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[2018] ZALMPPHC 28
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Mapalakanye and Others, In Re: Mapakanye and Another v Born-to-Protect Security Services (Pty) Ltd and Others (3437/2018) [2018] ZALMPPHC 28 (29 June 2018)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(LIMPOPO
DIVISION, POLOKWANE)
CASE
NO: 3437/2018
Not
reportable
Not
of interest to other judges
Revised.
29/6/2018
In
the matter between:
SIBUSISU
KHEHLA PETRUS MAPALAKANYE
First
Intervening Applicant
BENJAMIN
ADRIAAN SCHLEBUSH
Second
Intervening Applicant
JOHANNA
JACOBA SCHLEBUSH
Third
Intervening Applicant
DAVID
STEPHANUS LUBBE
Fourth
Intervening Applicant
In
re:
JOSEPH
KARABO
MAPALAKANYE
First
Applicant
NTHABISENG
EMELY
MAPALAKANYE
Second
Applicant
and
BORN-TO-PROTECT
SECURITY SERVICES (PTY) LTD
First
Respondent
(IN
LIQUIDATION)
DEON
MARIUS BOTHA
NO
Second
Respondent
MARYNA
ESTELLE SYMES
NO
Third
Respondent
AYESHA
AYOB
NO
Fourth
Respondent
JUDGMENT
MAKGOBA
JP
[1]
The Applicants brought an urgent application in terms of section
131(4) read with
section 131(7)
of the
Companies Act, 71 of 2008
to
place the First Respondent in business rescue. The First Respondent
Company, Born-to-Protect Security Services (Pty) Ltd (In
Liquidation)
(“the Company”) was placed in final liquidation by order
of this Court on 11 May 2018. Pursuant to this
Court order the
parties cited as Second, Third and Fourth Respondents herein were
appointed joint provisional liquidators of the
Company.
[2]
This application is launched by Mr Joseph Karabo Mapalakanye and Mrs
Nthabiseng Emily Mapalakanye, the First Applicant and the
Second
Applicant respectively. The Applicants were employees of the First
Respondent at the date of the final liquidation of the
First
Respondent.
[3]
The First, Second, Third and Fourth Intervening Applicants are all
employees of the First Respondent. The proceedings for the
final
liquidation of the First Respondent were instituted by the four
Intervening Applicants.
The
liquidation order was granted on the ground that the Company (First
Respondent) is factually and commercially insolvent and
unable to pay
its creditors including its employees.
[4]
In the present application the following facts are common cause:
4.1. The Applicants, as
employees of the Company are the interested and affected persons as
contemplated in
section 128(1)(a)
of the
Companies Act, 2008
and thus
have the necessary
locus standi
to bring the application for
business rescue.
4.2.
The First Respondent Company is financially distressed and apart from
that failed to make payment to its employees in terms
of a contract
of employment.
[5]
What has to be assessed or determined therefore is whether there is a
reasonable prospect for rescuing the First Respondent.
Section 131(4)
of the
Companies Act provides
that the Court may, after considering
an application for business rescue in terms of
section 131(1)
make an
order placing the Company under business rescue proceedings if the
Court is satisfied that the Company is financially distressed
and
there is a reasonable prospect for rescuing the Company. It is quite
evident that this subsection grants a Court a discretionary
power to
issue or refuse an order for the business rescue of a Company.
[6]
The Company in the present case is already in liquidation pursuant to
the order of this Court on 11 May 2018. The question arises
as to
whether a Company in final liquidation can still be placed into
business rescue. This question was authoritatively answered
in the
case of
Richter v ABSA Bank Ltd
2015 (5)
SA 57
(SCA)
.
[7]
In that case the Supreme Court of Appeal decided that:
Section
131(6)
of the
Companies Act 71 of 2008
provides that if liquidation
proceedings have already been commenced by or against the Company at
the time an application for business
rescue is made, the application
will suspend those liquidation proceedings. The term “liquidation
proceedings” does
not refer only to a pending application for a
liquidation order but includes the process of winding-up of a Company
after a final
order has been granted, i.e it includes proceedings
that occur after a winding-up order to liquidate the assets and
account to
creditors, up to deregistration of a Company.
[8]
Accordingly, it is trite that even if a Company has been finally
liquidated it is
still
competent for the Court to grant an order for business rescue in
terms of
section 131(4)
of the
Companies Act, 2008
.
[9]
In order to succeed with an application to procure an order for
business rescue, an Applicant is required to establish more
than a
prima facie case or an arguable possibility that the Company may be
rescued. The prospect for business rescue must be a
reasonable
prospect, with the emphasis on “reasonable”. It means
that it is a prospect based on reasonable grounds.
A mere speculative
suggestion is not enough.
See
Oakdene Square Properties (Pty) Ltd and
Others v Farm Bothasfontein (Kyalami) (Pty) Ltd and Others
2013 (4)
SA 539
(SCA) at para [29] and [30].
[10]
The requirement is “a reasonable prospect” which is a
lesser requirement than the “reasonable probability”.
Some reported decisions laid down, however, that the Applicant must
provide a substantial measure of details about the proposed
plan to
satisfy this requirement. (See
Southern
Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd
2012 (2) SA 423
(WCC) paras 24-25; Koen and Another v Wedgewood
Village Golf & Country Estate (Pty) Ltd and Others
2012 (2) SA
378
(WCC) para 18-20
)
[11]
In considering the above two decisions of the Western Cape High
Court,
Van
der Merwe J commented as follows in
Propspec Investments (Pty) Ltd
v Pacific Coast Investments (Pty) Ltd and Another
2013 (1) SA 542
(FB) at para 11-12
:
“
[11]
I agree that vague averments and mere speculative suggestions will
not suffice in this regard. There can be no doubt that,
in order to
succeed in an application for business rescue, the Applicant must
place before the Court a factual foundation for the
existence of a
reasonable prospect that the desired object can be achieved. But with
respect to my learned colleagues, I believe
that they place the bar
too high.
[12]
In my view, a prospect in this context means an expectation. An
expectation may come true or it may not. It therefore signifies
a
possibility. A possibility is reasonable if it rest on a ground that
is objectively reasonable. In my judgment, a reasonable
prospect
means no more than a possibility that rests on an objectively
reasonable ground or grounds.”
[12]
I agree with Van der Merwe J that the discretion to make an order for
business rescue in terms of
section 131(4)(a)
arises whenever the
facts show that the Company is financially distressed and a
reasonable possibility of the Company continuing
to exist on a
solvent basis or of a better return for creditors or shareholders
than would result from the immediate liquidation
of the Company.
[13]
It is clear from the scheme of the
Companies Act that
there can be in
a business rescue one of the two objects. The prime object is to
rescue the Company and to return it to business
as a solvent entity.
The secondary goal is, even if the Company will not survive and
return to trading, a business rescue can still
be achieved if it
would result in a better return for creditors. These two objectives
will be borne in mind when deciding the fate
of the Company (First
Respondent) in this case.
[14]
Mr Diamond, Counsel for the Applicants argued strenuously that a case
has been made out for the granting of the business rescue
order. He
argued further that by far the largest creditor of the First
Respondent are its employees as a group and that they support
this
application. Counsel put much reliance on a decided case in this
Division by Makgoba J (as he then was) in the case of
Copper
Sunset Trading 220 (Pty) Ltd v Spar Group Ltd and Another
2014 (6) SA
214
(LP)
. I find it appropriate to
quote the following paragraphs in the judgment on pages 220-221
relied upon by Counsel:
“
[29]
The aim of business rescue is to save a business, rather than destroy
it. Business rescue is preferred to liquidation. See
Southern Palace
Investments 265 (Pty) Ltd v Midnight Storm Investents 386 Ltd
2012
(2) SA 423
(WCC). In Koen and Another v Wedgewood Village Golf &
Country Estate (Pty) Ltd and Others supra in para 14 it was said:
“
It
is clear that the legislature has recognised that liquidation of
companies more frequently than not occasions significant collateral
damage, both economically and socially, with attendant destruction of
wealth and livelihoods. It is obvious that it is in public
interest
that the incidents of such adverse socioeconomic consequences should
be avoided where reasonably possible. Business rescue
is intended to
serve the public interest by providing a remedy directed at avoiding
the deleterious consequences of liquidation
in cases in which there
is a reasonable prospect of salvaging the business of a company in
financial distress, or securing a better
return to creditors than
would probably be achieved in an immediate liquidation.
[30] The purpose of
the business rescue plan need not be to save the company from
liquidation and thus return the business to solvency.
If the goal is
just to ensure a better return for creditors than would be achieved
in liquidation, such goal is a valid goal in
terms of the Act. In the
present case it is common cause that in the event of liquidation of
the Applicant only the First Respondent,
as a secured creditor, will
get a dividend of R 0,45 in the rand and the rest of the concurrent
creditors totaling about R 8 million
will get no dividend at all.
The question then
arises as to whether a business rescue plan is not an option worth
trying.
[31] In Oakdene Square
Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami) (Pty)
Ltd and Others
2013 (4) SA 539
(SCA) it was held that the Applicant
for business rescue is bound to establish reasonable grounds for the
prospect of rescuing
the company. If the majority creditors declare
that they will oppose any business rescue scheme based on those
grounds, there is
no reason why the proclaimed opposition should be
ignored – unless, of course, the attitude can be said to be
unreasonable
or mala fide.”
[15]
Mr Van der Merwe SC, Counsel for the Intervening Applicants submitted
that whilst the principles set out in
Copper
Sunset Trading
might be good law, each
case must be decided on its own facts. That the facts that prevailed
in that case are dissimilar to the
facts and circumstances in the
present case. Accordingly, I shall proceed to analise the facts and
circumstances in the present
case in order to come to a conclusion
whether a case has been made out for a business rescue order sought
by the Applicants.
[16]
It is common cause on the papers in this case and even in the papers
relating to the application for liquidation of the Company
that there
were serious and gross irregularities in the Company’s
financial affairs. Certain individuals enriched themselves
at the
expense of the Company and its creditors. More than one thousand
employees of the Company are owed several months’
salaries to
date hereof. In this application the Intervening Applicants have
pointed out convincingly that a liquidator is, given
the peculiar
facts and circumstances, far better equipped to deal with the
problems presented in the Company as opposed to a business
rescue
practitioner in the business rescue sought by the Applicants.
[17]
During the lifetime of the deceased owner of the Company, one Mr
Phillip Mapalakanye who died on 16 June 2016, the Company
was a
successful enterprise in the security services industry. After the
deceased’s demise his three brothers took control
and ran the
business of the Company. There are well grounded suspicions that
grave mismanagement took place while the three brothers
as well as
the Applicants in the liquidation application operated the Company.
Thereafter the deceased’s two sons and a sister
got involved in
the running of the business of the Company. The Company business went
down and ultimately the Company went into
liquidation.
[18]
As matters stand now, the two Applicants in this application, being
the deceased’s son and the deceased’s sister
are clubbing
together in an effort to rescue the Company whilst the other son, the
First Intervening Applicant herein is clubbing
with the other former
employees of the Company (Second, Third and Fourth Intervening
Applicant) to oppose the business rescue application
and support the
liquidation of the Company. In the light of such a family feud it is
doubtful whether the Company can be rescued.
[19]
It is important to have regard to the circumstances that led to the
liquidation of the Company. An urgent application was brought
for the
liquidation of the Company on the basis that there was gross
mismanagement. The Company was in a financial hardship, was
mismanaged and hundreds of thousands of rands simply disappeared from
the Company. Massive fraud was perpetuated by the management
of the
Company and large sums of money simply disappeared. Even when the
application for liquidation was pending the looting of
the Company
funds proceeded unabated and numerous fraudulent payments were made
from the Company’s bank accounts.
[20]
The assets of the Company have been plundered. With the aid of the
liquidators it could be established that there are 199 vehicles
belonging to the Company but they have procured possession of only 11
vehicles. The unpaid employees of the Company even resorted
to
violence by setting alight certain vehicles of the Company. The
Company was losing its clients at a fast rate and disgruntled
unpaid
employees were resorting to protest action and self-help.
[21]
The Intervening Applicants have expressed a reasonable fear that
there is an ulterior motive behind the application for business
rescue. They have shown convincingly that it is only an attempt by
the erstwhile corrupt management to wrestle back control of
the
Company’s bank accounts because the Company is expecting a
substantial payment in due course by a creditor. On their
own version
the Applicants expect payment of an amount of R 25 million rand from
the erstwhile client, Transnet into the Company’s
bank account.
Transnet has already cancelled its service agreement with the Company
in December 2017. There are no prospects of
acquiring such an anchor
client like Transnet.
[22]
The Applicants’ further contention is that a Business Rescue
Practitioner will do as good as a liquidator and that a
business
rescue will save employment opportunities. In their opposing
affidavit the Intervening Applicants have pointed out the
advantages
of a liquidation and compared same with the disadvantages of a
business rescue. Amongst others the following is stated:
22.1. A massive fraud was
perpetrated upon the Company, its assets were dissipated and siphoned
off to unknown destination, income
was spirited away and it is only a
liquidator that can properly deal with such a situation.
22.2. There are still
many assets of the Company unaccounted for, many vehicles are still
missing and also many firearms. A liquidator
is well equipped to
apply, even
ex parte
, to a Magistrate, for a warrant for
search and seizure in terms of the provisions
section 69
of the
Insolvency Act, 24 of 1936
to search for and seize and attach assets
suspected to be that of the insolvent estate. This a Business Rescue
Practitioner cannot
do. This remedy is crucially needed in the
Company’s situation.
22.3.
A Business Rescue Practitioner cannot conduct an enquiry. A Business
Rescue Practitioner cannot procure a warrant for search
and seizure.
A Business Rescue Practitioner cannot deal with recalcitrant
witnesses and cannot procure documents and evidence as
a liquidator
can do.
[23]
The Supreme Court of Appeal judgment in
Oakdene
confirmed the
judgment in the Local Division, Johannesburg in
Oakdene Square
Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami) (Pty)
Ltd and Others
2012 (3) SA 273
(GSJ)
. In the latter judgment the
Court listed various factors which militated against a business
rescue and which supported a liquidation,
and those were the
following:
23.1. A liquidator can
realise assets as good as a Business Rescue Practitioner.
23.2. The foreseeability
of future litigation militates against a business rescue and favour a
liquidation. This is so because a
liquidator can far better deal with
pending litigation.
23.3. A liquidator can
far better investigate alleged wrongdoing by management, because a
Business Rescue Practitioner will be far
less effective than a
liquidator to unravel a complicated and intertwined conundrum.
23.4. In the event of a
misappropriation of Company assets or funds, the interests of
creditors, as opposed to that of the Company,
should carry more
weight.
23.5. There is no
provision for the taxation of the fees, costs and expenses of
a Business Rescue
Practitioner, whereas a liquidator’s costs are subject to
taxation.
23.6. The
impeachment provisions in the law relating to insolvency equip a
liquidator far better to deal with alleged wrongdoing,
if compared to
the restricted powers of a Business Rescue Practitioner.
See
Oakdene
a
quo
para 49, p 287-290.
[24]
The Intervening Applicants in this case have shown the disappearance
of the Company substratum. They have shown that with the
exception of
only two remaining contracts, all other contractors with whom the
Company had contracts had cancelled their contractual
relationship
with the Company. The remaining two contracts are being proceeded
with by the provisional liquidators. The one contract
will reach its
expiry term by the end of June 2018 and the other contract will reach
its expiry by the end of September 2018.
All
the other parties with whom the Company contracted had indicated that
they would no longer be interested to utilise the Company’s
services.
[25]
In my view there are no reasonable prospects that in the event of a
business rescue order being granted the Business Rescue
Practitioner
will be able to procure new contracts for the Company to continue its
business operations. The goodwill of the Company
has been dented. No
reasonable business man will desire to do business with a Company
that is emerging from liquidation. Liquidation
in itself signals the
death of a Company. There is no iota of evidence furnished by the
Applicants to prove that a Business Rescue
Practitioner will be able
to revive the contracts or acquire new clients for the Company.
[26]
I am inclined to believe that the real purpose behind the application
for business rescue, in the circumstances of this case,
is an
endeavor by the Applicants to regain control over the financial
affairs of the Company. I am of the view that it cannot be
in the
interests of justice to hand back control of the Company to those who
made themselves guilty of gross mismanagement of the
Company before
liquidation. There is indeed a real and cogent fear that if the
Company does not remain in liquidation assets will
be dissipated,
income will be siphoned off and money of the Company will be stolen,
just as it happened before liquidation.
[27]
In the result the application for business rescue fails and the
following order is granted:
The
Application is dismissed with costs.
_________________________
E
M MAKGOBA
JUDGE PRESIDENT OF THE
HIGH COURT, LIMPOPO DIVISION, POLOKWANE
APPEARANCES
Heard
on: 26 June 2018
Judgment
Delivered: 29 June 2018
For
Applicants: Adv. G J Diamond
Adv.
M Malatji
Instructed
by: DIAMOND INC
For
Intervening Applicants: Adv. MP Van der Merwe SC
Instructed
by: MCROBERT INC
c/o
Espag Magwai Attorneys