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[2019] ZAGPPHC 152
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Atlantis Mining (SA) (Pty) Ltd and Others v IPC Coal (Pty) Ltd and Others (38308/2017) [2019] ZAGPPHC 152 (10 May 2019)
HIGH
COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
(1)
REPORTABLE:
YES
/NO.
(2)
OF
INTEREST TO OTHER JUDGES:
YES/
NO.
(3)
REVISED.
CASE
NO: 38308/2017
6/5/2019
In
the matter between:
ATLANTIS
MINING (SA) (PTY) LTD
First Applicant
NUNGU
LTD
Second Applicant
CENTAUR
ASSET MANAGEMENT LTD
Third Applicant
and
IPC
COAL (PTY) LTD
First
Respondent
ETTIENE
NAUDE N. O.
Second Respondent
THE
COMPANIES AND INTELLECTUAL
PROPERTY
COMMISSION OF SOUTH AFRICA
Third Respondent
LUKE
SAFFY N.O.
Fourth Respondent
MADELEINE
ABRAHAMS N.O.
Fifth
Respondent
JONATHAN
MONTAGU ERSKINE
Sixth
Respondent
JUDGMENT
DAVIS,
J
[1]
Introduction
This
is an application by three Applicants who claim to be creditors of
the First Respondent ("IPC Coal") for the setting
aside of
a resolution to voluntarily commence business rescue proceedings.
[2]
The parties
2.1
The First Applicant ("Atlantis
Mining") is a South African Company and the Second and Third
Applicants are foreign Companies
("Nungu" and "Centaur")
respectively.
2.2
The First Respondent is IPC Coal, a
South African commodities and coal mining company and the Second
Respondent is its Business
Rescue Practitioner (the "BRP").
2.3
The Third Respondent is the Companies
and Intellectual Property Commission of South Africa (the "CIPC")
who, apart from
having been cited as a party, played no role in these
proceedings.
2.4
The Fourth and Fifth respondents had
been appointed as IPC Coal's provisional liquidators.
2.5
The Sixth Respondent appears to be the
sole director of IPC Coal (referred in hereafter as "Mr
Erskine")
[3]
The triable issues:
The
issues to be decided are whether the Applicants have the necessary
locus standi as creditors of IPC Coal to have launched the
present
application. Once this has been established the next question to be
determined is whether the resolution to voluntarily
place IPC Coal in
business rescue has been validly taken. Lastly, if the resolution has
validly been taken, is it, in the circumstances
of this matter, just
and equitable that the business rescue proceedings be set aside or
not.
[4]
The Applicants' status as creditors
In
both these proceedings and in business rescue proceedings referred to
more fully hereunder, as well as in response to the Applicants'
counter application for the winding-up of IPC Coal - yet another
application to which I shall refer to more fully hereunder,
Mr
Erskine, with apparent authority of IPC Coal and its BRP, disputes
the Applicants' status of creditors of IPC Coal. I shall
now evaluate
whether there are genuine factual disputes on this score or whether
the Applicants' claims are disputed on bona fide
and reasonable
grounds.
4.1
Atlantis Mining
A
summary of the position to be gleaned from the papers is the
following: Atlantis Mining was the company which did the actual
mining at the two coal mines in which IPC Coal was involved. In
respect of first mine, the Elandspruit Mine, a company by name of
Nungu Trading 341 (Pty) Ltd (not the "Nungu" who is the
Second Applicant) held the mining rights. It contracted IPC Coal
to
"attend to the mining" (Mr Erskine's words). IPC Coal, in
tum contracted Atlantis Mining to do the actual work. In
respect of
the second mine, Kromdraai Mine, the mining rights were held by a
party whom Mr Erskine declined to mention and a company
Blue Nut
Trading (Pty) Ltd ("Blue Nut") was supposed to do the
mining. Again, IPC Coal was to "manage the mining"
which
was, again actually performed by Atlantis Mining. Mr Erskine alleges
that Atlantis Mining was paid all that was due to it
in respect of
the Elandspruit mine. At some stage, Blue Nut came into financial
difficulties and was eventually liquidated. Prior
to its liquidation,
IPC Coal reached "an agreement" with Atlantis Mining, that
the latter would submit certificates of
the work done at the
Kromdraai Mine to IPC Coal (irrespective of how its initial invoices
were made out), and IPC Coal would pay
Atlantis Mining. When Blue Nut
was liquidated, Atlantis Mining was of the view that both it and IPC
Coal, jointly and severally
were indebted to the tune of some R15
million to Atlantis Mining. Hence the pursuance of Atlantis Mining's
claims in this amount
in both the winding-up of Blue Nut and against
IPC Coal. In view of this, Mr Erskine's denial of IPC Coal's
indebtedness was not
as unequivocal as counsel on his behalf argued.
This much is apparent from his answers in an interrogation in an
enquiry in terms
of Section 417 of the "old" Companies Act
in Blue Nut's winding-up as appears from the following portions of
the record
thereof (which were produced with the written consent of
the Master):
"
Mr
Van Velden
: Did I understand you correctly that you were
not
invoiced by Atlantis Mining?
Mr
Erskine
:
At that time when all hell broke loose and all the contracts were
cancelled, I do not know the exact time, but when it was we
would
have owed Atlantis Mining money because we would pay them 30 days in
arrears, so there should be a claim with Atlantis Mining
...
Mr
van Velden:
Do
you agree that !PC Coal was also indebted to Atlantis Mining?
Mr
Erskine:
Yes,
they did the work
Mr
van Velden:
An
it was stated in the founding affidavit that they
...
issued statements, but not tax invoices because then they had to
pay tax on money, VAT on money they did not receive.
Mr
Erskine
:
Yes, I mean I think Atlantis Mining only invoiced us once we had
funds to be able to pay because it was just messing up their
books
because we paid very irregularly.
Mr
van Velden
:
But that does not detract from the fact that !PC Coal was indebted to
Atlantis Mining?
Mr
Erskine
:
That does not, Ja.
Hereafter
Mr Erskine referred to a subsequent novation or settlement agreement,
of which he had no particulars and neither a copy
or knowledge of the
details thereof. To date, no particulars of any settlement of
Atlantis Mining's aforementioned admitted indebtedness
have been
produced. The allegations of a possible payment of this debt by way
of profits from the Kromdraai "project"
are so vague that
they are rejected out of hand (see:
Fakie NO v CCII System (Pty)
Ltd
[2006] ZASCA 52
;
2006 (4) SA 326
(SCA) at
[55]
).
4.2
Nungu and Centaur
These
two companies were funders of IPC Coal's mining operation. In his
answering affidavit, Mr Erskine put it as follows:
"During
the insolvency enquiry I simply admitted to the fact that in the past
both the Second and Third Applicants had loaned
sums to the First
Respondent and a related company, IPC Mining (Pty) Ltd. I deny having
admitted that any amounts were still owing
by the First Respondent to
either the Second or Third Applicants".
What
Mr Erskine actually testified at the enquiry (the said "insolvency
enquiry") in this regard is the following:
"
Mr
van Velden
: And does the name Centaur Asset Management Ltd ring a
bell to you?
Mr
Erskine
:
yes, Centaur
...
Mr
van Velden
:
And what was the nature of the business dealings?
Mr
Erskine: Well, they loaned money to IPC, well it is actually to IPC
Mining, was first to IPC and then it was changed to IPC Mining
for
profit share and they would get out of the mining business.
Mr
van Velden
:
And is IPC Coal Indebted to this company?
Mr
Erskine
:
Yes, because it is, it borrowed the money. Yes it is
Mr
van Velden
:
And the amount of the indebtedness?
Mr
Erskine
:
I think it is R25 million I believe that they sent. I need to be
correct, but I think it was R25 million at the time
Mr
van Velden
:
Add then
-
well
at the time. So you know what it is currently?
Mr
Erskine
:
I need to double check what it is at the time, but we made some
payments back but the interest has accumulated as well
Mr
van Velden:
And
then the name Nungu Ltd
Mr
Erskine:
Yes
Mr
van Velden:
When
I speak of Nungu I speak of the company
which
is associated with Centaur.
Mr Erskine
: Okay
Mr
van Velden
:
Does ]PC Coal also owe money to this Nungu?
Mr
Erskine:
I
think the answer is yes because Centaur that lent the money to JPC
Coal at the beginning and then when it lent the money to JPC
Mining
it Became Nungu out of Dubai. So I believe that it is owed that way,
yes.
Mr
van Velden:
But
do you believe that IPC Coal owes money to Nungu, which is the Dubai
based company?
Mr
Erskine
:
Ja, Nungu/centaur. It is the same people".
4.3
Mr
Erskine's counsel conceded in Heads of Argument on his behalf that
his answers were not a model of clarity but it goes further
than
that. In
Wightman t/a Construction v
Headfour (Pty) Ltd and Another
[2008] ZASCA 6
;
2008
(3) SA 371
(SCA) the Supreme Court of Appel has affirmed the
principle that, if a person has specific knowledge of a fact and is
confronted
with a question or assertion in respect thereof and such
person does not deal with the issue clearly and unambiguously, then
his
or her response does not create a real or bona fide dispute of
fact. I find that that is the position in respect of the Applicant's
assertions that they are creditors of IPC Coal. Mr Erskine, insofar
as it is argued that his answers referred to in paragraph 4.2
above
do not amount express admissions of those allegations, then he has
not dealt with a denial thereof with any degree of certainty.
I
therefore find that the Applicants have the necessary locus standi to
act as such in this application. Their combined claims,
converted to
South African Rands, appear to be in the region of some R 130
million.
[5]
Had the business rescue resolution of
28 March 2017 been validly adopted?
Section
129 (2)(C) of the Companies Act, 71 of 2008 (the "Act")
expressly prohibits business rescue proceedings by way
of a
resolution in circumstances where winding-up proceedings have already
been initiated by or against the company. As there was
some debate as
to whether this was the case, due to a plethora of litigation and, as
with most things in life "timing is everything",
it is
necessary to give a brief chronological exposition of the facts as
they enfolded:
6
September 2016-
Another of IPC Coal's Creditors, Aztec Energy, Coal & Chemicals
CC ("Aztec") launched a winding-up application against IPC
Coal out of the Kwa-Zulu Natal Local Division, Durban under
case no
8823/2016 (the Aztec winding-up application").
4
November 2016 - Aztec
obtained a provisional winding-up order of IPC Coal.
17
November 2016 - The Fourth and Fifth Respondents
to this application were appointed as provisional liquidators
29
November 2016 - Mr Erskine
launched an application in terms of section 131 of the Act in
the
Kwa-Zulu Natal local Division, Durban in case no 12334/2016 to place
IPC Coal under business rescue ("the Business Rescue
Application").
1
December 2016 - As a
result of the Business Rescue Application, Aztec's liquidation
proceedings were suspended by an order of court. Hereafter, the
provisional liquidation order was extended from time to time.
15
February 2017
-
Atlantis Mining, Nungu and
Centaur launched an application to intervene in the Business Rescue
Application together with a counter
application for the
winding-up of IPC Coal ("the Atlantis Mining winding-up
application").
16
February 2017 - Atlantis
Mining, Nungu and Centaur were granted leave to intervene
in the
Business Rescue application, based on their application of 15
February 2017. This was by consent. Mr Erskine and IPC Coal
were
ordered to respond thereto by 6 March 2017.
6
March 2017 - Mr
Erskine and IPC Coal delivered their replying/opposing
affidavits.
13
March 2017 -
Aztec issued a notice of withdrawal of its liquidation
application.
The practice in the Kwa-Zulu Natal Divisions is that a provisional
order remains in force in such circumstances until
formally
discharged by a court.
24
March 2017 -
IPC Coal (and Mr Erskine) issued instructions to their
attorneys to
issue a notice of withdrawal of the Business Rescue Application
(contrary of Rule 41 (l)(a)).
On
the same day Mr Erskine took a resolution to launch voluntary
Business Rescue proceedings of CIPC Coal. This is the resolution
which forms the subject matter of the present application.
28
March 2017 -
CIPC accepts the Business Rescue resolution.
What
were left of the Business Rescue Application of 29 November 2016 and
Atlantis Mining's counter-application for winding-up were
postponed
sine die.
30
March 2017 -
The
BRP
accepted
his appointment.
4
April 2017 -
Mr
Erskine's
notice of withdrawal of his Business Rescue Application is issued and
served.
15
May 2017-
The
BRP
rejected Atlantis Mining's claim.
21
June 2017 -
Aztec's provisional winding-up order
was extended to 11 August 2017
at the instance of Atlantis Mining, Nungu and Centaur for purposes of
consolidation with their own
counter-application for winding-up of 15
February 2017.
11
August 2017 -
Aztec's provisional winding -up order was extended to 1 June
2018
whereafter it was extended to 4 December 2018 when it was apparently
postponed sine die.
[6]
In the meantime the BRP has not preceded with any business rescue
plan or any further
rescue proceedings. He initially indicated his
intention to oppose the present application but, upon advice of
senior counsel,
withdrew his opposition. He then proceeded to file a
substantive affidavit, wishing to bring "certain facts" to
the Court's
attention. One of these were his reasons for having
rejected Atlantis Mining's claim. Others related to the
abovementioned chronology,
none of which bear any weight as a ground
of opposition. Lastly, he referred to a proposal to sell a stockpile
of overburden removed
during the mining operations on the Elandspruit
mine. I shall deal with this aspect more fully hereunder.
[7]
It
is clear that, at the time when Mr Erskine took the resolution on 24
March 2017 (as either the sole director of IPC Coal or the
only
director present at the meeting - he is coy about these particulars)
to voluntarily place IPC Coal in Business Rescue -
1)
Winding-up
proceedings had not only already been "initiated" by Aztec,
but a provisional winding-up order had been obtained
which had not
yet been discharged. The consequence hereof was that the powers of
the board of IPC Coal had been suspended until
the order had been
discharged and no valid resolutions could be taken by the board/ Mr
Erskine. See inter alia
Firstrand
Bank Ltd v Imperial Crown Trading 143 (Pty) Ltd
2012
(4) SA 266
(KZD) at para [17] and Standard Bank of
South
Africa Ltd v A-Team Trading CC
2016
(1) SA 503
(KZP) at [64].
2)
Even if Aztec's notice of withdrawal of
13 March 2017 is taken as a termination of its winding-up proceedings
(without a discharge
of the provisional order or discharge of the
provisional liquidators), then at the time of the purported
resolution, to the knowledge
of Mr Erskine, the counter-application
for winding-up by Atlantis Mining, Nungu and Centaur had already been
"initiated"
and was pending.
The
prohibition against such a resolution prescribed in section 129(2)(c)
of the Act and as dealt with in the abovementioned judgments
has
clearly been breached and the resolution should be set aside on this
ground alone.
[8]
In
order to escape the above consequences, Mr Erskine contended that the
winding-up application of Atlantis Mining et al is not
valid since at
the time it was issued there was a general moratorium in terms of
Section 133 of the Act which precluded the issuing
of such an
application. Section 133 of the Act provides that:
"133(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".
(my
emphasis).
Mr
Erskine's argument can be dispensed with as follows:
1)
A general moratorium against legal
proceedings is only applicable during business rescue proceedings.
2)
Section 132 of the Act which deals with
the duration of business rescue proceedings, sets out when business
rescue commences and
when it ends. According to Section 132(1)(c) of
the Act business rescue proceedings commence when "a court makes
an order
placing a company under superv1s10n during the course of
liquidation proceedings ... ".
3)
Since a provisional liquidation order
had already been issued against IPC Coal, Section 132(l)(c) was
applicable. Therefore, business
rescue proceedings, for purposes of
the general moratorium to kick in, would, only have commenced once a
court granted Mr Erskine's
Business Rescue Application. This never
happened. Consequently, there was no moratorium in place preventing
the Applicants from
issuing their winding-up application.
[9]
In addition hereto, insofar as a
moratorium may have operated, the proviso contained in Section 133(1)
of the Act has also been
met as the leave to intervene in the
Business Rescue Application by way of a counter-application clearly
constituted the necessary
consent of the court as envisaged in the
said section.
[10]
There was accordingly no bar in place at
the time when the Applicants' (counter) application for winding-up of
IPC Coal had been
initiated which, once initiated, pre-dated and
barred Mr Erskine from validly taking the impugned resolution.
[11]
Should the resolution be set aside?
Even
if I were to be wrong in the aforementioned conclusions, there are
sufficient grounds to find that it is just and equitable
that the
resolution of Mr Erskine be set aside as contemplated in Section 130
(5)(a)(ii) of the Act. These are the following:
11.1
Our courts have previously expressed
concerns that business rescue proceedings might be used by
obstructive debtors to avoid inevitable
liquidation of a corporate
entity. See e.g
Investec Bank Ltd v
Bruyns
2012 (5) SA 430
(WCC)
and
Blue Star Holdings v West Coast Oyster Growers CC
2013 (6) SA 540
(WCC).
11.2
A resolution therefore not taken in good
faith, will be at risk of being set aside. See:
Griessel
and Another v Lizemore and Others
[2015]
4 All SA 433
(GJ)
11.3
In the present instance, the facts are
that once Aztec had obtained a provisional winding-up order, within
four weeks thereafter
Mr Erskine launched the Business Rescue
Application. In doing so, he purposely omitted to give notice thereof
to Atlantis Mining,
Nungu and Centaur. When they found out about his
application and sought and obtained leave to intervene, he settled
with one of
IPC Coal's creditors, Aztec, resulting in it wishing to
withdraw its application for winding-up against IPC Coal. Once this
intention
was expressed, Mr Erskine gave instruction to his own
attorneys to in tum withdraw his Business Rescue Application. If Mr
Erskine
had bona fide believed that business rescue was what IPC Coal
had needed, no cogent reason had been furnished as to why he did not
proceed with his application for it. Instead, and, before even
waiting for the withdrawal of his application to be served he, took
a
(separate) resolution for voluntary business rescue and sent it off
to the CIPC the same day. Accompanying the resolution, Mr
Erskine
deposed to an affidavit wherein he stated that he "believed the
notice of withdrawal had been filed" (it was
not, it was only
signed and delivered on 4 April 2017) and further stated that there
were no applications or actions against IPC
Coal. This statement was,
to his knowledge, false. His actions were clearly not bona fide and a
blatant attempt at avoiding the
consequences of the Applicants'
counter-application.
11.4
The contents of Mr Erskine's affidavit
supporting his resolution and the alleged basis of his contention
that IPC Coal could be
saved by way of business rescue is also
without foundation: in IPC Coal's contract with the mining rights
holder of the Elandspruit
mine, IPC Coal agreed to carry out its
functions in accordance with all applicable laws, environmental
legislation and good industry
practices. Various commitments were
included m the environmental and mining works programmes regarding
the "overburden"
removed during the open cast mining. This
included the use thereof for creating visual berms around the pits
and backfilling: The
duty to do so was described as follows:
"The
open cast mining reserve will be mined by conventional truck and
shovel mining methods using the latter roll-over technique.
Soil,
overburden and underlying coal will be removed in sequence, so that
soils and overburden being removed from a section being
excavated are
used to backfill the previous section. A maximum of 3 strips will be
open at any one time."
11.5
Contrary to the above and contrary to
the obligations of rehabilitation, which required that overburden be
used to reprofile the
landform to its pre-mining form to achieve
pre-mining land capability, IPC Coal had dumped 400 000m3 of
overburden on an adjacent
landowner's property. Mr Erskine proposed
that this be sold (the BRP subsequently also stated that in December
2018 he was made
aware that this could be sold as part of an IDC
upgrade of infrastructure in a project amounting to some R240
million). Mr Erskine
estimated IPC Coal's gain from this to be R47
million. When IPC Coal's entitlement to the stockpile of overburden
(extracted from
a mine belonging to a third party, in terms of an
agreement with the mining rights holder, subject to environmental
prescripts
and dumped on a neigbour's land) was questioned, Mr
Erskine relied on a legal opinion obtained by him and IPC Coal as
justification
for this far-fetched proposal. He dealt with it as
follows in his answering affidavit in the present application:
"I
omit annexing a copy of the opinion to this affidavit as it is
inappropriate to do so. Furthermore, that a copy of the opinion
has
not been furnished to the Applicants is irrelevant. A substantial
amount of money was paid for this opinion and there is no
duty on the
First Respondent (IPC Coal), Second Respondent (the BRP) or I to
furnish a copy of the opinion to the Applicants. They
can pay for
their own opinion if they want it."
This
answer and Mr Erskine's attitude lack bona fides. A bona fide
director of companies, if he believed that a legal opinion justified
the company of which he is at the helm to sell overburden obtained
from an open cast mine in order to save itself, would flaunt,
rather
than hide such an opinion and would definitely not refuse to play
open cards with a court, particularly when challenged
on this aspect.
The consequence of this is, if IPC Coal has no overburden it can
legally sell, the whole proposed business rescue
plan is totally
flawed. There will then also be no reasonable prospect of rescuing
the company on this basis as contemplated in
section 130(1)(a)(ii) of
the Act.
[12]
I find that the resolution in question
was, both in the manner in which it was taken (including the timing
thereof) and having regard
to its content, not taken with the
requisite bona fides. In the context of the facts of this case, I
find it just and equitable
that the resolution be set aside on this
ground as well.
[13]
The BRP initially opposed the
application but thereafter withdrew his opposition and authorized Mr
Erskine to depose to an affidavit
on behalf of IPC Coal. Mr Erskine
not only proceeded to do so, but opposed the present application by
all possible means. The Applicants
argued that costs be awarded
against Mr Erskine on a punitive basis. Based on Mr Erskine's lack of
bona fides, both in the taking
of the resolution in question and in
the manner of his opposition to this application, I find, in the
exercise of the court's general
discretion, that he should be liable
for the Applicants' costs on the scale as between attorney and
client.
[14]
Order
:
1.
The
resolution taken on 24 March 2017 to voluntarily commence with
business rescue proceedings of IPC Coal (Pty) Ltd and any proceedings
taken in consequence of the said resolution, are set aside.
2.
The
Sixth Respondent is ordered to pay the Applicants' costs of the
application on an attorney and client scale.
N
DAVIS
Judge
of the High Court
Gauteng
Division, Pretoria
Date
of Hearing: 20 March 2019
Judgment
delivered: 10 May 2019
APPEARANCES:
For
the Applicants
:Adv. M. P van der Merwe SC together
with
Adv A. P. J Els
Attorney
for Applicants:
VZLR Inc., Pretoria
For
the Sixth Respondent:
Adv. S Hoar
Attorney
for Sixth Respondent:
Etienne Naude Attorneys, Pretoria