The due date for Gentle Wind’s
introduction of the R1.5 million was originally September 2021. No
funds were however forthcoming
by that date, apparently due to
certain delays and difficulties in the development of Morningside
apartments. The payment deadline
was extended to 31 May 2022 and
then, finally, to 30 September 2022, but still no funds were
forthcoming. Standard Bank conveyed
to the applicant that it was not
prepared to accord Gentle Wind any further extensions of time.
[38]
The applicant formed the view that the
amended business rescue plan was accordingly incapable of
implementation. He therefore concluded
that there was no longer any
reasonable prospect for the respondent to be rescued and that he was
obliged to make application for
an order discontinuing business
rescue and placing the respondent into liquidation. He conveyed this
conclusion in a letter to
all affected persons dated 21 October 2022
and cancelled the next meeting of creditors scheduled for 28 October
2022.
[39]
The intervening creditor contended in his
opposing affidavit that the applicant had failed to give notice to
all interested and
affected parties in the proper form. Counsel who
appeared for him correctly did not persist with this objection at the
hearing
as it was based on the notice requirements for proceedings
under
section 141(2)(b)
where the business practice practitioner
concludes that there are no reasonable grounds to believe that the
company is financially
distressed, not proceedings under
section
141(2)(a)
such as the present. It consequently became common cause
that all the notice requirements in terms of
section 141(2)(a)
as
well as the notice and security formalities for winding-up had been
met.
[40]
On 27 October 2022, the intervening
creditor, still writing as director of respondent and on its company
stationery despite the
control and management of the respondent
vesting in the hands of the business rescue practitioner, wrote to
the applicant and took
issue with his conclusion that there was no
reasonable prospect of rescuing the respondent on two bases. The
first was that the
construction of Morningside apartments was
complete, Gentle Wind was in the process of collecting certificates
to enable transfers
to occur and sales which had fallen through were
being replaced at higher values. At that stage the intervening
creditor anticipated
that the delay which would be occasioned by
having to secure replacement sales would be about two or three
months. The second basis
on which the intervening creditor took
issues with the applicant was a contention that the applicant ought
to have made application
for finance to the ‘various tiers of
funders available to the marketplace to bridge the gap’.
[41]
Unmoved, on 3 November 2022, the applicant
instituted the present proceedings. The intervening creditor applied
for and was granted
leave to intervene.
[42]
At some point between 8 and 28 November
2022, the intervening creditor forwarded the applicant two agreements
of sale relating to
sections 1
and
2
of Torino Court which he had
purported to accept on behalf of the respondent on 8 November 2022.
Notwithstanding his lack of authority
to act on behalf of the
respondent, the intervening creditor treated the purported agreements
as binding contracts and engaged
with the named purchaser on that
basis. I refer to them as agreements because of the how they were
treated by the intervening creditor,
not to denote that they were
enforceable contracts.
[43]
The purchaser in terms of both agreements
was a company registered in 2022 called Isciko (Pty) Ltd, although
the details of the
purchaser recorded on the information for the
conveyancer sheet of the agreements in one instance records the
details of a natural
person. Both agreements were conditional on the
purchasers obtaining mortgage bonds and ‘fulfilling the
conditions of the
purchaser’s bond’.
[44]
The applicant was not persuaded that either
the letter of 28 October 2022 or the agreements were any reason
for him to reconsider
his stance. Insofar as the agreements were
concerned, the applicant viewed them as not worth the paper they were
written on. He
advanced several reasons for this view including the
conditional nature of the sales, the curious wording of the
suspensive condition
regarding compliance with the purchaser’s
bond conditions and the fact that the agreements were not valid
because the intervening
creditor had no authority to conclude them on
the respondent’s behalf as he purported to have done.
[45]
Both agreements provided for the payment of
cash deposits in the sum of R1.75 million (being half of the purchase
price for each
unit) within 30 (thirty) days of acceptance of the
offer to purchase, and for a bond to be secured for the balance of
the price
by 8 December 2022. As the agreements were purportedly
accepted by the intervening creditor on 8 November 2022,
payment of
the deposit was due on the same date as bond confirmation.
[46]
No deposits were paid, nor was any bond
finance was secured by that date, nor indeed by 31 March 2023, to
which date the intervening
creditor purported to extend the deadline
for approval of bond finance and payment of the deposits after both
agreements had already
lapsed due to failure of the conditions.
[47]
Despite the intervening creditor’s
optimism in his letter of 27 October 2022 that replacement sales in
Morningside would have
been finalised within 2 or 3 months, when he
deposed to his opposing affidavit on 1 March 2023, there was no
suggestion that funds
could be forthcoming from this source. The
intervening creditor nonetheless questioned why the applicant’s
initial stance
that business rescue would yield a better return for
creditors than liquidation had changed. He charged that the applicant
had
not provided sufficient reasons for his changed view regarding
the respondent’s prospects and opposed the application on
several grounds. I deal with each of these in turn in assessing
whether the applicant has demonstrated that his conclusion that
the
respondent cannot be rescued is based on reasonable grounds.
Whether the revised
plan was capable of implementation
[48]
First, the intervening creditor contended
that Gentle Wind’s failure to advance the capital did not
result in a failure of
the revised business plan. Whilst the
intervening creditor accepts that a capital injection was essential
for the implementation
of the revised plan, counsel who appeared on
his behalf submitted that the revised plan envisaged that if the
funds was not forthcoming
from Gentle Wind, a unit in Torino Court
would be sold to raise the necessary capital.
[49]
This submission does not accord with the
revised plan. It was advanced based on a document with which counsel
for the intervening
creditor had been briefed which reflected that
provision, but which was not part of the revised plan or the court
papers. I must
stress that counsel was entirely unaware of this
discrepancy which arose solely due to the manner in which she had
been briefed.
It thus became common cause that the revised plan which
had been approved was not capable of implementation.
The company’s
financial position
[50]
The
intervening creditor’s second contention is that the applicant
had misconstrued the respondent’s financial position
which was
that the respondent was in fact profitable and not commercially
insolvent as it could meet its day-to-day expenses.
[10]
That contention was advanced on the strength of an income and
expenditure sheet prepared by the intervening creditor which was
said
to reveal a nett profit of almost R 200 000 as at January 2023.
[51]
This contention cannot be upheld. The
expenses on the sheet relied on by the intervening creditor are based
on the reduced payments
made by the respondent in terms of the
amended business rescue plan including short-payments due to its cash
flow constraints,
not its actual obligations.
[52]
By way of example, the reduced monthly
payments to Standard Bank in terms of the revised plan solely to
service interest were
in arrears by R 135 000 as at
January 2023 and SARS had not been paid VAT in the sum of around R
60 000. The respondent
actually had a cash shortfall at the end
of January of almost R 400 000. At that time applicant had
outstanding fees due totally
nearly R 390 000, and none of the
respondent’s pre-business rescue creditors had been paid
anything.
[53]
To make matters worse, the respondent’s
rental income has decreased since January 2023 because Orion, one of
the companies
associated with the respondent ,and of which the
intervening creditor is the sole director, has failed to pay more
than R 120 000
in rental for the unit in Torino Court it
occupies and had also not paid its share of electricity.
[54]
It is the intervening creditor, not the
applicant who has misread the respondent’s financial position.
Sale as a going
concern
[55]
The intervening creditor’s third
contention that the applicant should have considered the sale of the
business of the
respondent as a going concern is untenable. It
was not capable of being sold as a going concern because it could not
meet its operational
expenses to trade on that basis from its sole
source of income.
[56]
The respondent is therefore plainly
commercially insolvent. It is precisely for that reason that the
revised business rescue plan
required the injection of a substantial
amount of capital which would be used to restructure the company’s
finances and reduce
its debt. It is therefore unsurprising that the
other options the intervening creditor suggests the applicant should
have pursued
envisage an inflow of funds either through the sale of
one or more of its units or the procurement of loan funding from
sources
unconnected to the respondent and its associated companies.
Sale of the units
[57]
The intervening creditor contends that the
valuation of the sectional title units relied upon by the applicant
is outdated, and
points to the two agreements with Isciko (Pty) Ltd
as better indicators of market value. Whilst this does not detract
from the
respondent’s commercial insolvency, the intervening
creditor submits that the applicant should have pursued the
agreements
or, failing them, the sale of one or more of the
respondent’s units by private treaty to achieve a better return
for creditors
than would eventuate on liquidation.
[58]
The intervening creditor was constrained to
accept that he had no authority to conclude the agreements on the
respondent’s
behalf as he had purported to do, and that they
had in any event lapsed. He nonetheless suggested that the applicant
should have
looked to conclude agreements with the named purchaser on
the same or similar terms with the concurrence of the affected
parties.
[59]
Neither of the agreements existed when the
applicant instituted the present proceedings on 3 November 2022, but
he did consider
them and concluded that they were no reason for him
to change his conclusion regarding the respondent’s prospects
of recovery
as discussed above.
[60]
Those reasons aside, the fact that neither
payment of the deposits nor bond approvals were forthcoming despite
extensions of time
and the intervening creditor engaging with the
purchaser as if there were valid agreements in place, demonstrates
that the agreements,
or valid contracts concluded on similar terms,
were not likely to materialise into real sales transactions. It also
undermines
the intervening creditor’s submission that the
offers are indicative of the true value of the properties and that
the applicant
has undervalued the sectional title units.
[61]
The intervening creditor’s
submissions regarding what he contends is the true value of the
sectional title units and the perceived
viability of selling
individual units also takes no account of the fact – stressed
by the applicant – that the units
are let and will therefore
need to be sold subject to the existing leases, the revenue from
which is insufficient to meet the respondent’s
operational
expenses. This situation is exacerbated by the fact that demand for
the units is dwindling. The rental previously agreed
in respect of
certain of the units has had to be reduced simply to procure some
income.
[62]
I therefore find that the applicant’s
view that selling one or more of the units would not create a
reasonable prospect of
rescuing the respondent, is based on
reasonable grounds.
Other sources of
capital
[63]
The intervening creditor’s final
contention is that the applicant should have explored the
introduction of capital through
other sources including commercial
lending institutions.
[64]
That contention is again divorced from the
commercial reality of the respondent. Standard Bank is the creditor
with the largest
claim, and the capital of the facilities it advanced
the company have not been serviced for a period now exceeding two
years. The
revised business rescue plan envisaged that Standard
Bank’s claim would have been settled in full by November 2021,
over
eighteen months ago. Instead, not even the interest has been
fully serviced in that period.
[65]
In those circumstances, the
applicant’s stance that it would be futile to look for other
sources of capital funding and his
conclusion that only the
intervening creditor or one of the respondent’s associated
companies would be likely to provide
a capital injection is based on
reasonable factual grounds.
[66]
I therefore find that all the various
avenues the intervening creditor submits were worth exploring are
speculative and, in some
instances, have no factual foundation.
They do not detract from the reasonableness of the applicant’s
conclusion that
there is no reasonable prospect that the respondent
can be rescued, and that liquidation is the only option.
[67]
It follows that the application must
succeed, and the respondent should be placed in liquidation. The
question is whether I should
grant a provisional or final winding up
order.
Provisional or final
winding up
[68]
The
1973
Companies Act does
not require a final order to be preceded by a
provisional order and there is no reason why final orders should not
be granted in
appropriate cases.
[11]
This division usually follows the practice of granting a provisional
order of winding up coupled with a rule
nisi
calling upon persons concerned to show cause why a final order should
not be granted. That is not however an immutable practice,
and the
discretion accorded to the court in terms of
section 141(3)
to grant
any order the court considers appropriate is broad.
[69]
In
this case, all the parties who would have an interest in showing
cause why the respondent should not be finally wound up if a
rule
nisi
and provisional order were granted are affected parties in the
business rescue proceedings who have all been notified of this
application to wind up the respondent. Only the intervening creditor
opposes the grant of that relief. All the issues have been
fully
ventilated on the affidavits, and the intervening creditor has put
nothing forward to persuade me that further relevant facts
would be
forthcoming if a rule
nisi
were
issued.
[12]
[70]
Given the history of this matter it is
likely that the intervening creditor would oppose a final order
thereby further delaying
the respondent’s winding up. It was
the intervening creditor who forestalled liquidation in 2019 by
applying to place the
respondent in business rescue. In the
intervening three and a half years, there have been various
unsuccessful attempts to avert
liquidation, the last of which was
entirely dependent on the intervening creditor sourcing a capital
injection via one of the associated
companies which he controls It is
now two years since those funds should have been paid.
[71]
Delay occasions no prejudice to the
intervening creditor. It favours him and the respondent at the
expense of creditors who are
entitled to a dividend on winding up and
who have effectively been subsidising the respondent. In addition,
the respondent’s
creditors have not been able to enforce their
claims due to business rescue for a considerable period and the
respondent is presently
trading in insolvent circumstances. There is
no reason why that should continue any longer.
[72]
As Gorven J said in
Gribnitz
para 27:
'Business rescue
proceedings are geared at providing a window of opportunity to
restore an ailing company to financial health and
functionality. The
window of opportunity does not remain open indefinitely.' ”
[73]
For the respondent, that window of
opportunity which has stood ajar for some considerable time must now
close and I consider it
appropriate to grant a final liquidation
order.
Costs
[74]
There remains the question of the costs.
The applicant seeks an order that the costs of the application be
costs in the liquidation,
save for the costs occasioned by
intervening creditor’s intervention and unsuccessful
opposition, which he submits should
be paid by the intervening
creditor on the scale as between attorney and client.
[75]
The intervening creditor has been
unsuccessful. He acted in his own interests in a manner which has
prejudiced the general body
of creditors who will obtain a dividend
on liquidation by delaying the winding up of the respondent for a
protracted period. If
the intervening creditor is not ordered to pay
the costs associated with his opposition, the general body of the
respondent’s
creditors will bear them. I can see no basis upon
which that would be an appropriate exercise of my discretion in
respect of costs.
I do not however consider that the intervening
creditor acted in a fashion which warrants costs on an attorney
and client
scale.
Order
[76]
I therefore make the following order:-
1.
In terms of
section 141(2)(a)(ii)
of the
Companies Act, 2008
the business rescue proceedings in respect of
Abrina 284 (Pty) Limited (registration number 2004/034518/07) (in
business rescue)
be and are hereby terminated.
2.
In terms of
section 141(2)(a)(ii)
of the
Companies Act, 2008
, Abrina 284 (Pty) Limited (registration number
2004/03451807) (in business rescue) is hereby placed under final
liquidation in
the hands of the Master of the KwaZulu-Natal High
Court, Pietermaritzburg.
3.
The costs of the application are costs in
the liquidation, save for those costs in respect of the intervention
application and the
costs incurred by the intervening creditor’s
opposition of this application which costs are to be paid by the
intervening
creditor.
______________________
A.M. ANNANDALE, AJ
JUDGMENT RESERVED:
17 JULY
2023
JUDGMENT HANDED
DOWN: 6 OCTOBER 2023
COUNSEL FOR
APPLICANT: D. SCHAUP
Instructed
by: Stowell &
Company
Pietermaritzburg
Tel:
033 845 0500
Ref:
PL FIRMAN/USH9/0036
E-mail:
paul@stowell.co.za
COUNSEL FOR
INTERVENING CREDITOR: C. S. A. SMART
Instructed by:
Colyn Townsend Attorneys
Hillcrest
Tel:
031 765 7507
Ref:
COLYN TOWNSEND / BO 02/0001/2023
E-mail:
colyn@colyntownsenlaw.co.za
c/o
Randles Incorporated
Pietermaritzburg
Tel:
033 392 8000
Ref:
A VAN LINGEN/AMISHA
E-mail:
amisha@randles.co.za
[1]
Oakdene
paras 29 to 31.
[2]
Oakdene
para
29.
[3]
Oakdene
para
30.
[4]
Booysen
v Jonkheer Boerewynmakery (Pty) Ltd (in business rescue) and another
2017(4)
SA 51 (WCC) paras 16 -17.
[5]
Cape
Point Vineyards (Pty) Ltd v Pinnacle Point Group Ltd and Another
(Advantage Projects Managers (
Pty)
Ltd Intervening)
2011
(5)
SA
600
(WCC)
para
6.
[6]
Investigating
Directorate
:
Serious
Economic Offences and others v Hyundai Motor Distributors
(
Pty
)
Ltd and
others
:
In re
:
Hyundai
Motor Distributors
(
Pty
)
Ltd and
others v Smit NO and others
[2000]
ZACC
12
;
2001 (1) SA 545
(CC) paras 21 -22.
[7]
Commissioner
for the South African Revenue Service v Louis Pasteur Investments
(Pty) Ltd and Others
[2021]
JOL 49964
GP paras 46 and 51.
[8]
Oakdene
paras
22 to 28
[9]
Ragavan
and others v Optimum Coal Terminal
(Pty)
Ltd
2023 (4) SA 78
(SCA) para 24
[10]
As
described in
ACSA
V Spain NO
2021 (1) SA 97
(KZD).
[11]
Johnson
v Hirotec (Pty) Ltd
[2000] ZASCA 131
;
2000
(4) SA 930
(SCA) para 9.
[12]
Cf
Johnson
v Hirotec
note
11 above, para 9.