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[2021] ZAGPPHC 397
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Merchant West (Pty) Ltd v Crestar Printers & Publishers (Pty) Ltd (85778/19) [2021] ZAGPPHC 397 (21 May 2021)
REPUBLIC OF SOUTH
AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
CASE
NO: 85778/19
REPORTABLE:
YES
OF
INTEREST TO OTHER JUDGES: YES
REVISED:
YES
DATE
21
May 2021
In
the matter between:
MERCHANT
WEST (PTY) LTD
APPLICANT
and
CRESTAR
PRINTERS & PUBLISHERS (PTY) LTD
RESPONDENT
JUDGEMENT
[1]
On
the 29th of April 2021 I handed down the following order: (1) The
application of the Applicant in terms of
section 131(1)(b)
of the
Companies Act no 71 of 2008
is dismissed, no order as to costs is
made. (2) The liquidation application of the Applicant is postponed
sine die
,
costs reserved. [The reference to “
section 131(1)(b)
” is
incorrect and should have read “
section 133(1)(b)
”. The
order is hereby revised accordingly.]
[2]
The Applicant applied for the final
winding-up of the Respondent. These are the reasons for the
order.
[3]
At the commencement, counsel for the
Applicant pointed out that a shareholder of the Respondent made an
application for business
rescue proceedings to be commenced in
respect of the Respondent as envisaged in Section 131(1) of the
Companies Act, 71 of 2008,
(“the Act”). This application
was placed on case lines shortly before the commencement of argument.
[4]
Earlier in 2020, some 22 employees of the
Respondent intervened in the application for liquidation, opposing it
in an endeavor to
save their employment. Almost all of the said
employees are now supporting the business rescue application (BR
Application). There
was no appearance for any one of the parties in
the BR application.
[5]
Counsel for the Respondent and counsel for
the employees submitted that the BR application was properly made and
that Section 131(6)
of the Act suspended the liquidation proceedings.
Consequently, the liquidation application cannot be considered on the
merits
and should be postponed.
[6]
Counsel for the Applicant concurred that
the BR application was properly made and suspended the liquidation
application, but relying
on
Safari
Thatching Lowveld CC v Misty Mountain Trading 2 (Pty) Ltd
2016 (3) SA
209
GP
and
ABSA
Bank v Zwahili
[2019] ZAGPHC 419
, he
indicated that the Applicant would make an application from the bar
in terms of Section 133(1)(b) of the Act to obtain leave
from the
Court to uplift the suspension and proceed with the liquidation
application.
[7]
The intervening fact of the business rescue
application raises the following issues: Whether a business rescue
application has been
made, which incorporates the question of how the
court assesses whether it has been made; when the business rescue
proceedings
commenced; if liquidation proceedings include proceedings
pre- and post the granting of a provisional or final liquidation
order;
whether there should be appearance on behalf of any of the
parties in the BR application; whether the applicant in the BR
application
should apply to be joined in the liquidation application;
whether the BR application can be brought at any time (at such a late
stage); whether a properly made business rescue application suspends
the liquidation proceedings in terms of section 131(6) of
the Act;
and whether, notwithstanding the suspension of the liquidation
proceedings, a court may grant leave for the liquidation
application
to proceed in terms of section 133(1)(b) of the Act.
[8]
A
related sub-issue is how an application for leave to proceed should
be made, whether in a separate, substantive application or
simply
from the bar. I will deal with each of these issues in turn.
Has
a business rescue application been made?
[9]
Section 131(1) of the Act allows an
affected person to apply to a court at any time for an order placing
the company under supervision
and commencing business rescue
proceedings. As per section 128(1)(a) of the Act, for purposes of
this provision, an “affected
person” means a shareholder
or creditor of the company; any registered trade union representing
employees of the company;
and, if there are employees who do not
belong to a registered trade union, each of those employees or their
respective representatives.
[10]
An applicant in terms of section 131(1)
must serve a copy of the application on the company, the Commission
and notify each affected
party of the application in the prescribed
manner (section 131(2) of the Act).
[11]
In
Taboo
Trading 232 (Pty) Ltd v Pro Wreck Scrap Metals CC & Others
2013 (6) SA 141
(KZP), at 11.4, Hartzenberg AJ held that a business
rescue application is only regarded as having been made once the
application
has been lodged with the registrar, has been duly issued,
a copy thereof served on the company, the Commission and each
affected
person has been notified of the application. Where
liquidation proceedings have already been initiated, a notice of
application
must also be served on the provisional liquidator
(
Standard Bank of South Africa Ltd v
Gas 2 Liquids (Pty) Ltd
2017 (2) SA
56
(GJ) at para. 26). This matter is different as in both the Gas 2
Liquids and Taboo Trading cases the court concluded that section
131(6) has not been triggered because the applications for business
rescue in those matters were not properly made.
[12]
It appears from the founding papers
that the Applicant was not on the list of affected
parties that have been notified, but the BR application came to the
knowledge
of the Applicant. In my view notice to substantially all
the affected persons would be sufficient as it cannot be the
intention
of the section that the omission to notify one affected
party would render the BR application void. I find that there has
been
proper service and notification as set out in the relevant
affidavit of service of the BR application.
[13]
In determining whether a business rescue
application has been made there is a further separate inquiry, that
is whether the BR application
has a reasonable prospect of success.
This is to be determined by evaluating the allegations in the
founding affidavit of the BR
application which is at this stage, the
only affidavit regarding the merits before this court. The question
whether there is a
reasonable prospect that the company may be
rescued was considered in Oakdene Properties Pty Ltd V Farm
Bothasfontein Pty Ltd
2013 (4) SA 539
SCA at par 29. This was at the
time when the court had to decide if the company had to be placed in
business rescue or not.
[14]
The applicant in the BR application is a
30% shareholder in the Respondent. He alleges that the Respondent has
a huge printing press
that took months to install and is used for
special printing purposes. It will be difficult to sell and to remove
it. The creditors
would probably not get more than 33 cent in the
rand if the company is liquidated. The deponent will provide R5
million in loan
funding that would bring the arrears up to date. That
would require that the inflated claim of the Applicant in the
liquidation
application be corrected. The pandemic caused a
slump in business but he listed the current customers and states that
the
company is in the process of trading itself out of financial
distress. There is a reasonable prospect that all the creditors will
be paid in full after 3 to 4 years. The deponent alleges also that
financial distress should rather be determined at business rescue
level than in liquidation. In an effort to save their employment,
almost all the employees are supporting the application for business
rescue and opposing the application for liquidation. He also
mentioned that there are two other creditors that launched
liquidation
applications.
[15]
I find that there is a prima facie case
that there is a reasonable prospect of success based on the
allegations in the founding
affidavit. If I am wrong in deciding that
based on the founding affidavit of the BR application alone, then
this court has to exercise
a discretion with reference to the alleged
facts and also take into account the fact that almost all the
employees are supporting
the BR application, in reaching a
finding that there is a reasonable prospect that the BR application
will succeed. Then
considerations like fairness, convenience and the
interests of justice should be taken into account. This is on the
same basis
that a court has the discretion to refuse a liquidation
application even if a proper case has been made out.
[16]
I find that there is a reasonable prospect
of success based on the allegations in the founding affidavit,
alternatively in terms
of the discretion I exercised. The BR
application has thus been properly made and section 131(6)
automatically becomes applicable
and suspends the liquidation
proceedings.
[17]
If a business rescue application has been
made which suspends the liquidation proceedings and the affected
parties had opportunity
to file their papers, a court is then
required to apply the criteria set out in section 131(4)(a)(i) to
(iii) and determine based
on all the papers filed, whether there is a
reasonable prospect for rescuing the company. Based on a
consideration of the application
that is properly before it, the
court may make an order placing the company under supervision and
commencing business rescue proceedings,
or dismiss the application,
together with any further necessary and appropriate order, including
an order placing the company under
liquidation (section 131(4)(b)).
May
it be brought pre and post a provisional or final liquidation order?
[18]
In this matter, the BR application has been
made during the course of liquidation proceedings. No order has yet
been made for the
final or provisional winding-up of the company. The
Supreme Court of Appeal ruled that the phrase “if
liquidation proceedings
have already been commenced by or against the
company” in section 131(6) refers both to the liquidation
proceedings that
precede the granting of a winding-up order, as well
as the liquidation proceedings which followed thereafter, which
relate to the
administration of the estate. See:
Richter
v ABSA Bank Ltd
2015 (5) SA 57
(SCA) at par.1, 17 and 18. The reference to liquidation proceedings
in section 131(6) of the Act therefore includes proceedings
before
the granting of a provisional or final liquidation order and
proceedings after the granting of such orders.
May
it be brought at a late stage?
[19]
It was remarked in par 7 of the
Zwahili
judgment
that the applicant in the business rescue application in that matter
did not offer an explanation why the application was
brought at such
a late stage. As a business rescue application can be made at any
time during liquidation proceedings, there is
in my view no need for
an explanation why the BR application in this case is brought at such
a late stage before the liquidation
application is scheduled to be
heard.
Is
joinder a requirement?
[20]
In par 2 of the
Zwahili
judgment supra it was remarked that the
business rescue applicant in that matter, one Mr Els, did not apply
to be joined in the
liquidation proceedings, he only made copies of
the business rescue application available. As appears from the
wording of section
131(1) read with section 131(6), liquidation
proceedings that have already commenced by or against the company
will be suspended
at the time the BR application is made in terms of
section 131(1).There is thus no need to be joined in the liquidation
proceedings
as the liquidation proceedings are automatically
suspended by the mere fact that the BR application is made.
[21]
I find, as also submitted by all three
counsel that competently argued and submitted in their supplementary
heads, that the BR application
has been properly made in terms of
section 131(1) of the Act, that it has accordingly suspended the
liquidation proceedings and
that the business rescue proceedings
commenced when the BR application was made.
May
a court grant leave for the liquidation application to proceed
in
terms of section 133(1)(b) of the Act?
[22]
Counsel for the Applicant, nevertheless
relied on the provisions of section 133(1)(b) of the Act to resurrect
the suspended liquidation
proceedings and sought leave from the court
to bring an application from the bar in terms of section 133(1)(b) in
order to argue
the merits of the liquidation proceedings. I granted
leave to proceed and this issue was properly argued as well as the
merits
of the liquidation application by all three counsel.
[23]
Section 131(6) of the Act reads as follows:
“
If
liquidation proceedings have already been commenced by or against the
company by the time an application is made in terms of
subsection
(1), the application will suspend those liquidation proceedings
until-
(a)
the court has adjudicated upon the application; or
(b)
the business rescue proceedings end, if the court makes the order
applied for.
"Section
133(1)(b) of the Act reads as follows:
“
133
General moratorium on legal proceedings against company –
(1)
During business rescue proceedings,
no legal proceeding, including enforcement action, against the
company, or in relation to any
property belonging to the company, or
lawfully in its possession, may be commenced or proceeded with in any
forum, except –
(a)
…
(b)
with the leave of the court, and in
accordance with any terms the court considers suitable.”
[24]
This moratorium on legal proceedings
against a company during business rescue proceedings is of cardinal
importance as it provides
a breathing space to enable a company to
restructure its affairs and also allows the practitioner together
with the company’s
creditors and affected parties an
opportunity and time to formulate a business rescue plan (See:
Murray
& Another NNO v FNB t/a Wesbank
2015 (3) SA 438
(SCA) at par.14;
Cloete
Murray and Another NNO v Firstrand Bank Limited t/a Wesbank
2015 (3) SA 438
(SCA) at 14.) The general moratorium facilitates the
rehabilitation of the company in financial distress either to
maximize the
likelihood of the company continuing in existence on a
solvent basis or, if it is not possible for the company to so
continue in
existence, result in a better return for the company’s
creditors or shareholders than would result from the immediate
liquidation
of the company. (See also:
Safari
Thatching
para. 26.)
[25]
Thus, if the application of the Applicant
is granted as well as the liquidation order, the purpose of the
moratorium and section
131(6) is defeated. A creditor still has the
opportunity to ask for the
liquidation
when the properly ventilated business rescue application is
adjudicated.
[26]
The general moratorium applies “during
business rescue proceedings”, which is also a phrase used in
other sections of
the Act (see, for example, sections 133(2), 134(1),
134(3) and 135(1). In terms of section 132(1)(b) of the Act business
rescue
proceedings begin when a business rescue application is made
in terms of section 131(1), as is the case in this matter. The
intention
of the Act cannot mean that business rescue proceedings
commence only once the company has been placed under business rescue.
The
effect would be that that there is no moratorium in place from
the date the application is made to the date when the company is
placed under business rescue.
[27]
The conditions marking the end of business
rescue proceedings are specified in section 132(2). The phrase
“during business
proceedings” must refer to any point of
time between the beginning and ending of business rescue proceedings,
as statutorily-defined.
[28]
In deciding whether section 133(1)(b) can
be used to resurrect suspended legal proceedings, there is a related
sub-issue dealing
with how the leave application should be made. In
both
Safari Thatching
and
Zwahili
supra the court found that, it is legally competent for a litigant
such as the present Applicant to request the leave of the court
to
continue with the already commenced legal proceedings from the bar;
i.e. without the need to lodge a substantive leave application.
I
agree with this view.
[29]
It is possible however that in certain
circumstances a proper substantive application should be made
.
As held in
Booysen
v Jonkheer Boerewynmakery
2017
(4) SA 51
(WCC) at para. 54 there “is no one-size-fits-all
approach to be followed and what will be
required,
and what will be sufficient, will depend on the circumstances of each
particular matter. It will in each case be a matter
for the court's
discretion to be exercised judicially on the basis of considerations
of convenience and fairness, and what
will be in the interests
of justice.”
This sub-issue
does apply to legal proceedings but this court is urged to find that
section 133(1)(b) does not apply to suspended
liquidation proceedings
envisaged in s 131(6).
[30]
On my reading of the Safari Thatching and
Zwahili judgments, it appears as if it was held that the business
rescue applications
were made and that the liquidation proceedings
were suspended. If it was not so then there would have been no need
to entertain
the applications in terms of section 133(1)(b). Then
based on substantive grounds or special conditions as listed in the
judgements,
the applications in terms of section 133(1)(b) were
granted and the companies liquidated.
[31]
In establishing the substantive grounds or
special conditions upon which a court should exercise a discretion to
grant leave for
suspended liquidation proceedings to proceed, the
question of the reasonable prospects of success arise again. In
Safari Thatching
supra
at par 10 the court found that the business rescue application was
incomplete, some of the proposals apparently came to naught
and at
par 29 the court remarked that there was no evidence of reasonable
prospects that the company could be rescued. In
Zwahili
supra the court considered the business rescue
application and found that the merits were vague. See paragraphs 8
and 12.
[32]
The courts’ criticism relating to the
merits of the business rescue applications is probably part of the
ratio to have granted
the section 133(1)(b) applications and the
consequent liquidation orders. The courts also referred to special
conditions which
relate mainly to the merits of the liquidation
applications and probably considered fairness, convenience and what
would be in
the interests of justice. The result of the liquidation
orders made in those matters is that the moratorium ended abruptly
and
there was no breathing space to allow the companies to
restructure their affairs.
[33]
Counsel for the employees submitted that on
a purposive interpretation:
[33.1]
Section 131(6) of the Act prescribes that
the pending liquidation proceedings are suspended until the business
rescue application
is adjudicated upon by the court (i.e. the court
adjudicating the business rescue application and not the court seized
with the
liquidation application) or until it ends, if the court
makes the order applied for;
[33.2]
section 131(6) does not contain any
provision that the court (i.e. the one before which the liquidation
application is pending)
is empowered to grant an order for leave that
the already suspended liquidation proceedings can be proceeded with;
[33.3]
section 131(6) contains no reference to the
effect that section 133(1)(b) has on pending legal proceedings;
[33.4]
section 131(6) is a provision that deals
exclusively with what follows upon an application in terms of section
131(1) where liquidation
proceedings have been commenced with;
[33.5]
section 131(3) affords a right to each
affected person to participate in the hearing of an application in
terms of section 131(1).
Consequently, a court hearing a
liquidation application and faced with a properly-issued business
rescue application, cannot deal
with the liquidation application as
if the business rescue application has not been made as this
will be to the detriment
of the rights afforded to the affected
persons who can now participate in the business rescue application;
[33.6]
section 133 can only find application once
a company has been placed under business rescue and a business rescue
practitioner has
been appointed. This is so because section
133(1)(a) provides that during business rescue proceedings no legal
proceedings
may be commenced or proceeded with except with the
written consent of the practitioner as the first proviso. Section
133 does not apply to the suspension of liquidation proceedings which
has already been dealt with specifically in section 131(6).
The
provisions of section 131(6) would be rendered nugatory should
section 133 be interpreted to also find application in the pending
liquidation proceedings.
[34]
Counsel for Respondent, submitted that the
Companies Act, neither
authorises, nor permits a court to grant leave
to proceed with liquidation proceedings, if such liquidation
proceedings have been
suspended by operation of
section 131(6).
See:
Others v Leveton
1999 (2) SA 32
(SCA)
[35]
In order not to render nugatory section
131(6) of the Act it has been held, that business rescue is a process
aimed at avoiding
the liquidation of a company if it is feasible to
do so.
See:
Panamo Properties (Pty) Ltd v Nell &
Others NNO
2015 (5) SA 63
(SCA) at
par.8
[36]
Section 131(6) is accordingly a special
provision that deals exclusively and specifically with the effect of
a section 131(1) application
on pending liquidation proceedings that
have already commenced by or against the company at the time the
application for business
rescue is made.
[37]
The special and unique provisions of
section 131(6) thereby provide impetus to the specific aim of
business rescue in order to avoid
the liquidation of a company if it
is feasible to do so.
[38]
Section 133(1) is set out in wide and
general terms. It places a general moratorium on all legal
proceedings, without making any
distinction.
[39]
The special and specific provisions of
section 131(6) can, however, not be considered to have been
indirectly altered merely by
force of the general words employed in
section 133.
[40]
The specific (or special) provisions in
section 131(6) prevail over the general provisions of Section 133.
However, inclusive the
terms employed in section 133 may be, it does
not apply to the suspension of liquidation proceedings, which is a
matter specifically
dealt with in special terms in section 131(6).
[41]
The special and specific mechanism designed
in section 131(6) does not provide for a remedy that a court may
grant an order for
leave to proceed with the liquidation proceedings
notwithstanding their suspension. It follows therefore that the
provisions of
section 133(1)(b) – providing in wide and general
terms that the Court may grant leave for legal proceedings to be
commenced
with or to proceed – does not find application
in respect of liquidation proceedings.
[42]
If the import and effect of section 133 are
to be interpreted to find application also in pending liquidation
proceedings then:
[42.1]
The provisions of section 131(6) would be
rendered superfluous and nugatory. The subsection could then very
well have been omitted
from the legislation.
[42.2]
The stated purposes of sections 130 and 133
would not be achieved thereby.
[42.3]
The consequences would be impractical,
unbusinesslike and oppressive and would stultify the aim of business
rescue, namely to avoid
as far as possible the liquidation of a
company if it is feasible to do so.
[43]
Counsel submitted that neither of the
courts in the Safari Thatching and Zwahili matters dealt in decisive
terms with the interpretation
of sections 131(6) and 133. It appears
that in both matters it was simply assumed, without the matters
having been decided upon,
that section 133(1)(b) applies also in
respect of liquidation proceedings.
[44]
Those two judgments can therefore clearly
be distinguished, on the basis that they contain no ratio decidendi
whereby the Courts
grappled with the two provisions and made a
binding and definitive determination. It appears that it was simply
so assumed in both
cases and the matters focussed more on the
question whether the application under section 133(1)(b) can be
brought from the bar
or whether it ought to be a substantive
application.
[45]
As a result of the fact that it was
apparently assumed in both those matters that section 133(1)(b) can
be invoked even in the face
of pending liquidation proceedings, the
two cases are clearly distinguishable.
[46]
Given the fact that the matters are
distinguishable for the reasons set out above, they have no binding
authority on any subsequent
court in which it is then pertinently
raised for the first time and where the need actually arises for the
first time only before
this court whether in the first place it is
even competent for a court to consider any application, whether from
the bar or otherwise,
to invoke section 133(1)(b) in order to do away
with the fact that the liquidation have been suspended.
[47]
It appears furthermore that section 133 was
more focussed on a situation where there was a commencement of the
business rescue proceedings
themselves. That possibly explains why
section 133(1)(a) refers to possible consent for the upliftment of
the moratorium to be
given by the business rescue practitioner,
something which happens only after there is an actual commencement of
the business rescue
proceedings.
[48]
The purpose of affording a court the power
to uplift a moratorium is to enable a creditor to make a specific
recovery or to obtain
specific relief against a company whilst it is
otherwise in business rescue and whilst enforcement is otherwise
prohibited against
it.
[49]
Therefore, in both the judgments relied
upon by the Applicant the two completely different concepts were
simply conflated as if
the moratorium on the one hand and the
suspension of the liquidation proceedings on the other hand are one
and the same concept.
[50]
Based on Section 133 a creditor is not
entitled to even commence with ordinary legal proceedings and
recovery steps against a company
in business rescue, unless it
procures the consent provided for in the section. However, the Act
gives a specific right to any
affected party to bring an application
to Court (in which there is no need to ask for the upliftment of the
moratorium) in order
to set aside a business rescue resolution that
has been adopted voluntarily.
[51]
The legislation seems to draw a sharp
contrast between liquidation proceedings, for which separate and
special provisions are made,
and other general legal proceedings
and in particular enforcement action, for which a different regime
applies.
[52]
In the result Counsel for the Respondent
respectfully suggested that the winding-up application has been
suspended, that it cannot
be entertained on the merits and that the
only solution is to postpone the application sine die and for the
costs to be reserved.
[53]
In the result and for all these reasons I
find that the liquidation proceedings may not proceed until such
stage as the business
rescue application has been decided upon.
[54]
I find that section 133(1)(b) of the Act on
a purposive interpretation, does not provide that an application may
be made (whether
it is made from the bar or otherwise) to uplift the
liquidation proceedings suspended in terms of section 131(6). In the
result
the application in terms of section 133(1)(b) made by the
Applicant is dismissed.
[55]
If I am wrong in finding that such an
application may not be made, then I exercise my discretion on the
basis set out above and
dismiss the application in terms of section
133(1)(b) made by the Applicant, (which may be made from the bar or
otherwise). The
application for business rescue has been properly
made and the liquidation proceedings remain suspended.
[56]
Accordingly, I made an order as set out in
paragraph 1 above.
C
N Van Heerden
[Acting
Judge of the High Court, Gauteng Division, Pretoria]
DATE
OF HEARING:
2
March 2021
DATE
OF JUDGEMENT:
29 April 2021
DATE
OF THE JUDGEMENT: 21 May 2021
APPEARANCES:
COUNSEL
FOR APPLICANT: ADV AJ VENTER
INSTRUCTED
BY: UYS MATYEKA SCHWARTZ ATTORNEYS
COUNSEL
FOR RESPONDENT: ADV MP VAN DER MERWE SC
INSTRUCTED
BY: JAFFER INC ATTORNEYS
COUNSEL
FOR THE EMPLOYEES: ADV MH VAN TWISK
INSTRUCTED
BY: JAFFER INC ATTORNEYS