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[2022] ZAKZPHC 47
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Nile Dutch Africa B.V v Crystal Pier Shipping Proprietary Limited and Others (11530/2021P) [2022] ZAKZPHC 47 (14 September 2022)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
CASE
NO: 11530/2021P
In
the matter between:
NILE
DUTCH AFRICA B.V.
APPLICANT
and
CRYSTAL
PIER SHIPPING PROPRIETARY LIMITED
1
st
RESPONDENT
(IN
BUSINESS RESCUE)
JOHNINE
WINSOME ELSIE MADDOCKS N.O. 2
nd
RESPONDENT
THE
COMPANIES AND INTELLECTUAL PROPERTY
3
rd
RESPONDENT
COMMISSION
This
judgment was handed down electronically by circulation to the
parties’ representatives by email, and released to SAFLII.
The
date for hand down is deemed to be 14 September 2022 (Wednesday) at
12h30.
ORDER
It
is ordered that:
1
The resolution passed by the directors of the first respondent on 28
January
2021 in terms of
s 129(1)
of the
Companies Act, 2008
voluntarily beginning business rescue proceedings and placing the
first respondent under supervision is set aside.
2
The first respondent is placed under provisional liquidation in the
hands
of the Master of the High Court, Pietermaritzburg.
3
A
rule nisi
be and is hereby issued calling upon the first
respondent and all other interested persons to show cause, if any, to
the above Honourable
Court on or before the date to be secured from
the registrar, or so soon thereafter as counsel for the applicant may
be heard:
(a)
why the first respondent should not be placed under final
liquidation, and;
(b)
why the costs of this application (including the costs of the two
counsel) should not be costs in the
liquidation.
4
A copy of the provisional winding up order be:
(a)
published in the Government Gazette and the Witness newspaper on or
before 15 October 2022; and
(b)
served in compliance with the provisions of s 346A of the Companies
Act, 1973 on or before 15 October
2022.
JUDGMENT
Mlaba
AJ:
Introduction
[1]
The applicant brings an application for the following:
(a)
An order setting aside the resolution in terms of which the first
respondent was placed under business
rescue on the ground that there
is no reasonable prospect for rescuing the first respondent,
alternatively, that the first respondent
has failed to satisfy the
procedural requirements set out in s 129 of the Companies Act 71 of
2008 (“the Act”), as
contemplated in s 130(1)
(a)
(ii)
and (iii) of the Act, and having regard to all of the evidence in the
application, is just and equitable, as contemplated in
s
130(5)
(a)
(ii) of the Act, to set aside the resolution; and
(b)
An order placing the first respondent in liquidation on the basis
that it is unable to pay its debts
as and when they fall due for
payment as contemplated in s 344
(f)
of the Companies Act 61 of
1973 (“the Companies Act 1973”), alternatively, that it
would be just and equitable to place
the first respondent in
liquidation in terms of s 344
(h)
of the Companies Act 1973.
[2]
The applicant and first respondent entered into an Agency Agreement
in terms of which
the first respondent acted as an exclusive agent
for the applicant’s owned and/or chartered vessels operating to
and from
South Africa. The Agency Agreement was in place during the
period from 1 June 2009 to 31 January 2021. The applicant did not
extend
the agreement beyond 31 January 2021 and, in terms of the
agreement, the first respondent had to provide a full and final
statement
of account on termination of the agreement, and further
effect payment of the closing balance to the applicant. The first
respondent
failed to do so despite numerous requests by the applicant
and as a result, the applicant made its own calculations of amounts
due by the first respondent. The amount due and owing to the
applicant by the first respondent was USD 1 262 355.
[3]
The Agency Agreement was the main source of the first respondent’s
income. On
28 January 2021, the board of directors of the first
respondent passed a resolution to voluntarily commence business
rescue proceedings
and to place it under supervision as contemplated
in s 129(1) of the Act and, on 4 February 2021, the business rescue
proceedings
commenced in respect of the first respondent.
[4]
The first respondent has not carried on business since business
rescue commenced and
the first business rescue plan (“the
Plan”) was published by the second respondent on 31 May 2022,
fifteen months after
the commencement of the business rescue
proceedings. This was after a court order was issued on 2 February
2022 directing the second
respondent to publish a business rescue
plan on or before 31 May 2022. The second respondent accepted the
claim by the applicant
against the first respondent as being correct.
The first respondent admitted that it owes the applicant a total
amount of R19 384
859 and this amount is reflected in the first
respondent’s Plan. The first respondent, however, registered a
counter-claim
against the applicant for the total amount of R24 500
000, which the applicant disputes.
[5]
The Plan lists a potential claim against SARS in the sum of R10 500
000 as an asset,
this amount is part of the R24 500 000
claim. The dispute between SARS and the first respondent dates back
to December
2015 and there is no prospect that it will come to an end
anytime soon as an offer by the first respondent to have the matter
resolved
was rejected by SARS in January 2022. A meeting in terms of
s 151 of the Act was held on 14 June 2022 where the Plan was
rejected,
however, the second respondent advised that the first
respondent intended to move an application for the setting aside of
the vote
on the grounds that the rejection of the Plan was
inappropriate.
Applicant’s
submission
[6]
The applicant submits that it is a creditor to the first respondent
and that the first
respondent is unable to pay its debts. The debt
arose out of the failure by the first respondent to pay the
outstanding amount
due to the applicant at the termination of the
Agency Agreement.
[7]
The applicant disputes that it owes the first respondent. The first
respondent’s
counter-claim against the applicant in the sum of
R24 500 000 is made up as follows:
(a)
R10 500 000 attached by SARS in 2016;
(b)
R8 000 000, an amount unilaterally withheld by the applicant;
(c)
R4 100 000 as interest incurred on an overdraft facility which the
first respondent required to continue
to service the Agency
Agreement; and
(d)
R1 900 000 as legal fees incurred in defending the SARS claim.
[8]
In disputing the counter-claim the applicant submits that the first
respondent produced
an internal audit report in May/June 2019 wherein
it assured the applicant that the R10 500 000 attached by SARS during
2016 had
nothing to do with the applicant and that it did not
constitute an exposure to the applicant. Further, the applicant
submits that
even if the claim had any merit, it has now clearly
prescribed since it dates back to 2015.
[9]
The claim for R8 000 000 has no merit as the first respondent and
applicant agreed
that any monies owed by the applicant to the first
respondent would be set off against the R 8 000 000 owed by the first
respondent
to the applicant. The second respondent confirmed this
agreement in her answering affidavit.
[10]
The R 4 100 000 is an unliquidated claim and has no legal basis.
[11]
The alleged legal fees amounting to R1 900 000 is a non-existent
claim as the first respondent
had informed the applicant that it had
no exposure to the SARS dispute. The applicant, therefore, submits
that it cannot be held
liable for the legal costs incurred by the
first respondent in defending that claim.
[12]
It is for the above reasons that the applicant submits that the
counter-claim by the first respondent
is without any substance and
cannot be regarded as an asset of the first respondent. The first
respondent has liabilities of R19
384 859, a claim by the applicant
that it has accepted and has enlisted in its Plan, whilst its assets
are no more than R11 170
845. therefore, the first respondent is
insolvent.
[13]
According to the applicant there are no reasonable prospects for
rescuing the first respondent.
The first respondent earned no income
during March 2021 to February 2022. Its sole source of income was the
applicant, and since
the termination of the Agency Agreement, the
first respondent has had no other source of income. The second
respondent, has had
fifteen months to rescue the first respondent and
has failed as the first respondent has no business to be rescued. The
first respondent
is therefore commercially and factually insolvent
having admitted liabilities in the Plan in the sum of R19 384 859.
[14]
The applicant argued that it is just and equitable to set aside the
resolution as the conduct
of the first respondent was clearly an
abuse of the business rescue procedure by the directors of the first
respondent, who were
aided and abetted by the second respondent. The
second respondent delayed the proceedings and published a business
rescue plan
only when she had been compelled by a court order. The
second respondent further misled the creditors of the first
respondent in
respect of its trading status and its assets position.
She further denied the applicant of its right to vote in respect of
the
Plan.
[15]
The second respondent represented to the creditors that the first
respondent was carrying on
business and that it had secured new
business when this was not the case. The second respondent only
disclosed in her answering
affidavit that the first respondent had
not traded since the commencement of the business rescue proceedings
and had not earned
an income during the period. She failed to explain
her misrepresentations which were prejudicial to the first
respondent’s
creditors. The applicant submits that had the
first respondent been informed of the true state of affairs of the
first respondent
it would have taken steps to terminate the business
rescue proceedings and place the first respondent in liquidation.
[16]
The second respondent also misled the creditors about the first
respondent’s assets. She
informed them that the first
respondent only had movable assets such as furniture and computer
equipment. She failed to disclose
that the first respondent had a
claim of R11 144 380 against a company known as Intrax Investments
274 (Pty) Ltd (“Intrax”)
and a claim of R1 253 093
against one of its directors, Pravin Bechan Parsad. Had she disclosed
these claims the creditors would
have compelled the second respondent
to take steps to recover these amounts.
[17]
For the above reasons the applicant submits that the second
respondent failed in her duties as
a business rescue practitioner.
The applicant further submits that having a holistic regard to the
insolvency of the first respondent,
and length of time that has
lapsed, it is not likely that the first respondent can be rescued. It
is, therefore, just and equitable
to have the resolution set aside.
The first respondent should also be liquidated by virtue of it not
being able to pay its debts.
First
respondent’s submissions
[18]
The first respondent argued that the court has to look at the
business itself as well as the
prospects of success that the first
respondent has if it is afforded time and allowed to trade. Its only
creditor is the applicant
and if, having no assets, the first
respondent is placed into liquidation then it will be a dead end for
the applicant. If, however,
the first respondent is allowed to trade
then any money that is made will be put into a trust for payment to
the applicant.
[19]
The court must also have regard to all the evidence in order to
determine if it would be just
and equitable to place the first
respondent under liquidation. The applicant has not discharged the
onus that the first respondent
has no probability to be rescued. The
applicant delayed the business rescue proceedings by instituting
court proceedings against
the first respondent. A further delay was
caused by the Covid 19 pandemic. The first respondent is and has been
trying to secure
business but needs more time.
[20]
The first respondent submits that the SARS claim is against the
applicant as the first respondent
is not an importer of goods. The
letter was addressed to the first respondent only because the first
respondent is the one that
had presence in the country, however,
there is no dispute about the fact that at all times the first
respondent was acting as an
agent of the applicant, the importer of
goods. The first respondent, therefore, has a genuine counter-claim
against the applicant.
[21]
The first respondent submits that there is hope of securing new
contracts and, in fact, it had
secured some contracts, however, the
effective dates thereof were delayed by the effects of Covid 19.
There are three contracts
in the pipeline and there is one that has
taken effect that currently brings in an income of R27 000 per month.
The first respondent
is also in the process of recovering the debt
owed to it by Intrax.
[22]
In conclusion, the first respondent submitted that it requires more
time to secure new business
and that it had good prospects in that
regard.
Evaluation
[23]
In order for the provisional liquidation application to succeed the
applicant must satisfy the
applicable requirements. The applicant has
demonstrated that it has the necessary locus standi in that it was
admitted by the first
respondent that it owes the applicant an amount
above R100. The applicant is the creditor to the first respondent.
[24]
The first respondent admitted in its Plan that an amount of R19 384
859 remains outstanding and
due to the applicant, that amount having
been due since 31 January 2021. The first respondent is therefore
unable to pay its debt.
[25]
It is common cause that the Agency Agreement was the only source of
income for the first respondent
and upon its termination the first
respondent has not been trading.
[26]
The first respondent passed a resolution to commence business rescue
proceedings upon confirmation
that the Agency Agreement would not be
extended beyond January 2021. The effect thereof was to afford the
first respondent protection
against its creditors. The business
rescue procedure was designed to assist businesses that had the
potential of being rescued
while protecting them from possible legal
action by creditors.
[27]
The first respondent has been under business rescue since February
2021 and within that period
there has been no definite progress in
rescuing the business. The first respondent has not traded since the
business rescue proceedings
commenced and it has not secured any new
businesses. The Plan was published only after legal action, and a
court order was issued
against the second respondent. The prospect
that the proceedings will be a success do not appear to favour the
first respondent.
[28]
The first respondent requests more time to secure new business. In
Koen and another v Wedgewood Village Golf & Country
Estate
(Pty) Ltd and others,
the court expressed a view which has been
applied consistently in matters where the duration of business rescue
proceedings is in
issue or relevant to the determination of a matter:
‘
It
is axiomatic that business rescue proceedings, by their very nature,
must be conducted with the maximum possible expedition.
In most cases
a failure to expeditiously implement rescue measures when a company
is in financial distress will lessen or entirely
negate the prospect
of effective rescue. Legislative recognition of this axiom is
reflected in the tight time lines given in terms
of the Act for the
implementation of business rescue procedures if an order placing a
company under supervision for that purpose
is granted. There is also
the consideration that the mere institution of business rescue
proceedings – however dubious might
be their prospects of
success in a given case – materially affects the rights of
third parties to enforce their rights against
the subject
company.’
[1]
[29]
These views are appropriate in the determination of this matter.
[30]
In the matter of
South
African Bank of Athens Ltd v Zennies Fresh Fruit CC and a related
matter
,
[2]
the court posed this question, ‘Can it be that a company enjoys
the protection of business rescue indefinitely to the detriment
of
its creditors?’.
[31]
In my view, the answer to the above question is negative. The rights
of creditors cannot be denied
indefinitely. The first respondent has
failed to demonstrate that the business rescue proceedings are
assisting in any way and
that the first respondent is on its way to
recovery. After approximately fifteen months the first respondent has
yet to secure
new business and generate income. Further, there is no
approved Plan in place. In light of the above, there is no
probability that
in the next three or six months the first respondent
will be able to pay its debts.
[32]
Despite the first respondent’s attempts to oppose this
application, its defence is based
only on its request for more time.
There is no explanation as to why the second respondent has not yet
recovered the debts owed
to the first respondent from Intrax and the
first respondent’s director. There is no guarantee that in
three months’
new business will be effective and that income
will be generated. The first respondent acknowledges that it is
making R27 000 per
month and this is the only income that the first
respondent currently has.
[33]
The first respondent depends on the hope that it will somehow secure
new business, however, the
court must bear in mind that there are
other stakeholders, such as creditors, whose interests must also be
considered and respected.
In terms of s 132(3) of the Act, the
business rescue proceedings end within a period of three months
unless the period is extended
by the court on application.
[34]
Section 129(1)
(b)
of the Act allows the board of directors of
a company to resolve that the company begin voluntary business rescue
proceedings and
place the company under supervision, if it has
reasonable grounds to believe that there are reasonable prospects of
rescuing the
company.
[35]
Having considered the actual state of the first respondent’s
affairs at the time that the
resolution was taken, and the position
approximately fifteen months thereafter, there appears to be no
reasonable prospects that
the first respondent may be rescued.
[36]
Section 130(1)
(a)
(ii) allows an affected person to apply to a
court for an order setting aside the resolution on grounds that there
is no reasonable
prospect for rescuing the company. It is my view
that the applicant has submitted sufficient grounds upon which it
believes that
there are no reasonable prospects that the first
respondent may be rescued.
[37]
In the result, the court is satisfied that the applicant has made out
a case for the relief sought.
[38]
Accordingly, I make the following orders:
1
The resolution passed by the directors of the first respondent on 28
January 2021 in
terms of
s 129(1)
of the
Companies Act, 2008
voluntarily beginning business rescue proceedings and placing the
first respondent under supervision is set aside.
2
The first respondent is placed under provisional liquidation in the
hands of the Master
of the High Court, Pietermaritzburg.
3
A
rule nisi
be and is hereby issued calling upon the first
respondent and all other interested persons to show cause, if any, to
the above Honourable
Court on or before the date to be secured from
the registrar, or so soon thereafter as counsel for the
applicant may
be heard:
(a)
why the first respondent should not be placed under final
liquidation, and;
(b)
why the costs of this application (including the costs of the
two counsel) should not be costs in the liquidation.
4
A copy of the provisional winding up order be:
(a)
published in the Government Gazette and the Witness newspaper on or
before 15 October 2022; and
(b)
served in compliance with the provisions of s 346A of the Companies
Act, 1973 on or before 15 October 2022.
Mlaba
AJ
Appearances
For
the Applicant:
GME Lotz SC
Instructed
by:
Bowmans Gilfillan Inc
22
Bree Street
Cape
Town
Email:
Juliette.dehutton@bowmanslaw.co.za
Tel: 082
4599977
Ref: J
de Hutton/6205824
c/o Hay
& Scott Attorneys
Pietermaritzburg
Email:
roderick@hayandscott.co.za
Tel: 033 342
4800
Ref: R
Brent/mak/09B450001
For
the 1
st
& 2
nd
Respondents:
I Topping SC
Instructed
by:
Garlicke & Bousfield Inc
7
Torsvale Crescent
La
Lucia Ridge
Umhlanga
Email:
bruce.rist@gb.co.za
&
premie.govender@gb.co.za
Ref: Bruce
Rist/pg/L
c/o Botha
& Olivier Attorneys
Pietermaritzburg
Date
of Judgment reserved:
22 July 2022
Date
of delivery: 14
September 2022
[1]
Koen
and another v Wedgewood Village Golf & Country Estate (Pty) Ltd
and others
2012
(2) SA 378
(WCC) para 10.
[2]
South
African Bank of Athens Ltd v Zennies Fresh Fruit CC and a related
matter
[2018]
2 All SA 276
(WCC) para 34.