Summary of Judgment

1. Introduction

This was an application in the North Gauteng High Court, Pretoria, arising from ongoing litigation connected to the business rescue of Louis Pasteur Hospital Holdings (Pty) Ltd (LPHH, the second applicant). The first applicant, Etienne Jacques Naudé N.O., acted in his capacity as the business rescue practitioner (BRP) of LPHH.

The principal dispute concerned whether Mr Sujai Naidoo (the 45th respondent) should be removed as an alleged co-business rescue practitioner, and whether a belated counter-application seeking the removal of Mr Naudé as BRP should succeed. A further preliminary dispute arose regarding whether Gothe Attorneys were authorised to act on behalf of Louis Pasteur Medical Investments Ltd (LPMI, the first respondent), which opposed the application.

Procedurally, the opposition and counter-application were filed extremely late on CaseLines shortly before the hearing, giving rise to an application for condonation. The court dealt sequentially with condonation, the authority of the attorneys purporting to represent LPMI, the validity of Mr Naidoo’s purported appointment, and then (for completeness and legal certainty) the merits of the counter-application to remove Mr Naudé.

The subject-matter was therefore the governance and legality of appointments and removals of business rescue practitioners under the Companies Act 71 of 2008, including the effect of allegedly defective corporate resolutions and the extent of directors’ powers once business rescue has commenced.

2. Material Facts

LPHH was placed in business rescue in 2018, and Mr Naudé was duly appointed as BRP by LPHH’s directors. Subsequent events produced multiple disputes and litigations, of which this application formed part.

In 2019, the board of LPHH purported to appoint Mr Kaplan and Ms Khamissa as co-BRPs. Mr Kaplan later died, and the board purportedly substituted him with Mr Naidoo. On the hearing date (24 October 2022), Mr Naudé’s application to remove Mr Kaplan and Ms Khamissa was granted unopposed, with costs.

This application concerned Mr Naudé’s attempt to remove Mr Naidoo as co-BRP, which was belatedly opposed by LPMI. LPMI also brought a belated counter-application seeking the removal of Mr Naudé as BRP.

The late opposition and counter-application were uploaded to CaseLines on 18 October 2022, approximately three working days before the hearing on 24 October 2022, without notifying the registrar. It was common cause that counsel for LPMI had been aware of the matter since at least the case management meeting on 22 August 2022.

As to the authority of Gothe Attorneys, LPMI relied on corporate resolutions said to have been taken on 11 August 2022 and 23 August 2022 to support their appointment as attorneys of record. The court found significant defects in the 11 August 2022 resolution: it was signed by only four of six directors, and included a person who was not a director at the relevant time. The court treated that resolution as a nullity. LPMI further relied on a 23 August 2022 “round-robin” resolution purportedly ratifying the appointment of Gothe Attorneys, but the content and presentation of the resolutions shifted in subsequent procedural exchanges, including responses given under Rule 35(12) and a challenge under Rule 7(1).

Regarding Mr Naidoo’s status, it was common cause that Mr Naudé was unaware of the appointment of Mr Naidoo. LPMI suggested an exco decision and later ratification as the basis for appointment, and also relied on a purported ratification dated 4 June 2021. The court noted the existence of a prior court order dated 18 June 2021 declaring actions and decisions taken by the board of LPMI since the commencement of business rescue to be void and invalid.

In the counter-application, LPMI advanced (but ultimately conceded in argument) that Mr Naudé ceased to be BRP due to a lapse in his licence between 16 April 2021 and 27 September 2021, and further argued that his failure to disclose the lapse to affected parties constituted recklessness and breach of fiduciary duties.

3. Legal Issues

The court was required to determine, first, whether condonation should be granted for the late filing of an answering affidavit and a counter-application uploaded to CaseLines shortly before the hearing. This involved a discretionary assessment applying established criteria relevant to lateness and explanation, and included a value judgment on litigation conduct and compliance with the rules.

Second, the court had to determine whether Gothe Attorneys had established authority to act on behalf of LPMI. This raised a mixed question of fact and law, requiring evaluation of corporate resolutions and whether they were validly adopted and capable of conferring authority.

Third, the court had to decide whether Mr Naidoo had been validly appointed as a co-BRP, and if not, whether he should be removed. This required application of statutory provisions governing business rescue and appointment of BRPs, including who holds the power of appointment and the legal consequences of actions taken without proper authority.

Fourth, the court had to determine whether the counter-application to remove Mr Naudé should succeed, particularly where the asserted ground shifted from an “automatic lapse” of appointment due to licensing issues to alleged recklessness and breach of duties arising from non-disclosure of a period of non-licensing.

Overall, the dispute largely concerned the application of law to facts (validity of appointments/resolutions and consequences), with important discretionary components (condonation, costs) and evaluative conclusions (whether conduct amounted to recklessness).

4. Court’s Reasoning

On condonation, the court emphasised that CaseLines could not be used to circumvent compliance with the rules, and that attorneys could not “slip” documents into the process by mere uploading without obtaining the court’s permission. The court was critical of the extreme lateness of the opposition and counter-application, the lack of a meaningful explanation for the delay, and the failure to notify the registrar. It also noted that LPMI’s counsel had been present at the case management meeting and thus knew of the set hearing date.

Despite these deficiencies, the court exercised its discretion to grant condonation. The reason given was pragmatic: the court considered it preferable to resolve the issues and avoid further “unnecessary litigation” in a matter already characterised as a “minefield” of disputes. However, because no good cause for the delay was shown, the court ordered LPMI (the first respondent) to pay the costs associated with the condonation application.

On the question of authority of Gothe Attorneys, the court examined the resolutions relied upon. It held that the 11 August 2022 resolution was signed by an improperly constituted board and was therefore a nullity. The court further reasoned that a nullity could not be ratified, and that the later resolution(s) of 23 August 2022 appeared inconsistent in the record: the answering affidavit referred to three resolutions, while later Rule 35(12) material suggested six resolutions, with the “only common denominator” being one resolution. The court drew an inference that the resolutions were being used to address an internal dispute between two sets of attorneys, rather than to demonstrate a clear, valid mandate. On this assessment, the court concluded that LPMI’s version that it lawfully appointed Gothe Attorneys was untenable, and that Gothe Attorneys had not demonstrated authority to act.

Although that finding could have disposed of the opposition procedurally, the court considered it prudent to address the merits regarding the removal of Mr Naidoo and the counter-application against Mr Naudé, in the interests of legal certainty and “the way forward”.

On the removal of Mr Naidoo, the court applied the principle that when a BRP dies, a new BRP must be appointed in accordance with the statutory framework. It reasoned that Mr Naidoo could not “step into” the position of Mr Kaplan because Mr Kaplan’s appointment had not been endorsed by the Companies and Intellectual Property Commission (CIPC) and had been ordered removed. The court further applied the statutory principle that appointment of a BRP is a function of the directors, but that once business rescue has commenced, directors’ exercise of functions is subject to the authority of the BRP. Since it was common cause that Mr Naudé was unaware of the appointment of Mr Naidoo, the court held that any action taken without the BRP’s approval was void, and Mr Naidoo had to be removed as BRP.

The court also rejected reliance on an exco appointment. It applied Panamo Properties (Pty) Ltd and another v Nel and others NNO 2015 (5) SA 63 (SCA), which the court understood as confirming that the board of directors must appoint a BRP. An exco did not constitute the board and lacked power to appoint a BRP. Additionally, any purported ratification relied upon was found to have no legal effect in light of the 18 June 2021 court order declaring actions and decisions of LPMI’s board since business rescue to be void and invalid.

On the counter-application to remove Mr Naudé, the court recorded that LPMI conceded in oral argument that the contention that Mr Naudé automatically ceased to be BRP because his licence lapsed for a period was ill-conceived. The court again relied on the Panamo principle that only a court, on application, can set aside a resolution appointing a BRP and terminate business rescue proceedings; an appointment does not fall away automatically on licensing lapses.

The court then addressed the reframed argument that Mr Naudé’s failure to inform affected parties of the CIPC’s non-renewal of his licence constituted recklessness and breach of fiduciary duties. The court rejected this argument on the facts and on its understanding of the statutory scheme. It reasoned that Mr Naudé, as an attorney, was never “disqualified” in the manner suggested, but was not licensed for a period of five months; that section 138(2) provides that the CIPC “may” license a person; and that, read in context with Panamo (including the court’s reference to “trivial non-compliances” not necessarily terminating business rescue), the period of non-licensing did not justify an inference of reckless conduct. Without a factual foundation for recklessness, the asserted breach of trust could not be sustained, and the counter-application failed.

5. Outcome and Relief

The court granted condonation for the late filing of the answering affidavit and counter-application, but ordered the first respondent (LPMI) to pay the costs of the condonation application.

The court granted the application to remove Mr Naidoo as business rescue practitioner. It ordered that the first to sixth respondents (described as the exco that appointed Mr Naidoo) as well as Mr Naidoo pay the costs of that application.

The court dismissed the counter-application to remove Mr Naudé as BRP, with costs.

Cases Cited

Panamo Properties (Pty) Ltd and another v Nel and others NNO 2015 (5) SA 63 (SCA).

Legislation Cited

Companies Act 71 of 2008, section 129(3).

Companies Act 71 of 2008, section 138(2).

Companies Act 71 of 2008, section 139(3).

Rules of Court Cited

Uniform Rules of Court, Rule 35(12).

Uniform Rules of Court, Rule 7(1).

Held

The court held that condonation should be granted despite extreme lateness and inadequate explanation, primarily to prevent further satellite litigation; however, the party seeking indulgence (LPMI) was ordered to pay the costs related to condonation because good cause was not shown.

The court held that Gothe Attorneys had not demonstrated authority to act for LPMI because the foundational resolution relied upon was adopted by an improperly constituted board and was a nullity, and later documentation did not cure that defect or demonstrate a coherent, valid mandate.

The court held that Mr Naidoo had to be removed (if he was appointed) as a co-business rescue practitioner because the purported appointment process was unlawful and inconsistent with the statutory requirements that appointment be made by the board of directors, not an exco, and because directors’ actions after commencement of business rescue are subject to the BRP’s authority, which was absent given that Mr Naudé was unaware of the appointment.

The court held that the counter-application to remove Mr Naudé failed because a BRP does not automatically lose office due to a licensing lapse and, on the facts, the non-licensing period did not justify a finding of recklessness or breach of fiduciary duty warranting removal.

LEGAL PRINCIPLES

Condonation for procedural non-compliance is discretionary and requires an adequate explanation for the degree of lateness; where indulgence is granted despite poor explanation, an adverse costs order may follow. The court also reaffirmed that electronic case management systems such as CaseLines do not replace compliance with procedural rules and do not permit unilateral late filing without permission.

A party opposing or participating in litigation must properly establish an attorney’s authority where challenged; defective corporate governance instruments, including resolutions adopted by an improperly constituted board, may render purported mandates legally ineffective. A resolution that is a nullity cannot be rendered effective by attempted ratification.

Under the business rescue framework of the Companies Act 71 of 2008, the board of directors holds the power to appoint a business rescue practitioner, and an executive committee does not substitute for the board for this purpose. Once business rescue has commenced, directors’ powers are exercised subject to the authority of the BRP, with consequences for actions purportedly taken without such authority.

A business rescue practitioner’s appointment is not automatically terminated by a lapse in licensing; consistent with the principle stated in Panamo Properties (Pty) Ltd and another v Nel and others NNO 2015 (5) SA 63 (SCA), removal of a BRP and termination of business rescue require court intervention on proper application. Claims of recklessness and breach of fiduciary duty must be grounded in an adequate factual basis; absent such facts, removal relief cannot be justified.