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[2022] ZANCHC 59
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Taljaard and Another v Land and Agricultural Development Bank of South Africa and Others (1094/2022) [2022] ZANCHC 59 (11 October 2022)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
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SAFLII
Policy
IN
THE HIGH COURT OF SOUTH AFRICA
NORTHERN
CAPE DIVISION, KIMBERLEY
Case
No: 1094/2022
Heard:
13/09/2022
Date
delivered: 11/10/2022
Reportable:
YES / NO
Circulate
to Judges: YES / NO
Circulate
to Magistrates: YES / NO
Circulate
to Regional Magistrates: YES / NO
In
the matter between:
SHANIE
TALJAARD
(Previously
Fourie, ID No: [....])
1
st
Applicant
CURO
CONSULTANCY (PTY) LTD
2
nd
Applicant
and
THE
LAND AND AGRICULTURAL DEVELOPMENT BANK
OF
SOUTH
AFRICA
1
st
Respondent
MINISTER
OF TRADE AND
INDUSTRY
2
nd
Respondent
MINISTER
OF JUSTICE AND CONSTITUTIONAL
DEVELOPMENT
3
rd
Respondent
COMPANIES
AND INTELLECTUAL PROPERTY
COMMISSION
(CIPC)
4
th
Respondent
JOCHEN
ECKHOFF N.O.
(in
his capacity as provisional co-liquidator of Project Multiply
(Pty)
Ltd (in provisional liquidation) (Reg No: 1993/005325/07)
and
Velvetcream 15 (Pty) Ltd (in provisional
liquidation)
Reg No: 2005/033276/07); and in his capacity as
provisional
co-trustee of the Merwede Trust (IT1534/98) in his
capacity
as co-trustee of the insolvent estate of Carel Aaron
van
der Merwe)
5
th
Respondent
DEON
MARIUS BOTHA N.O.
(in
his capacity as provisional co-liquidator of Project Multiply
(Pty)
Ltd (in provisional liquidation) (Reg No: 1993/005325/07)
and
in his capacity as co-trustee of the insolvent estate of Carel
Aaron
van der Merwe)
6
th
Respondent
JOHANNES
ZACHARIAS HUMAN MULLER N.O.
(in
his capacity as provisional co-liquidator of Velvetcream 15
(Pty)
Ltd (in provisional liquidation) (Reg No: 2005/033276/07;
and
in his capacity as provisional co-trustee of the Merwede
Trust
(IT1534/98)
7
th
Respondent
FUSI
PATRICK RAMPOPORO N.O.
(in
his capacity as provisional co-liquidator of Project Multiply
(Pty)
Ltd (in provisional liquidation)
(Reg
No:
1993/005325/07) 8
th
Respondent
SIMON
MALEBO RAMPOPORO N.O.
(in
his capacity as provisional co-liquidator of Velvetcream 15
(Pty)
Ltd (in provisional liquidation)
(Reg
No:
2005/033276/07) 9
th
Respondent
ANGELINE
POOLE N.O.
(in
her capacity as provisional co-trustee of the Merwede
Trust
(IT1534/98)
10
th
Respondent
CATHARINA
SUSANNE VAN DER MERWE N.O.
(in
her capacity as sole remaining trustee of the Merwede
Trust
(IT1534/98)
11
th
Respondent
PHILEMON
TATENDA MAWIRE N.O.
(in
his capacity as co-trustee of the insolvent estate of
Carel
Aron van der
Merwe) 12
th
Respondent
AGRI
SOUTH AFRICA
NPC
13
th
Respondent
MASTER
OF THE HIGH COURT, KIMBERLEY
14
th
Respondent
MASTER
OF THE HIGH COURT, CAPE
TOWN
15
th
Respondent
AFFECTED
PARTIES OF PROJECT MULTIPLY (PTY) LTD
AS
PER LIST ANNEXED HERETO, MARKED
“A”
16
th
Respondent
AFFECTED
PARTIES OF VELVETCREAM 15 (PTY) LTD
AS
PER LIST ANNEXED HERETO, MARKED “B”
17
th
Respondent
AFFECTED
PARTIES OF THE MERWEDE TRUST AS PER
THE
LIST ANNEXED HERETO, MARKED
“C”
18
th
Respondent
AFFECTED
PARTIES OF CAREL ARON VAN DER MERWE
AS
PER LIST ANNEXED HERETO MARKED “D”
19
th
Respondent
In
re:
Case
No: 963/2021
THE
LAND AND AGRICULTURAL DEVELOPMENT
BANK
OF SOUTH AFRICA
Applicant
and
JACQUES
DU TOIT N.O.
(in
his erstwhile capacity as
Business
Rescue Practitioner of Project Multiply (Pty)
Ltd
(in provisional
liquidation 1
st
Respondent
PROJECT
MULTIPLY (PTY) LTD
(in
provisional
Liquidation)
(Reg No:
1993/005325/07)
2
nd
Respondent
THE
COMPANIES AND INTELLECTUAL PROPERTY
COMMISSION
(CIPC)
3
rd
Respondent
ALL
AFFECTED
PARTIES
4
th
Respondent
AND
in re:
Case
No: 964/2021
In
the matter between:
THE
LAND AND AGRICULTURAL DEVELOPMENT
BANK
OF SOUTH
AFRICA
Applicant
and
JACQUES
DU TOIT N.O.
(in
his erstwhile capacity as
Business
Rescue Practitioner of Velvetcream 15 (Pty)
Ltd
(in provisional liquidation)
(Reg
No: 2005/033276/07)
1
st
Respondent
VELVETCREAM
15 (PTY) LTD
(in
provisional liquidation)
(Reg
No:
2005/033276/07) 2
nd
Respondent
THE
COMPANIES AND INTELLECTUAL PROPERTY
COMMISSION
(CIPC)
3
rd
Respondent
ALL
AFFECTED
PARTIES
4
th
Respondent
AND
in re:
Mahikeng
Case No: M557/2021/27
Kimberley
Case No: 2436/2021
THE
LAND AND AGRICULTURAL DEVELOPMENT
BANK
OF SOUTH AFRICA
Applicant
and
CAREL
ARON VAN DER MERWE (SNR) N.O.
1
st
Respondent
CATHARINE
SUSANNA VAN DER MERWE N.O.
2
nd
Respondent
CAREL
ARON VAN DER MERWE (JNR) N.O.
3
rd
Respondent
(in
their capacities as co-trustees of the Merwede
Trust
(IT 1534/98))
JUDGMENT
Mamosebo
J
[1]
This application involves the fundamental question, premised on a
constitutional challenge,
whether the exclusion of individuals and
trusts from the business rescue provision set out in the Companies
Act, 71 of 2008 (the
Act) is unconstitutional. Related to this
question is whether there should be an order dismissing the
provisional winding-up
and sequestration orders of Project Multiply
(Pty) Ltd, Velvetcream 15 (Pty) Ltd and Merwede Trust and a further
order placing
the said companies and Trust, including Mr Van der
Merwe, under supervision and commencing with the business rescue
proceedings
in terms of s 131(1) of the Act.
[2]
These are the parties in the application
.
2.1
The first applicant is Ms Shanie Taljaard. A director and employee of
Velvetcream 15 (Pty) Ltd (in provisional
liquidation) under case
number 964/2021; Project Multiply (Pty) Ltd (in provisional
liquidation) under case number 963/2021; an
employee and creditor of
Merwede Trust (in provisional sequestration) under case number
2436/2021; an employee and creditor of
Carel Aron Van der Merwe
finally sequestrated by order of the Western Cape High Court on 18
March 2022 under case number 15365/2021.
She is also the sole
director of Curo Consultancy, the second applicant with their
business address at Farm Stofbakkies, Vanwyksvlei,
Northern Cape.
2.2
The first respondent is the Land and Agricultural Development Bank of
South Africa (the Landbank), a statutory
body established in terms of
the Land and Agricultural Bank Act, 15 of 2002.
2.3
The second respondent is the Minister of Trade and Industry referred
to in
section 1
of the
Companies Act as
the member of cabinet
responsible for companies and the Minister responsible for the
implementation of the Act.
2.4
The third respondent is the Minister of Justice and Constitutional
Development who abides the decision of
the Court.
2.5
The Fourth respondent is the Companies and Intellectual Property
Commission who did not file any opposing
papers.
2.6.
The Fifth, Sixth, Seventh, Eighth, Ninth, Tenth and Twelfth
respondents are the insolvency practitioners appointed
as provisional
co-liquidators and provisional co-trustees.
2.7
The eleventh respondent is Catharina Susanna Van der Merwe cited as
the sole remaining trustee of the Merwede
Trust.
2.8
Agri South Africa (13
th
respondent), Master of the High
Court, Kimberley (14
th
respondent), Master of the High
Court, Cape Town (15
th
respondent), affected parties of
Project Multiply (Pty) Ltd (16
th
respondent), affected
parties of Velvetcream 15 (Pty) Ltd (17
th
respondent),
affected parties of the Merwede Trust (18
th
respondent),
affected parties of Carel Aron Van der Merwe (19
th
respondent) are not participating in these proceedings.
[3]
The applicants in the main application are seeking the following
relief in the Notice
of Motion:
3.1
Part A
: An order of intervention and joinder to the winding-up
applications of Project Multiply (Pty) Ltd and Velvetcream 15 (Pty)
Ltd,
under case numbers 963/2021 and 964/2021, respectively, as well
as orders of intervention and joinder in the sequestration
application
of the Merwede Trust under case number 2436/2021.
3.2
Part B
: An order on the constitutional challenge,
fundamentally on the basis that individuals and trusts fall to be
placed under business
rescue as envisaged in Chapter 6 of the
Companies Act, 71 of 2008
, and that their exclusion from the
protection of business rescue is unconstitutional; and
3.3
Part C
: orders dismissing the provisional winding-up and
sequestration orders of Project Multiply, Velvetcream and Merwede
Trust and an
order placing the said companies and trust and Mr Carel
Aron Van der Merwe under supervision and that business rescue
proceedings
be commenced in terms of
s 131(1)
of the
Companies Act,
2008
.
Relief
sought by the Landbank
[4]
The Landbank, in its counter-application, sought the following
relief:
4.1
That the counter application be deemed urgent and heard on 5 August
2022. That due to the urgency of
the application the form and
services provided for in the Rules be dispensed with in terms of
rule
6(12)(a)
;
1.5
cm; margin-bottom: 1cm; line-height: 150%">
4.2
That all forms of relief sought by the applicants, Ms Shanie Taljaard
and Curo Consultancy under case number
1094/2022 (intervention and
joinder, constitutional challenge, and business rescue application)
be set down on 5 August 2022 and
be dismissed with costs on an
attorney and client scale, including the costs consequent upon the
employment of two counsel;
4.3
That it be declared that the proposed [business rescue] plan, as
deposed to by Ms Shanie Taljaard on 6 June
2022 and filed in support
of the relief sought for business rescue under case number 1094/2022,
is not achievable on reasonably
objective grounds; and
4.4
Costs on the scale as between attorney and own client.
Relief
sought by the provisional liquidators and trustees
[5]
In the Notice of Motion in the provisional counter application, the
liquidators’
application, which hinged on the Landbank’s
counter application, are seeking the following relief:
“
1.
That this counter application be deemed urgent. That due to the
urgency of the application the form and
services provided for in the
Rules be dispensed with in terms of
rule 6(12)(a)
;
1
.5cm; margin-bottom: 1cm; line-height: 150%">
2.
That the fifth, sixth and eighth respondents’ powers be
extended in terms of s 386(4)(a)
to (i) of the Companies Act, 61 of
1973;
2.1
That the fifth, sixth and eighth respondents be granted leave in
their capacities as the joint liquidators of the insolvent
company to
convene a commission of enquiry into the trade, dealings, affairs and
property of Project Multiply (Pty) Ltd (in liquidation)
in terms of
the provisions of s 417, read with section 418 of the Companies Act,
61 of 1973, and to be chaired by Judge Bertelsmann
who has consented
to be so appointed;
2.2
That the costs of the enquiry be borne by the insolvent estate of
Project Multiply (Pty) Ltd (in liquidation), including
costs of the
commissioner, attorney and/or counsel and all other costs and
expenses incidental to the enquiry.
3.
That the fifth, seventh and ninth respondents’ powers be
extended in terms of s 386(4)(a)
to (i) of the Companies Act, 61 of
1973;
3.1
That the fifth, seventh and ninth respondents be granted leave in
their capacities as the joint liquidators of the insolvent
company to
convene a commission of enquiry into the trade, dealings, affairs and
property of Velvetcream 15 (Pty) Ltd (in liquidation)
in terms of the
provisions of s 417, read with section 418 of the Companies Act, 61
of 1973, and to be chaired by Judge Bertelsmann
who has consented to
be so appointed;
3.2
That the costs of the enquiry be borne by the insolvent estate of
Velvetcream 15 (Pty) Ltd (in liquidation), including
costs of the
commissioner, attorney and/or counsel and all other costs and
expenses incidental to the enquiry.
4.
That the provisional trustee’s powers be extended in terms of
s
18(3)
and
73
of the
Insolvency Act 24 of 1936
, in order to have the
powers and duties of a trustee as provided for by the
Insolvency Act
to
bring and defend legal proceedings and to dispose of the livestock
and/or other assets necessary in the administration of the insolvent
estate, and to appoint legal practitioners to assist them in the
investigation and/or administration of the insolvent estate.
5.
That the costs of this application be costs in the administration in
the winding-up of an
insolvent company and the insolvent estates.”
The
application by TLU SA for admission as
amicus curiae
[6]
TLU SA, a national non-profit agricultural organisation, applied to
be admitted as
amicus curiae
in terms of
Rule 16A.
Only
the applicants filed their written consent to TLU’s entry as
amicus
. TLU SA brought this application in the public
interest and in the interests of its members.
[7]
The Constitutional Court in
Ex
Parte Institute for Security Studies: In Re S v Basson
[1]
pronounced:
“
[7]
In the exercise of its discretion whether or not to admit a person as
an amicus this Court will have regard
to the principles that govern
the admission of an amicus. These principles are whether the
submissions sought to be advanced are
relevant to the issues before
the Court, will be useful to the Court and are different from those
of the other parties. As
Rule 10(7)
indicates, the submission should
raise new contentions and ‘should not repeat any matter set
forth in the argument of the
other parties’. It is the duty of
this Court, in the exercise of its discretion, to ensure that these
principles are satisfied
before a person can be admitted as an
amicus. Where these principles are not satisfied a person cannot be
admitted as an amicus.
It follows therefore that this Court is not
bound to admit a person who has obtained written consent of all the
parties. This Court
may refuse to admit such a person where the
underlying principles referred to above are not satisfied. Nor does
the fact that a
person was admitted as an amicus curia in the Court
below matter.”
[8]
On 13 September 2022 Adv J De Vries, confirmed his appearances on
behalf of TLU SA
which claims to be representing approximately 6,000
farmers, of which about 70% conduct businesses as sole proprietors,
their families
and the workers, their families and dependants live on
these farms. These statistics do not form part of this record.
TLU
SA maintains that the nature of the relief sought has a
substantial impact on the agricultural community. Mr de Vries
contended
that trusts and natural persons should enjoy the protection
afforded to companies under business rescue. The Court has a
discretion whether the threshold for the extension of the protection
is extended to farmers employing not less than five or ten
employees.
[9]
I have noted, however, that the main arguments by TLU SA are already
covered by the
applicants in their submissions, to name but a few:
9.1
That the differentiation between companies and close corporations, on
the one hand, and sole proprietorships
on the other, is arbitrary,
not connected to any legitimate governmental purpose, and accordingly
inconsistent with section 9 of
the Constitution;
9.2
The current differentiation is unintentional and came about because
the Legislature gave preference to the
reform of company law over
insolvency law.
9.3
The existence of a lacuna in the insolvency law pertaining to the
(un)availability of business rescue proceedings
for a natural person
and or trust.
9.4
Reliance on the affidavit by Mr Lawrence Basset, Deputy Chief State
Law Adviser: Legislative Development in
the Department of Justice and
Constitutional Development.
[10]
What is striking in the submission made on behalf of TLU SA is that
the organisation is not saying
that all natural persons or all
farmers must be protected by the business rescue proceedings but only
those that employ more than
5 or 10 people, leaving the threshold in
the court’s discretion. This submission begs the
question, whether selective
protection will not be a further
perpetuation of the purported differentiation among the very
community TLU SA claims to be representing.
[11]
The Constitutional Court in
In
Re Certain Amicus Curiae Applications: Minister of Health and Others
v Treatment Action Campaign and Others
[2]
remarked:
“
[5]
The role of an amicus is to draw the attention of the Court to
relevant matters of law and fact to which attention
would not
otherwise be drawn. In return for the privilege of participating in
the proceedings without having to qualify as a party,
an
amicus has a special duty to the Court. That duty is to provide
cogent and helpful submissions that assist the Court. The amicus
must
not repeat arguments already made but must raise new contentions
;
and generally, these new contentions must be raised on the data
already before the Court. Ordinarily it is inappropriate for an
amicus to try to introduce new contentions based on fresh evidence.”
[12]
Taking cue from the principles enunciated by the Constitutional Court
in
Basson
[3]
and
In
Re Certain Amicus Curiae Applications
[4]
,
the issues raised by the
amicus
are
no different from those already advanced by the other parties. It
is noteworthy from the papers and the explanation advanced
in the
affidavit of the
amicus
’
attorney and the fact that Mr De Vries, applicants’ junior
counsel, ended up arguing the case for the
amicus
that aimed to advance the applicants’ case. In any event, the
amicus
was afforded a hearing.
Landbank’s
counter application
[13]
Following the decision of this Court in the unreported judgment by
Williams J in
C
Rock (Pty) v HC Van Wyk Diamonds Ltd and Others
[5]
in
which the Court held that business rescue applications are in their
nature urgent, there is no reason to disagree with the Court’s
finding. I found that the business rescue and the
constitutional challenge applications as well as the counter
application
must be heard on an urgent basis. On this score,
the Landbank was partially successful in its relief because of the
order
confirming urgency and the date of hearing as 08 September 2022
which is much earlier than the return dates for the winding up
proceedings set down for 11 to 13 October 2022. Mr Terblanche
SC submitted that in order to curtail proceedings the Landbank
will
not seek separate orders in terms of the relief sought in the
remainder of prayers 2, namely, the dismissal of the main
application,
and 3, due to their overlap with the main application.
[14]
A lot was made of Landbank’s counter application not being a
counter application in a true
sense; that it should have merely
opposed the main application; that it should further not have set the
main and counter application
down for 5 August 2022, and that by
doing so the Landbank was abusing Court process.
[15]
To this end, I refer to the seminal remarks by the Constitutional
Court in
Eke
v Parsons
[6]
where
the Court said:
“
[39]
…Without doubt, rules governing the court process cannot be
disregarded. They serve an undeniably important
purpose. That,
however, does not mean that courts should be detained by the rules to
a point where they are hamstrung in
the performance of the core
function of dispensing justice. Put differently, rules should
not be observed for their own sake.
Where the interests of justice so
dictate, courts may depart from a strict observance of the rules.
That, even where one
of the litigants is insistent that there
be adherence to the rules. Not surprisingly, courts have often
said '(i)t is trite
that the rules exist for the courts, and not the
courts for the rules'.
[40]
Under our constitutional dispensation the object of court rules is
twofold. The first is to ensure a fair trial or hearing.
The
second is to 'secure the inexpensive and expeditious completion of
litigation and… to further the administration
of justice'
.
I have already touched on the inherent jurisdiction vested in
the superior courts in South Africa. In terms of this
power
the
High Court has always been able to regulate its own proceedings
for a number of reasons,
including catering for circumstances not
adequately covered by the Uniform Rules
,
and generally
ensuring the efficient administration of the courts' judicial
functions
.” (Emphasis added)
[16]
On the basis of the aforesaid decision of the Constitutional Court I
deemed it necessary to hear
the applications expeditiously despite
having been set down by the Landbank as the first respondent in the
main application. It
is indeed so that the arguments advanced
overlapped somewhat and it would be convenient to consider the issues
together.
The
main application
[17]
At commencement of the argument, Mr Van Niekerk SC, counsel for the
applicants, abandoned the
relief sought under Part A, that of
intervention and joinder of the applicants to the liquidation and
sequestration proceedings
and only argued the relief under Parts B
and C.
[18]
Part B has to do with the constitutional challenge and Part C with
business rescue. The
applicants base their constitutional
challenge on the provisions of s 9(1) of the Constitution
[7]
which guarantees equality of everyone before the law and the right to
equal protection and benefit of the law. It is on this
basis
that the applicants urge this Court to declare s 1 (the definition of
a company) and Chapter 6 of the Companies Act unconstitutional.
[19]
PART B – CONSTITUTIONAL CHALLENGE
Under
this head, the applicants are seeking an order to this effect:
19.1
Declaring that the differentiation brought about by the adoption of
Chapter 6 of the Companies Act in the applicability
of business
rescue proceedings between companies and close corporations, on the
one hand, sole proprietorships and natural persons
and trusts, on the
other, is arbitrary, contrary to section 9(1) of the Constitution and
invalid.
19.2
Declaring section 1 of the Companies Act 71 of 2008 (the Act) as
unconstitutional in that it unfairly discriminates between:
19.2.1
juristic persons which are trusts, on the one hand and juristic
persons such
as companies and close corporations, on the other, as
there is no justification for the omission of a trust from business
rescue
proceedings, in circumstances where the trust is in a
subsidiary relationship to a company or companies and that company or
any
one or more of those companies have commenced business rescue
proceedings.
19.2.2
natural persons, on the one hand and juristic persons such as
companies and
close corporations, on the other hand, as there is no
justification for the omission of a natural person from business
rescue proceedings,
in circumstances where the natural person is in
an inter-related subsidiary relationship to a company or companies
and that company
or any or more of those companies have commenced
business rescue proceedings.
19.3
Suspending the declarations made in paragraph 1 and 2 above for a
period of two years for Parliament to correct the defect.
19.4
Directing that until such time as Parliament corrects the defects, an
extension of the definition of “companies”
in the
section
1
of the
Companies Act, is
granted, by a reading-in of the following
subsection immediately after subsection (c) thereof:
“
or
(d) for purposes of the application of Chapter 6 of the Act, a trust
and/or natural person which are/is in an inter-related and
subsidiary
relationship with a company or companies, but only in so far as that
company or any or more of those companies have
commenced business
rescue proceedings, and will the “trustees of the trust”
have a similar meaning to “board
of a company” and will
such a natural person be equated to a “board of a
company.””
PART
C – BUSINESS RESCUE
19.5
An order dismissing the winding-up and sequestration applications of
Project Multiply, Velvetcream and Merwede Trust.
19.6
An order placing Project Multiply, Velvetcream, Merwede Trust and Van
der Merwe under supervision and that business rescue
proceedings be
commenced in terms of s 131 (1) of the Companies Act 71 of 2008 (the
Companies Act);
19.7
An order appointing Jacques du Toit and a business rescue
practitioner nominated by Landbank, as joint business rescue
practitioners to conduct the business of Project Multiply,
Velvetcream, Merwede Trust and Van der Merwe with all powers and
duties
entrusted to them in terms of the
Companies Act.
The
background
[20]
The two companies, Project Multiply and Velvetcream, the Merwede
Trust and Carel Aron Van der
Merwe operate as a “group”
under the name “Merwede Farming”. They describe
their farming operation
as ‘a unique South African large-scale
sheep farming’ on approximately 75,000 hectares in the Karoo
and 2,200 hectares
in the Mahikeng district, Northwest Province. They
farm in the Boesmanlander, South African bred sheep. The group was
financed
by the Landbank.
[21]
The group experienced financial distress which was exacerbated by
elements like drought over
a period of seven years in the Northern
Cape and the Covid-19 pandemic. The profitability and cash flow
of their farming
operations was affected. The Northern Cape was
declared a disaster area. The capital injection by government
of two
instalment of R3,000.00 and R9,000.00 per farmer was
inadequate to address the relief needed. They continued to
suffer from
lower revenues and increased revenue costs, resultantly
struggling to pay the creditors.
[22]
The boards of both companies, Project Multiply and Velvetcream, took
a resolution to commence
business rescue on 20 January 2021. Mr
Carel Van der Merwe completed and signed the notice of appointment of
Business Rescue
Practitioner (BRP) known as CoR123.2 forms,
appointing Mr Jacques du Toit as the business rescue practitioner.
Operating
expenses were downscaled to R250,000.00 per month and
the expenses were carried from the Post Commencement finance
concluded between
Ronnie van der Merwe Trust represented by Mr Ronnie
van der Merwe as its trustee and Project Multiply represented by Mr
Jacques
du Toit, the business rescue practitioner (BRP). The
total amount of the loan was R600,000.00 repayable by 20 January 2023
or upon cancellation of the agreement. The BRP convened the
first meeting of creditors and employees on 1 and 2 February
2021.
The business rescue plans for the two companies dated 21
February 2021 were published on 24 February 2021.
[23]
The second meeting of creditors for both Project Multiply and
Velvetcream was held on Monday,
8 March 2021 in order to vote for the
adoption or rejection of the business rescue plans.
Section
152(2)
requires 75% of the creditors’ voting interest to vote
in favour of the business rescue. The Landbank, being the
holder
of 95.54% of the voting rights for Project Multiply and 99.78%
for Velvetcream, therefore being the majority creditor, voted against
the adoption of the business rescue plans which led to their
rejection.
[24]
The BRP informed those present at the meeting that he would be
approaching the Court in terms
of s 153(1)(a)(ii) of the Act
[8]
for the Court to set aside the Landbank’s vote as
inappropriate. The BRP, Mr Jacques du Toit, on behalf of
Project
Multiply and Velvetcream, Mr Carel Aron van der Merwe and the
trustees of the Merwede Trust brought an application in terms of s
153(1)(a)(ii) of the Act on 19 April 2021 simultaneously raising the
same constitutional issues in the current application under
case
number 758/2021. The Landbank opposed this application and also
launched liquidation applications against Project Multiply
and
Velvetcream under case numbers 963/2021 and 964/2021 and the
sequestration of Merwede Trust, an application initially launched
in
the North west High Court under case number M557/2021 and
subsequently transferred to this Court.
[25]
On 29 October 2021, this Court, having heard Adv Tsangarakis for
Landbank and Adv. De Vries for
Jacques du Toit N.O., Velvetcream,
Project Multiply, Carel Aron van der Merwe and the affected parties,
made the following orders
by agreement:
1.
The matters
issued under case number 758/2021, 963/2021, and 964/2021 issued out
of this Court are hereby consolidated.
2.
The
consolidated matters are all postponed for hearing on 9 to 13 May
2022.
3.
The Land and
Agricultural Development Bank of South Africa records that they will
not oppose the application for transfer of the
matter issued in the
Mahikeng High Court under case number M557/2021, which application
has been set down for 11 November 2021
if so transferred that
application will be heard together with the consolidated application.
4.
All
respondents to file their answering affidavit on or before 20 January
2022.
5.
All applicants
to file their replying affidavit on or before 20
March 2022.
6.
All applicants
to file heads of argument by 11 April 2022.
7.
All
respondents to file heads of argument by 25 April 2022.
8.
Costs to stand
over for later determination.
[26]
In the meantime, an application for the sequestration of Carel Aron
van der Merwe was heard in
the Western Cape High Court under case
number 15365/2021. Despite the applicants stating that Van der
Merwe’s oversight
was the reason for not bringing the
sequestration application to the attention of his legal
representative, his insistence to have
the application transferred to
the Northern Cape failed. Mangcu-Lockwood J granted the
provisional sequestration order on
15 October 2021 returnable on 16
November 2021. Mr van der Merwe filed an affidavit, spanning
122 paragraphs and 133 pages,
serving a dual purpose: a provisional
answering affidavit for the sequestration application and a founding
affidavit in support
of the application for transfer of the matter to
the Northern Cape Division in terms of s 27(1)(b) of the Superior
Courts Act
[9]
. He failed
to oppose the provisional sequestration order. Le Grange J
granted the final sequestration
order
against him on 18 March 2022. I will revert to the Le Grange judgment
later.
[27]
On 10 May 2022, despite this Court’s order postponing the
applications by agreement granted
on 29 October 2021 with a timetable
for the further exchange of pleadings, the applicants not only failed
to file their lengthy
replying affidavit by 20 March 2022 but the
affidavit also introduced significant new material. The
applicants brought a
condonation application for the late filing of
the replying affidavit which was refused. They further brought
an intervention
application which was also refused. The
applicants sought an adjournment of the matter. Shortly
thereafter, the parties
approached me in chambers with four orders by
agreement. In 963/21 and 964/21 granting the Landbank leave in
terms of
s 133(1)(b)
of the
Companies Act to
proceed with relief
sought prayers 2, 3 and 4, quoted in relevant part:
“
2
The voluntary resolution, adopted by the board of the second
respondent (each company under its
own case number, Project Multiply
(Pty) Ltd and Velvetcream 15 (Pty) Ltd) on 20 January 2021 commencing
business rescue proceedings
of the second respondent and placing the
second respondent under business rescue, is declared a nullity and is
hereby set aside
in accordance with the provisions of
s 130(1)(a)(ii)
and/or (iii) of the Act.
3.
The
business rescue proceedings of the second respondent be and is hereby
terminated.
4.
The
second respondent is placed under provisional liquidation in the
hands of the Master of the Northern Cape High Court, Kimberley.”
[10]
[28]
The estate of the Merwede Trust (IT1534/98) has been placed under
provisional sequestration in
the hands of the Master of the Northern
Cape High Court, Kimberley. The return date for these
provisional orders is 11 October
2022. The business rescue
practitioner, Mr Jacques du Toit withdrew his application in which he
sought that this Court declare
the vote by the Landbank
inappropriate. The Landbank holds security over fixed property
of the Group by virtue of special
mortgage bonds registered in favour
of Unigro Financial Services (Pty) Ltd which bonds have been ceded to
the Landbank. In addition
to the aforesaid security there are
suretyships signed in favour of the bank as well as a cession of all
proceeds of agricultural
products produced by the two companies,
Project Multiply and Velvetcream, and/or produce to be produced by
these two companies
and other members of the group in future.
[29]
With the above synopsis in mind, the relief sought by the applicants
in the present application,
Ms Shanie Taljaard and Curo Consultancy
(Pty) Ltd, is that the protection mechanism created by Chapter 6 of
the
Companies Act 71 of 2008
be made available to trusts and natural
persons. They further contend that
s 1
of the
Companies Act is
unconstitutional in that it unfairly discriminates against companies
and close corporations on the one hand and trusts and sole
proprietors or natural persons on the other. Section 9(1) of the
Constitution provides:
“
Everyone
is equal before the law and has the right to equal protection and
benefit of the law.”
[30]
The South African Constitution is an egalitarian Constitution
premised on addressing the injustices
of the past. The
achievement of equality is one of the founding values of the Republic
of South Africa. The constitutional
court in
President
of the Republic of South Africa v Hugo
[11]
recognised that injustices of the past have led to inequalities and
that these inequalities cannot be addressed by treating all
persons
equally at all times.
[31]
The Constitution enjoins the courts in constitutional matters to
exercise the following powers
in terms of s 172:
“
(1)
When deciding a constitutional matter within its power, a court –
(a)
must declare that any law or conduct that is inconsistent with the
Constitution is invalid to the extent
of the inconsistency; and
(b)
may make any order that is just and equitable, including –
(i)
an order limiting the retrospective effect of the declaration of
invalidity; and
(ii)
an order suspending the declaration of invalidity for any period and
on any conditions, to allow
the competent authority to correct the
defect.”
Moseneke
DCJ in
Mazibuko
N.O. v Sisulu N.O
.
[12]
held that there can be no merit in delaying a challenge to the
constitutional validity of a statute on
the
basis of the purported imminence of reforming legislation.
Therefore, should I find that the applicants have made out
a case for
constitutional invalidity, it will be perfectly in order to make the
declaration.
[32]
According to Mr Van Niekerk, for the applicants, the differentiation
between companies and close
corporations on the one hand and between
sole proprietors, individuals and trusts on
the other has
no rational basis. He referred to the affidavit by Mr
Lawrence Basset, Deputy State Law Advisor: Legislative Development in
the
Department of Justice and Constitutional Development, filed in an
unreported case of
Oosthuizen
Development Group (Pty) Ltd and Others v The Minister of Trade and
Industry and Others
[13]
.
He
deposed to the said affidavit as head of the unit responsible for the
review and development of statutes for which the
Minister of Justice
and Constitutional Development, who was not before Court, is
administratively responsible. The applicants
contend that the
differentiation in Chapter 6, though unintended, came about as a
result of the legislature giving preference to
reforming the company
law as opposed to the insolvency law in general. To determine
whether the challenge in terms of s 9(1)
is correct, it is necessary
to consider the proper approach to be taken when applying the
section.
[33]
The Constitutional Court in
Prinsloo
v Van der Linde
[14]
held:
“
[17]
If each and every differentiation made in terms of the law amounted
to unequal treatment that had to be justified by
means of resort to s
33, or else constituted discrimination which had to be shown not to
be unfair, the Courts could be called
upon to review the
justifiability or fairness of just about the whole legislative
programme and almost all executive conduct. As
Hogg puts it:
'What
is meant by a guarantee of equality? It cannot mean that the
law must treat everyone equally. The Criminal Code
imposes
punishments on persons convicted of criminal offences; no similar
burdens are imposed on the innocent. Education
Acts require
children to attend school; no similar obligation is imposed on
adults. Manufacturers of food and drugs are subject
to more
stringent regulations than the manufacturers of automobile parts.
The legal profession is regulated differently from
the
accounting profession. The Wills Act prescribes a different
distribution of the property of a person who dies leaving
a will from
that of a person who dies leaving no will. The Income Tax Act
imposes a higher rate of tax on those with high
incomes than on those
with low incomes.
The
Courts would be compelled to review the reasonableness or the
fairness of every classification of rights, duties, privileges,
immunities, benefits or disadvantages flowing from any law.
Accordingly,
it
is necessary to identify the criteria that separate legitimate
differentiation from differentiation that has crossed the border
of
constitutional impermissibility and is unequal or discriminatory 'in
the constitutional
sense'
.
(
Emphasis
added)
The
Concourt further said
[15]
:
“
[25]
It is convenient, for descriptive purposes, to refer to the
differentiation presently under discussion as “mere
differentiation”. In regard to mere differentiation the
constitutional state is expected to act in a rational manner.
It
should not regulate in an arbitrary manner or manifest “naked
preferences” that serve no legitimate governmental
purpose, for
that would be inconsistent with the rule of law and fundamental
premises of the constitutional state. The purpose
of this
aspect of equality is, therefore, to ensure that the state is bound
to function in a rational manner. This has been
said to promote
the need for governmental action to relate to a defensible vision of
the public good, as well as to enhance the
coherence and integrity of
legislation. In Mureinik’s celebrated formulation, the
new constitutional order constitutes
“a bridge away from a
culture of authority…. to a culture of justification.””
[34]
The submission by counsel for the applicants is not to remove the
protection afforded to companies
and close corporations but to
suspend it and to order a read-in for the interim period by extending
the protection afforded by
business rescue provisions to natural
persons and trusts. The applicants’ contention is that in
the absence of this
protection s9(1) of the Constitution is
infringed. Although the applicants are aware that it is the duty of
the legislature to
make or change legislation, and that the process
to do so was initiated some eight years ago through the consolidated
draft Insolvency
Bill, there is no reason why this Court
should not make the appropriate order to
declare the lacuna created
by this situation unconstitutional.
[35]
The first enquiry must be directed at the question whether the
impugned provision, in this instance
section 1 and Chapter 6 of the
Companies Act, differentiates
between people or categories of people.
If they do differentiate, then in order not to offend s 9(1) of
the Constitution
there must be a rational connection between the
differentiation in question and the legitimate governmental purpose
it is designed
to further or achieve. If it is justified in
that way, then it does not amount to a breach of s 9(1).
[36]
If, however, the differentiation complained of by the applicants
bears no rational connection
to a legitimate governmental purpose,
which is proferred to validate it, then the impugned provisions
violate the provisions of
s 9(1) of the Constitution. If there
is such a rational connection, then it becomes necessary to proceed
to s 9(2) to determine
whether, despite such rationality, the
differentiation none the less amounts to unfair discrimination.
[37]
In “
Harksen
v Lane NO and Others
[16]
,
the
Constitutional Court tabulated the stages of an enquiry into a
violation of the equality clause along the following lines:
“
(a)
Does the challenged law or conduct differentiate between people or
categories of people? If so, does the differentiation
bear a rational
connection to a legitimate government purpose? If it does not, then
there is a violation of s 9(1). Even
if it does bear a rational
connection, it might nevertheless amount to discrimination.
(b)
Does the differentiation amount to unfair discrimination? This
requires a two-stage analysis:
(i)
Firstly,
does the differentiation amount to ‘discrimination’. If
it is on a specified ground, then discrimination will
have been
established. If it is not on a specified ground, then whether
or not there is discrimination will depend upon whether,
objectively,
the ground is based on attributes and characteristics which have the
potential to impair the fundamental human dignity
of persons as human
beings or to affect them adversely in a comparably serious manner.
(ii)
Secondly,
if the differentiation amounts to ‘discrimination’, does
it amount to ‘unfair discrimination’?
If it has
been found to have been on a specified ground, then unfairness will
have to be established by the complainant.
The test of
unfairness focuses primarily on the impact of the discrimination on
the complainant and others in his or her situation.
If,
at the end of this stage of the enquiry, the differentiation is found
not to be unfair, then there will be no violation of s
9(3) and (4).
(c)
If the discrimination if found to be unfair then a determination will
have to be made as to whether
the provision can be justified under
the limitation clause.
”
[17]
[38]
In the relief sought the applicants, neither sought an order setting
aside the sequestration
against Mr Carel Aron Van der Merwe’s
estate granted in the Western Cape High Court, who is finally
sequestrated, nor attacked
the
Insolvency Act 24 of 1936
except the
remarks by counsel that it predates our democracy. The
effect is that that order stands.
Even if Mr Van der Merwe may have
noted an appeal with the Supreme Court of Appeal, argued Mr
Terblanche,
s 150(3)
of the
Insolvency Act is
applicable to him. The
section provides:
“
(3)
When an appeal has been noted (whether under this section) or under
any other law), against a final order
of sequestration, the
provisions of this Act shall nevertheless apply as if no appeal had
been noted: Provided that no property
belonging to the sequestrated
estate shall be realized without the written consent of the insolvent
concerned.”
[39]
Meskin
[18]
explains that
although corporate rescue is categorised as an insolvency procedure
in most jurisdictions, a policy decision was
made to promulgate the
new business rescue procedure as part of the
Companies Act 2008
, and
not to include it in a unified insolvency statute. The business
rescue procedure has been designed to prevent the demise,
through
winding-up of viable companies by making provision for their possible
rescue. If a plan cannot be devised to rescue
the company under
the provisions of Chapter 6, the
alternative would be a plan that achieves a better
return for the company’s creditors than what would ensue
pursuant to the company’s winding-up. If none of the
objectives set by Chapter 6 is achieved, the company may be wound
up.
[19]
[40]
It is clear that what Meskin wrote supports what was deposed to by
Basset
[20]
when he said:
“
5.2.4
A consolidated draft Insolvency Bill was submitted and approved
by
National Cabinet in 2003. However, during this period the
Companies Act 1973, was also subject to a review process. It
became apparent that the review of the Companies Act would have an
enormous impact on the law of insolvency and the review thereof.
It
was therefore not expedient or prudent to continue with the promotion
of the Insolvency Bill at that stage. The
review culminated in
the
Companies Act 71 of 2008
.
5.2.5
After the promulgation of the new
Companies Act, the
draft Insolvency
Bill was adapted to incorporate in it aspects of, and to align it
with, the New
Companies Act. However
, the adapted draft
Insolvency Bill has not been submitted to the Minister and Cabinet
for consideration and approval yet. Due
to the fact that [the]
Bill is still in progress and has no
legislative status yet,…
”
[41]
The aim of business rescue is to allow for the supervision of a
distressed company by the business
rescue practitioner with the
objective of either rescuing the company and allowing it to trade out
of its financial predicament
or offering creditors a better dividend
than would otherwise be achieved by way of liquidation
[21]
.
Chapter 6 of the
Companies Act was
designed to prevent the demise,
through winding-up, of viable companies by making provision for their
possible rescue. If
the developed plan cannot rescue the
company then it must provide for a better return for
the company’s creditors than what would pursuant to the
company’s winding-up
[22]
.
[42]
Dr Eric Levenstein
[23]
wrote:
“
One
of the major themes of the 2008
Companies Act is
the creation of a
system of ‘corporate rescue’ appropriate to the needs of
a modern South African economy. This
theme is amplified in
section 7(k) of the Act which confirms that one of the purposes of
the 2008
Companies Act is
to ‘provide for efficient rescue and
recovery of financially distressed companies in a manner that
balances the rights and
interests of all the relevant stakeholders.
”
[43]
Levenstein explains further that “by ‘rescue’ is
meant the reorganisation of
the company to restore it to
profitability and avoid liquidation.”
[44]
The definition of business rescue is contained in s 128(1)(b) of the
2008
Companies Act:
“
Business
rescue means proceedings to facilitate the rehabilitation of a
company that is financially distressed by providing for –
(i)
The temporary supervision of the company, and of the management of
its affairs, business and property;
(ii)
A temporary moratorium on the rights of claimants against the company
or in respect of property in
its possession; and
(iii)
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, results in a
better return for the company’s creditors or shareholders than
would result from the immediate
liquidation of the company…..
“.
[45]
The rationale behind the 2008 Act, more particularly, Chapter 6
thereof is to make it easier
for companies in financial difficulties
to be rescued to avoid the winding-up processes. If companies
are rescued, liquidation
is avoided, jobs are saved, economic
resources are not wasted and the revenue service is paid.
[46]
In
Oakdene
Square Properties (Pty) Ltd and others v Farm Bothasfontein (Kyalami)
(Pty) Ltd and others
[24]
the SCA held:
“’
business
rescue’ means to facilitate ‘rehabilitation’, which
in turn means the achievement of one of two goals:
(a) to return the
company to solvency, or (b) to provide a better deal for creditors
and shareholders than what they would receive
through liquidation.
This construction would also coincide with the reference in s
128(1)(h) to the achievement of the goals
set out in s 128(1)(b). It
follows, as I see it, that the achievement of any one of the two
goals referred to in s 128(1)(b)
would qualify as ‘business
rescue’ in terms of s 131(4).”
[47]
In an article by Annelie Loubser titled “
Business
rescue in South Africa: a procedure in search of a home?”
[25]
A comparison is made between the different jurisdictions
internationally on where business rescue is housed in the pieces
of
legislation. The South African company law is taken from the
English law.
[26]
[48]
In England, the Insolvency Act 1985 (c65) that regulated individual
insolvency, and those provisions
of the Companies Act 1985 (c6) that
dealt with corporate insolvency, including corporate rescues, were
consolidated in the Insolvency
Act 1986 as from 29 December 1986.
This gave effect to the recommendation of the Cork Report that
one consolidated Act should
regulate insolvency procedures relating
to both individual and corporate debtors. In spite of this
consolidation, the traditional
distinction between corporate and
individual insolvency in English law has endured. As a result,
the two business rescue
procedures in English law, namely
administration and company voluntary arrangements, although regulated
in the Insolvency Act 1986,
both apply only to companies.
[27]
[49]
The German Insolvezordnung (which came into effect on 1 January 1999
and replaced both the previous
Bankruptcy Act (Konkursordnung) of
1877 and the Composition Act (Vergleichsordnung) of 1935) is the only
one of the listed examples
that contains an almost integrated system.
The Act provides for one insolvency procedure that is initiated by an
application to
court and may lead to either reorganisation or
liquidation or a combination of both, depending on the plan approved
by the creditors.
The procedure thus contains no bias or
built-in preference for either rescue or liquidation.
Furthermore, the procedure
applies to the estate of any natural or
legal person that is engaged in business. Because of this wide
application of the
procedure, the Act places very few restrictions on the reorganisation
plan that the debtor or administrator may submit for approval
to the
creditors and the court.
[28]
[50]
The Australian approach is probably the closest to the present
situation in South Africa because
the provisions regulating corporate
insolvency and rescue in Australia are found in the Corporations Act
(Cth) 50 of 2001 that
regulates company law in general. The
provisions relating to the Australian corporate rescue
procedure of voluntary
administration are found in Part 5.3A of the
Corporations Act
2001 and apply only to companies incorporated
or taken to be incorporated under the Act. Compulsory liquidation
in terms of the Act applies not only to companies but also to certain
other bodies under certain specified circumstances.
Included in
this
group is a partnership, association,
or other body (whether a body
corporate or not) that consists of more than five members.
The
Australian Law Reform Commission that had been instructed
in 1983 to review Australian personal and corporate insolvency
law
specifically stated in the report that it did not regard unification
of insolvency law to be of major significance and consequently
the
issue was not addressed further.
[29]
[51]
The observation by Loubser regarding the similarity in South Africa
and Australia is shared by
Eloff AJ in
Southern Palace Investments
265 (Pty) Ltd v Midnight Storm Investments 386 (Pty) Ltd
as
follows:
“
[2]
Like its Australian equivalent, one of the aims of the remedy is to
render it possible for companies in financial
difficulty to avoid
winding-up and to be restored to commercial viability. Both
jurisdictions recognise the desirability of a company
in distress to
continue in existence. Business rescue does, however, not
necessarily entail a complete recovery of the company
in the sense
that, after the procedure, the company will have regained its
solvency, its business will have been restored and its
creditors
paid. There is also the further recognition that even though
the company may not continue in existence, better
returns may be
gained by adopting the rescue procedure.
[3]
The scheme created by the business rescue provisions in Ch 6 of the
new Act envisages that the
company in financial distress will be
afforded an essential breathing space while a business rescue plan is
implemented by a business
rescue practitioner. It is, however,
necessary to caution against the possible abuse of the business
rescue procedure, for
instance, by rendering the company temporarily
immune to actions by creditors so as to enable the directors or other
stakeholders
to pursue their own ends. The courts in Australia
have been careful not to allow their equivalent procedure to be used
where
there appears to be an ulterior purpose behind the appointment
of an administrator by the directors. It is necessary that
an
application for business rescue be carefully scrutinised so as to
ensure that it entails a genuine attempt to achieve the aims
of the
statutory remedy. The instant case is one where such attempt
was not discernible from the affidavits filed of record.”
[52]
In her article “
Defining
the unincorporated business in financial distress: Should it be
treated as a business or as a consumer?
Loubser
[30]
explains some of the reasons for and implications of debtors in
insolvency law and the difficulties in finding the appropriate
classification system for small unincorporated businesses,
particularly sole proprietorships. Loubser moves from the premise
that
there is a difference in respect of cause and effect when
dealing with an insolvent individual or consumer on the one hand and
a business on the other. When dealing with an insolvent consumer some
of the considerations made pertain to the effects of the insolvency
on the consumer’s legal status, whether assets should be
excluded from the insolvent estate, the discharge of some debts
and
eventually, his or her rehabilitation.
[53]
Whereas, with a company the considerations are different. The
number of interested parties
may be substantially larger, there may
be a detrimental effect on its employees, investors, suppliers and if
it is a major company,
socio-economic effects on the broader society
within which it is operating. This explains the reason for
business rescue
as one of the options preceding liquidation in ailing
businesses. Another distinction is that bigger businesses are
usually
incorporated whereas the high unemployment rate has produced
millions of individual traders or sole proprietorships unfamiliar
with the concept of incorporation.
[54]
The current South African situation is that a debtor who is a
juristic person will be a company
or close corporation. Other
business forms are: partnerships, business trusts and sole
proprietorships which do not enjoy
a legal personality. Of
significance is that the Companies Act prohibits partnerships and
business trusts from acquiring
a legal personality. Section 31
of the Companies Act, 1973, stipulates that an association of persons
formed for the
purpose of carrying on any
business that has for its object the acquisition of gain by the
association or by the individual members
thereof, will not be
recognised as a body corporate, unless it is registered as a company
under this Act or any other Act. The
insolvency of the
associations and individuals is regulated by the
Insolvency Act, 24
of 1936
.
[55]
In this article, Loubser compares jurisdictions like the United
States of America (USA), Belgium,
Germany and England and concludes
that the problem of dealing with smaller businesses in distress is
not unique to South Africa.
In the USA, despite that their
procedure is available to all businesses despite form and size, their
Chapter 11 reorganisation
is regarded as a model rescue procedure.
It was criticized however, for delays, high costs and high
failure rate. The
Bankruptcy Review Commission recommended
three measures to address problems experienced in small-business
cases which were subsequently
adopted by the Congress, namely (i)
improving oversight of the debtor by requiring the filing of detailed
financial statements
and through monitoring of the debtor’s
progress by the United States Trustee; (ii) reducing delays by
allowing the debtor
only 90 days in which to file his plan; and (iii)
cutting costs by the use of standardised plans and disclosure
statements. See
the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (Pub L No 109-8, 119 Stat 23) introduced the
amending provisions
into the Bankruptcy Code under the subtitle of
‘Small Business Provisions’ (see Carlson & Hayes op
cit at 649).
There is also Chapter 13 of the Bankruptcy Code
which also offers the option of rehabilitation rather than
liquidation for small
businesses. It is, however, limited to sole
proprietorships.
[56]
Loubser observed that although voluntary administration was designed
to be less expensive and
onerous than other business rescue
procedures, it is only available to companies. Contrasting this
position with the compulsory
liquidation in terms of the Australian
Corporation Act which can sometimes apply to partnerships,
associations or other bodies.
[57]
In Belgium Loubser records that the business rescue procedure is
contained in its own dedicated
statute known as the Judicial
Composition Act (Wrt betreffende het Gerechtelijk Akkoord) of 17 July
1997 applicable to all traders
irrespective of whether they are
natural or juristic persons. An individual trader is defined in
s 1 of the Belgian Commercial
Code as any person whose main or
supplementary profession is the performance of commercial acts. The
Act gives the debtors
flexibility which some critics contend may be
the reason for the unsuccessful procedure in reducing the number of
insolvency cases.
[58]
The German Insolvency Code of 5 October 1994 (the
Insolvenzordnung
,
commonly referred to as ‘InsO’: see generally Axel
Flessner ‘National Report for Germany’ in: WW McBryde,
A
Flessner & SCJJ Kortmann (eds)
Principles of European
Insolvency Law (2003) at 313)
came into force on 1 January 1999
and regulates all debtors. There is a clear distinction between
business debtors and consumers.
Although there is flexibility and
non-prescriptive procedures for business rescues, an insolvency plan
is used only in exceptional
cases.
[59]
Loubser confirms that the closest resemblance to the South African
insolvency system in as far
as classification of debtors is concerned
is the England system. In England, the Insolvency Act, 1986
(c45) though regulating
all debtors, has separate parts regulating
corporate debtors and individual debtors. The Act is divided
into three main parts:
(i) company insolvency and winding up; (ii)
regulates only the insolvency of individuals and (iii) contains
general provisions
applicable to both companies and individual
insolvencies. Their Insolvency Act makes provision for two business
rescue procedures.
[60]
Loubser makes a sensible conclusion which I tend to agree with. Until
the Legislative Arm of
Government designs a simple, affordable and
effective business rescue procedure for the unincorporated
businesses, including sole
proprietorship, it is safer and more
pragmatic to retain the division between juristic and natural
persons. The unincorporated
business retains the position of
being treated as a consumer in the South African insolvency law.
There can never be a one-size-fits-all
solution for business
insolvencies. The absence of a one-size-fits-all solution does not
translate into any form of inequality.
It is clear from the
consideration of other jurisdictions that variations and special
provisions were still required for small
businesses.
[61]
The applicants attack s 1, more particularly the definition of
‘company’ and Chapter
6, particularly the protection
afforded by business rescue. In terms of s1 “company”
means a juristic person
incorporated in terms of this Act, a
domesticated company, or a juristic person that, immediately before
the effective date –
(a)
was registered in terms of the –
(i)
Companies Act, 1973 9Act No. 61 of 1973), other than as an external
company as defined in that Act; or
(ii)
Close Corporations Act, 1984 (Act No. 69 of 1984), if it has
subsequently been converted in terms of Schedule 2;
(b)
was in existence and recognised as an “existing company”
in terms of the Companies Act,
1973 (Act No. 61 of 1973); or
(c)
was deregistered in terms of the Companies Act, 1973 (Act No. 61 of
1973), and has subsequently been
re-registered in terms of this Act;
[Definition
of “
company
” amended by s 1 (1)(g) of Act No. 3 of
2011. (g) by the substitution in the definition of "company"
of the
words preceding paragraph (a) of the following words:
"
'company'
means a juristic person incorporated in terms of this Act,
domesticated company, or a juristic person that, immediately before
the effective date-"].
[62]
The question that has to follow is whether it would be arbitrary or
capricious not to
extend the provisions of s 1 (the definition of a company) and
Chapter 6 of the Companies Act to natural persons or Trusts in the
light of the circumstances which, according to the applicants, are
relevant?
[63]
The applicants’ contention moves from the premise that both the
Merwede Trust and Van der
Merwe are part of the business group which
includes Project Multiply and Velvetcream jointly conducting business
under name Merwede
Farming. The group shared employees, movable
assets and managers as one interrelated group. Counsel submitted that
if this
Court accepts that there is inequality between juristic
persons and natural persons for purposes of business rescue, then a
situation
arises where assets that falls under the estate of Van der
Merwe or the Trust could be taken into account when considering a
business
plan to resuscitate the group as a whole. This
purported differentiation and lack of protection for some forms of
the business
renders chapter 6 incapable of achieving its objectives,
so the argument went. In the scenario where the companies are
considered
separately from individuals and trusts, they are deprived
of the assets and business trading stock which would otherwise be
available
if the entire group is afforded the protection of the
rescue.
[64]
Mr Van Niekerk invoked
Van
der Merwe v RAF and Another (Amicus Curiae Women’s Legal Centre
Trust)
[31]
to support the applicants’ contention of inequality. This
case does not help the applicants because it dealt with the
constitutional validity of the legislative provisions concerning
patrimonial arrangements between spouses married in community
of
property and of profit and loss. The provisions regulate the
right of a spouse married in community of property to recover
delictual patrimonial damages from her husband who had run her over
with his motor vehicle causing her bodily injuries. The
Constitutional Court found the provisions unjustifiably intrusive
upon the dignity and non-discrimination guarantees that the
Constitution affords everyone. The facts are clearly
distinguishable from this case involving a natural person, a trust
and
two companies under very different circumstances
.
[65]
Mr Van Niekerk submitted that the differences between Trusts and
companies do not explain why
the one business should qualify for
business rescue while the other does not. Counsel submitted that the
legislative scheme is
clearly inconsistent with s 9(1) of the
Constitution and cannot be justified under s 36 of the Constitution.
[66]
Moseneke DCJ cautioned in
National
Treasury v Opposition to Urban Tolling Alliance
[32]
:
“
[44]
…Beyond the common law, separation of powers is an even more
vital tenet of our constitutional democracy. This
means that
the Constitution requires courts to ensure that all branches of
government act within the law. However, courts
in turn must
refrain from entering the exclusive terrain of the executive and the
legislative branches of government unless the
intrusion is mandated
by the Constitution itself.”
Also
see
Doctors for Life International v Speaker of the National
Assembly and Others
[2006] ZACC 11
;
2006 (6) SA 416
(CC) at para 25 and
Economic
Freedom Fighters v Speaker of the National Assembly and Others
2016
(3) SA 580
(CC) at paras 18 and 43.
[67]
This Court is empowered by s 173 of the Constitution to protect and
regulate its own process
and develop the common law, taking into
account the interests of justice.
[68]
As alluded to earlier, the objective of chapter 6
was to circumvent winding-up
of companies.
It is true that the draft Insolvency Bill
was also adopted by
Cabinet. There is no evidence, however, of precisely when the
required processes relating to the said
Insolvency Bill will be
embarked upon and seen to fruition. The applicants have not
established, outside their own situation,
that is other than the
Merwede Farming, that the exclusion of natural persons and trusts
denied many natural persons and trusts
their right to protection
under chapter 6 thereby challenging its constitutionality. As
argued by Mr Terblanche, there is
legislation regulating each
separate entity including the different protections during financial
hardships. Some of the relevant
legislation under these
circumstances is the National Credit Act
[33]
and its amendment
[34]
, Trust
Property Control Act
[35]
,
Income Tax Act
[36]
and the
Insolvency Act
[37]
, among
others, read with all the amendments.
[68]
I foreshadowed earlier to return to the sequestration judgment by Le
Grange J granted on 18 March
2022 against Mr Carel Aron van der
Merwe. It records that Van der Merwe is factually insolvent to the
tune of R80 million. The
following remarks at para 14 are
apposite:
“
[14]
According to Van der Merwe, he is currently the controlling mind of
the companies and the Merwede Trust. All these entities,
are part of
the group structure in business rescue and each relies on the others
successful operation and or compliance. Van
der Merwe firmly
believes that if one fails, all will fail. Moreover, his estate
had been incorporated in the business rescue
plans due to his
involvement in the group and his capabilities to restore it to the
position it was before becoming financially
distressed.”
[69]
Both companies are provisionally liquidated while the trust is
provisionally sequestrated. Van
der Merwe is finally
sequestrated as he was factually insolvent. For the parties to
allege differentiation and demand to
be protected under business
rescue, changing what ought to involve legislative processes and
public consultation is to me self-serving
and promotes an ulterior
motive. Even if there may be a need to review the insolvency
law and to bring it on par with the
rest of the global jurisdictions,
this is not the way to go about it.
[70]
Of significance is that the Landbank holding a 95% vote as a
major creditor has voted
against the business rescue plan and has made it clear that it
will
vote against the envisaged and proposed plan again. The SCA made
these remarks in
Oakdene
[38]
“
[38]
If the statement is intended to convey that the declared intent to
oppose by the majority creditors should in principle
be ignored in
considering business rescue, I do not agree. As I see it, the
applicant for business rescue is bound to establish
reasonable
grounds for the prospect of rescuing the company. If the
majority creditors declare that they will oppose any
business rescue
scheme based on those grounds, I see no reason why that proclaimed
opposition should be ignored. Unless, of course,
that attitude can be
said to be unreasonable or mala fide. By virtue of s 132(2)(c)(i)
read with s 152 of the Act, rejection of
the proposed rescue plan by
the majority of creditors will normally sound the death knell of the
proceedings. It is true that such
rejection can be revisited by the
court in terms of s 153. But that, of course, will take time and
attract further costs. Moreover,
the court is unlikely to interfere
with the creditors' decision unless their attitude was unreasonable.
In these circumstances
I do not believe that the court a quo
can be criticised for having regard to the declared intent of the
major creditors to oppose
any business rescue plan along the lines
suggested by the appellants.”
[71]
The purpose of Chapter 6 has been explained. In my view, the
discrimination alleged is
not based on any specified ground or on any
grounds analogous to them. What to me seems very conspicuous is
that the applicants
are trying to enforce the “equality clause
and equal protection of the law” under the umbrella of business
rescue for
companies to extend the protection to the already
sequestrated Van der Merwe and the Merwede Trust. The exclusion
of Van
der Merwe and Merwede Trust does not amount to discrimination.
It does not imply that natural persons and trusts do not have
their own separate but adequate pieces of legislation that protect
them when experiencing financial difficulties. As stated
by the
Constitutional Court in
Prinsloo
every statute or regulation
employs classifications of one kind or another for the imposition of
burdens or the grant of benefits.
Laws never provide the same
treatment for everyone.
[72]
Even if it were to be found that the exclusion of Van der Merwe and
Merwede Trust amounted to
discrimination, that discrimination may be
justifiable under s 36 of the Constitution, the limitation clause.
The legislature
has already initiated this process of reviewing
the insolvency legislation and the Court cannot be usurping their
sphere to legislate.
Nevertheless, I find that there is a
rational connection between the differentiation and a legitimate
government purpose.
In
my view, the differentiation is not arbitrary.
The
attitude of the Minister of Trade and Industry (the Minister)
[73]
In opposing the application for the granting of the relief sought in
the constitutional challenge,
more particularly, the extension of the
definition of s 1 of the Companies Act to include natural persons and
trusts, Mr Coetzee
SC, appearing for the Minister, invoked
Harksen
v Lane N.O. and Others
[39]
on the applicable test to be followed in determining whether the
differentiation amounts to unfair discrimination. In his
opposition counsel submitted that this would be open to abuse, but
aligned himself with the submissions made by Mr Terblanche appearing
for the Landbank.
[74]
The applicants advanced an argument based on the alleged breach of s
9(1) of the Constitution.
However, it is clear from what
appears in this judgment that although Chapter 6 may be said to
differentiate between the
different categories of people, there is a
rational connection between the measure and the legitimate government
purpose to facilitate
business rescue for companies. No
discrimination or unfairness has been established.
It
therefore follows that the attack on the constitutionality of s 1 and
Chapter 6 fails.
Business
rescue application
[75]
The relief sought by the applicants under this head is an order
dismissing the winding-up and
sequestration applications of Project
Multiply, Velvetcream, Merwede Trust and van der Merwe; an order
placing them under supervision
and that business rescue proceedings
be commenced with in terms of s 131(1) of the Companies Act; an order
appointing Jacques du
Toit and a business rescue practitioner
nominated by Landbank as joint business rescue practitioners to
conduct the business
of Project Multiply, Velvetcream, Merwede Trust
and Van der Merwe with all powers and duties entrusted to them in
terms of the
Companies Act. I accept that each entity in the
group applied separately for its own credit.
[76]
As stated, Van der Merwe has already been finally sequestrated due to
his factual insolvency.
The insolvency laws are applicable to him.
His estate is placed in the hands of the Master of the High Court in
the Western Cape.
The Master has appointed provisional trustees,
Jochen Eckhoff N.O., Deon Marius Botha N.O., and Philemon Tatenda
Mawire N.O., for
the administration of his estate.
[77]
Project Multiply and Velvetcream are both placed under provisional
liquidation in the hands of
the Master who
appointed Deon Marius Botha N.O., Jochen Eckhoff N.O. and Fusi
Patrick Rampoporo for Project
Multiply and Jochen Eckhoff N.O.,
Johannes Zacharius Human Muller N.O. and Simon Malebo Rampoporo N.O.
for Velvetcream. Jochen
Eckhoff N.O., Johannes Zacharius Human Muller
N.O. and Angelene Poole are appointed co-provisional trustees of the
Merwede Trust.
[78]
Section 5(1) of the Companies Act states that the Act must be
interpreted and applied in a manner
that gives effect to the purpose
set out in s 7. Section 7(d) reaffirms the concept of the
company as a means of achieving
economic and social benefits while
section 7(k) provides for the efficient rescue and recovery of
financially distressed companies,
in a manner that balances the
rights and interests of all relevant stakeholders. The mere
fact that the company is commercially
or factually insolvent is no
bar to be considered for business rescue.
[79]
The board of the company may initiate business rescue proceedings if
it has reasonable grounds
for believing that the company is
financially distressed and there appears to be a reasonable prospect
of rescuing the company
under s 129(1) or by way of a court order as
contemplated in s 131(1). This application is brought by the
applicants as affected
parties in terms of s131(4) of the Act which
stipulates:
“
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
obligation under or in terms of a 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 a reasonable prospect for rescuing the
company; or
(b)
dismissing the application, together with any further necessary and
appropriate order, including an
order placing the company under
liquidation.
[80]
‘Financially distressed’ as contemplated in s 128(1)(f)
and in reference to a particular
company
at any particular
time, means that –
(i)
It appears to
be reasonably unlikely that the company will be able to pay all of
its debts as they become due and payable within
the immediately
ensuing six months; or
(ii)
It appears to
be reasonably likely that the company will become insolvent within
the immediately ensuing six months.
[81]
Notwithstanding, the applicants
in casu
, maintain the
following as their reasons for business rescue to be considered
favourably:
81.1
The applicants have attached the Department of Agriculture, Land
Reform & Rural Development’s annual report
2015/2016 marked
annexure “JDT 12”. The report deals with its overall
performance and while acknowledging the drought
emphasises the
support it gave to the farmers during the period including financial
and technical support.
81.2
In the 2019/2020 Agriculture Drought Report confirmed severe drought
suffered in the Northern Cape. There was low natural
grazing
resources, reproduction capacity and a decrease in production unit
weight, increase in production intervals and lower quality
produces
and meat prices dropped. At page 233 the following is recorded:
“
All
farmers (commercial, emerging, small-scale and subsistence) have
received aid from fundraising projects and donations.”
81.3
The good rainfall as reflected under “JDT 30”.
81.4
Preventing job losses and families losing a revenue stream.
81.5
The probable dividend on liquidation for secured creditors will be 40
cents in the Rand for Project Multiply and 29.47
cents in the Rand
for Velvetcream while concurrent creditors will receive 0 cents in
the Rand for both companies.
81.6
Annexure “JDT 19” is the business rescue plan for Project
Multiply (Pty) Ltd. The BRP contemplates
recovery over a period
of 36 months (3 years) and proposed the planned rescue in 3 phases.
At
14.3.5 the BRP wrote that the repayment of creditors will
depend
on proceeds of the sale of the assets predicted to be R6
million in the first year, 12.8 million in the second year and R18.8
million
in the third year. There are plans to develop wind and solar
farm operations. While there is a claim to have signed a renewable
energy development agreement with a development company yet to be
ratified by the BRP, they expect a development budget of R30
million
per site. Landbank as the secured creditor was not furnished with the
details of this agreement as indicated in the note
by the BRP. In
the third year focus will be on the post drought recovery strategy.
They contemplate to have settled
in full all the creditors by
February 2024.
81.7
The BRP records the following at clause 22.1 of the plan:
“
It
is uncertain at this stage whether the rights of the security holders
of the company will be affected because of the approval
of
the plan. To the extent that it will be affected, the approval
of the
security holders will be sought
in terms of s 152(3)(c) of the Companies Act.”
[82]
The business rescue plan of Velvetcream 15 (Pty) Ltd is marked
annexure “JDT 20”.
The disclaimer and the
certification reads exactly the same. The contents of the plan
are also more or less the same,
differing only in the list of assets
per company. It is unnecessary to repeat what I stated
pertaining to the business rescue
plan of Project Multiply because
the approach is equally applicable.
[83]
The BRP has prepared another business rescue plan dated 30 March 2022
marked annexure “JDT
33”. Of significance regarding
this plan is that it is a business rescue plan prepared for the
Merwede Group including Project Multiply (Pty) Ltd, Velvetcream 15
(Pty) Ltd, Merwede Trust and Carel Aron van der Merwe. Following
my finding on the challenged constitutionality of s 1 and Chapter 6
of the Companies Act, I have considered relevant portions common
to
the original plans in respect of the two
companies (in liquidation)
there is no basis for me to consider the
position of the group business rescue plan as legislatively it has
not been provided for.
[84]
Mr Terblanche, for Landbank, reiterated that whether or not the
applicants succeed with the constitutional
challenge, the Landbank
will again vote against the business rescue plan. In
Firstrand
Bank Ltd v KJ Foods (CC) (in business rescue)
[40]
the
Supreme Court of Appeal provided the correct interpretation of
section 153(1)(a)(ii) and (7) of the Act to this effect:
“
[75]
In interpreting the provisions of the Act the principles enunciated
in Natal Joint Municipal Pension Fund v Endumeni
Municipality; and
Novartis SA (Pty) Ltd v Maphil Trading (Pty) Ltd find application.
These cases and other earlier ones provide
support for the
trite proposition that the interpretive process involves considering
the words used in the Act in the light of
all relevant and admissible
context, including the circumstances in which the legislation came
into being. Furthermore, as was
said in Endumeni, 'a sensible meaning
is to be preferred to one that leads to insensible or unbusinesslike
results'. Thus,
when a problem such as the present arises, the
court must consider whether there is a sensible interpretation that
can be given
to the relevant provisions that will avoid anomalies.
Accordingly, in this instance, the proper approach in the
interpretation
of the provisions is one that is in sync with the
objects of the Act, which includes '[enabling] the efficient rescue
and recovery
of financially distressed companies,
in
a manner that balances the rights and interests of all relevant
stakeholders'
.”
(My
emphasis)
[85]
The effect of granting the relief as sought by the applicants would
be ignoring the following
based on the invoices and annexures
attached by the applicants and the Landbank’s replying
affidavit:
85.1
Mr Van der Merwe is factually insolvent to the tune of about R74
million. He failed to disclose additional monies that
he owes in the
sum of R5,839,808.94 which were discovered when requisitions of
creditors were submitted to the Master, this adds
to the amount of
R74 million to substantiate his factual insolvency status which
brings the total amount of his insolvency to about
R80 million.
85.2
The applicants do not deal in their papers with the dissipation of
assets, to the detriment of the creditors, which is
of concern.
There is no mention of 7,000 flock of sheep which
were sold and the proceeds of their sale
unaccounted for. Further,
the livestock number is diminishing.
85.3
It is not in dispute that the livestock forms part of the Landbank’s
security. This notwithstanding, the
applicants maintain that
the business rescue practitioner has consented to the sale of the
livestock in the absence of the consent
by the Landbank. To the
contrary, the business rescue practitioner gave the Landbank a
written undertaking to this effect:
“…
not
to sell or trade with livestock, as in terms of the attached
livestock asset list, without the written consent of your client.”
At
para 48 of Mr Van der Merwe’s provisional answering affidavit
in the sequestration application he stated:
“
the
security cannot be sold off in business rescue without the consent of
the secured creditor.”
Notwithstanding,
the applicants and van der Merwe later said that stock was sold in
the ordinary course of business. As correctly
argued on behalf
of the Landbank, this type of conduct by van der Merwe and the
applicants is in complete disregard of the law
and the protection
afforded secured creditors. Whether the business rescue
practitioner has acquiesced or not will never
be known because he did
not participate in this application. What is apparent is that
the applicants have not mentioned anything
regarding stock counting.
Mr de Jager has conducted stock counting on behalf of the
Landbank. Landbank argues that
the failure by the applicants
to provide records on
stock numbers should be met with
a negative inference justifying the
allegation by the Landbank of disposition.
85.4
It is not just the failure by the business rescue practitioner to
attend the farms where business was carried out but
he also failed to
open a separate bank account for the entities under business rescue.
The circumstances around the Merwede
Ranching banking account
as the treasury account for the group are murky. The proceeds
of the sale of the livestock ought
to have benefitted the Landbank.
This is where the distinction between
Firstrand
Bank Ltd v KJ Foods CC (in business rescue)
[41]
is
relevant. In
KJ
Food,
First
National Bank (FNB) and Wesbank were both secured creditors owed
R6,337,587.37. The plan projected that all the other
creditors,
excluding the secured creditors, would be paid within the 52 months
period and the secured creditors repayment period
will be slightly
longer. However, by the time the matter was heard, the FNB
claim was reduced. The respondent had maintained
all payments
due to the parties. The applicants in
casu
present a different scenario of not honouring their debts except for
the belated three payments in 2019 referred to in paragraph
85.20
below.
85.5
There is the issue of interest. According to Landbank, the
entities have attracted interest in the amount of R11
million. Even
if the applicants may raise the
in duplum rule
as they do
,
the amount is still too significant to be ignored. Landbank
pressed on the issue submitting that the prejudice suffered is
both
plain and obvious.
85.6
Whereas the applicants claim that the sheep slaughtered belonged to
Mrs van der Merwe, Carnarvon Abattoir issued a tax
invoice made out
to Merwede Trust,
[42]
and the
name of the seller is reflected as Merwede. Considering pages
2609 to 2614, it is clear that Ms Taljaard and Mr van
der Merwe
continued to slaughter livestock after 14 October 2021 whereas their
attorney of record wrote at annexure “TAL
6” that it is
practically impossible to state with certainty which assets belong to
van der Merwe and which assets belong
to the other group of entities.
85.7
Annexure “TAL 1”
[43]
shows the breakdown of Carnarvon Abattoir’s purchase
transactions dated 10 May 2022. Of significance is that while
there were sales of livestock of R7,299,527.04 (rounded off to R7.3
million) indicated as income for Merwede Ranching, only R58,607.24
remained as at 10 May 2022. It was argued on behalf of the
Landbank that this is a clear illustration that the farming operation
is not viable. What exacerbates matters is that the R7.3
million was due to the Landbank as its undisputed security.
85.8
An amount of R413 721.35 is reflected in the document as farm
expenses for Merwede Ranching. What is disconcerting
is the
claim that Merwede Ranching purchased the Toyota Landcruiser for
R686,000.00 from the proceeds of the Carnarvon Abattoir
sales. What
it effectively boils down to is that Merwede Ranching bought the
vehicle from van der Merwe with the proceeds
of Landbank’s
security. Nevertheless, annexure 7
[44]
referred to in support of the Merwede vehicle transaction in the
amount of R686,000.00 is in fact VAT recon of Merwede Ranching.
The
applicants aver that Merwede Ranching used the proceeds of the sale
of sheep to buy the Landcruiser for itself.
85.9
What is also noteworthy is that if Merwede Ranching is what it
purports to be, namely, a treasury account, how can it
be possible
that it has the Landcruiser vehicle as its fixed asset? Furthermore,
how does it claim vatable expenses as a treasury
account?
85.10
At page 2663 appears Project Multiply- income and expenses
received
and paid by Merwede Trust. What is inexplicable is the claim by
Merwede Ranching of VAT on expenses e.g the co-operation
account by
Project Multiply. It also charged Project Multiply a management
fee of R227,450.00 which management fee is included
in the total
Project Multiply expenses listed at p2663 and (allegedly)paid for by
Merwede Ranching.
85.11
The total expenses of Merwede Trust at p 2665 under the head
“Merwede
Trust Income Feb 2022” included legal fees in the amount of R
651,101.67 presumably paid from the sale of
livestock as appears from
annexure 7 at p2662.
85.12
Van der Merwe’s expenses up to February 2022 included
legal
fees in the amount of R491,250.02 paid by Merwede Ranching as well as
business rescue fees in the amount of R50,000.00, also
paid by
Merwede Ranching from the proceeds of the sale of the livestock.
85.13
Invoice 022 dated 31 March 2021
[45]
relates to the Toyota Landcruiser. It is unclear how Mr van der
Merwe could have charged VAT on it.
85.14
At page 2666 appears CA van der Merwe – income and
expenses
February 2022. The amount of R686,000.00 is not separately
reflected in his income and expenses. What is clear
is that his
personal expenditure was paid for from the proceeds of the Landbank’s
security. Moreover, about R1 million
of the Landbank’s
security was used to fund litigation against the Landbank.
85.15
No doubt, the Merwede Ranching Account is utilised by the
applicants
and van der Merwe to fund living expenses and legal fees as opposed
to the furtherance of the business operation or
the preservation of
assets.
85.16
Ms Shanie Taljaard (the first applicant) and buyer on behalf
of
Merwede Ranching and Mr van der Merwe as the seller purportedly
entered into a sale agreement on 1 October 2020, see “TAL
3”
[46]
for the sale of the
Toyota Landcruiser 200 VX. Ms Taljaard was not a director of
Merwede Ranching when the agreement was
concluded as she was
appointed only 1 year and 9 days after the conclusion of the alleged
contract. The Landbank
persists with the argument that there was no sale of the vehicle and
in the event that there was, the proceeds of the sale of the
livestock was used to acquire the Landcruiser.
85.17
While there is no income from the sale reflected
in van
der Merwe’s income and expenses during the relevant period,
there is a total amount of R1,740,500.00 reflected as
income from
Merwede Ranching. This amount is derived from the sale of
livestock to Carnarvon Abattoir.
85.18
Despite the allegation by the applicants that the aeroplane
was
transferred in 2018 the registration documents attached as Annexure
“TAL 7” was only issued on 9 March 2021 when
Project
Multiply was already in business rescue.
85.19
I have earlier in the judgment dealt with the persistence
by the
Landbank to vote against the business rescue plan because the
entities according to the bank are factually insolvent and
have
relied
on evidence on the valuation of the assets which was not
confirmed
under oath rendering it inadmissible. The Landbank, on the
contrary, filed valuations confirmed under oath seeking
to illustrate
the factual insolvency of the entities forming the subject matter of
this application. It is so that the applicants
ought to have made
their case in founding and to attempt to file the valuer’s
affidavit at an advanced stage of the proceedings
without even
seeking an indulgence of the court does not avail the applicants. It
is the Landbank’s case that the business
rescue plan is
entirely based on its security and there is no guarantee that the
immovable property will be sold during the time
anticipated by the
applicants.
85.20
In an attempt to substantiate the argument that there has
been
payment made to the Landbank which the Landbank has not referred to,
the Landbank conceded that the applicants made three
belated payments
to the total amount of R400,000.00 in 2019 which are not only far
below the repayments amounts but came after
a period of 3 years of
non-payment.
[86]
I have a concern in respect of the business rescue plan dated 24
February 2021. Notwithstanding
that the BRP, Mr Jacques du Toit,
prepared the plan, the disclaimer at page 2 is disconcerting. He says
the plan is formulated
from “
books and records recovered
from the company”
and nowhere in the plan are those books
and records specified. He has “interviewed relevant
persons” and it is
also not stated who those relevant persons
are. What is further
unsettling is the statement that his “investigations
have
been limited due to time constraints
”. The Act
prescribes these periods and it is unclear, as an experienced BRP why
he would be prevented from performing
this function due to time
constraints. He would have at least pointed out how much more
time was needed to cover which specific
areas and whether or not,
with or without the extension of time the information captured in the
plan will suffice
to support the business rescue. The
BRP has also not
conducted
“an audit of the company documents nor had adequate
opportunity to verify any of the information provided by the company
except where expressly stated.”
[87]
The certification by the BRP does not provide the assurance either.
It reads in relevant part:
“
(a)
the information provided herein
appears
to be accurate, complete and up to date.
(b)
The projections provided
are estimates
made in good faith
based on information and assumptions
as set out herein.
(c)
In preparing the Plan
I have not undertaken an audit of the
information provided to me, although where practical, I
have endeavoured to satisfy myself of the accuracy of such
information.”
[88]
The BRP records at clause 16 of the plan that the company has already
reduced its workforce by
50% during the past few months. It does not
explain in detail the process of reduction. However, I infer
from the follow-up
statement that its management was not affected by
the reduction or retrenchment because it says that they were willing
to only
receive 50% of their salaries. I deal with this aspect
because during argument emphasis was made not only by TLU as the
amicus curiae
but on behalf of the applicants that the main
reason why business rescue will be the preferred option is because it
is aimed at
saving jobs of the employees and will benefit the welfare
of their families.
[89]
The South African Revenue Service (SARS) is noted by the BRP in the
plan as a contingent creditor
until such time as all VAT returns have
been filed and its claim determined. This aspect has compliance
consequences and
should have been prioritised by the time the BRP
reduced the information to writing.
[90]
More concerning for me is the fact that the BRP seems not to be in
complete control of the process
and there are areas that I referred
to earlier where his role was short-circuited. The bank has
repeatedly complained about the
contents of the business rescue plan.
In my view, the business plan does not provide information, which, on
its proper assessment
is convincing that there exists reasonable
prospects for the rescue of at least the two companies. The fact that
they are intertwined
in their business relations with van der Merwe
and Merwede Trust complicates issues. I am not persuaded that the
companies, Mr
Van der Merwe and the Merwede Trust can be rescued by
business rescue. There is a danger that the Companies Act will
be abused
in order to justify wrongful conduct or non-compliance by
disgruntled businesses who seek to fend off the consequential
winding-up.
This is such a case in my view.
It
is for this reason that their application stands to fail.
The
counter-application by the liquidators
[91]
Since the provisional joint-liquidators and joint-trustees’
application is conditional
upon the Landbank’s application
being heard, the inter-relatedness of these applications and the
nature and importance of
the issues at stake impels me, on the
interests of justice, to hear their application.
[92]
Mr Smit, appearing for the joint provisional liquidators and
provisional sequestration, agreed
with the submissions by Mr
Terblanche. Mr Smit submitted that the liquidators/trustees are
not seeking powers to dispose
of the assets but rather their main
contention is the lack of cooperation by the director or trustees of
the provisionally liquidated
companies and the provisionally
sequestrated Merwede Trust.
[93]
The submission made on behalf of the liquidators and trustees that
more than R6.4 million worth
of sheep was slaughtered and proceeds
thereof spirited away, is disturbing, to say the least. Rightfully,
these proceeds should
have been deposited into the respective
insolvents’ account. Earlier in this judgment I have
already remarked about
the Merwede Ranching bank account which has
nothing to do with the managed insolvent’s bank account or even
a business rescue
account. I have also dealt with the statement
earlier that concerns the liquidators/trustees that to determine
under which
entity the sheep’s ownership vests poses to be an
insurmountable hurdle. It is not in issue that the
liquidators/trustees
lack relevant detail to enable them to perform
their fiduciary duties. What exacerbates matters is when the
liquidators and
trustees also struggle to find cooperation from the
business rescue practitioner himself. This situation cannot be
allowed
to continue. The insolvent estates have been placed in
the hands of the Master and it is not for the applicants or van der
Merwe to obstruct them or to prevent them from fulfilling their
mandate.
[94]
Mr Deon Marius Botha who deposed to the founding affidavit as one of
the provisional liquidators/trustees,
gave an indication of the cost
implication stating that the process of preservation involved placing
guards on remote farms equates
to R220,000.00 per month. In
addition, the cost of tending to the animals like providing feeds and
nutritional support cost
R43,500.00 and will cost R22,500.00 per
month going forward. This has an adverse effect on the
concurrent creditors. Another
astonishing allegation is that
van der Merwe disposed of close to R7 million worth of sheep without
ceding the proceeds thereof
to the Landbank. The liquidators/trustees
operate from a position of no free residue assets in the estates
because there is only
unencumbered assets and proceeds of
agricultural products ceded to the Landbank.
[95]
In conclusion, the liquidators/trustees have, in my view, made out a
case to be granted the relief
sought. Their immediate need is
to address the issue of the livestock.
[96]
On the issue of costs. There is no reason why costs should not
follow the result which
should include for previous appearances when
costs were reserved. The parties have not addressed me on the
issue of awarding
costs on a punitive scale and I will therefore
refrain from awarding costs on an attorney and client scale.
[97]
In the result, the following orders are made:
1.
The main
application is dismissed with costs, including the costs consequent
upon the employment of two counsel where applicable.
Such costs to
include the costs of 5 August 2022, 2 September 2022 and 8 September
2022
2.
The Fifth,
Sixth and Eighth respondents’ powers are extended in terms of
Sections 386(4)(a) to (i) of the Companies Act, 61
of 1973.
3.
That the
Fifth, Sixth and Eighth respondents are granted leave in their
capacities as the joint liquidators of the insolvent company
to
convene a commission of enquiry into the trade, dealings, affairs and
property of Project Multiply (Pty) Ltd (in liquidation)
in terms of
the provisions of section 417, read with section 418 of the Companies
Act, 61 of 1973, to be chaired by retired Judge
Eberhardt Bertelsmann
who has consented to be so appointed, same consent has been attached
to the Notice of Motion and marked annexure
“E” .
4.
That the costs
of the enquiry be borne by the insolvent estate of Project Multiply
(Pty) Ltd (in liquidation), including costs of
the commissioner,
attorney and/or counsel and all other costs and expenses incidental
to the enquiry.
5.
That the
Fifth, Seventh and Ninth respondents’ powers be extended in
terms of Sections 386(4)(a) to (i) of the Companies Act,
61 of 1973.
6.
That the
Fifth, Seventh and Ninth respondents are granted leave in their
capacities as the joint liquidators of the insolvent company
to
convene a commission of enquiry into the trade, dealings, affairs and
property of Velvetcream 15 (Pty) Ltd (in liquidation)
in terms of the
provisions of section 417, read with section 418 of the Companies
Act, 61 of 1973, and to be chaired by retired
Judge Eberhardt
Bertelsmann who has consented to be so appointed, same consent has
been attached to the Notice of Motion and marked
annexure “E”
.
7.
That the costs
of the enquiry be borne by the insolvent estate of Velvetcream 15
(Pty) Ltd (in liquidation), including costs of
the commissioner,
attorney and/or counsel and all other costs and expenses incidental
to the enquiry.
8.
That the
provisional trustees’ powers are extended in terms of
section
18(3)
and
73
of the
Insolvency Act 24 of 1936
, in order to have the
powers and the duties of a trustee as provided for by the
Insolvency
Act to
bring and defend legal proceedings and to dispose of the
livestock and/or other assets necessary in the administration of the
insolvent
estate, and to appoint legal practitioners to assist them
in the investigation and/or administration of the insolvent estate.
9.
That the costs
of this application be costs in the administration of the insolvent
company and the insolvent estates.
M.C.
MAMOSEBO
JUDGE
OF THE HIGH COURT
NORTHERN
CAPE DIVISION
For
the 1
st
and 2
nd
applicants:
Adv. JG
van Niekerk,
SC
Assisted
by: Adv.
JD De Vries
Instructed
by:
Johan
Victor Attorneys
c/o
Engelsman, Magabane Inc.
For
the 1
st
respondent:
Adv.
FH Terblanche SC
Assisted
by: Adv.
S. Tsangarakis
Instructed
by:
Strydom
& Bredenkamp Inc
c/o
Van de Wall Inc.
For
the 2
nd
respondent:
Adv.
W Coetzee SC
Instructed
by:
Office
of the State Attorney
For
the 3
rd
respondent:
Abiding
For
the 5
th
-10
th
& 12
th
respondent: Adv.
JE Smit
Instructed
by:
JI
Van Niekerk Attorneys
c/o
Majiedt Swart Inc
Amicus
Curiae
:
Adv.
JD De Vries
Instructed
by:
Brink
De Beer & Potgieter Inc
c/o
PGMO Attorneys Inc
[1]
2006 (6) SA (CC) at para 7
[2]
2002
(5) SA 713
(CC) at para 5
[3]
Ibid para 4
[4]
Ibid para 10
[5]
(2355/2018A)
[2018] ZANCHC 71
(7 December 2018)
[6]
2016 (3) SA 37
(CC) at 53A -D
[7]
The
Constitution of the Republic of South Africa Act, 108 of 1996 as
amended
[8]
153. Failure to adopt business rescue plan-
(1)(a)
If a business rescue plan has been rejected as contemplated in
section 152(3)(a) or (c)(ii)(bb) the practitioner
may –
(ii)
advise the meeting that the company will apply to a court to set
aside the result of the vote by the holders of voting
interests or
shareholders, as the case may be, on the grounds that it was
inappropriate.
[9]
10 of 2013
[10]
See JDT1 and JDT 2 at pages 169 -174 of bundle 2
[11]
1997 (6) BCLR 708 (CC)
[12]
[2013] ZACC 28
;
2013 (6) SA 249
(CC);
2013 (11) BCLR 1297
(CC) at
paras 70 - 71
[13]
Case
No 4781/2014; 1948/2014;1389/2013; 13818/2013; 13817/2013;
15968/2013;15969/2013 marked “JDT44” page 1166 of
the
record
[14]
[1997] ZACC 5
;
1997
(6) BCLR 759
(CC) at para 17
[15]
At
para 25
[16]
[1997] ZACC 12
;
1998 (1) SA 300
CC
[17]
See Bill of Rights Handbook Iain Currie & Johan de Waal Sixth
Edition Juta
[18]
Insolvency
Law and its operation in winding-up, service 52, LexisNexis,
issue 39, 18-1
[19]
Dr
Eric Levenstein,
South
African Business Rescue Procedure
,
Issue 5, LexisNexis, 7-1
[20]
Paras
5.2.4 and 5.2.5 at p 1177
[21]
See
Rushworth ‘ A critical analysis of business rescue regime in
the
Companies Act 71 of 2008
’ 375. For an overview of the
objectives of the business rescue process, see A Nwafor ‘
Exploring the goal of business
rescue through the lens of the South
African Companies Act 71 of 2009’ 597 – 613.
[22]
Meskin
Insolvency
Law
and its Operations in Winding up 18-1
[23]
South
African Business Rescue Procedure, LexisNexis, Issue 5, November
2021.
[24]
[2013]
3 All SA 303
(SCA);
2013 (4) SA 539
(SCA) at para 26
[25]
BA
(Law) LLB (UP): LLM (Corporate Law) (UNISA): Attorney, Notary and
Conveyancer of the High Court of South Africa: Associate
Professor:
School of Law, University of South Africa.
[26]
HS
Cilliers, ML Benade, JJ Henning, JJ du Plessis, PA Delport, L de
Koker & JT Pretorius
Corporate
Law (3ed 2000) par 2.06
[27]
Ibid
at 163
[28]
Ibid
at 166
[29]
See
General Insolvency Inquiry 1988 (ALRC 45) generally known as the
Harmer Report after Ronald Harmer, the Commissioner in charge
of the
inquiry.
[30]
Anneli
Loubser, University of South Africa, the analysis is based on a
paper she delivered at the 11
th
International Conference on Common Law, held on 11 -13 April 2007 in
Cape Town. 2007 SA Merc LJ 444.
[31]
2006(4)
SA 230 (CC); 2006 BCLR 682 (CC)
[32]
2012
(6) SA 223
(CC) at para 44
[33]
34
of 2005
[34]
19
of 2014
[35]
57
of 1988
[36]
34
of 1953
[37]
24
of 1936
[38]
Ibid at para 38
[39]
Supra
,
1998 (1) SA 300 (CC)
[40]
2017
(5) SA 40
(SCA) at para 75
[41]
[2017]
3 All SA 1 (SCA)
[42]
Paginated
papers page 449
[43]
Paginated
papers page 2599
[44]
Page
2662 of the paginated papers
[45]
At
paginated papers 2632
[46]
Page
2667 of the paginated papers