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[2024] ZAKZPHC 36
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Ally v Firstrand Bank Limited and Others (1209/2024P) [2024] ZAKZPHC 36 (1 February 2024)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
IN THE HIGH COURT OF
SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
CASE NUMBER 1209/2024P
In the matter between:
RIAL
ALLY
APPLICANT
And
FIRSTRAND
BANK
LIMITED
FIRST RESPONDENT
GLEN VIVIAN USHER
N.O
SECOND RESPONDENT
KRISHNA RUBEN
VENGADESAN
THIRD RESPONDENT
WASEELA DISTRIBUTORS
CLOSE CORPORATION
FOURTH RESPONDENT
JUDGMENT
P
C BEZUIDENHOUT J
:
[1]
Applicant brought an urgent application to place Fourth Respondent
under business
rescue. He is the sole member of Fourth
Respondent and accordingly an affected party. This was not in
dispute.
Fourth Respondent was provisionally wound up on 12
September 2023 and the return date is 31 January 2023.
[2]
The application in this matter was issued on 26 January 2024 and two
service affidavits
were provided setting out service to the relevant
parties. Accordingly in terms of section 131(6) of the
Companies Act 71
of 2008 (the Act) further legal proceedings against
Fourth Respondent are stayed at this stage.
[3]
Mr Moodley, who appeared on behalf of Applicant, submitted that the
matter was urgent
as it was only on 25 January 2024 that a business
rescue practitioner filed a report, after investigating the affairs
of Fourth
Respondent at the request of Applicant, and concluded there
was a reasonable prospect that Fourth Respondent can return to
normality.
Accordingly that made the application urgent as the
final order was to be heard on 31 January 2023. It was
submitted by Mr
Combrinck, appearing on behalf of First Respondent,
that the urgency was self-created and that Applicant had substantial
time since
the granting of the provisional order to have brought an
application of this nature. I accept that the report of the
business
rescue practitioner was only received on 25 January 2024 and
that as a result thereof the matter became urgent and therefore
accept
that there was sufficient urgency for the matter to be heard.
[4]
Mr. Flemming, appearing on behalf of the twenty-six employees
of Fourth Respondent,
submitted that they supported the application
for business rescue as set out in the affidavit of Applicant as they
were of the
opinion that the business could be saved and that it
would also ensure that they would not lose their jobs.
[5]
Second and Third Respondents were appointed as the liquidators of
Fourth Respondent
and commenced with their functions. On 12
December 2023 they brought an application against First and Fourth
Respondents
together with two other Respondents seeking further
relief and granting them certain powers to investigate the affairs of
Respondents
and
inter alia
appoint forensic investigators.
A Rule
nisi
was granted which is returnable on 9 February
2024.
[6]
It was submitted by Mr Moodley that business rescue would be the
correct procedure
in this case and that there was sufficient evidence
to indicate that Fourth Respondent could be turned into a profitable
business.
He referred to the assets of Fourth Respondent which
includes
inter alia
various properties and for which two of
them offers have been received in the amount of R11 million.
There is further
monthly rental collected of approximately R270 000
and there is stock of R5 million and 26 employees. He therefore
submitted
that this was all indicative that the business could be
rescued and referred to the report of the business rescue
practitioner
and submitted that that must be considered in deciding
the matter. He further submitted that there would be no
prejudice
to First Respondent because if the business rescue did not
succeed it would return to court for a final winding up order.
The application was also not opposed by the two liquidators.
[7]
Mr Combrinck on behalf of First Respondent, the only party opposing
the application,
referred to the decision of Oakdene Square
Properties Pty (Ltd) and others v Farm Bothasfontein (Kyalami) Pty
(Ltd) and others
2013 (4) SA 539
(SCA). He submitted that on a
reading of this decision there had firstly to be factors indicating
that the business can trade
and has reserves and secondly if not that
there would be a greater advantage to creditors. There must be
a reasonable prospect
of survival of a business and not merely a
prima facie
one. He submitted that no such case was made
out and there was no factual basis set out by the business rescue
practitioner.
Further he submitted that it was self-created
urgency which I have dealt with above. He therefore submitted
that the
application should be dismissed with costs.
[8]
Mr Flemming, appearing on behalf of the 26 employees, supported the
relief sought
and submitted that there had been substantial
compliance as required in terms of the Oakdene decision and the Act.
[9]
Section 131(1) of the Act entitles an affected party to approach the
court at any
time for an order placing the company under supervision
and commencing business rescue. This was not disputed.
Section
131(4) states as follows:
“
After
considering an application in terms of subsection (1) the court may
(a)
make an order placing the company under
supervision and commencing business rescue proceedings if the court
is satisfied that;
(i)
the company is financially distressed
(ii)
the company has failed to pay over any
amount in terms of an application under or in terms of public
regulation, or contract with
respect to employment related matters
or;
(iii)
it is otherwise just and equitable to do so
for financial reasons, and there is reasonable prospect for rescuing
the company or;
(b)
dismissing the application together with
any further necessary an appropriate order including and order
placing the company under
liquidation.”
[10]
In paragraph 23 of Oakdene judgment it held:
“
The
potential business rescue plan section 128(1)(b)(iii) thus
contemplates two objects or goals, a primary goal, which is to
facilitate
the continued existence of a company in a state of
insolvency and, secondary goal which is provided for as an
alternative, in the
event that the achievement of the primary goal
proves not to be viable namely to facilitate a better return for
creditors or shareholders
of the company than would result from
immediate liquidation.”
[11]
It continues in paragraph 26:
“
As
I understand the said section it says that business rescue means to
facilitate with rehabilitation, which in turn means the achievement
of one of two goals (a) to return a company to solvency or (b) to
provide a better deal with the creditors and shareholders than
what
they would receive through liquidation.”
[12]
It further held in paragraph 30 that it was not practical nor prudent
to be prescriptive on the
way in which an Applicant must show a
reasonable prospect in every case. In paragraph 31 it held that
it was not required
that a detailed plan be set out by
Applicant but that Applicant must establish grounds for the
reasonable prospect of achieving
one of the two goals.
[13]
Much of the founding affidavit of Applicant concerns what transpired
prior to and at the time
when the provisional winding up order was
granted. This, in my view, is not relevant to the issues which
has to be decided
namely whether to grant an order for business
rescue or not. Applicant mainly relies on the report of the
business rescue
practitioner and requested that it be incorporated
into the affidavit. In the affidavit filed on behalf of First
Respondent
it refers to certain factors which were established by the
liquidators such as the trading of two spares businesses from a
business
premises occupied by Fourth Respondent. It also sets
out that the liquidators shut down the business operations on 12
December
2023. It is therefore common cause that the business
is not operating at present. It contends that there must be a
factual basis to assess if there are reasonable prospects of
recovery. It is contended that the approach proposed by the
business rescue practitioner does not set out how it will facilitate
the continued existence of Fourth Respondent. It does
not refer
to the day to day expenditure of Fourth Respondent and what all of
that would amount to.
[14]
The Master reported that he that it abides the decision of the court.
[15]
It is also common cause that Fourth Respondent is financially
distressed.
[16]
Attached to the founding papers is an affidavit by one France
Khumalo who sets out that
he wishes to purchase the one property at
213 Church Street Vryheid for an amount of R6 million and has
previously requested Applicant
to sell the property to him but he was
reluctant to do so. There is also an offer to purchase.
There is also an affidavit
by one Anthony Lennard Broadfield of
Future Turning CC trading as Urban Steel at 2[...] N[...] Street,
Vryheid, KwaZulu-Natal,
which property is owned by Fourth
Respondent. He has been operating from there for approximately
8 years as a tenant and
to secure his future he wishes to purchase
the said property for the sum of R5 750 000.00. There is also a
sale agreement
in that regard. The offer to purchase has been
given to Applicant and a 10 % deposit would be paid. The offer
to purchase
is attached to his affidavit.
[17]
Mr. Partab a business rescue practitioner filed a report at the
request of Applicant and states
that there is a reasonable prospect
of resurrecting the business. He sets out that the sale of the
two properties would amount
to just over R11 million and First
Respondent, who is the largest creditor, is owed approximately R7
million. There is R650
000.00 owed to other creditors and by
reopening the business it would prevent its permanent closure which
would be prejudicial.
There is stock of approximately R5
million and this is enough to pay creditors and also to operate the
business without prejudice
to creditors. There is debt
outstanding to Fourth Respondent in the sum of approximately R2.1
million which is recoverable
and the business can be rehabilitated in
short period of time as it has been operating for 20 years and has
various employees.
He further suggests that the business will
able to operate as all the staff are there.
[18]
It must also be considered that the staff members entered the
application seeking the order to
be granted, as they do not whish to
lose their employment, and that there is stock of R5 million.
The premises from which
the business can trade is still there and
Fourth Respondent receives a substantial monthly rental. The
various properties
according to the valuation is worth about R28
million.
[19]
As set out in the Oakdene case referred to above it cannot be
prescriptive of how an Applicant
must show reasonable prospects in a
case such as this. Applicant must establish grounds for the
reasonable prospect of achieving
one of the two goals in section
128(1)(b). In my view considering the above which has been set
out by the business rescue
practitioner and Applicant in his founding
affidavit there is sufficient grounds set out for a reasonable
prospect that it can
be achieved. There is substantial stock,
there are employees, there is business premises and there is
substantial properties
that can be sold to help the cash flow and
allow it to trade. It is indeed so that it was not set out what
the monthly expenses
are but it appears that some of the properties
are freehold, that First Respondent would be paid and therefore in my
view it has
been shown that there are facts to accept that there is a
reasonable prospect that it could achieve what is set out in the Act
and in the Oakdene case.
[20]
In my view it would accordingly be just and equitable to grant such
an order rather than to liquidate
the business as that may be more
prejudicial to the creditors.
Order:
I accordingly grant a
rule
nisi
in terms of paragraphs 2 and 3 of the notice of
motion with the return date being 29 February 2024.
P C BEZUIDENHOUT J.
JUDGMENT
RESERVED:
29
JANUARY 2024
JUDGMENT
HANDED DOWN:
1
FEBRUARY 2024
COUNSEL
FOR THE APPLICANT:
V
MOODLEY
Instructed
by:
Karrian
Attorneys
Pietermaritzburg
Tel
067 059 9882
Ref
MK/HC006WASEELA
COUNSEL
FOR FIRST RESPONDENT:
P
J COMBRINCK SC
Instructed
by:
Edward
Nathan Sonnenbergs Inc.
Umhlanga
Tel:
031 536 8616
Ref:
A Khan/ 0501671
c/o
Stowell
Pietermaritzburg
Ref:
S Myhill
COUNSEL
FOR (employees of) FOURTH RESPONDENT:
A
G FLEMMING