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2021
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[2021] ZAKZPHC 39
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Nathan and Another v Nathan and Others (D1322/2021) [2021] ZAKZPHC 39 (30 June 2021)
IN THE HIGH COURT OF
SOUTH AFRICA
KWAZULU-NATAL LOCAL
DIVISION, DURBAN
(HEARD
IN THE PIETERMARITZBURG DIVISION)
Reportable/Not
Reportable
CASE
NO: D1322/2021
In the matter between:
BRYAN
NATHAN
FIRST APPLICANT
ADELE
KASSUTO
SECOND APPLICANT
and
AUBREY
NATHAN
FIRST RESPONDENT
DEVANDRAN
GOUNDER
SECOND RESPONDENT
FISHWICKS PRINTERS
(PTY) LTD
THIRD RESPONDENT
KENNETH LOGAN
STEWART
FOURTH RESPONDENT
HARRY SIDNEY SPAIN
N.O.
FIFTH RESPONDENT
DAVID LIONEL LEVINE
N.O.
SIXTH RESPONDENT
HAROLD LEVINE
N.O.
SEVENTH RESPONDENT
MAX SELWYN NATHAN
N.O.
EIGHTH RESPONDENT
JULIAN COLIN
NATHAN
NINTH RESPONDENT
HARRY SIDNEY
SPAIN
TENTH RESPONDENT
DAVID LIONEL
LEVINE
ELEVENTH RESPONDENT
HAROLD
LEVINE
TWELFTH RESPONDENT
THE COMPANIES AND
INTELLECTUAL
PROPERTIES
COMMISSION
THIRTEENTH RESPONDENT
THE CREDITORS OF
THIRD
FOURTEENTH RESPONDENT TO ONE
RESPONDENT AS
IDENTIFIED
HUNDRED AND SIXTIETH
ON THE LISTING
FURNISHED
RESPONDENTS
BY
THE FOURTH RESPONDEN
REASONS
FOR JUDGMENT
BEZUIDENHOUT
AJ
[1]
This matter was argued before me as an
urgent interlocutory application on 15 June 2021 in Pietermaritzburg,
after being transferred
from the KwaZulu-Natal Local Division, Durban
by Masipa J on 11 June 2021. Due to the urgency of the matter and
because I wanted
to frame the reasons for my decision properly, I
simply made an order, dismissing the application with costs, such
costs to include
the costs of two counsel where so employed, with my
reasons to follow. These are the reasons for the order I made
[2]
The applicants brought an application on an
urgent basis for inter alia the following relief:
Part A
(a)
That this application be heard as a matter
of urgency in terms of Uniform Rule 6(12).
(b)
That the court grants leave to bring this
application in terms of section 133(1)
(b)
of the Companies Act 71 of 2008 (the Act).
Part B
(a)
That this application be heard as a matter
of urgency in terms of Uniform Rule 6(12).
(b)
That pending the outcome of the main
application under the above case number, which is enrolled for
hearing on 22 July 2021, the
fourth respondent be interdicted and
restrained from convening a meeting for the consideration by
creditors of the third respondent
(and of shareholders if applicable)
of any business rescue plan or from taking a vote from creditors in
regard to any business
rescue plan.
(c)
That the costs of the application be paid
by the fourth respondent
de bonis
propriis
on such penalty scale as the
court deems just, alternatively that the costs of the application be
paid by the fourth respondent
in his capacity as business rescue
practitioner.
[3]
Part A of the notice of motion was set down
to be heard at 9h30 and Part B set down to be heard at 10h00.
[4]
The main application referred to in the
notice of motion is set down for hearing on the opposed roll in the
Durban High Court on
22 July 2021. The applicants are claiming the
following relief in the main application:
(a)
That the fourth respondent be interdicted
and restrained from selling the business of Fishwicks Printers
pending the outcome of
an action to be instituted by the applicants
within ten days, for an order that the resolution to place Fishwicks
Printers in business
rescue taken by the first and second respondents
be set aside, on the basis that it constituted an abuse by the first,
second,
fifth, sixth, seventh, tenth, eleventh and twelfth
respondents, in that it was taken in order to circumvent the order
granted by
Mngadi J on 9 October 2020. Alternatively, that the
resolution constituted an attempt to circumvent the undertaking which
was furnished
by the fifth, sixth and seventh respondents’
attorney to the first and second applicants on 6 August 2019, that
should the
fifth, sixth and seventh respondents receive an offer for
the purchase of the business of Fishwicks Printers which they were
prepared
to consider, then they would give the first and second
applicants a reasonable opportunity of matching that offer.
(b)
Costs are sought against the first and
second respondents
de bonis propriis
,
together with the tenth, eleventh and twelfth respondents on such
penalty scale as the court deems just, jointly and severally
the one
paying the other to be absolved (together with any other respondent
who chooses to oppose this application).
[5]
Of some 161 respondents, only the third
respondent, Fishwicks Printers (Pty) Ltd and the fourth respondent,
Mr Kenneth Logan Steward,
cited in his capacity as the business
rescue practitioner to the third respondent, actively took part in
these proceedings.
[6]
The fourth respondent, in his answering
affidavit, raised three points
in
limine
, namely:
(a)
The applicants lacked
locus
standi
;
(b)
Non- joinder of the fourth respondent’s
employees; and
(c)
The applicants’ failure to make out a
case for the relief sought in terms of s 133(1) of the Act.
[7]
The first applicant, Mr Bryan Nathan and
the second applicant, Ms Adele Kassuto are brother and sister. There
are two more siblings,
namely Mr Aubrey Nathan, the first respondent
and Mr Julian Colin Nathan, the ninth respondent. The first
respondent is at present
a director of the third respondent.
[8]
All four siblings are beneficiaries of The
United Nathans Holding Trust (the trust). The trust at present has
four trustees, who
have been cited as the fifth to eighth
respondents. The eighth respondent is Mr Max Selwyn Nathan, who is
also the father of the
four siblings. At present, an application is
pending for the appointment of a curator bonis to the estate of the
eighth respondent,
which is only due to be heard on the opposed roll
in the Durban High Court on 22 February 2022.
[9]
The trust is a 45.33% shareholder in the
third respondent. The order of Mngadi J referred to in the notice of
motion of the main
application was granted on 9 October 2020,
pursuant to an urgent application brought by the first and second
applicants and another
entity not relevant to these proceedings. The
papers before me only contain the transcript of Mngadi J’s
judgment, and not
the actual court order which was granted,
interdicting and restraining the three trustees of the trust
(excluding Mr Max Nathan)
from selling the business of the third
respondent or the assets of such business to a third party, pending
the outcome of the application
for the appointment of a curator bonis
to the estate of Mr Max Nathan.
[10]
Prior to the application before Mngadi J,
the shareholders of the third respondent considered selling the
business to a third party.
In terms of an undertaking given by the
trustees of the trust on 6 August 2019, the applicants would be given
an opportunity to
match any offer made. The applicants duly made an
offer, which offer was rejected by the shareholders ( the trust
however
voted in favour of accepting the offer). The
shareholders comprise of, as mentioned above, the trust (45.33%),
Quiredome Ltd (27.33%),
the Gounder family trust (24%) and Mr
Devandran Gounder (3%) - who is presently a director of the third
respondent and is the second
respondent in these proceedings.
Although the trust voted in favour of the applicants’ offer,
the shareholders’ refusal
appears to have added fuel to already
volatile relationships between the applicants and their two other
siblings, the trustees
of the trust as well as the shareholders of
the third respondent.
[11]
Shortly after the matter before Mngadi J,
another matter was heard in the Durban High Court before Topping AJ
under case no D9478/2019.
In this matter, the applicants brought an
application wherein they sought an order directing the Master of the
High Court to remove
the trustees of the trust and other related
relief, apparently because the trustees were colluding with and
favouring their other
two siblings. Topping AJ dismissed the
application with costs. A comprehensive analysis of all the
correspondence and history of
the matter, the history of the conflict
between the siblings and the attempts to resolve it, was undertaken
in the unreported judgment
handed down on 8 March 2021. Of interest
is what was said in para 127 of that judgment:
‘
All
the siblings were, to various extents, actively involved in the
running of Fishwicks’ business and it follows that any
conflict
between them would impact negatively on its profitably and continued
existence.’
I
understand that the applicants are applying for leave to appeal
against the judgment.
[12]
It is common cause that on 28 January 2021
the first and second respondents, the two directors of the third
respondent, took a resolution
placing the third respondent in
business rescue. On 29 January 2021 the thirteenth respondent, the
Companies and Intellectual Properties
Commission endorsed the
nomination of Mr Kenneth Logan Stewart, the fourth respondent, as the
business rescue practitioner of the
third respondent.
[13]
On 16 February 2021, the applicants issued
the main application, asking for the relief set out above. As in the
present application,
the 148 creditors were also joined, but not the
employees of the third respondent.
[14]
In his founding affidavit in the main
application, the first applicant states that ‘the placing of
Fishwicks Printers into
Business Rescue was not necessary, that it
was not done in good faith and it was taken in support of an ulterior
motive’.
He also alleged that the third respondent was not
financially distressed based on an opinion obtained from Gilbey
Forensic and
Financial Services.
[15]
The first applicant explains the relief
being sought as being on the basis that the resolution to place the
third respondent in
business rescue ‘constitutes an abuse by
the trustees of the UNHT and the directors of Fishwicks Printers to
circumvent the
order granted by the Honourable Mr Justice Mngadi’,
alternatively that it constitutes an attempt to circumvent the
undertaking
previously furnished to the applicants to make an offer
to purchase the business of the third respondent.
[16]
The main application is being opposed and,
as mentioned, is due to be argued on 22 July 2021. The fourth
respondent raised similar
points
in
limine
as in the present application
before me.
[17]
The fourth respondent is in the meantime
carrying on with what is required in terms of the provisions of the
Act relating to business
rescue. He has convened and conducted
meetings with the creditors’ committee as well as the
employees’ committee. It
is common cause that he is of the view
that the only option is to sell the business of the third respondent.
He referred to various
management accounts and attached his second
practitioner’s report in terms of which the third respondent’s
loss for
February 2021 was R3 267 745, the loss for March
2021 was R644 504 , the loss for April 2021 was R1 491 169, and
the loss for May 2021 was predicted to be R1.9 million.
[18]
The fourth respondent arranged an overdraft
facility with Nedbank for the third respondent for between R5 million
and R7 million.
The third respondent has furthermore been utilising
the funds of pre-business rescue trade creditors totalling about
R16.5 million
as post-commencement funding, after these funds were
ring-fenced in terms of the Act. There are however numerous factual
disputes
about the financial state of the third respondent. As
mentioned above, the applicants allege that the financial position of
the
third respondent was not as bad as portrayed by the fourth
respondent, and as proof annexed inter alia a bank statement
reflecting
the transactions of 1 June 2021 only, showing a cash
positive balance in excess of R4 million. It is unclear why the
rest
of the month’s statement was not annexed or the previous
month’s statement, for that matter. From the bank statement
itself it appears that an amount of around R3.5 million was
transferred into the account from another account on 1 June 2021,
leading to the so-called positive cash balance.
[19]
Relevant to the present application is the
fact that the fourth respondent submitted a draft proposed business
rescue plan to the
applicants on 20 May 2021, to which two formal
offers for the business were annexed. The fourth respondent
subsequently published
the business rescue plan and intended to put
it to the vote of the creditors on 17 June 2021.
[20]
In correspondence dated 21 May 2021,
referred to as a ‘Notice No.18 to Creditors’, the fourth
respondent referred to
a creditors’ committee meeting held on 7
May 2021, during which the committee urged him to publish his
proposed business
rescue plan. He informed the creditors that the
first applicant is contemplating the bringing of an urgent
application to prevent
him from tabling the proposed business rescue
plan. He also informed the creditors that Nedbank has given notice
that ‘if
the company is not sold by 6 August 2021, they reserve
the right to withdraw the post- commencement finance they have
provided
to the company’.
[21]
The creditors were then asked to indicate
whether the fourth respondent should publish the plan and shortly
thereafter convene
the meeting to consider the plan, alternatively to
hold matters over until after the hearing of the main application on
22 July
2021. Creditors representing claims totalling R10 217 333
indicated that they wanted the fourth respondent to publish
the plan
and to convene a meeting in terms of s 151 of the Act. Creditors
representing claims totalling only R1 002 983
supported the
proposition that publication should be delayed. The majority
accordingly supported the proposal that the business
rescue plan
should be published, and that a meeting should be convened to
consider the plan.
[22]
At the commencement of the hearing before
me, I asked counsel appearing for the applicants, Ms Pudifin-Jones,
to concentrate her
efforts on the points
in
limine
raised by the third and fourth
respondents, in particular the issue of locus standi and whether a
case had been made out for the
relief sought in terms of s 133(1)
(b)
of the Act. A failure to establish locus standi would clearly mean
that the applicants do not even get out of the starting blocks,
similarly so will a failure to make out a case in terms of s 133(1)
of the Act.
[23]
It is appropriate to firstly deal with s
133(1) of the Act, which reads as follows:
‘
(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
)
with the written consent of the practitioner;
(
b
)
with the leave of the court and in accordance with any terms the
court considers suitable. . .’
.
[24]
Bearing in mind what is stated
by P Delport et al in
Henochsberg on the
Companies Act 71 of 2008
(October 2020,
Service Issue 24) at 526(6) to 526(8) , I should consider the
following two questions when dealing with the
application, namely:
(a)
Do matters pertaining to the meeting of
creditors and the implementation of the business rescue plan fall
within the ambit of s
133?
(b)
Should there be a separate application
wherein the applicants first obtain leave to commence with the legal
proceedings or can it
be brought in one combined application?
In
my view a third question also needs to be considered, namely whether
the applicants have presented a well-motivated application
to enable
me to apply my mind to the facts and law, if necessary, and to then
be in a position to make a ruling.
[25]
As far as the first question is concerned,
neither counsel for the applicants nor counsel for the third and
fourth respondents (‘the
respondents’) Mr Combrick SC,
addressed me on this issue, and clearly proceeded with their argument
on the basis that the
nature of the relief being sought falls within
the ambit of s 133. There are numerous conflicting decisions on this
issue and I
do not deem it necessary to add my views, save to say
that I regard a party’s constitutional right of access to court
as
a fundamental aspect of the rule of law (see
Booysen
v Jonkheer
Boerewynmakery
(Pty) Ltd and another
2017
(4) SA 51
(WCC) paras 41-43).
[26]
The second question deserves more attention
as counsel for the respondents specifically raised in his heads of
argument, the applicants’
failure to launch a separate
application to seek the court’s leave prior to the institution
of these proceedings. I might
just express my gratitude for the
comprehensive heads of argument filed by both sets of counsel, at
very short notice.
[27]
There are once again divergent decisions as
to whether the application to institute legal proceedings can be done
in one application.
Counsel for the respondents referred me to a
decision in this division,
Elias
Mechanicos Building & Civil Engineering Contractors (Pty) Ltd v
Stedone Developments (Pty) Ltd and others
2015 (4) SA 485
(KZD), in which matter the applicant sought an order
to be provided with certain documents by way of an application. The
application
for leave in terms of s 133(1) was incorporated in
the same application. Ploos van Amstel J said the following at paras
11
to 13:
‘
[11]
The construction which the applicant seeks to place on s 133(1)
(b)
is
that the proceeding may be commenced without the leave of the court
and that leave to do so may be sought as part of the
relief in the
main application. This is inconsistent with the wording of the
section. It will also defeat one of the purposes of
the moratorium,
which is to give the company and the business rescue practitioner
space and time to deal with the rescue of
the company without
having to deal with litigation by creditors. The practitioner will in
each such proceeding have to deal not
only with the application for
the court's leave in terms of s 133(1)
(b)
, but also with the
merits of the claim, because it is all part of one application.
[12]
There are other indications that the applicant's construction of the
section is incorrect. Firstly, it will result in the court
being
asked, when the matter is argued, for leave for the proceeding to be
commenced with, at a time when it had already commenced.
Secondly,
the leave of the court is also required to proceed with a legal
proceeding against a company during business rescue proceedings.
This
contemplates a company which goes into business rescue after
legal proceedings against it had commenced. It seems to
me that the
proceedings come to a halt when the company goes into business
rescue, and may only proceed with the leave of
the court. On the
applicant's construction the proceedings simply proceed and all the
plaintiff or applicant is required to do
is to seek leave at the
hearing for the matter to proceed. Thirdly, it is significant that in
granting leave for the legal proceeding
to be commenced or
proceeded with the court may impose such terms as it considers
suitable. This suggests to me that the court's
leave must be obtained
before the proceeding is commenced or proceeded with, as that will be
the time to impose the terms contemplated
in the section.
[13]
I conclude that the applicant commenced the present
application without the leave of the court and that it was in
terms
of s 133(1)
(b)
not entitled to do so. The fact that
the business rescue proceedings in respect of the first respondent
later ended does not
change this. The launching of the application
without the leave of the court was not competent and it must
therefore be dismissed
.’ (Footnote omitted.)
[28]
In an earlier judgment, also by Ploos van
Amstel J, of
Msunduzi Municipality v
Uphill Trading 14 (Pty) Ltd and others
[2015]
JOL 33101
(KZP) para 8, the following was said:
‘
Counsel
for the municipality, in his reply, said he was asking the leave
of the court for the application to proceed, as contemplated
in
section 133(1)
(b)
.
This is not what is contemplated in the subsection. The leave of the
court is required before the matter may be proceeded with.
It is not
permissible to proceed without the leave of the court and when the
point is taken, apply for such leave from the bar.
Such an
application must be a substantive one, on affidavits, and the company
under business rescue must have a proper opportunity
to oppose it.
The court will be required to have regard to all the relevant
circumstances, including the reasons advanced by both
parties as to
why leave should or should not be granted.
’
[29]
The authors of
Henochsberg
supra
at 526(10) indicated that it
would depend on the facts of a particular case and that it must be
borne in mind that ‘business
rescue should be a speedy process,
something that would be hampered if a separate substantive
application must be brought’.
In
Booysen
supra
para 56, the following was said
by Sher AJ:
‘
.
. .
Where the facts of a particular matter
dictate that, prior to commencing with certain legal proceedings, a
court would be required
to impose certain terms and conditions, it
would obviously be sensible and proper to approach the court for the
necessary leave
and guidance in this regard, before such proceedings
are commenced. But, as I have already indicated, there may well be
instances
where proceedings have to be launched as a matter of
urgency. . .
’
[30]
I believe in the present matter, and
because of the particular facts and circumstances, the applicants
were justified in bringing
the application to institute legal
proceedings in the same application as the urgent application. The
facts of the present matter
clearly differ substantially from the
facts in the matters that came before Ploos van Amstel J. The
applicants’ counsel informed
me that this issue has recently
been argued in the Supreme Court of Appeal, but at the time of
writing these reasons, no such judgment
has yet been handed down.
[31]
The third question is significantly more
problematic for the applicants. In
Merchant
West Working Capital Solutions (Pty) Ltd v Advanced Technologies and
Engineering Company (Pty) Ltd
2013 JDR
1019 (GSJ) para 67, Kgomo J said the following:
‘
A
court being asked for leave to proceed against a company under
business rescue, thus during a moratorium, must receive a
well-motivated
application for that so that it could apply its mind
to the facts and the law if necessary and then be in a position to
make a
ruling in accordance with any terms it may consider suitable
in the peculiar circumstances.’
No
indication was given as to what would constitute ‘a
well-motivated application’.
[32]
Counsel for the respondents referred me to
Arendse and others v Van der Merwe and
another NNO
2016 (6) SA 490
(GJ) para
28 where Boruchowitz J said the following:
‘
What
needs to be fully set out in any application for leave are
the reasons why legal proceedings against the company in
business
rescue are necessary and appropriate . . . As mentioned
above, the court has a wide discretion which must be dictated by the
interests
of justice. There is no closed list of the factors that may
be taken into account in deciding whether or not to grant leave as
each case must be determined on its own facts. Without being
prescriptive in any way, the following considerations are relevant:
(a)
The
effect that the grant or refusal of leave would have on the
applicants' rights as opposed to other affected persons and relevant
stakeholders;
(b)
the impact that the proposed legal proceedings would have on the
wellbeing of the company and its ability to regain its financial
health; and
(c)
whether the grant of leave would be inimical to the object and
purpose of business rescue proceedings as set out in ss 7
(k)
and 128
(b)
of the Act.
’
[33]
The authors in
Henochsberg
supra
referred to
Mabote
and others v Van der Merwe NO and another
[2016] ZAGPJHC 185 para 16 where it was required that an
applicant seeking to obtain leave must as a minimum requirement,
establish a prima facie case against the company in business rescue.
The authors also referred to the factors listed in
Arendse
supra
to which a court will look when
exercising its discretion.
[34]
I am of the view that there is merit in the
factors listed in
Arendse
,
as well as the requirement of a prima facie case as mentioned in
Mabote
,
and that these aspects are very relevant to the present matter before
me. Before I however undertake the exercise of analysing
the facts of
the present matter in light of the above factors, I deem it necessary
to deal with the issue of the applicants’
locus standi.
[35]
Section 130 of the Act deals with
objections to the company resolution placing a company in business
rescue, and reads as follows:
‘
130. Objections
to company resolution.
(1)
Subject to subsection (2), at any time after the adoption of a
resolution in terms
of section 129, until the adoption of a
business rescue plan in terms of section 152, an affected person
may apply to
a court for an order—
(
a
)
setting aside the resolution, on the grounds that—
(i) there is no
reasonable basis for believing that the company is financially
distressed;
(ii) there is no
reasonable prospect for rescuing the company; or
(iii) the company has
failed to satisfy the procedural requirements set out in section
129;
(
b
)
setting aside the appointment of the practitioner, on the grounds
that the practitioner—
(i) does not satisfy the
requirements of section 138;
(ii) is not independent
of the company or its management; or
(iii) lacks the necessary
skills, having regard to the company’s circumstances; or
. . .
(5)
When considering an application in terms of subsection
(1) (
a
) to set aside the company’s resolution,
the court may—
(
a
)
set aside the resolution—
(i) on any grounds set
out in subsection (1); or
(ii) if, having regard to
all of the evidence, the court considers that it is otherwise just
and equitable to do so;
. . .
(
c
)
if it makes an order under paragraph (
a
) or (
b
) setting
aside the company’s resolution, may make any further necessary
and appropriate order, including—
(i) an order placing the
company under liquidation; or
(ii)
if the court has found that there were no reasonable grounds for
believing that the company would be unlikely to pay all of
its debts
as they became due and payable, an order of costs against any
director who voted in favour of the resolution to commence
business
rescue proceedings, unless the court is satisfied that the director
acted in good faith and on the basis of information
that the director
was entitled to rely upon in terms of section 76 (4) and (5).
. .
’
[36]
Section 152(1) of the Act deals with the
consideration of the business rescue plan and reads as follows:
‘
152. Consideration
of business rescue plan.
(1)
At a meeting convened in terms of section 151, the practitioner
must—
(
a
)
introduce the proposed business plan for consideration by the
creditors and, if applicable, by
the shareholders;
(
b
)
inform the meeting whether the practitioner continues to believe that
there is a reasonable prospect
of the company being rescued;
(
c
)
provide an opportunity for the employees’ representatives to
address the meeting;
(
d
)
invite discussion, and entertain and conduct a vote, on any motions
to—
(i) amend the proposed
plan, in any manner moved and seconded by holders of creditors’
voting interests, and satisfactory
to the practitioner; or
(ii) direct the
practitioner to adjourn the meeting in order to revise the plan for
further consideration; and
(
e
)
call for a vote for preliminary
approval of the proposed plan, as amended if applicable, unless
the
meeting has first been adjourned in accordance with paragraph
(
d
) (ii).’
[37]
In terms of s 128(1)
(a)
of the Act an ‘affected person’,
in relation to a company, means:
‘
(i)
A shareholder or creditor of the company;
(ii)
Any registered trade union representing employees of the company; and
(iii)
If any of the employees of the company are not represented by a
registered trade union,
each of those employees or their respective
representatives.’
[38]
The applicants are clearly not affected
persons. As beneficiaries of the trust they, at most, have a
secondary interest to a limited
extend in the third respondent.
[39]
In response to the respondents’ point
in limine
regarding the issue of locus standi, the first applicant responded as
follows in his replying affidavit:
‘
8.
The first point in limine is without merit. To Stewart’s
knowledge the application
is not brought by Second Applicant and I as
affected persons in terms of the 2008
Companies Act
(“the
Act”). It is brought by us, (in our capacities as the
Applicants who obtained the Order before Mr Justice Mngadi
and to
whom the Trustees granted the right to match any Offer for the
business of Fishwicks Printers), in order to set aside the
bad faith
Resolution taken by First and Second Respondents in support of the
ulterior motives set out in the founding affidavit.
Simply put
there was never any genuine intention of placing Fishwicks Printers
into business rescue in order to achieve the objects
of the Act. If
Stewart were allowed to carry out his plan, he with the connivance of
First, Second, Fifth, Sixth and Seventh Respondents
would have
succeeded in deliberately circumventing an Order of this Court and a
binding undertaking given to Second Applicant and
I to match any
offer for the business of Fishwicks Printers.’
[40]
The applicants’ allegation that the
resolution was taken to deliberately circumvent the so-called binding
undertaking given
to them to make an offer for the business of the
third respondent is clearly incorrect. From the papers before me it
transpires
that the fourth respondent has on numerous occasions
referred to the first applicant’s interest in purchasing the
business
at creditors’ committee meetings and in correspondence
with the first applicant directly:
(a)
In the minutes of the fourth creditors’ committee held on 23
March 2021, the following
was recorded towards the conclusion:
‘
In
closing may I say that Bryan [Nathan – the First Applicant] has
expressed an interest in the past in purchasing Fishwicks,
so he is
perfectly entitled to submit an offer himself if he thinks this
business is worthwhile rescuing or worthwhile bidding
for, then he’s
more than welcome to make an offer.’
(b)
In an e-mail dated 1 April 2021, the first applicant wrote to the
fourth respondent as follows:
‘
I
acknowledge your suggestion that I make an offer for the business of
Fishwicks Printers (Pty) Ltd (the Business).
I am in the process of
obtaining legal advice as to how I can respond.
In the event that I am
advised that I can make an offer, please furnish me with the
following information:
1)
Would I be entitled to conduct a due
diligence?
2)
Would you and the creditors be open to the
same agreement that I had reached with the current Shareholders of
the Business, that
I would be entitled to match any offer made for
the purchase of the business of Fishwicks Printers?’
(c)
On 6 April 2011, the fourth respondent responded in an e-mail to the
first applicant
and indicated that he would like to obtain the best
price for the business as it would be sold for the benefit of not
only the
creditors but also the shareholders. He further indicated
that ‘on the assumption that you will be submitting a serious
offer
you will be permitted the same facilities as the other
potential purchasers which will include the right to conduct a due
diligence’.
(d)
In the minutes of the fifth creditors’ committee meeting held
on 13 April 2021, which
the first applicant was invited to attend,
the following was recorded:
‘
17.1
Bryan: just two things, in principle understanding if there was an
offer if I was able to match at that time, the
Shareholders none of
them agreed to me having a last stand, so if we can get clarity on
that point?
17.2
Practitioner: I did write to you about this. If the other potential
purchasers were aware that any of their
offers can be matched by
Bryan Nathan, I think they would be little discombobulated! Of
course, you can put in any condition
you like into your offer.’
(e)
In the verbatim transcript of the sixth creditors’ meeting held
on 7 May 2021, which
is attached to the first applicant’s
founding affidavit, one of the creditors, Mr Asif Kaka said the
following:
‘
.
. . Bryan Nathan can continue fighting the trust till kingdom comes.
It’s I think well documented that you gave him an opportunity
to put in a proposal, he never put in a proposal. Time’s up. In
my opinion, so I don’t know, creditors need to speak
now, what
do we do?’
(f)
In an e-mail dated 20 May 2021, written by the fourth respondent’s
attorney
to the applicants’ attorney, the following is stated
at para 4:
‘
Your
client is hereby invited to submit an offer himself for the purchase
of the business. In this regard we place on record that
the financial
information requested by your client last Friday, 14 May 2021, was
provided to him yesterday i.e. 19 May 2021.’
[41]
When asked why the first applicant is not
simply putting in an offer to purchase the business, counsel for the
applicants indicated
that Mngadi J’s order prohibits him from
doing so. That is not borne out by the papers as the first applicant,
without reference
at all to any alleged prohibition by Mngadi J’s
order, engaged with the fourth respondent regarding the possibility
of putting
in an offer.
[42]
On my reading of Mngadi J’s order,
nothing would prohibit the applicants from purchasing the business of
the third respondent
through the business rescue process.
[43]
Furthermore, to claim locus standi based on
this issue is clearly not tenable.
[44]
The applicants also rely on the fact that
they are the applicants who obtained the order before Mngadi J, and
that they intend applying
for an order setting aside the so-called
‘bad faith resolution’ as a further ground establishing
locus standi. Such
a cause of action does not exist outside the
provisions of the Act. The applicants’ counsel submitted that
they will be asking
a court in due course to ‘make new law’
by permitting persons not fitting the definition of affected persons
to also
be allowed to challenge a company’s resolution to go
into business rescue.
[45]
The applicants, in their heads of argument,
for the first time referred to the decision to place the third
respondent in business
rescue as being ‘dishonest’ and
‘fraudulent’. The applicants now suddenly want to rely on
a court’s
common law power to unravel a fraud as a basis to try
and establish locus standi. In the papers before me, the first
applicant
not once makes an allegation that the directors of the
third respondent fraudulently entered into the business rescue
process.
When I asked the applicants’ counsel to direct me to
anywhere in this application as well as the main application papers
where an allegation of fraud was made, the best she could do was to
refer me to a paragraph in the main application where the first
applicant, referring to the undertaking to allow him to match any
offer, said the following:
‘
As
stated aforesaid the trustees went to extreme lengths to evade
complying with this undertaking (to the extent of misrepresenting
to
Adele and I that the company was unable to pass the requisite special
resolution to sell the business to us). It is submitted
that this
conduct constitutes mala fide abuse.’
I
was referred to two further portions of the first applicant’s
affidavit which contain absolutely no reference to fraud or
fraudulent actions.
[46]
Any party wanting to rely on fraud must not
only plead it, but also prove it clearly and distinctly. There are
also a number of
essential allegations that have to be made when
relying on a claim based on fraud (see L T C Harms
Amler’s
Precedents of Pleadings
9 ed (2018) at
204). The applicants’ counsel referred me to
Hyprop
Investments Ltd and others v NSC Carriers and Forwarding CC and
others
2014 (5) SA 406
(SCA) where it
was held that allegations of fraud cannot be resolved in application
proceedings. I am however of the view that
the applicants should, at
the very least, have mentioned somewhere that they considered the
resolution to have been taken fraudulently
if they wanted to invoke a
court’s common law power to unravel the fraud, and to come to
their rescue. The submissions regarding
a dishonest and fraudulent
resolution was clearly an afterthought after counsel realised where
the shoe was pinching, and I place
no reliance on these submissions.
[47]
I am of the view that the applicants have
failed to establish that they have locus standi.
[48]
In the event of me being wrong in this
regard, I will however still deal with the factors referred to in
Arendse
supra
,
when considering whether it is appropriate to grant leave in terms of
s 133 of the Act. The first applicant did not specifically
address s
133 in his affidavit. There is accordingly no separate, substantive,
well-motivated application.
[49]
The first factor refers to the effect the
grant or refusal of leave in terms of s 133 would have on the
applicants’ rights,
as opposed to other affected persons and
stakeholders.
[50]
I referred above to the fact that a
substantial majority of creditors supported the suggestion that the
fourth respondent should
publish the plan and convene a meeting to
consider the plan. The creditors’ attitude in this regard runs
like a golden threat
through the correspondence, minutes of
creditors’ committee meetings and the transcript of the sixth
creditors’ committee
meeting held on 7 May 2021. One of the
creditors, Mr Asif Kaka said the following at para 60 of the
transcript:
‘
For
as long as the company remains under business rescue and it’s
dragged out, we as creditors don’t see any money and
money that
the money could not pay us is being used for, um, for the
litigation. I’m not saying it is, but it may be
used for
litigation and paying salaries and that we sit here without any
moneys and we can’t really.’
[51]
Another creditor, Mr Alan Wells said the
following at para 74 of the transcript:
‘
Ken,
from my side. Sorry, go ahead and publish the plan, and I can see
this can’t be trading out not a dealership in deadlock
and
staff also thinking about moving on whatever. It’s been
in this position now for a long, long time now . . . Liquidation
I
wouldn’t want. So yes, publish the Plan and let’s take it
from it there and see what happens.’
[52]
The employees of the third respondent are
affected persons and their interests seemed to have been mostly
ignored by the applicants.
It is common cause that they were not
joined to these proceedings as they should have been. The applicants
did not even supply
a list with all the names of the employees. The
applicants however, in a belated attempt to rectify the shortcoming,
served the
application papers on a portion of the employees by
e-mailing it to them and apparently affixed, from what appears from a
photo
annexed to a service affidavit, a copy of the notice of motion
to a notice board.
[53]
The third respondent has around 135
employees. The first applicant attached minutes of an employees’
committee meeting held
on 7 May 2021 with the fourth respondent. It
was recorded that the fourth respondent asked the members of the
committee if they
would support him in selling the company, assuming
the offers were accepted. The minutes read as follows at para 21:
‘
The
unanimous answer was yes, it would be the best way forward. Notices
were already sent out. It would be in the newspapers. RD
stated that
once the plan has been published, then we can take it from there.’
The applicants however
claim that the majority of members of the employees’ committee
“voted” for a plan not to
be published and supported a
suggestion that fourth respondent should wait for the outcome of the
main application. The employees
were however not asked to vote and
according to fourth respondent they previously indicated by
overwhelming majority that the plan
should be published.
[54]
Apart from the creditors who favoured the
publication of the plan as well as the employees, sight must not be
lost of the pre-commencement
creditors who are owed the R16 million
being used as ‘ring-fenced’ capital during the business
rescue process.
[55]
The path of litigation being envisaged by
the applicants involves not only the main application but also action
proceedings to determine
the motive behind the resolution to place
the third respondent in business rescue. Such an action could take
between three and
five years to come before a court. All the while
the third respondent is supposed to remain in business rescue, which
was intended
by the legislature to be a speedy process. Just the
financial implications of remaining in business rescue for such a
long period
would be severely prejudicial to the rights and interests
of creditors. The applicants’ counsel could not provide any
explanation
as to why the applicants have not yet instituted the
contemplated action proceedings. Nothing prohibited them from
doing
so as soon as they became aware of the business rescue
proceedings and the so-called ‘bad faith resolution’
taken to
commence the business rescue proceedings.
[56]
Bearing in mind that Nedbank has indicated
it may withdraw its overdraft facility of R7 million if the business
is not sold by 9
August 2021, it is clear that the impact of the
anticipated proceedings will be severe and will have dire
consequences for the
well-being of the third respondent, and its
ability to regain its financial health, as referred to in
Arendse
.
[57]
As far as the last factor mentioned in
Arendse
is
concerned, namely whether the grant of leave would be inimical to the
object and purpose of business rescue proceedings as set
out in ss
7
(k)
and
128
(b)
of
the Act, the answer must be a resounding no.
[58]
Counsel for the respondents submitted that
the applicants want to draw a line through the Act and proceed on a
basis not dictated
by the legislature, thereby creating their own
process, which should not be permitted.
[59]
In my view it is clear from the above that
the applicants have not established a prima facie case. Bearing in
mind the factors listed
in
Arendse
and the particular facts of this matter, and after having applied my
mind to the facts and the law and in exercising my discretion
in this
regard, I was of the view that the applicants had failed to make out
a case for the relief sought. It is for these reasons
that I had
dismissed the application with costs, such costs to include the costs
of two counsel, where so employed.
[60]
Even if I am wrong in refusing leave in
terms of s 133 of the Act, I am in any event of the view that the
applicants have failed
to make out a case for the interdictory relief
sought in Part B of the notice of motion.
[61]
The facts set out above clearly show that
the applicants have not established a prima facie right to the relief
sought, nor have
they showed that they will suffer irreparable harm.
The fact that the meeting might render the main application moot
becomes insignificant
if consideration is given to the interests of
all the other affected parties involved.
[62]
This brings me to the balance of
convenience, which clearly weighs against the applicants, especially
bearing in mind the interests
of the creditors and employees of the
third respondent, in a process where they are recognised as affected
persons.
[63]
The applicants have also failed to convince
me that they have no alternative remedy. They clearly have a claim
for damages against
the trustees of the trust. Bearing in mind
the facts set out above, the applicants have in my view in any event
failed to
make out a case for the interdictory relief.
BEZUIDENHOUT
AJ
Appearances:
Date of
hearing:
15 June 2021
Date of
reasons:
30 June 2021
For the
Applicants:
Adv. S. Pudifin-Janes
Instructed
by:
Ian Levitt Attorneys
c/o
Tomlison Mnguni James Inc.
Suite
201 Ridge 6
20
Ncondo Place
Umhlanga
Rocks
Tel:
031 566 2207
Email.
tamsinj@TMJ.co.za
For the 3
rd
and 4
th
Respondents:
Adv. L.E. Combrink SC/ Adv W. Pietersen
Instructed
by:
Venns Attorneys
c/o
Venns Attorneys Durban
Suite
12, Lakeside Building
Derby
Downs Office Park
University
Road
Westville
Tel:
031 303 7577
nadiar@venns.co.za
;
andries@venns.co.za