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[2021] ZAGPPHC 89
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Commissioner for the South African Revenue Service v Louis Pasteur Investments (Pty) Ltd and Others (12194/17) [2021] ZAGPPHC 89 (4 March 2021)
REPUBLIC
OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH
AFRICA
GAUTENG
DIVISION, PRETORIA
(1)
REPORTABLE: NO
(2)
OF INTEREST TO
OTHER JUDGES: NO
(3)
REVISED:NO/ YES
[4
March 2021]
CASE NO: 12194/17
In
the matter between:
THE
COMMISSIONER FOR
THE
APPLICANT
SOUTH
AFRICAN REVENUE SERVICE
AND
LOUIS
PASTEUR
INVESTMENTS
1
ST
RESPONDENT
(PTY)
LTD
(IN BUSINESS
RESCUE)
ADRIAAN
EVERT PRAKKE
N.O.
2
ND
RESPONDENT
THE
AFFECTED PERSONS RELATING
TO
LOUIS PASTEUR INVESTMENTS
(PTY)
LTD (Louis Pasteur group (Pty) ltd
3
RD
RESPONDENT
ETIENNE
JACQUES
NAUDE
4
TH
RESPONDENT
J
U D G M E N T
MUDAU,
J:
[1]
This
is an application for orders that concern the relief sought in Part B
of the notice of motion. First, the applicant seeks an
order in terms
of section 132(2) (ii) of the Companies Act, 71 of 2008 (“the
Act”) for the conversion of the business
rescue proceedings
relating to the first respondent,
Louis
Pasteur Investments (Pty) Ltd (“LPI”) to liquidation
proceedings and for the final liquidation of LPI. In the
alternative,
that this court remove the second respondent as the business rescue
practitioner (“BRP”) of LPI in terms
of section 139 of
the Act. Alternatively, that this court grant the applicant leave in
terms of section 133 of the Act to enforce
its cause of action
against LPI by proceeding with summons, judgment and execution.
Second, the applicant seeks an order of costs
of this application
de
bonis propriis
against the erstwhile BRP cited here as the fourth respondent, in his
personal capacity.
[2]
Judgment
relating to the relief claimed in Part A of the Notice of Motion was
delivered on 4 May 2018.
The
Court (per Pienaar AJ)
ordered that the moratorium on legal proceedings against LPI be
lifted and, that leave be granted to the applicant to proceed with
Part B of its application against the respondents, including the
order to serve the application by substituted service in terms
of
Rule 4 (2) of the Uniform Rules of Court..
The
Parties
[3]
The
applicant is the Commissioner for the South African Revenue Service,
appointed in terms of
section 6
of the
South African Revenue Service
Act, 34 of 1997
("the SARS Act”). SARS is stablished in
terms of section 2 of the SARS Act.
[4]
The
first respondent is LPI, a company with limited liability. It is an
investment and property-owning company duly registered as
such in
terms of the laws of the Republic of South Africa and was placed
under business rescue on 20 August 2012.
The
second respondent is A.E. Prakke N.O., who substituted Etienne
Jacques Naude N.O. as BRP of LPI and is cited in his representative
capacity.
[5]
The
third respondent is all Affected Persons as described in section
128(1) (a) of the Act, reflected in a list annexed to the founding
affidavit as Annexure “A3”. Pienaar AJ granted leave to
the applicant to cite the affected parties collectively as
the “third
respondent” and allowed service of the application to the third
respondent ("affected persons”)
by means of substituted
service as provided for in Rule 4(2) of the Uniform Rules of Court
and by means of publication in the Government
Gazette and several
newspapers. The learned AJ reasoned that the citation of the 246
Affected Persons as one respondent was convenient
and practical and
that the court, by virtue of its inherent powers to regulate its
processes, remains vested with a discretion
to authorise a method of
service it deems appropriate in the circumstances. In so doing,
Pienaar AJ was however, mindful of an
SCA decision in which it was
held that should affected persons not be joined as parties to the
proceedings that would constitute
in each instance a non-joinder of
an affected person who has a real and substantial interest in the
outcome of the proceedings
[1]
.
Louis
Pasteur Group (Pty) Ltd ('LPG'’), the affected person and only
intervening party.
[6]
The
fourth respondent is Etienne Jacques Naude (“Mr Naude”)
in personal capacity, an adult male attorney of the High
Court of
South Africa,
due
to the cost order
de
bonis propriis
applied
for against him.
Chronology
[7]
The
relevant background is as follows: On 19 June 2012, the board of
directors of LPI passed a resolution for LPI to voluntary begin
with
business rescue proceedings. Consequently, LPI was placed under
business rescue on 20 June 2012. The fourth respondent
(Mr
Naude) was appointed the business rescue practitioner on 25 June
2012. The first meeting of creditors took place on 29 August
2012. A
business rescue plan was approved by all attending creditors on 12
October 2012. In terms of section 150(2) (b) (ii) of
the Act, the
plan must propose how the company is to discharge its debts.
[8]
In
this matter, the applicant disputes receiving notification of the
initial meeting held on 29 August 2012 and 12 October 2012.
However,
once the business plan has been adopted, section 152(4) of the Act is
prescriptive in stating that: “
A
business rescue plan that has been adopted is binding on the company,
and on each of the creditors of the company and every holder
of the
company's securities, whether or not such a person— (a) was
present at the meeting; (b) voted in favour of adoption
of the plan;
or (c) in the case of creditors, had proven their claims against the
company
.”
[9]
In terms of
the business rescue plan, creditors were offered 100% of their
claims, with the first payments
scheduled for
1 November 2012. The second respondent
,
apart from costs and expenses, was to be remunerated at R2000-00 per
hour. Those entities who were previously debenture holders
were no
longer creditors of the company, but preference shareholders in LPI.
Accordingly, apart from the secured creditors, all
of the erstwhile
debenture holders who invested approximately R 53 million in the
company prior to the commencement of business
rescue, although now
preferent shareholders, are entitled to payment in terms of their
rights as preferent shareholders, to be
paid at a rate of R 5.00 for
each preferent share. That all debenture holders are now shareholders
and not creditors is disputed
by the third respondent, LPG and Dr
Mohamed Adam (“Dr Adam”), a director of LPG.
[10]
The
duration of the moratorium, and so the business rescue is 10 (ten)
years.
In
the business rescue plan a “disputed” debt to SARS in the
amount of R5 million was reflected under “claims
received”,
although SARS did not submit a claim in respect of the business
rescue proceedings as SARS was, on its version,
excluded from the
business rescue process by the BPR not giving proper notice to
SARS of relevant meetings.
[11]
On
the applicant’s version, LPI is indebted to the applicant in
unpaid taxes and levies to an amount in excess of R197 million.
Due
to LPI's failure and inability to pay the outstanding taxes and
levies, the current application, to convert the business rescue
proceedings to liquidation proceedings was launched by the applicant
on 20 February 2017. The opposing affidavit was filed on 5
April
2017. The replying affidavit is dated 19 April 2017. Part A of the
application for the lifting of the moratorium and service
of the
application was heard by the court on 28 August 2017.
[12]
The
court, as indicated above, granted the application in a judgment
dated 4 May 2018.
On
16 October 2018, Mr Naude resigned as the BRP of LPI. The resignation
of Mr Naude has rendered the first part of the relief asked
for (his
removal) redundant. The order sought will be inconsequential. The
hearing of Part B of the application was set down for
the 25 October
2018. The hearing was postponed
sine
die
to allow the intervening party, LPG to file its opposing affidavit.
Dr Adam was ordered to pay the costs occasioned by the postponement.
[13]
It
is an unusual feature of these proceedings that the affidavits
delivered by the various parties were not confined to the usual
three
sets
contemplated
in application proceedings, i.e. the founding papers, the opposing or
answering papers and the replying papers. The
delivery of a fourth
set or further sets of affidavits is not generally approved and is
usually permitted in specified and restricted
circumstances only.
[2]
On 25 October 2018, the respondents filed their opposing
affidavits to which the applicant filed its replying affidavit on
11
December 2018.
[14]
On
26 February 2019, the Acting Deputy Judge President Raulinga issued a
directive to the parties in terms of which the practice
note and the
chronology of events were to be filed. The application was initially
set down for 7 and 8 August 2019. On 7 August
2019 however, the
substituting BRP, Mr Prakke, a forensic chartered accountant launched
an application on the day of the set down.
He sought certain relief
pursuant to his appointment as business rescue practitioner of LPI
against Mr Naude to provide him with
all financial books, records and
other financial documentation of LPI.
[15]
In
terms of the order granted on 7 August 2019, Mr Prakke had to produce
a report regarding the financial position of LPI, the viability
of a
business rescue plan and the merits of business rescue proceedings as
opposed to liquidating LPI. The report had to be filed
within 120
days after receipt of said documentation from Mr Naude. The order,
which was made an order of court by agreement, was
that the
application be postponed
sine
die
and would be enrolled for adjudication in terms of a directive upon
meeting with the Deputy Judge President. Mr Prakke however,
contrary
to the order published and dispatched the report only on 16 March
2020. On 28 April 2020, a virtual meeting was held between
the
parties before Potterill ADJP.
[16]
In
his answering affidavit, Mr Prakke detailed his inability to file the
report within the period of 120 days as ordered and applied
for
condonation for the late filing of the report. On 7 October 2020, the
condonation application was granted on an unopposed basis.
The
application was set-down for hearing over a period of two days, being
7 and 8 October 2020, which days were to be the final
date for
hearing. Potterill ADJP indicated that no further requests for
postponement would be entertained.
[17]
As
agreed in the meeting, on 30 June 2020, Mr Prakke filed his answering
affidavit, which was substantial, on behalf of LPI. The
answering
affidavit comprised more than 90 pages and had many annexures. This
practically resulted in the overflow of affidavits.
In response to
Mr. Prakke's answering affidavit, Mr Naude filed his further
affidavit dated 29 June 2020. On 1 July 2020, LPG also
filed its
further affidavit. The applicant filed a supplementary replying
affidavit dated 23 July 2020. On 7 August 2020, the applicant
filed
its heads of argument. LPI filed their heads of argument on 14
September 2020. LPG as an Affected Person filed its heads
of argument
on 18 September 2020 and a further affidavit on 22 September 2020
subject to condonation. This elicited a further affidavit
by LPI in
response to a further affidavit filed by LPG.
[18]
According
to the applicant, as indicated,
SARS
was excluded from the business rescue process by the then BRP, Mr
Naude by not giving proper notice to SARS of relevant meetings
in
2012. In the business rescue plan a "disputed" debt to SARS
in the amount of R5 million was reflected under "claims
received", although SARS did not
submit
a claim in respect of business rescue proceedings.
The
R5 million claim was not founded on any assessment by SARS. Legally,
the BRP is the representative taxpayer liable to make payment
to SARS
in terms of Section 1 of the Income Tax Act, 58 of 1962 (“the
ITA”) and in terms of section 46(a) of the Value-Added
Tax Act
89 of 1991. As representative taxpayer, the BRP is to fulfil the
duties, responsibilities and liabilities of LPI to SARS
in terms of
section 154 of the Tax Administration Act 28 of 2011 (“the
TAA”). It is the applicant’s case that
taxes and levies
due to SARS by LPI amounted to a total of R197 269 662,76 on 22
November 2016.
[19]
The
amounts owed to SARS in respect of the tax periods 2006 to 2010 are,
according to the deponent to the applicant’s founding
affidavit
the following:
Income
tax: an adjustment amount of R64 842 202,44 with an understatement
penalty of R9 147 432,20; VAT: an adjustment amount
of R124 022
996-95, with an understatement penalty of R17 363 219,57; PAYE, an
adjustment amount of R30 169 326,36, with an
understatement
penalty of R13 169 326,36; Skills Development Levy (SDL): an
adjustment amount of R339 091,66 with an understatement
penalty of
R339 091,66.
[20]
However,
as at 22 November 2016 the debt (pre- and post-business rescue)
of LPI to SARS was constituted as follows:
Company income tax:
R99 295 614,25 (capital plus interest); VAT: R59 286 145,61 (capital,
additional tax, penalties plus interest);
PAYE/Employees tax: R37
586 081,40 (capital, additional tax, penalties plus interest);
Unemployment Insurance Fund (UIF):
R31 851,71 (capital,
penalties plus interest); SDL: R1 069 969-79 (capital, additional
fax, penalties).
[21]
Consequently,
the total taxes and levies amounted to a total of R197 269 662,76
on 22 November 2016. The total amount is R242
392 687, 00 if all
outstanding debts is considered.
Notices
of assessment were sent to LPI.
Despite
the total debt to the applicant, the last payment made by LPI to the
applicant was an amount of R7 825.21 on 8 January 2016,
in respect of
VAT and PAYE.
[22]
SARS’
notices
of assessments were sent to LPI. LPI did not object to the
assessments, neither Mr Naude as the BRP nor Mr Prakke since
the
latter’s appointment in May 2019 have availed themselves of the
dispute resolution procedures under Chapter 9 of the
TAA.
Consequently, and in terms of section 100 of the TAA the assessments
became final, and any attempt to challenge them is according
to the
applicant, futile.
It is accepted that
the
amount of taxes and levies owed by LPI to the applicant up to
November 2016
keep
escalating with time due to non-payment.
[23]
In
Van
Staden NO v Pro-Wiz Group (Pty) Ltd
[3]
the following was said: “
It
has repeatedly been stressed that business rescue exists for the sake
of rehabilitating companies that have fallen on hard times
but are
capable of being restored to profitability or, if that is impossible,
to be employed when it will lead to creditors receiving
an enhanced
dividend. Its use to delay a winding -up, or to afford an opportunity
to those who were behind its business operations
not to account for
their stewardship, should not be permitted. When a court is
confronted with a case where it is satisfied that
the purpose behind
a business rescue application was not to achieve either of these
goals, a punitive costs order is appropriate
.”
[4]
[24]
According
to Mr Prakke, he found the company in business rescue for more than
seven (7) years with an adopted business rescue plan
dated 12 October
2012, which plan inexplicably, was not executed.
There
were no financial statements for 2011 to 2018. He found that there
were no funds in the company and no income received or
receivable.
According to Mr Prakke,
he
later established that Dr Adam exercised
de
facto
control over the group of companies, of which LPI comprised.
[25]
He
established that Dr Adam abused the process of business rescue to the
prejudice of creditors. He received large amounts of money
in his
personal capacity, although not an employee or director of LPI. A
certain quantity of financial records in hard copy were
received from
“Louis Pasteur Hospital” where they were kept in several
offices. However, a large quantity of the financial
records, under
the control of Dr Adam were locked away in one of the properties of
LPI. Dr Adam had unfettered access to the bank
account of LPI since
business rescue proceedings commenced. His access to the bank
accounts was never terminated, and he dealt
with the funds in his own
discretion, which was irregular.
[26]
He
also established that Dr Adam's estate was in provisional
sequestration since late 2019, and thus disqualifying him from acting
as a director of any of the companies. According to Prakke,
by
virtue of the abuse of the corporate entities of the Louis Pasteur
Group of Companies, Dr Adam, with his son (the deponent to
the
Affected Persons’ affidavit) as his front, endeavoured to
preserve the properties in the entities at all costs for his
own
financial advantage and to the prejudice of creditors and Affected
Persons. Significantly, he was of the view that Dr Adam
and the
directors of LPI were also abusing the process of business rescue.
[27]
Mr
Prakke’s evidence is that
LPI
owns valuable assets in terms of the book values forming part of the
business rescue plan, that a reasonable net asset value
is
ascertainable from the documentation available to him. Other entities
in the group, i.e.
Louis
Pasteur Holdings (Pty) Ltd and First City Property 1 (Pty) Ltd are
indebted to LPI in large sums of money - R300 million
and R 800
million respectively. He identified dubious loans, which are
immediately collectable from these companies. On his version,
applications to liquidate these two companies may be required.
Significantly, he recorded that the certainty of the recoverability
is not guaranteed with no value placed thereon. In terms of the
business rescue plan, no forced sales of properties of LPI are
allowed. There were serious irregularities with regard to LPI's
liability to SARS and LPI was possibly abused for purposes of tax
evasion.
[28]
However,
from Mr Prakke’s supplementary affidavits, it is readily
admitted that LPI is commercially insolvent and cannot pay
its
day-to-day debts as same become due. No income is generated, no funds
are available and the legal expenses of LPI cannot be
paid.
Similarly, expenses of LPI were unpaid because there were no funds
available to pay operational costs, bond accounts, outstanding
rates
and taxes, interest and taxes. There are no cash reserves available
in LPI's bank accounts.
[29]
According
to Mr Prakke, the last audited financial statement available for LPI
is for 2010. There are management statements up to
2016, without
indication who the author is. Also, there were no available financial
records for 2017, 2018 and 2019 respectively.
No employees have been
employed by LPI since business rescue commenced and as at the date of
adoption of the business rescue plan.
Notwithstanding this fact, Mr
Prakke, at a meeting held on 17 July 2019 confirmed that an official
of the Department of Labour
indicated that employees of LPI who had
not been paid contacted the Department and applied for payment of the
UIF.
[30]
Although
LPI is the registered owner of several immovable properties, bond
instalments, rates and taxes as indicated above, were
not paid for a
substantial period. In this regard, the applicant pointed out in
evidence that all income tax returns of LPI since
2011 are
outstanding; there are 15 PAYE returns outstanding and 21 VAT returns
outstanding. The applicant argues that the interest
on outstanding
bonds and the rates and taxes are eroding the total equity in the
properties. SARS will not be in a position to
consider any form of
compromise, whether in business rescue or separately. On the
applicant’s version, SARS is legally bound
by the TAA and
cannot compromise a tax debt with LPI if returns are outstanding.
SARS has as early as 2010 and 2011 already obtained
judgments for the
outstanding taxes, including VAT, PAYE and UIF against LPI. According
to SARS, the new assessments issued during
2013 and subsequent
assessments were additional assessments.
[31]
According
to Mr Prakke, during the period since the adoption of the business
rescue plan until the resignation of Mr Naude on 16
October 2018,
very little progress was made to execute the plan and or to pay the
creditors of LPI. After a period of six years
of business rescue
proceedings with Mr Naude at the helm, he could not present him with
financial statements and records under
his control.
[32]
Mr
Naude could not, notwithstanding repeated requests, give him access
to financial documents. Mr Naude was compelled through an
application
made to this Court to provide Mr Prakke with the financial books,
records and other financial documents of LPI. Mr
Naude first alleged
he did not have any electronic bookkeeping records, notwithstanding
continuous assertions that financial statements
were drawn, the last
audited statement available for LPI being 2010. Eventually electronic
statements relating to LPI were only
made available to Prakke just
before the Covid 19 lockdown in March 2020.
[33]
Eventually,
the deponent of the applicant’s replying affidavit pointed out
that, when Mr Naude was unsuccessful in his opposition
of the relief
sought by SARS in Part A of the Notice of Motion, Mr Naude simply
abdicated and left LPI in the hands of Dr Adam
and others for a
period in excess of 5 months, without any financial management. LPI
and Mr Prakke however, in spite of the foregoing,
contend that the
prospects under business rescue are good should the latter be granted
the opportunity of executing his obligations.
[34]
In
Oakdene
Square Properties (Pty) Ltd & others v Farm Bothasfontein
(Kyalami) (Pty) Ltd &others
[5]
Brand JA stated: “
The
potential business rescue plan s 128(1)(b)(iii) thus contemplates
two objects or goals: a primary goal, which is to facilitate
the
continued existence of the company in a state of solvency and, a
secondary goal, which is provided for as an alternative, in
the event
that the achievement of the primary goal proves not to be viable,
namely, to facilitate a better return for the creditors
or
shareholders of the company than would result from immediate
liquidation
”.
[6]
As Van der Merwe J earlier stated in
Propspec
Investments (Pty) Ltd v Pacific Coast Investments 97 Ltd And
Another
[7]
“[
T
]
here
can be no doubt that, in order to succeed in an application for
business rescue, the applicant must place before the court
a factual
foundation for the existence of a reasonable prospect that the
desired object can be achieved”
.
[8]
[35]
It
is manifest however, that business rescue proceedings, by their very
nature, must be conducted with a maximum possible expedition.
In
terms of section 132(3) of the Act, business rescue proceedings
should terminate within a period of 3 months, unless a court
on
application extends the period. A business rescue plan should be
developed and implemented within a reasonable period.
[9]
In this case, the delay has been extraordinary. Both the applicant
and the substituting BRP, Mr Prakke find the delay deplorable.
In
Koen
& another v Wedgewood Village Golf & Country Estate (Pty) Ltd
& others
[10]
Binns-Ward J stated the following:
“…
It
is axiomatic that business rescue proceedings, by their very nature,
must be conducted with the maximum possible expedition.
In most cases
a failure to expeditiously implement rescue measures when a company
is in financial distress will lessen or entirely
negate the prospect
of effective rescue. Legislative recognition of this axiom
is reflected in the tight time lines given
in terms of the Act
for the implementation of business rescue procedures if an order
placing a company under supervision for that
purpose is granted.
There is also the consideration that the mere institution of business
rescue proceedings — however dubious
might be their prospects
of success in a given case — materially affects the rights of
third parties to enforce their rights against
the subject
company.
”
[11]
The learned
Binns-Ward
J cautioned that
o
nce a company is in
business rescue, the rights of third parties and creditors are
materially affected for the simple reason that
they are unable to
enforce their rights against the company.
[36]
In
terms of the Act, if a company’s business rescue proceedings
have not ended within three months after the start of those
proceedings, or such longer time as the court, on application by the
practitioner may allow, the practitioner must prepare a progress
report of the business rescue proceedings and update it at the end of
each subsequent month and deliver it to each affected person
until
the end of the proceedings.
[12]
In this case, the second respondent, as the BRP failed to do so since
2012.
[13]
[37]
Further,
in
DH
Brothers Industries (Pty) Ltd v Gribnitz
NO
& others
[14]
Gorven J stated:
“
Business
rescue proceedings are geared at providing a window of opportunity to
restore an ailing company to financial health and
functionality…The
window of opportunity does not remain open indefinitely.”
[15]
[38]
Section
133 of the Act contains a general moratorium on legal
proceedings against a company in business rescue. It provides
that
during business rescue proceedings, no legal proceedings against a
company may be “commenced or proceeded with”
in any
forum, except with the written consent of the BRP or with the leave
of the court, in accordance with such terms as the court
may deem
suitable This is what the applicant sought to achieve in Part A of
the application.
[39]
The
applicant relies upon the commercial insolvency of LPI, coupled with
its inability to pay its debt and that it is just and equitable
to
obtain a winding-up order, under the grounds set out in sections
344(f) and 344(h) of the Companies Act, 61 of 1973 as Mr Prakke
confirmed that LPI could not pay its day-to-day debts as same become
due. LPI does not generate income. LPI does not have funds
available.
The legal expenses
of
LPI cannot be paid. Similarly, expenses of LPI have not been paid
because there were no funds available to pay operational costs,
bond
accounts, outstanding rates and taxes, interest and taxes. No cash
reserves are available in LPI's bank account. The applicant
contends
on this basis that, not only should the conversion application be
granted as the business rescue proceedings have failed,
but that the
liquidation should be final.
[40]
Section
141(1) of the Act requires a practitioner, as soon as practicable
after being appointed, to investigate the company's affairs,
business, property, and financial situation, and after having done
so, consider whether there is any reasonable prospect of the
company
being rescued. The existence of a reasonable prospect of rescuing the
company is a factual exercise, which involves a value
judgment.
[16]
In terms of section 132(2) (a) (ii) business rescue proceedings end
when the court has converted the proceedings to liquidation
proceedings.
[41]
The
applicant’s contention that the business rescue proceedings
should end in terms of section 132(2) (a) (ii) and that the
court
convert the proceedings to liquidation proceedings; and that such
termination should follow under section 141(2)(a)(ii) is
not
supported by the respondents. They contend that only the BRP can
bring the application under section 141(2) (a). In terms of
section
132(2) (a) (ii) however, there is no time limitation within which a
court may convert business rescue proceedings to liquidation
proceedings. Accordingly, the fact that the business rescue plan was
adopted in respect of LPI is in my view, no bar to the relief
sought
by SARS as the applicant contended.
[42]
The
argument that the adoption of a business rescue plan is final and
binding on creditors and the company, and that for that reason
liquidation of a company under business rescue with an adopted
business rescue plan is no longer possible, is at odds by the proviso
of section 141(2)(a)(ii) which allows the business rescue
practitioner, at any time during business rescue proceedings, to
apply
to court for an order discontinuing the business rescue
proceedings and placing the company into liquidation. The inference
that
the adoption of business rescue plan is no hurdle for the later
liquidation of the company under business rescue is overwhelming
as
counsel for the applicant contended. Significantly, whether a
liquidation order should ensue is indivisibly linked to the
question
of the viability of business rescue proceedings.
[43]
With
due regard to all the circumstances and competing interests, the
10 years allowed for the business rescue plan to be implemented,
is
not only in conflict with the business rescue procedure intended by
the legislature when the Act came into operation, but also
evidently
has failed to yield the desired results. Further, the BRP committed a
material mistake in failing to conclude over the
last eight years the
implementation of the business rescue plan would not result in a
better return as contemplated by section
128(1) (b) (iii) of the Act,
consideration being had to the common cause facts
[17]
.
Under these circumstances, I hold that the applicant has
locus
standi
to bring an application for the conversion of business rescue
proceedings to liquidation. The available evidence does not support
the submission that an improved return by virtual of business rescue
would be forthcoming. It follows, accordingly, that the conversion
of
business rescue proceedings into liquidation proceedings is
completely justified by the facts of this matter.
[44]
The
primary question which a court is called upon to answer in deciding
whether or not a company carrying on business should be
wound-up
because it is commercially insolvent is whether or not it has liquid
or readily realisable assets available to meet
its liabilities
as they fall due to be met in the ordinary course of business and
thereafter to be in a position to carry on normal
trading.
[18]
It matters not that the company’s assets fairly valued, far
exceeds its liabilities. As Berman J stated in
Rhebokskloof
:
“
[O]nce
the court find that it cannot do this, it follows that it is entitled
to, and should, hold that the company is unable to
pay its debts
within the meaning of section 345(1) as read with section 344(f) of
the Companies Act 61 of 1973 and is accordingly
liable to be wound-
up
.”
[19]
[45]
Objectively,
the totality of the evidence shows that LPI is simply not in a
position to pay the amounts due to the applicant and
other creditors.
LPI’s ability to pay is not advanced in any of the opposing
affidavits by the respondents or LPG. On the
contrary, it is conceded
that the only way to pay debts is the liquidation of LPI's eleven
immovable properties, five of which
have been sold. These properties
are heavily bonded with mortgage bonds in respect of which only
secured creditors were paid.
Concurrent
creditors, like SARS, would have to settle for the residue, if any
remains after such disposal, which thus far remains
elusive. The debt
owed to SARS is not being serviced and continues to mount. LPI
contends that the penalties were not properly
computed. However, the
dispute in this regard, if material was never taken up with the
applicant timeously. In any event, it is
not in dispute that the
applicant is owed millions in tax revenue by LPI, sorely needed for
public good.
Similarly,
the longer the final liquidation of the first respondent is deferred,
the less chances of any return on investment existing
for the
debenture holders.
[46]
Section
7(k) of the Act provides for the efficient rescue and recovery of
financially distressed companies in a manner that balance
the rights
and interests of all relevant stakeholders. There is no valid reason
why LPI’s restoration to solvency should
be subsidised by
creditors such as the applicant whom the second respondent regards as
noncritical.
[20]
It is cold comfort to suggest that ordinary creditors will, in due
course get more than on liquidation. Importantly, as indicated,
the
prospects of business rescue are non-existent when the facts are
objectively considered.
[47]
In
his initial opposing affidavit Dr Adam, the director of LPG, the
intervening party alleges that LPG has a shareholding
of
99.5% in LPI. He states further that he is a former director of LPI.
However, LPG was registered as a company on 8 October 2015,
after the
commencement of business rescue proceedings of LPI. Significantly,
he
did not say whether LPI is indebted to LPG and the extent thereof, if
any. Mr Prakke disputes Dr Adam’s intervention in
these
proceedings in an additional affidavit. He takes issue that LPG does
not cite him but the previous BRP, Mr Naude does.
[48]
Mr
Prakke points out that Dr Adam is not a director of LPI according to
Annexure 2 of the founding papers and for that reason, is
in no
position to allege that he has knowledge of its affairs. He also
points out that
the
deponent did not attend any meeting of LPI called by the then BRP, Mr
Naude. Prakke disputes the transfer of shares as alleged
by Dr Adam
particularly since the latter failed to attach share certificates as
proof of his claims pursuant to section 51 (b)
of the Act.
Accordingly, on Prakke’s version, Dr Adam’s version
borders on criminal conduct. Dr Adams’s allegations
are not
only far-fetched, but are so unworthy of credence that they can
safely be rejected on the papers.
LPG abandoned an attempt to introduce an additional affidavit in this
regard in which they sought to clarify the position further.
Nothing
needs to be said any further, as Mr Prakke’s evidence was not
challenged.
In
the circumstances, I conclude that it is just and equitable that the
first respondent be wound-up. The prospects of success for
business
rescue of LPI are negated when one has regard to the overall
objective facts regarding this matter.
Costs De
Bonis Propriis
[49]
SARS,
as indicated, requests a cost order
de
bonis propriis
in this matter. Mr Naude filed a further affidavit in opposition to
this relief that is sought against him personally.
An
order of this nature may be granted against a representative to pay
costs out of his own pocket by way of a penalty for some
improper
conduct. It is trite that such an order is not easily granted and
good reason for such a cause should be shown, such as
want of bona
fides or unreasonable action or improper conduct
[21]
.
On
his version,
SARS
has done absolutely nothing to collect the outstanding amounts for
the periods 2006-2010. He disputes that he purposefully
failed to
carry out his duties as BPR.
[50]
It
is trite that costs
de
bonis propriis
should only be awarded in exceptional circumstances.
[22]
This kind of cost order is granted against individuals in their
personal capacities where their conduct showed a gross disregard
for
their professional responsibilities, and where they acted
inappropriately and in an egregious manner. The assessment of the
gravity of the conduct is objective and lies within the discretion of
the court.
[23]
[51]
This
court is called upon to mulct Mr Naude with a punitive costs order
de
bonis propiis
given his conduct as the BRP. As an officer of the court, it is an
inflexible requirement that a business rescue practitioner execute
his or her duties in good faith, bearing in mind that the benefit of
earning fees should never outweigh the duty to act in good
faith.
Good faith implies that the business rescue practitioner is obligated
to execute his/her duties with the utmost trust, confidence
and
loyalty to the benefit of all stakeholders in the business rescue
process. By virtue of their role, business rescue practitioners
are
therefore held to a higher professional and ethical standard.
[24]
It is evident in this matter that Mr Naude, during his tenure, failed
to perform the duties of a BRP since he failed to report
to the
creditors and other affected parties
monthly
as
required by the section 132(3) of the Act.
[52]
It
is of concern to this court that during the period 16 October 2018 to
4 May 2019 LPI existed under business rescue, with no BRP
appointed
after the fourth respondent abandoned ship. The fourth respondent, in
his official capacity had a duty to advise that
the business rescue
proceedings were not bearing any fruits and that liquidation was the
more viable process. He failed to do so.
No trace of any formal
management of LPI could be found as Mr Prakke pointed out.
[53]
On
his version,
he
resigned because he was appointed as BRP of Louis Pasteur Hospital
Holdings, which required his fulltime attention. The effect
of the
fourth respondent's resignation is that he no longer has the capacity
to act as a representative of LPI when he deposed
to the answering
affidavit at the commencement of these proceedings in relation to
Part A. In addition, by his resignation he terminated
his official
position of as BRP of LPI.
The
law is clear. I
f
it transpires at any stage of the process that the company cannot be
rescued, the BRP is obliged to give notice of this and approach
the
court for a liquidation order.
[25]
The language of the legislature stipulated in Section 141(2) (a) of
the Act is clear in that regard as it is couched in peremptory
terms.
Mr Naude failed to do this. That LPI cannot be rescued at that
point can reasonably be inferred from Mr Naude’s
resignation.
[54]
In
Knoop
and another NNO v Gupta
(
Tayob
Intervening
)
[26]
Willis JA aptly stated: “…
Whilst
in a voluntary business rescue the BRP owes their appointment to the
directors of the company, they must not allow themselves
to be
dictated to by the directors or shareholders or any third party. They
must at all times exercise an independent judgment
taking into
account the potentially conflicting interests of different affected
parties
”
.
[27]
To
abandon ship as Mr Naude did without terminating business rescue
proceedings was a serious dereliction of duty that cannot be
condoned.
[55]
I
n
terms of section 141 (2) (c) of the Act, at any stage of the business
rescue process, in case of evidence in the dealings of the
company
related to fraud or other contravention of any law relating to the
company, he was duty-bound to for the evidence to be
referred to the
appropriate authority for further investigations and possible
prosecution. These he failed to do in relation to
tax related
allegations by SARS against LPI in his investigation of the company’s
affairs, business, property, and financial
situation as contemplated
in section 141 (2) of the Act. Mr Prakke confirms the tax evasion
allegations, which Mr.Naude was duty-bound
to investigate and or
bring to the attention of the relevant authorities.
[56]
Against
this background, I conclude that Mr Naude was the material cause of
the disaster that ensued and after his resignation without
closing
the business of rescuing LPI, and on his version, to take up a
full-time position as a BRP in another entity within the
Louis
Pasteur group of companies. With no one at the helm of LPI, Dr Adams
continued to pilfer the monetary resources of LPI, which
Mr Naude
should have anticipated. The applicant has firmly established the
case for
a
cost order
de
bonis propriis.
Order
The
business rescue proceedings in respect of the first respondent is
converted into liquidation proceedings in terms of
section 132(2)
(ii) of the
Companies Act, 71 of 2008
.
The
estate of the first respondent is placed under provisional
liquidation in the hands of the Master of the High Court.
A
rule
nisi
is issued calling upon all interested parties to furnish reasons, if
any, to this court on Friday, 30 July 2021 at 10am or as
soon
thereafter as the matter may be heard, why the Court should not
order the final winding- up of the respondent company (the
first
respondent).
This
order is to be served by the Sheriff or his or her duly authorised
deputy at the first respondent’s registered office
and
principal place of business
at
Louis Pasteur Medical Centre, Room 842, 374 Schoeman Street,
Pretoria.
A
copy of this order must be served on:
5.1.
any
registered trade union that, as far as the sheriff can reasonably
ascertain, represents any of the employees of the first respondent;
and
5.2.
the
first respondent’s employees, if any, by affixing a copy of the
order to any notice board to which the employees have
access inside
the first respondent’s premises, alternatively by affixing a
copy thereof to the front gate, where applicable,
alternatively the
front door of the premises from which the first respondent conducts
any business at the address given in 4 above,
and
5.3.
The
Master.
6.
This order is
to be published in:
6.1.
the Government
Gazette;
6.2.
in the Sunday
Times newspaper;
6.3.
in the Rapport
newspaper;
6.4.
in the Star
newspaper; and
6.5.
in the
Business Day newspaper.
7.
The third
respondent (Louis Pasteur Group (Pty) Ltd) and the fourth respondent
(ETIENNE JACQUES NAUDE from his own pocket) are ordered
to pay the
costs of the application jointly and severally, on an attorney and
client scale, including costs of two counsel from
the date of notice
of opposition to this application to the date of judgment. Any
outstanding costs shall be costs in the liquidation.
T.P.
MUDAU
JUDGE OF
THE HIGH COURT
GAUTENG DIVISION, PRETORIA
APPEARENCES
Counsel
for applicant:
Adv.
JG Bergenthuin SC
Adv. M Tjiana
Instructed
by:
VZLR
Inc.
Counsel
for 1st & 2
nd
respondents:
Adv.
MA Badenhorst SC
Adv
M Jacobs
Instructed
by:
Geyster
Attorneys
Attorney for 3
rd (or 5th)
respondent:
Morne Coetzee Attorneys
Counsel for 4
th
respondent:
Adv. R Du Plessis SC
Instructed
by:
Walter Niedinger and Associates
Date of hearing:
8 & 9 October 2020
Date of judgment:
4 March 2021
[1]
Absa
Bank Limited Naude N.O. & Others 2016 SA SCA 540 at para 10.
[2]
Lagoon
Beach Hotel (Pty) Ltd v Lehane NO
2016 (3) SA 143
(SCA); see also
Mostert
v FirstRand Bank Ltd t/a RMB Private Bank
2018 (4) SA 443
(SCA) at 448D–F
[3]
2019
(4) SA 532
SCA
[4]
At para 22
[5]
2013
(4) SA 539 (SCA)
[6]
At para 23
[7]
2013
(1) SA 542 (FB)
[8]
At para 11
[9]
Alderbaran
(Pty) Ltd v Bouwer & others
2018 (5) SA 215
WCC at paras 48-49
[10]
2012
(2) SA 378 (WCC)
[11]
At para 10
[12]
Section 132(3)
(a)-(b)
[13]
See
South
African Bank of Athens v Zennies Fresh Fruit
2018 (3) SA 278
WCC at para 34
[14]
2014
(1) SA 103 (KZP)
[15]
At para 27
[16]
Tyre
Corporation Cape Town (Pty) Ltd and Others v G T Logistics (Pty) Ltd
2017 (3) SA 74
WCC
[17]
see
CSARS v Beginsel 2013(1) SA 307 (WCC)
[18]
Absa
Bank Ltd v Rhebokskloof (Pty) Ltd & others
1993 (4) SA 436 (C)
[19]
At 440G-H.
See
also
Rosenbach
& Co (Pty) Ltd v Singh's Bazaar (Pty) Ltd
1962
(4) SA 593 (D)
[20]
See
Tyre
Corporation
at para 42 (fn 15 above)
[21]
Grobbelaar
v Grobbelaar
1959 (4) SA 719
(AD) at 725
[22]
Lushaba
v MEC for Health, Gauteng
2015 (3) SA 616
(GJ) at para 69
[23]
Public
Protector v South African Reserve Bank
2019 (6) SA 253 (CC)
[24]
African
Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers
(Pty) Ltd
2015 (5) SA 192
SCA at paras 35, 37-38
[25]
Section
141(2) (a) of the Act
[26]
[2021] 1 All SA 726 (SCA)
[27]
At para 24