About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Eastern Cape High Court, East London Local Court
SAFLII
>>
Databases
>>
South Africa: Eastern Cape High Court, East London Local Court
>>
2023
>>
[2023] ZAECELLC 31
|
|
Pruta Securities (Jersey) Limited v Roper N.O and Others (EL1522/2023) [2023] ZAECELLC 31 (24 October 2023)
IN
THE HIGH COURT OF SOUTH AFRICA
[EASTERN
CAPE DIVISION, EAST LONDON CIRCUIT COURT]
CASE
NO.: EL1522/2023
In
the matter between: -
PRUTA
SECURITIES (JERSEY) LIMITED
Applicant
and
STEPHEN
MARK ROPER N.O
First
Respondent
FLOORWORX
AFRICA (PTY) LIMITED
Second
Respondent
THE
COMPANIES AND INTELLECTUAL
PROPERTY
COMMISSION (CIPC)
Third
Respondent
THE
EMPLOYEES OF FLOORWORX
Fourth
and Further Respondents
(and
other affected person in the Business Rescue)
JUDGMENT
NORMAN
J:
[1]
Pruta Securities (Jersey) Limited (Pruta), a private company with
limited liability, duly incorporated
as such under the laws of
Jersey, has its registered address at 47-49 La Motte Street, St.
Helier, Jersey C.I, is the applicant
herein. In the founding
affidavit deposed to by Mr Mark Carpenter, Pruta is described as
holding a number of investments in the
Republic of South Africa.
However, it does not conduct business within South Africa and has no
employees within the country.
[2]
Pruta, on an urgent basis, approached this court seeking ,
inter
alia
, leave to institute this application against the first
respondent, Mr Stephen Mark Roper(the BRP) who is cited in his
official
capacity as a business rescue practitioner of
Floorworx and the second respondent, Floorworx (Africa (Pty)
Ltd) (Floorworx)
and to proceed therewith in accordance with the
provisions of section 133 (1) (b) of the Companies Act No.71 of 2008
(the
Companies Act). Pruta
contends that it is a creditor of
Floorworx and an affected person as envisaged in
sections 139(2)
and
128
(1)(a) of the
Companies Act. It
further contends that Floorworx is
unable to pay its debts as contemplated in
section 344(f)
read with
section 345 of the Companies Act No. 61 of 1973. It also relied on
the provisions of section 344(f) for its contention
that the winding
up of Floorworx is just and equitable.
[3]
Pruta further seeks an order terminating the business rescue of
Floorworx and an order by way of a rule
nisi
to have Floorworx
placed under provisional winding–up. It further seeks costs
against those respondents who oppose the application.
[4]
Pruta had launched proceedings for the removal of the BRP under case
number 2023-013252. It contends
that the issues in the removal
application do not arise for consideration in this application.
[5]
It also cited the Companies and Intellectual Property Commission
(CIPC) as the third respondent. It
further cited “
THE
EMPLOYEES OF FLOORWORX
and
all other affected persons in the Business Rescue
”
,
as fourth and further respondents. The application is opposed by both
the BRP and Floorworx who raised only points of law in terms
of Rule
6 (5) (d) (iii) of the Uniform Rules of Court.
Jurisdiction
[6]
In a supplementary affidavit, deposed to by
Pruta’s attorney of record, Mr Mitchell John Morrison,
Pruta
drew the attention of this court to the fact that the BRP amended the
registered office of Floorworx to the premises of Floorworx
within
the jurisdiction of this court. It is the same address where
the principal business of Floorworx is conducted at Bert
Klipping
Street, Wilsonia, East London. It is also the same address of
Floorworx as reflected on the third respondents’
records.
Accordingly, this court does have jurisdiction to entertain this
matter
[1]
.
Background
facts
[7]
Floorworx is a company that
imports, manufactures and sells floor covering materials. It was
placed in business rescue on 22 February
2022. A business
rescue plan was approved and adopted on 31 May 2022. Creditors
of Floorworx have received payment
subsequent to the adoption of the
business rescue plan. Pruta provided Post-
Commencement Finance
(PCF) to Floorworx in terms of a Post-Commencement Finance Agreement
(PCFA) concluded on 23 March 2022. Pruta
advanced R20 million
to Floorworx which was paid in three tranches of R1 million, R2
million and R17 million, respectively. The
PCFA and the material
terms thereof are not in issue herein. Pruta contends that it holds
no further or different securities for
the debt owed to it by
Floorworx. Pruta alleged that Floorworx is indebted to it in
the amount of R21 074 014. 45. Pruta
contends that the amount is
due and paya
ble and remains unpaid.
[8]
Pruta analysed the projections of cash flow forecast submitted to it
by the BRP and Floorworx’s
attorneys, revealing a negative
cash–flow ranging between (R42 ,765, 533 and –
R11, 999 ,304) over the
next year. According to Pruta this
means, in reality, not only that Floorworx is insolvent but also that
it will continue to trade
under insolvent circumstances for the
foreseeable future.
[9]
Pruta also analysed and compared the balance sheets for April 2022
and April 2023 and concluded
that cash on hand decreased by R26.3
million rand (R28 million in April 2022 down to R2 million in April
2023); trade and other
payables increased from R26.6 million in April
2022 to R50,3 million in April 2023, evincing an increase in
liabilities of R23,8
million. In this regard, Pruta alleged that the
business is being carried on recklessly and the pre- commencement
creditors are
unaware of the position and will likely be left with
nothing upon liquidation of Floorworx.
[10]
It alleged that Floorworx is in a far worse financial position than
it was when it was first placed in business
rescue some 19 months
ago. It stated that under the BRP the position of Floorworx has
deteriorated from financial distress
to clear and hopeless
insolvency. It is of the view that the winding up of Floorworx is
just and equitable as contemplated in section
344(f) of the Companies
Act 61 of 1973.
[11]
To allow Floorworx to trade in insolvent circumstances and to allow
that state of affairs to continue
would seriously prejudice creditors
and other affected persons. Pruta stated that the last published
update report furnished to
creditors and affected persons by the BRP
was in April 2023. It submitted that the ongoing business
rescue has no prospects
of rescuing Floorworx.
Legal
objections
[12]
The BRP and Floorworx raised the following legal points: First,
the ‘affected persons’
or at least the creditors of
Floorworx have not been cited or joined to the application. Second,
there has been no service on creditors
or affected persons by the
Sheriff of the High Court. Third, Pruta does not possess the
necessary standing to terminate the business
rescue proceedings of
the second respondent. Fourth, that the matter is not urgent. On
these bases they contended that the application
should be struck from
the roll or be dismissed with costs.
[13]
In the supplementary affidavit, referred to above, Mr Morrison
addressed, amongst others, the points of law
raised by the BRP and
Floorworx. He contended that the ‘affected persons’
of Floorworx are cited and joined as
‘
further respondents’
.
He stated that this was done out of an abundance of caution because
they are not required to be joined as parties to the
application in
terms of the Companies Act. In this regard he relied on sections
130(3)(b) and 145 the Companies Act which merely
requires ‘notice’
to be given to such persons.
[14]
He submitted that notice to the ‘affected’ persons has
been given. He sent an email together
with a covering letter,
the notice of motion and the founding affidavit by email to all the
‘affected persons’ cited
as further respondents as he had
ascertained to the best of his knowledge. He also made reference to
the fact that he, together
with the applicant, ascertained as
reflected in annexure “CA1”, that there are approximately
131 creditors of Floorworx.
They had made enquiries from the
former directors and employees of Floorworx who are reflected on the
business rescue plan. He
was not able to verify all the email
addresses hence he requested the BRP to transmit the notice to all
the “affected persons”.
[15]
He complained that although the BRP had sent communication to the
‘affected persons’ before in
the form of circulars on no
less than 23 occasions he refused or failed to circulate the notice
of motion and the founding affidavit
to such persons. He contended
that the applicant had taken every reasonable step to ensure that due
to the urgency of the matter
and the practicalities of notifying
approximately 131 creditors situated around the country, that they
were all given effective
notice. He submitted that to effect service
by the Sheriff to all these persons would consume an inordinate
amount of time because
the matter is urgent. On this basis, he asked
the court to condone this method of notice and the failure to have
all the creditors
served by the Sheriff. The fact that service has
been effected by way of email, he submitted, that is what is
envisaged in the
Companies Act as read with Regulation 124 and
Regulation 7 in a manner contemplated in Table CR3.
[16]
He further disclosed settlement proposals between the parties and
counsel for the BRP and Floorworx objected
to the disclosure of those
proposals and asked the court to strike out those allegations.
Legal
submissions
[17]
Mr Buchanan SC appeared for Pruta and Mr van Tonder appeared for the
BRP and Floorworx.
Applicant’s
submissions
[18]
Mr Buchanan made the following submissions: That the procedure of
filing only points of law without opposing
affidavits is a procedure
that is frowned upon by the courts. In this regard he relied on the
authorities set out in Erasmus Superior
Court Practice
[2]
.
In addressing the non – joinder point with reference to the
authority relied upon by the BRP and Floorworx, in
Absa
Bank Limited v Naude N.O and Others
[3]
, he submitted that the Absa case is distinguishable from
the case at hand because Absa sought to set aside the
business
rescue plan on the basis that it was unlawful and invalid, in
circumstances where it had not joined the creditors of the
company.
He distinguished the position of Pruta from that case on the basis
that the creditors referred to in the Absa case
existed at the time
of the commencement of the business rescue and had cast their votes
in respect of the proposed business rescue
plan.
In
casu
,
he argued, Pruta was not a creditor at the time of the acceptance of
the business rescue plan but provided loan finance thereafter.
He
argued that a
post
business rescue creditor is entitled to proceed to enforce and
recover its debt in the ordinary course.
Otherwise
were it to be barred from doing so, it would be without recourse.
[19]
Floorworx defaulted in respect of the amounts due by it and therefore
this application has been brought by
Pruta in its capacity as a
creditor. He relied, in this regard, on
Wescoal
Mining Pty Ltd and Another v Phahlani Mkhombo N. O and Others
[4]
.
[20]
He submitted that
the facts that the
applicant has put up which are not contested on affidavit by the BRP
and Floorworx, are to be deemed to be correct.
This is a normal
liquidation application and the applicant is not enjoined to join all
the creditors. The interests
of the creditors are to be dealt
with in the normal course of publication of the orders in the
newspapers. He submitted that the
matter is urgent and that the court
should grant the orders prayed for.
[21]
He also sought an order that the relief in the notice of motion maybe
amplified by directing the BRP to provide
an updated list of existing
creditors of Floorworx and provide for notice of entities reflected
in such list by way of appropriate
email communications and
publication in an appropriate local newspaper. He submitted that
notifying the creditors does not require
service by the Sheriff. In
this regard, he relied on
Engen
Petroleum v Multiwaste
[5]
.
BRP
and Floorworx submissions
[22]
Mr van Tonder, on the other hand, made these submissions: The
applicant seeks a specific order that the business
rescue process be
terminated. It is on the back of this relief that the creditors
must be joined. The non-joinder of the
creditors is fatal to the
application
[6]
. In this
regard he referred the court to
Absa
Bank Ltd v Naude NO & Others
for
the submission that failure to have the application served by the
Sheriff is not proper notice.
[23]
The citation “further respondents”, as found in the
Absa
Bank case, above
[7]
is
also not sufficient. Relying on
Cooper
NO and Another v Knoop NO and Others,
he
argued that creditors have to be joined and served. He submitted that
Pruta is neither a creditor nor an affected person and
for that
reason it has no standing whatsoever to bring this application.
[24]
He submitted that urgency is self- created.
[8]
The mere fact that the BRP and Floorworx filed the notice on legal
points within the time afforded to them by Pruta does not mean
that
Pruta has met the requirements of Rule 6 (12) (a)
[9]
.
He conceded that the facts stated by Pruta are to be deemed as
correct.
[25]
Pruta’s reliance on section 130(3) of the Companies Act in its
attempt to avoid joinder of the affected
persons and / or service by
the Sheriff is misplaced because notice as envisaged in that section
is confined to matters where an
application is brought prior to the
adoption of a business rescue plan.
[26]
He further relied on section 132 (2)(a)(ii) of the Companies Act for
the submission that the business rescue
of Floorworx cannot end
because it trumps winding up.
[27]
In reply, Mr Buchanan suggested that if the court is of the view that
these creditors have to be joined,
he proposed an order that will not
dismiss the application, but the court would put a hold on the
judgment and postpone the matter
to enable the formal joinder to take
place. In that regard, the court would have to uphold the joinder
point raised by the respondents
but afford the applicant an
opportunity to join the interested parties. If the court were to
follow the alternative proposition
costs would also stand over. In
this regard, he submitted that it would not be fair and just to
dismiss the application since the
indebtedness is not disputed.
[28]
Mr van Tonder rejected this proposed alternative course on the basis
that the
locus standi
point still stands. He persisted that
the application should be dismissed with costs.
Discussion
Urgency
[29]
The BRP and Floorworx contend that this application is not urgent. I
disagree. There are allegations relating
to potential risk and
prejudice to creditors and affected persons on the basis,
inter
alia,
that the BRP’s monthly reports lack the true facts
and thus make it difficult for creditors to assess the true financial
position of Floorworx. It is alleged that Floorworx is hopelessly
insolvent and is thus trading in a reckless manner. As
aforementioned those allegations have not been dealt with by the
BRP. I am satisfied that those allegations created sufficient
urgency to warrant a hearing of this matter on truncated time
frames. There were no delays on the part of Pruta from the
time
it made demand of payment up to the time of institution of these
proceedings. This point must accordingly fail.
Pruta’s
standing
[30]
The meaning and purpose of ‘business rescue’ is
encompassed in section 128 of the Companies Act.
It is meant to
facilitate the rehabilitation of a company that is financially
distressed by providing for,
inter
alia
,
the temporary supervision of the company, management of its affairs,
business and property; a temporary moratorium on the rights
of
claimants against the company or in respect of property in its
possession; and 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.
[10]
[31]
The BRP and Floorworx contend that Pruta is neither an affected
person nor a creditor. The definition of
an affected person in the
Companies Act is as follows:
“
128
Application and definitions applicable to Chapter
(1) In this Chapter-
(a)
‘
affected person’
, in relation to a
company, means-
(i)
A shareholder or creditor of the company;
(ii)
Any registered trade union representing employees of the company;
and
(iii)
If any of the
employees of the company are not represented by a registered trade
union, each of those employees or their respective
representatives”
[11]
[32]
Pruta contends that it is a creditor of Floorworx and an affected
person in the business rescue of Floorworx.
It relies in this regard
on section 139 (2) and 128 (1) (a) of the Companies Act. At the
outset section 139 (2) deals with
the removal and replacement of a
business rescue practitioner and finds no application in these
proceedings. I made reference
to the definition of an affected
person,
supra.
In the
heads of argument submitted on behalf of Pruta, the following is
stated:
“
5.
The applicant in this application is a creditor of the second
respondent. In this regard it is however essential
to point out that
the indebtedness of the second respondent to the applicant arose
subsequent to the commencement of the business
rescue proceedings.
Accordingly,
the
applicant is not an affected person as
defined in section
128(1)(a) of the Companies Act. ( my emphasis)
[33]
Mr Buchanan adopted the same stance in argument. I regard the
concession made in the heads of argument as
properly made and I need
not deal with this aspect further.
[34]
Section 135 provides for post – commencement finance. It
provides:
‘
135
Post-commencement finance
(1)
To the extent that any remuneration, reimbursement for expenses or
other
amount of money relating to employment becomes due and payable
by a company to an employee during the company’s business
rescue proceedings, but is not paid to the employee—
(a)
the money is regarded to be post-commencement financing; and
(b)
will be paid in the order of preference set out in subsection (3)(a).
(2)
During its business rescue proceedings, the company may obtain
financing
other than as contemplated is subsection (1), and any such
financing—
(a)
may be secured to the lender by utilising any asset of the company to
the extent that it is not otherwise encumbered; and
(b)
will be paid in the order of preference set out in subsection (3)(b).
(3)
After payment of the practitioner’s remuneration and costs
referred
to in section 143, and other claims arising out of the costs
of the business rescue proceedings, all claims contemplated—
(a)
in subsection (1) will be treated equally, but will have preference
over—
(i)
all claims contemplated in subsection (2), irrespective whether
or
not they are secured; and
(ii)
all unsecured claims against the company; or
(b)
in subsection (2) will have preference in the order in which they
were
incurred over all unsecured claims against the company.
(4)
If business rescue proceedings are superseded by a liquidation order,
the preference conferred in terms of this section will remain in
force, except to the extent of any claims arising out of the costs
of
liquidation.’
[35]
The Companies Act refers to the financiers such as Pruta as “lenders”
instead of ‘creditors’.
It confers on the lenders a
preferent claim against the company, which preference will remain in
force even where business
rescue proceedings are superseded by a
liquidation order. The question is whether the choice of a name
‘
lender’
means that a
financier in the position of Pruta is not a creditor for the purpose
of instituting termination of business rescue
proceedings and winding
up processes against Floorworx. A comprehensive answer to this
question will entail a complex interpretation
exercise which, due to
lack of sufficient time, lack of factual material from the BRP and
Floorworx , this court does not deem
it prudent to delve into
definitive decisions in relation to that question, as cautioned by
the Constitutional Court in
Eskom
Holdings SOC Ltd v Vaal River Development Association ( Pty ) Ltd
[12]
.
[36]
In
Wescoal Mining Pty Ltd
, supra, Wilson J, raised this
aspect,
albeit
obiter.
He stated:
“
26.
It also strikes me that section 135 of the Act does not describe post
–
commencement financiers as “creditors” at all,
but as “lenders”. The word choice is significant. It
indicates
that post – commencement financiers are not to be
treated as the type of “creditor” to which the business
rescue
provisions of the Act address themselves.”
[13]
[37]
Section
132 (2) (a) provides
for
the termination of business rescue proceedings.
It
deals with
such
termination when the court sets aside the resolution or order that
began those proceedings; or has converted the proceedings
to
liquidation proceedings. They will also end when the BRP has
filed with the Commission a notice of the termination of
business
rescue proceedings
[14]
. The
Companies Act places certain obligations on the BRP in circumstances
where the business rescue proceedings have not
ended within three
months after the start of those proceedings or such longer time as
the court, on application by the practitioner,
may allow. In
that case the BRP must prepare a report on the progress of the
business rescue proceedings and update it at
the end of each
subsequent month until the end of those proceedings; and deliver the
report and each update in the prescribed manner
to each affected
person , and to the court ( if the proceedings have been the subject
of a court order) or the Commission in any
other case.
[38]
In my view, the choice of the word “lender”
could
never have been employed by the Legislature with the purpose of
excluding lenders as ‘creditors’ post– commencement
of business rescue. If that was the intention such exclusion would
have been expressed in clear terms.
[39]
Stroud’s dictionary defines ‘Lend’ as follows:
‘
Lend’
(Exchange Control Act 1949 (c.14), s.1.(1): must be given its
natural meaning connoting the existence of a legal
lender- borrower
relationship
[15]
.
The
Oxford Dictionary defines, ‘creditor’ as
–
‘
one
who gives credit for money or goods; one to whom a debt is owing’.
[40]
Pruta’s position as a lender is not synonymous to creditors
prior commencement of business rescue
proceedings. The argument that
it has no standing to bring the application would leave it without
recourse. Most importantly, it
would tamper with its right to have a
dispute that it has determined at a fair public hearing.
Otherwise a financier, post
– commencement of business rescue,
would be placed at the mercies of Floorworx and the BRP and that
would possibly render
the PCFA nugatory. That could never have been
the intention of the Legislature.
[41]
In the PCFA under definitions it is recorded:
2.1.21
“Post BR – Creditors’ means those creditors who
have a valid and existing claim against the Company in
respect of
goods or services provided after the BR Date and the Lender as a
creditor in terms of this Agreement.”
[42]
For all the above reasons I am of the view that Pruta as a lender, is
a creditor. It follows that it has
standing to seek leave to inter
alia institute these proceedings. The standing point must
accordingly fail.
Non
– joinder of creditors and affected persons
[43]
In
Absa
Bank Ltd v Naude NO & Others
[16]
the
Supreme Court of Appeal when dealing with non-joinder of creditors
stated:
“
[11]
I therefore conclude that the court below
was correct in upholding the non-joinder point. It was submitted
in
argument that if we were to reach that conclusion, the proceedings
should be stayed and the bank should be afforded an opportunity
to
join the creditors. Here though a simple declaratory order was sought
with no consequential relief such as the repayment by
the creditors
of the amounts received in terms of the plan. The
undesirability of a declaratory order in a vacuum has recently
been
stressed by this court in City of Johannesburg v South African
Local Authorities Pension Fund
[17]
.
It
was conceded that in any event the relief would have to be amended to
provide inter alia for the repayment by creditors. There
thus seems
to be little point in keeping this application alive and remitting
the matter to the high court. This disposes of the
appeal and in the
result it must fail.”
[44]
The decision of the Supreme Court, above, is binding on this court.
The creditors who had voted for business
rescue would definitely have
a direct interest where those proceedings are to be terminated by
this court and a provisional winding
up of Floorworx is sought. The
employees as affected persons would have a direct interest. There has
been no effort at all on the
part of Pruta to establish the names and
surnames of the employees who are not represented by a trade union
who will be affected
by the order it seeks, or those who are
represented and who their representatives are. It did not
establish whether they
are all represented by National Union of
Metalworkers of South Africa (NUMSA )even though it , on its own ,
had stated in relation
to the list of creditors :
“
The
addresses of this e- mail, numbering approximately 131, as reflected
on CA1, represent all the known creditors of the second
respondent as
best the applicant and I were able to ascertain,
having
made enquiries from the former directors and employees of the second
respondent
.
”
Making
an effort to join the unrepresented employees of Floorworx by their
names would demonstrate that, in line with the provisions
of section
128(1)(a)(iii) and section 10 of the Constitution of the Republic of
South Africa, their dignity is respected and protected.
[45]
Most importantly they would appreciate that they have a say in the
matter as affected persons. Instead of
joining the trade union,
NUMSA, Pruta simply gave notice to it. That did not equate joinder of
NUMSA to the application. The significance
of joinder is that it is
an invitation to the joined party to exercise a choice, whether to
enter the fray or simply abide the
decision of the court. Joinder
would be most beneficial to employees, for example, where the
employees’ employment was going
to last a year under business
rescue proceedings, their position would change drastically and to
their disadvantage under provisional
winding up.
[46]
In
Golden
Dividend v Absa
Bank
[18]
,
the Supreme Court of Appeal restated the test for joinder as:
“
whether
there has been non – joinder is whether a party has a direct
and substantial interest in the subject matter of the
litigation
which may prejudice the party that has not been joined.”
[19]
It
follows that the non – joinder point must succeed.
The
citation as “Further
Respondents
and other affected persons in the Business Rescue”
[47]
This form of citation lacks identity. One does not
know by just having regard to the citation and nothing
more, who the
affected persons are. This type of citation leaves it to the reader
and his or her imagination to decide whether
he or she thinks he is a
respondent. It removes the responsibility from Pruta to identify the
respondents with sufficient clarity
so that the Sheriff would know
who to serve. Instead, it places it on people who do not even know
why they would be affected or
be respondents in this litigation to
decide for themselves. That does not accord with the purpose of
the Companies Act to,
amongst others, promote compliance with the
Bill of Rights as provided for in the Constitution.
[20]
This manner of citation, given the nature of the proceedings,
where the creditors are identifiable from the business plan,
is not
only inadequate but it is not sanctioned by the Uniform Rules of
Court. The point relating to citation in this regard
by the BRP
and Floorworx must succeed.
Non
– service point
[48]
Pruta relied on the fact that section 130 (3) of the Companies Act,
enjoins an applicant to serve a copy
of the application on the
company and notify each affected person. Section 131 (2) (b)
provides that an applicant must ‘notify’
each affected
person of the application in the ‘prescribed manner’.
These provisions applied in the
Engen
Petroleum Limited
,
supra
,
because they relate to an urgent application that was brought by
Engen, an intervening creditor, seeking to set aside the resolution
placing the company under supervision and commencing business rescue
proceedings on the basis that they had lapsed for want of
compliance
with certain procedural requirements laid down in the Act. Engen
was a creditor prior to the adoption of the resolution
for business
rescue, which was passed without its knowledge. That
distinguishes it from the case at hand. Therefore the methods
of
service and notice provided for in section 131(1)(a)(b), were
applicable in that case because the
nature
or substance
of
the application fell squarely within the provisions of section 131 of
the Companies Act. I find that the non- service
point has
merit and must accordingly succeed.
[49]
Rule 4 of the Uniform Rules of Court provides:
“
4
Service
(1)
(a)
Service of any process of the court directed to the sheriff and
subject to the provisions of paragraph
(aA)
any
document initiating application proceedings
shall
be effected by the sheriff
in
one or other of the following manners …”.
(my
underlining). The rule provides a litigant with an option of seeking
alternative methods where service by the sheriff is not
possible.
[21]
[50]
Pruta in its supplementary affidavit contended that it had done
everything possible to notify the creditors
and affected persons. For
example, it attached a printout with various email addresses. Under
“Subject it has:
“
Court
application – Notice to Interested and Affected Persons-
Floorworx Africa (Pty) Ltd (in business rescue) Date: 04 October
2023
18:12:00. Attachments: Interested and Affected Parties –
Floorworx (Pty) Ltd (In business Rescue) Provisional winding
–
up 04.10.2023 pdf; Pruta Floorworx NOM and FA as Issued and Served.”
It has a message:
“
Dear
Sirs
Enclosed
and attached, please find correspondence and court papers for your
attention.
Kind
Regards”
[51]
There are fundamental difficulties with this form of service. First,
it makes no mention of the date of hearing
of 10 October 2023 at
09:30 am. Second, it requires a person to have access to the
Notice of Motion. Third, it
does not convey to the person
what is required of him or her or it and thus assumes that the person
has the ability and the means
to open the attached notice of motion
and affidavit. Fourth, it identifies the persons by referring to
their email addresses and
without their identities. It leaves it up
to them to decide whether they are ‘affected’ or
‘interested persons’.
I accordingly find that there
was no adequate service on the affected persons who have a direct and
substantial interest
in the business rescue proceedings.
[52]
T
hat
is not the end of the matter. The fact that Pruta is a creditor post
– commencement of business rescue proceedings does
not mean
that it can overlook, ignore or disregard the process that has been
approved by the general body of creditors. Central
to that
process is, amongst others, preservation of jobs and rehabilitation
of Floorworx. The Companies Act places certain obligations
on the
shoulders of the BRP
[22]
, as
the overseer of Floorworx. In
Knoop
and Another NNO v Gupta (No 1)
[23]
,
at para 39, Wallis JA stated:
“
When
one is dealing with a company that is placed in business rescue
voluntarily by way of a resolution of the board of directors,
the
process of business rescue is conducted on the basis of the actions
of the company; affected persons, that is, shareholders,
any trade
union representing employees and employees; the BRP; and the
creditors. It is the company, acting through its directors
that
commences the process and appoints the BRP…”
(footnotes
omitted).
[53
]
It is common cause that the business rescue proceedings have been
ongoing for 19 months. It does not appear
that the three months was
extended by means of a court order. The business rescue process
cannot simply be allowed to continue
without some form of
accountability to the court, (especially in circumstances where the
process is being challenged) and to the
creditors by the BRP.
For that reason, and irrespective of the findings on the joinder and
service legal points, this
court is not inclined to dismiss the
application outright.
[54]
The BRP and Floorworx elected not to engage with the merits as
aforementioned. The issues raised by Pruta
about the state of
Floorworx , must be dealt with speedily. Floorworx and the BRP do not
have the luxury of time to continue with
the proceedings for as long
as they wish without updating their creditors about the state of the
company. It is for that reason
that the substantive relief will not
be dealt with until the orders this court intends to make have been
complied with.
[55]
This court has a discretion to either afford the
BRP and Floorworx an opportunity to file answering affidavits
or to
dispose of the matter on the applicant’s version. The
latter option is not attractive because it does not give
the court an
opportunity to get the opinion of the BRP on the state of the company
that it is enjoined to oversee. The financial
documentation put
up by the applicant goes up to April 2023. There is insufficient
information in relation to employees of Floorworx.
It is for that
reason that after disposing of the legal points the BRP and Floorworx
would be afforded an opportunity, to deal
with the merits of the
matter on time frames to be set out by this court. Section 152
(4) and (5) of the Companies
Act provide that the business plan
that has been adopted is binding on Floorworx , on each creditor and
every holder of the company’s
securities and further enjoins
Floorworx under the direction of the BRP to implement the plan as
adopted. Those obligations
are imposed by statute and must be
taken into account when a court is called upon to interfere with the
business rescue process.
[56]
There is another reason that militates against dealing with the
merits of this case without hearing the BRP and
Floorworx. The
relief sought for the termination of the business rescue proceedings,
if granted, without hearing them, will
effectively remove the BRP.
Although there is no such relief sought in the notice of motion, such
result would be prejudicial to
the BRP and Floorworx. They would have
been deprived of an opportunity to deal with that aspect head-on.
In the
Knoop
decision,
supra,
Wallis JA stated:
“
[28]
Section 34 of the Constitution guarantees a ‘fair public
hearing’ before a court. In De Beer, Yacoob
J said: ‘A
fair hearing before a court as a prerequisite to an order being made
against anyone is fundamental to a just and
credible legal order’.
Where an issue is not raised in the pleadings or affidavits in a
case, and the order granted
is one on which neither party has been
heard, there is a breach of a fundamental constitutional right.”
(foonotes
omitted).
I
am of the view extending an opportunity to them to file answering
affidavit will be fair and just.
[57]
There are at least 131 creditors that have to be served by the
sheriff. If they have to be served physically
it would take an
inordinate amount of time for the sheriff to serve on each one
wherever they are located. Their location might
also necessitate
appointment of other sheriffs should they be outside the jurisdiction
of this court. The only practical manner
of effecting service on such
a large number of creditors is to authorise the sheriff to serve on
all the creditors by way of email
transmission, similar to the manner
prescribed in the Act and Companies Regulations, 2011
[24]
.
The Regulations relate to notices to be given; however, they give
detail on matters to be considered when notice is given
electronically.
I see no harm in importing those considerations into
the order and modify them to be consistent with the obligations of
the Sheriff
when serving court processes.
[58]
It is the duty of the Sheriff, when serving
process, to explain the nature and exigency thereof to the person
on
whom service is effected
[25]
.
The sheriff will be directed to place on email a cover message
setting out the name address and telephone number of the
sender; the name of the person to whom the email is addressed and the
name of the person’s attorney, if applicable;
the exact
orders sought in paragraphs 1 to 5 of the Notice of Motion, the date
to which the matter is postponed and the date by
when the recipients
who wish to oppose should file their answering affidavits and any
other matter that the Sheriff is enjoined
to do when serving process.
[59]
In my view, that is the only practical manner of service that will be
adequate, expeditious and effective.
A publication in the newspapers
may not yield the desired result of bringing the application to the
attention of all creditors
and those affected soon. I
accordingly authorise service to be effected by the Sheriff by way of
electronic mail to all the
creditors, interested and affected
persons.
Costs
[60]
Mr Buchanan submitted that issues of costs should
be reserved. Mr van Tonder asked for the dismissal
of the
application with costs. As aforementioned this court has
postponed the merits of the matter. It might not be prudent
to deal
with the issues of costs at this point. I am persuaded that costs
should be determined once the merits have been determined.
ORDER
[61]
In the circumstances I accordingly make the following Order:
1.
Applicant’s
non–compliance with the rules relating to time periods is
hereby condoned and the matter is enrolled on
an urgent basis.
2.
Applicant
is granted leave to institute this application against the First and
Second respondents in accordance with the provisions
of
section 133
(1) (b) of the
Companies Act No. 71 of 2008
.
3.
First
and Second Respondents’ objections based on urgency and on
locus
standi
,
are dismissed.
4.
First
and Second Respondents’ objections based on non-joinder of
creditors and affected persons and on non-service by the
Sheriff are
upheld.
5.
Costs
relating to the legal points are reserved.
6.
The
application is postponed to Tuesday,
05
December 2023
at
09h30.
7.
First
Respondent is directed to provide to the Applicant’s attorneys
of record a complete list of the particulars of the affected
persons
and creditors, their telephone or mobile numbers, email addresses and
physical addresses within (5) five days hereof.
8.
Applicant
is granted leave to join all creditors, interested and affected
persons known to it and as furnished to it by the First
Respondent,
within (10) ten days of receipt of the list referred to, above, from
the First Respondent.
9.
The
Sheriff is hereby authorised to effect service on all the creditors,
interested and affected persons in the following manner:
Service
on employees of the Second Respondent
9.1
By
effecting service on all the employees of the Second Respondent who
are not represented by a trade union at their place of employment.
9.2
By
effecting service on the representatives of the employees or their
trade unions in respect of those employees who are represented.
9.3
In
addition, thereto by serving a full copy of the application on the
Human Resources Manager of the Second Respondent.
Service
on creditors and affected persons
10.
The Sheriff is authorised to serve a full copy of the application on
all creditors and affected persons joined to
this application,
by
way of electronic mail
in the following manner:
10.1
The
sheriff is directed to place on each email a cover message setting
out the following:
10.1.1
the
name address and telephone number of the sheriff;
10.1.2
the
name of the person or entity to whom the email is addressed and the
name of the person’s attorney, if applicable;
10.1.3
the
description of the documents being sent and the number of pages
transmitted,
10.1.4
the
orders sought in paragraphs 1 to 5 of the Notice of Motion,
10.1.5
the
date to which the matter is postponed;
10.1.6
a
copy of this order and judgment;
10.1.7
the
name of the person from the Sheriff’s office to be contacted in
the event a full copy of the application has not been
transmitted;
and any other matter that the Sheriff is enjoined to do when serving
process; and
10.1.8
the
documents to be transmitted by email must be provided and delivered
in a manner and form such that they can conveniently be
printed by
the recipient within a reasonable time and at a reasonable cost.
Further
conduct of the matter
11.
First and Second Respondents are directed to file their answering
affidavits to the applicant’s founding affidavit,
if they so
wish, within (7) seven days of this Order.
12.
The
First Respondent is directed to file a report on the progress of the
business rescue proceedings, within (7) seven days of this
Order.
13.
The
Applicant is directed to file its replying affidavit within (5) five
days of receipt of the answering affidavits from the First
and Second
Respondents.
14.
All
the creditors, affected persons and interested persons who will be
joined and served are directed to file their answering affidavits,
if
they so wish, within 10 (ten) days from the date of service of the
process on them by the Sheriff.
15.
Heads
of argument are to be delivered by all the parties by no later than
30
November 2023.
T.V
NORMAN
JUDGE
OF THE HIGH COURT
Matter
Heard on
:
10 October 2023
Judgment
Delivered on :
24 October 2023
APPEARANCES:
For
the APPLICANT:
ADV
BUCHANAN SC
Instructed
by:
FULLARD
MAYER MORRISON INC.
4
MORRIS STREET WEST
RIVONIA
TEL:
011 234 3029
FAX:
011 234 5546
REF:
P1413/M morrison
EMAIL:
morrison@fullardmayer.co.za
c/o
STIRK YAZBEK ATTORNEYS
18
VINCENT ROAD
VINCENT
EAST
LONDON
TEL:
043 726 8310
EMAIL:
gary@stirkyazbek.co.za
REF:
GJ STIRK/ks/MAT50618
For
the First and Second
RESPONDENTS:
ADV
VAN TONDER
Instructed
by:
B.Van
Niekerk/ P. Munga
Smit
Sewgoolam Incorporated
12
Avonwold Road,
Saxonwold,
Email:
Bouwer@smitsew.co.za/
Parveen@smitsew.co.za
[1]
Bisonboard
Ltd v K Braun Woodworking Machinery (Pty) Ltd 1991 (1) SA 482
(A) 499 at paras A -B.
[2]
Erasmus
Superior Court Practice, Second Edition, Volume 2 at D1-64.
[3]
Absa
Bank Ltd v Naude N.O and Others
2016
(6) SA 540
(SCA) at paras [8] to [11].
[4]
Wescoal
Mining Pty Ltd and Another v Phahlani Mkhombo N. O and Others
(Gauteng
Case No. 079991/2023) at paragraphs 25 and 26.
[5]
2022
(5) SA 596
(GSJ) at para 18.
[6]
In
this regard he relied on the provisions of
section 152
(4) and
5
of
the
Companies Act which
provides:
“
(4).
A business rescue plan that has been adopted is binding on the
company, and on each of the creditors of the company and every
holder of the company’s securities, whether or not such a
person –
(a)
Was present at the meeting;
(b)
Voted in favour of adoption of the plan; or
(c)
In the case of creditors, had proven their
claims against the company.
(5) The company,
under the direction of the practitioner, must take all the necessary
steps to –
(a)
attempt to satisfy any conditions on which the business rescue plan
is contingent; and
(b)
implement the plan as adopted.”
[7]
At
para 11 thereof.
[8]
Schweizer Reneke Vleis Mkpy (Edms) Bpk v Die Minister van Landbou en
Andere 1971 (1) PHF11 (T)
[9]
Caledon Street Restaurant CC v D’Aviera
(1998) JOL 1832
(SE)
applied in Garth Merrick Voight NO and Another v EGH IP (Pty) Ltd
and Others (unreported) Case no. 1076/2021, dated 04 May
2021 (ECD,
Grahamstown) at para 29-33.
[10]
See: Chapter 6 definition in
Section 128(1)
(b) of the
Companies Act
71 of 2008
.
[11]
See:
Chapter 6 definition in
Section 128
(1) (a) of the
Companies Act 71
of 2008
.
[12]
Eskom
Holdings SOC Ltd v Vaal River Development Association (Pty) Ltd
2023
(4) SA 325
(CC)
at
paras 250 -251; Johannesburg Municipal Pension Fund v City of
Johannesburg 2005 (6) SA 273 (W) at para 9.
[13]
Wescoal
Mining Pty Ltd v Mkhombo NO and Others
,
supra, at para 26.
[14]
Section 132
(2) (b).
[15]
Stroud’s
in his work: “Judicial Dictionary of words and phrases, Sixth
Edition, Volume 2 G-P.
[16]
2016 (6) SA 514
(SCA) at para 11 thereof.
[17]
[2015]
ZASCA 4
para
8.
[18]
Golden
Dividend v Absa Bank (569/2015)
[2016] ZASCA 78
(30 May 2016) at
para 10.
[19]
Gordon v Department of Health, KwaZulu – Natal [2008]ZASCA 99
[2008] ZASCA 99
; ;
2008 (6) SA 522
( SCA) paras [9] and [11] at 529 C and 530 F.
[20]
Section 7
of
Companies Act 71 of 2008
.
[21]
Rule 4(2)
of the uniform Rules of Court;
Absa
Bank Ltd v Naude
supra @ 542H.
[22]
Section
128
(1)(d) which provides: ‘
business
rescue practitioner’
means
a person appointed, or two or more persons appointed jointly, in
terms of this Chapter to oversee a company during business
rescue
proceedings and ‘practitioner’ has a corresponding
meaning.’
[23]
Knoop
and Another NNO v Gupta (No 1) [23](115/ 2020)
[2020} ZASCA 149
(19
November 2020).
[24]
Companies Regulations, 2011 published under GN R351 in GG 34239 of
26 April 2011 ; Regulation 7 and section 6 (10)
and (11) of the Act.
[25]
Uniform
Rule 4 (1) (d).