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[2017] ZASCA 180
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Diener N.O. v Minister of Justice and Others (926/2016) [2017] ZASCA 180; [2018] 1 All SA 317 (SCA); 2018 (2) SA 399 (SCA) (1 December 2017)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 926/2016
In
the matter between:
LUDWIG
WILHELM DIENER N.O.
Appellant
and
THE
MINISTER OF JUSTICE
First Respondent
MASTER
OF THE HIGH COURT, PRETORIA
Second Respondent
CLOETE
MURRAY N.O.
Third Respondent
WINIFRED
FRANCES HARMS N .O.
Fourth Respondent
CHRISTIAAN
FREDERIK DE WET N.O.
Fifth Respondent
FIRSTRAND
BANK LTD
Sixth Respondent
SOUTH
AFRICAN RESTRUCTURING AND
INSOLVENCY
ASSOCIATION (SARIPA)
Amicus
Curiae
THE
BANKING ASSOCIATION OF
SOUTH
AFRICA (BASA)
Amicus
Curiae
INDEPENDENT
BUSINESS RESCUE
ASSOCIATION
OF SOUTH AFRICA (IBRASA)
Amicus Curiae
TURNAROUND
MANAGEMENT ASSOCIATION -
SOUTHERN
AFRICA NPC (TMA-SA)
Amicus Curiae
Neutral
citation:
Diener
N.O. v Minister of Justice
(926/2016)
[2017] ZASCA 180
(1 December 2017)
Coram:
Navsa
ADP and Bosielo and Majiedt JJA and Plasket and Schippers AJJA
Heard:
13
November 2017
Delivered:
1
December 2017
Summary:
Companies
Act 71 of 2008
– business rescue – whether, when business
rescue converted to liquidation, business rescue practitioner’s
claim
for remuneration and expenses enjoys a ‘super-preference’
over all creditors, secured or unsecured – whether,
when
business rescue proceedings converted to liquidation proceedings,
date of liquidation is date of commencement of business
rescue
proceedings or date liquidation application filed – whether
business rescue practitioner’s claim for remuneration
and
expenses must be proved in terms of
s 44
of the
Insolvency Act 24 of
1936
.
ORDER
On
appeal from:
Gauteng
Division of the High Court, Pretoria (Dewrance AJ sitting as court of
first instance):The appeal is dismissed.
JUDGMENT
Plasket
AJA (Navsa ADP, Bosielo and Majiedt JJA and Schippers AJA concurring)
[1]
The concept of business rescue was introduced into South African
corporate law and governance by chapter 6 of the Companies
Act 71 of
2008 (the 2008 Act). It replaced the system of judicial management
provided for by chapter XV of the Companies Act 61
of 1973 (the 1973
Act), it having been widely acknowledged that judicial management did
not succeed as a means of nursing back
to health companies that, for
one or other reason, were in financial distress.
[1]
Section 7(
k
)
of the 2008 Act provides that one of its purposes is to ‘provide
for the efficient rescue and recovery of financially distressed
companies, in a manner that balances the rights and interests of all
relevant stakeholders’.
[2]
The term ‘business rescue’ is defined in s 128(1)(
b
)
to mean:
‘
.
. . proceedings to facilitate the rehabilitation of a company that is
financially distressed by providing for –
(i)
the temporary supervision of the company, and of the management of
its affairs,
business and property;
(ii)
a temporary moratorium on the rights of claimants against the company
or in respect
of property in its possession; and
(iii)
the development and implementation, if approved, of a plan to rescue
the company by restructuring
its affairs, business, property, debt
and other liabilities, and equity in a manner that maximises 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, results in a
better return for the company's creditors or
shareholders than would result from the immediate liquidation of the
company.’
Central
to this process is the business rescue practitioner (BRP). This
functionary is defined in s 128(1)(
d
)
to mean ‘a person appointed, or two or more persons appointed
jointly, in terms of this Chapter to oversee a company during
business rescue proceedings’.
[3]
This appeal, in a nut-shell, concerns the claim for remuneration and
expenses of a BRP when business rescue has failed and been
converted
into a liquidation. I shall, in due course, define the discrete
issues that we are required to decide.
[4]
It is necessary at the outset briefly to identify the parties. The
appellant, Mr Ludwig Diener (Diener), was the BRP appointed
to
oversee the business rescue of J D Bester Labour Brokers CC (J D
Bester). He applied to the Gauteng Division of the High Court,
Pretoria, for an order reviewing and setting aside the first and
final liquidation, distribution and contribution account in respect
of J D Bester in liquidation. The first and second respondents
– the Minister of Justice and the Master of the High
Court,
Pretoria – took no part in the proceedings, both in the court
below and in this court. The third respondent, Mr Cloete
Murray
(Murray), is one of the joint liquidators of J D Bester. He opposed
the relief sought in the High Court and also opposes
the appeal. His
co-liquidators, the fourth respondent, Ms Winifred Harms, and the
fifth respondent, Mr Christiaan De Wet, took
no part in the
proceedings in the court below and take no part in this appeal. An
interested party that was not cited as a respondent
in the court
below, FirstRand Bank Limited, is the sixth respondent in this
appeal. It was a secured creditor of J D Bester.
[5]
Because of the importance of the issues that arise for decision in
this appeal, various parties applied for admission as
amici
curiae
.
They are the Banking Association of South Africa (BASA), the
Independent Business Rescue Association of South Africa (IBRASA),
the
South African Restructuring and Insolvency Association (SARIPA) and
the Turnaround Management Association – Southern
Africa NPC
(TMA-SA). The
amici
curiae
filed
heads of argument and presented oral argument. I record the court’s
gratitude to the
amici
curiae
and,
indeed, the appellant and respondents as well, for their most helpful
heads of argument and oral submissions.
Background
[6]
On 13 June 2012, the members of J D Bester passed a resolution
placing it voluntarily in business rescue, in terms of s 129(1)
of
the 2008 Act.
[2]
On the same
day, J D Bester wrote to the Master of the High Court, Pretoria
requesting that Diener be appointed as BRP, and completed
and filed
the necessary form giving notice of the commencement of business
rescue proceedings. On 20 June 2012, Diener was appointed
as BRP to J
D Bester.
[7]
On 14 June 2012, after the commencement of business rescue but before
the appointment of Diener, a firm of attorneys, Cawood
Attorneys, was
instructed by J D Bester to launch an urgent application against
FirstRand Bank, a secured creditor, to stay the
sale in execution of
J D Bester’ s immovable property, its only asset of any value.
An order to this effect was granted on
14 June 2012.
[8]
Cawood Attorneys later submitted its account for this work to Diener.
He stated in the founding affidavit that these expenses
to J D Bester
were incurred with his ‘knowledge and consent and after the
commencement of the business rescue proceedings’.
From this, he
concluded that these expenses ‘represent expenses in business
rescue as defined in Section 143 of the new Companies
Act, or at the
very least, these services and expenses represent unsecured post
commencement finance as defined in Section 135
of the new Companies
Act’. He claimed that the account of Cawood Attorneys
‘only became due after my appointment
. . . and after the Close
Corporation has already been placed under supervision’. As a
result, he claimed that these expenses
were expenses in the business
rescue proceedings.
[9]
During August 2012, Diener decided that J D Bester could not be
rescued. He instructed Cawood Attorneys to bring an application
in
terms of s 141(2)(
a
)
of the 2008 Act, to convert the business rescue proceedings into
liquidation proceedings. On 27 August 2012, an order was issued
by
Kubushi J in the Gauteng Division of the High Court, Pretoria, which
stated that ‘the business rescue proceedings with
regard to the
respondent [J D Bester] is terminated and that the respondent be
placed under liquidation in the hands of the Master
in terms of
section 141(2)(
a
)(ii)’
and that ‘the costs be costs in the liquidation’.
[3]
Murray, Harms and De Wet were duly appointed by the Master as joint
liquidators of J D Bester.
[10]
In the founding affidavit, Diener stated that ‘the accounts of
Cawood Attorneys for the services provided to the Close
Corporation
and me after the commencement of business rescue proceedings were
provided to the jointly appointed liquidators for
the Close
Corporation, together with my account’.
[11]
The joint liquidators could not agree on how the fees and expenses of
Diener and of Cawood Attorneys should be dealt with.
Murray was of
the view that Diener had failed to prove a claim in terms of
s 44
of
the
Insolvency Act 24 of 1936
and that Cawood Attorneys was an
unsecured creditor who, ultimately, was required to make a
contribution in terms of
s 106
of the
Insolvency Act. Harms
and De
Wet took a contrary view and the issue was referred to the Master for
his decision.
[12]
The Master upheld the position adopted by Murray in a letter dated 12
December 2013. Diener, through Cawood Attorneys, made
representations
to the Master, dated 15 July 2014, in which he objected to the
liquidation, distribution and contribution account
that had been
finalised on the basis of the Master’ s decision in favour of
Murray. The Master, by letter dated 4 February
2015, informed Diener
that the objection had not succeeded, stating that he confirmed the
liquidation, distribution and contribution
account ‘since the
liquidators have successfully complied with my pre-confirmation
requirements’.
[13]
By notice of motion dated 28 April 2015, Diener launched an
application in the Gauteng Division of the High Court, Pretoria,
in
terms of s 407(4) of the 1973 Act against the first to fifth
respondents in which he sought orders:
‘
1
That the decision of the Second Respondent to accept the First and
Final Liquidation, Distribution and Contribution Account be
reviewed
and set aside;
2
That the Honourable Court provides direction regarding the manner in
which the First and Final Liquidation, Distribution and Contribution
Account should provide for:
2.1
the cost of a business Rescue Practitioner as engaged in lawful
business rescue proceedings;
2.2
the cost of service providers who provided services to a lawfully
appointed business rescue practitioner in finalising business
rescue
proceedings;
2.3
the cost of service providers who provided services to [the] Close
Corporation after the commencement of the business rescue
proceedings.
3
In the alternative to prayer 2 above
, that the First and Final
Liquidation, Distribution and Contribution Account for J D Bester
Labour Brokers CC (in liquidation)
be amended to make provision for
the remuneration and expenses of the Applicant in the business rescue
proceedings of J D Bester
Labour Brokers CC, which include the
expense of Cawood Attorneys for services rendered to the Applicant
and J D Bester Labour Brokers
CC in the business rescue proceedings,
to be payable in order of preference after the costs in liquidation
and before the claims
of any secured or unsecured creditors.
4
Costs of this application against any party opposing the application
on an attorney and client cost scale.’
[14]
The matter was heard by Dewrance AJ who dismissed the application
with costs. On application by Diener, Dewrance AJ granted
leave to
appeal to this court.
The
issues
[15]
The issues that we are required to consider in relation to Diener
are, in the order in which they will be dealt with: (a) the
order of
preference of the BRP’s claim for remuneration and expenses on
the liquidation of J D Bester; (b) a determination
of the date of
liquidation, when business rescue proceedings are converted into
liquidation proceedings; and (c) whether the BRP
is required to prove
his or her claim in terms of
s 44
of the
Insolvency Act, and
the
effect of Diener not having proved his claim in this case. In
addition, two issues in relation to the claims for fees of Cawood
Attorneys have been raised, namely (a) whether its fees in respect of
the urgent application of 14 June 2002, referred to in paragraph
7
above, were to be treated as expenses in the business rescue in terms
of s 143 of the 2008 Act, or post-commencement finance
in terms of s
135, or, as they were dealt with, as a claim by a concurrent
creditor; and (b) whether its fees in respect of the
application to
convert the business rescue proceedings into liquidation proceedings
were costs in the liquidation or were to be
treated, as they were, as
a claim by a concurrent creditor.
Applicable
statutory provisions
[16]
The determination of the issues that I have identified involves an
exercise in statutory interpretation as they concern, in
one way or
another, ascribing meaning to the provisions of chapter 6 of the 2008
Act and the relevant sections of the
Insolvency Act.
[17
]
It is necessary to say something of that process of interpretation.
In
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[4]
Wallis JA dealt with the approach to be adopted generally when
meaning must be attributed to a written document:
‘
Interpretation
is the process of attributing meaning to the words used in a
document, be it legislation, some other statutory instrument,
or
contract, having regard to the context provided by reading the
particular provision or provisions in the light of the document
as a
whole and the circumstances attendant upon its coming into existence.
Whatever the nature of the document, consideration must
be given to
the language used in the light of the ordinary rules of grammar and
syntax; the context in which the provision appears;
the apparent
purpose to which it is directed and the material known to those
responsible for its production. Where more than one
meaning is
possible each possibility must be weighed in the light of all these
factors. The process is objective, not subjective.
A sensible meaning
is to be preferred to one that leads to insensible or unbusinesslike
results or undermines the apparent purpose
of the document. Judges
must be alert to, and guard against, the temptation to substitute
what they regard as reasonable, sensible
or businesslike for the
words actually used. To do so in regard to a statute or statutory
instrument is to cross the divide between
interpretation and
legislation; in a contractual context it is to make a contract for
the parties other than the one they in fact
made. The “inevitable
point of departure is the language of the provision itself”,
read in context and having regard
to the purpose of the provision and
the background to the preparation and production of the document.’
[18]
In
Panamo
Properties (Pty) Ltd & another v Nel & others NNO
,
[5]
a case, like this one, concerning the interpretation of the business
rescue provisions of chapter 6 of the 2008 Act, Wallis JA
commenced
his judgment by speaking of the commendable goals of chapter 6 being
hampered ‘because the statutory provisions
governing business
rescue are not always clearly drafted’.
[6]
He then proceeded to say
that
in these circumstances, a court ‘must consider whether there is
a sensible interpretation that can be given to the relevant
provisions that will avoid anomalies’ and that this involves
the application of two further principles of interpretation:
endeavouring to ‘give a meaning to every word and every section
in the statute’ and avoiding construing provisions
as having no
meaning; and reconciling sections of a statute that appear to be in
conflict if that is possible.
[7]
[19]
In addition, s 5 of the 2008 Act also provides guidance on how its
provisions are to be interpreted, particularly in relation
to other
legislation. The section states:
(1)
This Act must be interpreted and applied in a manner that gives
effect to the purposes set out in section 7.
(2)
To the extent appropriate, a court interpreting or applying this Act
may consider foreign company law.
(3)
. . .
(4)
If there is an inconsistency between any provision of this Act and a
provision of any other national legislation-
(
a
)
the provisions of both Acts apply concurrently, to the extent that it
is possible to
apply and comply with one of the inconsistent
provisions without contravening the second; and
(
b
)
to the extent that it is impossible to apply or comply with one of
the inconsistent
provisions without contravening the second-
(i)
any applicable provisions of the-
(
aa
)
Auditing Profession Act;
(
bb
)
Labour Relations Act, 1995 (Act 66 of 1995);
(
cc
)
Promotion of Access to Information Act, 2000 (Act 2 of 2000);
(
dd
)
Promotion of Administrative Justice Act, 2000 (Act 3 of 2000);
(
ee
)
Public Finance Management Act, 1999 (Act 1 of 1999);
(
ff
)
Financial Markets Act, 2012
;
(
gg
)
Banks Act;
(
hh
)
Local Government: Municipal Finance Management Act, 2003 (Act 56 of
2003); or
(ii)
Section 8 of the National Payment System Act, 1998 (Act 78 of 1998).
prevail
in the case of an inconsistency involving any of them, except to the
extent provided otherwise in sections 30(8) or 49(4);
or
(ii)
the provisions of this Act prevail in any other case, except to the
extent provided
otherwise in subsection (5) or section 118(4).
(5)
If there is a conflict between a provision of Chapter 8 and a
provision of the Public Service Act, 1994 (Proclamation 103 of
1994),
the provisions of that Act prevail.
(6)
. . . ’
[20]
I turn now to the scheme of chapter 6. Not only does it prescribe the
process of business rescue and its consequences, but
it also deals
with the financing of a company under business rescue, the
remuneration of a BRP and his or her claims for that remuneration
and
expenses.
[21]
Chapter 6 creates two ways in which business rescue may begin. First,
the board of directors of a company may pass a resolution
‘that
the company voluntarily begin business rescue proceedings’
provided the board has ‘reasonable grounds to
believe’
that two circumstances exist – that the company is financially
distressed and that ‘there appears to
be a reasonable prospect
of rescuing the company.
[8]
[22]
The company is then required to file its resolution with the
Companies and Intellectual Property Commission (the Commission),
and
publish a notice of the resolution, its effective date and a ‘sworn
statement of the facts relevant to the grounds on
which the board
resolution was founded’.
[9]
[23]
Section 130(1) allows for objections to the board’s resolution
to be made by an affected person – a shareholder,
creditor, a
registered trade union representing the company’s employees or
an employee or his or her representative
[10]
– after the adoption of the resolution but before the adoption
of a business plan. An objection takes the form of an application
to
a court to set aside the resolution,
[11]
the setting aside of the appointment of the BRP
[12]
or an order requiring the BRP to provide security.
[13]
[24]
The second way in which business rescue begins is by means of a court
order. In terms of s 131(1), an affected person ‘may
apply to a
court at any time for an order placing the company under supervision
and commencing business rescue proceedings’.
The court may
grant the relief sought if it is satisfied that the company is
financially distressed, or it has ‘failed to
pay over any
amount in terms of an obligation under or in terms of a public
regulation, or contract, with respect to employment-related
matters’,
or it is ‘otherwise just and equitable to do so for financial
reasons, and there are reasonable prospects
for rescuing the
company’.
[14]
[25]
If a court makes an order placing a company in business rescue, it
may appoint a BRP, who has been nominated by the applicant,
on an
interim basis, subject to the appointment being ratified by ‘the
holders of a majority of the independent creditors’
voting
interests at the first meeting of creditors, as contemplated by
section 147’.
[15]
[26]
In terms of s 132, business rescue commences either when the company
files its resolution, when an affected person applies
to a court or
when ‘a court makes an order placing the company under
supervision during the course of liquidation proceedings,
or
proceedings to enforce a security interest, as contemplated by
section 131(7)’.
[16]
[27]
Business rescue proceedings end when a court has either set aside the
resolution or order that commenced business rescue or
converts the
proceedings into liquidation proceedings;
[17]
the BRP has filed with the Commission a notice terminating the
business rescue proceedings;
[18]
or a business plan has either been proposed and rejected and no
affected person has endeavoured to extend the business rescue
proceedings, or the business plan has been adopted and the BRP has
filed a notice of ‘substantial implementation of the plan’.
[19]
[28]
Business recue is not an open-ended process. Its very rationale is
that it must end, either when its aim has been attained
or when the
realisation arises that rescue is not attainable. To this end, s
132(3) provides that if business rescue proceedings
have not ended
within three months of commencement or a longer period sanctioned by
a court, the BRP must prepare a progress report
which he or she must
update monthly until the end of the business rescue proceedings, and
deliver the report and each update to
each affected person and to
either the court (if the proceedings were the subject of a court
order) or the Commission.
[29]
The effect of business rescue is that, subject to certain exceptions,
a general moratorium on legal proceedings against the
company comes
into effect
[20]
and the
property interests of the company are protected:
[21]
for instance, the company may only dispose of or agree to dispose of
property in the ordinary course of its business; in a bona
fide arm’s
length transaction for a fair value approved in advance and in
writing by the BRP or in ‘a transaction contemplated
within,
and undertaken as part of the implementation of, a business rescue
plan that has been approved in terms of section 152’.
[22]
[30]
Section 135 deals with post-commencement finance, which includes the
remuneration and expenses of the BRP. It provides:
‘
(1)
To the extent that any remuneration, reimbursement for expenses or
other amount of money relating to employment becomes due
and payable
by a company to an employee during the company's business rescue
proceedings, but is not paid to the employee-
(
a
)
the money is regarded to be post-commencement financing; and
(
b
)
will be paid in the order of preference set out in subsection (3)(
a
).
(2)
During its business rescue proceedings, the company may obtain
financing other than as contemplated in subsection (1), and any
such
financing-
(
a
)
may be secured to the lender by utilising any asset of the company to
the extent that
it is not otherwise encumbered; and
(b
)
will be paid in the order of preference set out in subsection (3)(
b
).
(3)
After payment of the practitioner's remuneration and expenses
referred to in section 143, and other claims arising out of the
costs
of the business rescue proceedings, all claims contemplated-
(a
)
in subsection (1) will be treated equally, but will have preference
over-
(i)
all claims contemplated in subsection (2), irrespective of whether or
not they
are secured; and
(ii)
all unsecured claims against the company; or
(
b
)
in subsection (2) will have preference in the order in which they
were incurred over
all unsecured claims against the company.
(4)
If business rescue proceedings are superseded by a liquidation order,
the preference conferred in terms of this section will
remain in
force, except to the extent of any claims arising out of the costs of
liquidation.’
[31]
Chapter 6 regulates closely the appointment, qualifications, removal
and remuneration of the
BRP. Section 138 prescribes the
qualifications of a BRP. He or she must be a ‘member in good
standing of a legal, accounting
or business management profession
accredited by the Commission’;
[23]
be licensed by the Commission;
[24]
may not be a person who has been placed under probation (for
delinquency as a director) by a court in terms of s 162(7) of the
2008 Act;
[25]
would not be
disqualified from acting as a director of a company;
[26]
does not have a conflict of interest in relation to the company under
business rescue;
[27]
and is
not related to a person involved in the company.
[28]
[32]
A BRP may be removed by a court either in terms of s 130, pursuant to
an objection to a business rescue resolution, or because
of his or
her incompetence or failure to perform his or her duties;
[29]
failure to exercise a proper degree of care in the performance of
business rescue functions;
[30]
involvement in ‘illegal acts or conduct’;
[31]
no longer meeting the qualifications for the office;
[32]
having a conflict of interest or lacking independence;
[33]
or on account of being ‘incapacitated and unable to perform the
functions’ of the office, and being ‘unlikely
to regain
that capacity within a reasonable time’.
[34]
[33]
Section 140 prescribes the powers, and limitations on the powers, of
a BRP during business rescue. He or she:
[35]
‘
(
a
)
has full management control of the company in substitution for its
board and pre-existing
management;
(
b
)
may delegate any power or function of the practitioner to a person
who was part of the
board or pre-existing management of the company;
(
c
)
may-
(i)
remove from office any person who forms part of the pre-existing
management of the company;
or
(ii)
appoint a person as part of the management of a company, whether to
fill a vacancy or not,
subject to subsection (2); and
(
d
)
is responsible to-
(i)
develop a business rescue plan to be considered by affected persons,
in accordance with
Part D of this Chapter; and
(ii)
implement any business rescue plan that has been adopted in
accordance with Part D of this
Chapter.’
[34]
In terms of s 140(2), the BRP may not, except with the approval of a
court, appoint any person to the management of the company
or as an
advisor to himself or herself or to the company who has a
relationship with the company that would lead a reasonable person
to
infer a lack of integrity, impartiality or objectivity on that
person’s part, or a person who is related to such a person.
[35]
Section 140(3) sets out the responsibilities of the BRP. It provides:
‘
During
a company's business rescue proceedings, the practitioner-
(
a
)
is an officer of the court, and must report to the court in
accordance with any applicable
rules of, or orders made by, the
court;
(
b
)
has the responsibilities, duties and liabilities of a director of the
company, as set
out in sections 75 to 77; and
(
c
)
other than as contemplated in paragraph (b)-
(i)
is not liable for any act or omission in good faith in the course of
the exercise
of the powers and performance of the functions of
practitioner; but
(ii)
may be held liable in accordance with any relevant law for the
consequences of any
act or omission amounting to gross negligence in
the exercise of the powers and performance of the functions of
practitioner.’
In
terms of s 140(4), if business rescue is converted to liquidation
proceedings, the BRP who oversaw the business rescue process
is
ineligible to be appointed as liquidator of the company.
[36]
Section 143 deals with the remuneration of a BRP. It states:
‘
(1)
The practitioner is entitled to charge an amount to the company for
the remuneration and expenses of the practitioner in accordance
with
the tariff prescribed in terms of subsection (6).
(2)
The practitioner may propose an agreement with the company providing
for further remuneration, additional to that contemplated
in
subsection (1), to be calculated on the basis of a contingency
related to-
(
a
)
the adoption of a business rescue plan at all, or within a particular
time, or the inclusion
of any particular matter within such a plan;
or
(
b
)
the attainment of any particular result or combination of results
relating to the business
rescue proceedings.
(3)
Subject to subsection (4), an agreement contemplated in subsection
(2) is final and binding on the company if it is approved
by-
(
a
)
the holders of a majority of the creditors' voting interests, as
determined in accordance
with section 145 (4) to (6), present and
voting at a meeting called for the purpose of considering the
proposed agreement; and
(
b
)
the holders of a majority of the voting rights attached to any shares
of the company
that entitle the shareholder to a portion of the
residual value of the company on winding-up, present and voting at a
meeting called
for the purpose of considering the proposed agreement.
(4)
A creditor or shareholder who voted against a proposal contemplated
in this section may apply to a court within 10 business
days after
the date of voting on that proposal, for an order setting aside the
agreement on the grounds that-
(
a
)
the agreement is not just and equitable; or
(
b
)
the remuneration provided for in the agreement is unreasonable having
regard to the
financial circumstances of the company.
(5)
To the extent that the practitioner's remuneration and expenses are
not fully paid, the practitioner's claim for those amounts
will rank
in priority before the claims of all other secured and unsecured
creditors.
(6)
The Minister may make regulations prescribing a tariff of fees and
expenses for the purpose of subsection (1).’
Does
a BRP enjoy a ‘super-preference’ on the liquidation of a
company?
[37]
It was argued on behalf of Diener that, in relation to his
remuneration and expenses, he enjoyed, after the costs of the
liquidation,
a ‘super-preference’ over all other
creditors, whether secured or not. The term ‘super-preference’
appears
to originate in Henochsberg in relation to the ‘preference’
(if such it be) created by s 143(5) of the 2008 Act.
[36]
(I shall revert to this description below.) This argument was not
supported by either of the respondents or any of the
amici
curiae
.
[38]
It was argued that the claim for remuneration by a BRP is not a
concurrent claim but a special class of claim created by s
135 of the
2008 Act, that it ‘enjoys a special and novel preference’
and that it grants the BRP ‘security over
all assets, even
above securities existing when the practitioner takes office’.
[37]
Indeed, it was submitted further on Diener’s behalf that ‘the
position created [by the 2008 Act] for the remuneration
and expenses
of the practitioner is novel, and places the practitioner in a
position more favourable than the best position that
can be occupied
by a secured creditor’.
[38]
[39]
Diener’s argument is based on the provisions of s 135(4) and s
143(5) of the 2008 Act which,
he says, are clear: in particular, s
143(5) states that a BRP’s claim for remuneration and expenses
‘will rank in priority
before the claims of all other secured
and unsecured creditors’. The effect, it is conceded by Diener,
is that new and significant
inroads are made into the security that
is held by secured creditors.
[40]
In determining the correctness of this argument, the starting point
is the context and purpose of chapter 6. It is apparent,
when regard
is had to the central provisions of chapter 6, as I have done above,
that it is intended to create an efficient, regulated
and effective
mechanism to facilitate the rescue of companies in financial distress
– as long as they are capable of rescue
– in a way that
balances the rights and interests of the stakeholders.
[39]
[41]
Although the chapter makes provision for business rescue failing in
some instances, and hence allows for conversion of business
rescue
proceedings into liquidation proceedings,
[40]
its overwhelming focus is on business rescue and the mechanics of
business rescue, rather than on liquidation.
[42]
The two sections upon which Diener’s argument is largely based
are cases in point. Section 135 concerns itself with
post-commencement finance and it is in this context, i.e. while
business rescue proceedings are in place, that it creates a set
of
preferences for the payment by the company of certain of its unpaid
debts. It does so as part of the regulation of the affairs
of the
financially distressed company. It is only s 135(4) that is concerned
with the consequences of a failed business rescue,
retaining the
preferences created in respect of post-commencement finance on
liquidation, subject only to the costs of liquidation.
This section,
to the limited extent that it has to do with liquidation, says
nothing of the ‘super-preference’ contended
for over
secured assets. To the contrary, it creates in favour of those claims
listed in the section, a preference over unsecured
claims.
[41]
[43]
Section 143 is also not concerned with liquidation. Instead, it
regulates the BRP’s right to remuneration during business
rescue proceedings: it concerns the tariff in terms of which BRP’s
are remunerated; the additional contingency-based remuneration
that
the BRP may negotiate, and safeguards in that respect; and the BRP’s
claim for unpaid remuneration, which ranks ‘in
priority before
the claims of all other secured and unsecured creditors’. The
reference to secured and unsecured creditors
in the section must, in
my view, be understood to be a reference back to s 135: to those
persons who have, or have been deemed
to have, provided the company
with post-commencement finance, both secured and unsecured, and not
to the company’s pre-business
rescue creditors. Simply put, the
preference operates within this limited context. Henochsberg’s
commentary, referred to
in paragraph 37 above, seen in proper
perspective is consonant with that conclusion.
[42]
[44]
From the sections of chapter 6 that deal with security, it is
apparent that security is treated in the same way as it is in
the law
more generally. There is, in other words, no indication that, in
business rescue proceedings, security is to be diluted
or undermined
in any way. For instance, s 134(3) provides that if a company wishes,
during business rescue proceedings, to dispose
of property that is
held as security by another person, it may only do so with that
person’s prior consent, unless the proceeds
of the disposal
‘would be sufficient to fully discharge the indebtedness
protected by that person’s security’;
and then the
company must pay the person promptly up to the company’s
indebtedness to him or her, or provide satisfactory
security for that
amount. This is consistent with what was held in
Energydrive
Systems (Pty) Ltd v Tin Can Man (Pty) Ltd & others
,
[43]
namely that the ‘purpose and context’ of business rescue
‘are not aimed at the destruction of the rights of a
secured
creditor’.
[45]
This leads me to the place of the preference created by s 135(4) in
the broader scheme of the
Insolvency Act. Section
135(4) contains a
strong indication when it provides that the claims that it deals with
rank after the costs of sequestration.
[46]
Section 96
of the
Insolvency Act provides
that the first call on the
free residue of an insolvent estate – that ‘portion of
the estate which is not subject to
any right of preference by reason
of any special mortgage, legal hypothec, pledge or right of
retention’
[44]
–
is in respect of funeral expenses and death bed expenses of the
insolvent and his or her family. This is followed, in
s 97
, by the
costs of sequestration.
Section 97(1)
and (2) states:
‘
(1)
Thereafter any balance of the free residue shall be applied in
defraying the costs of the sequestration of the estate in question
with the exception of the costs mentioned in subsection (1) of
section eighty-nine.
(2)
The costs of the sequestration shall rank according to the following
order of priority-
(
a
)
the sheriff's charges incurred since the sequestration;
(
b
)
fees payable to the Master in connection with the sequestration;
(
c
)
the following costs which shall rank
pari
passu
and abate in equal
proportions if necessary, that is to say: the taxed costs of
sequestration (as defined in subsection (3), the
fee mentioned in
section 16(5)
, the remuneration of the
curator
bonis
and of the trustee
and all other costs of administration and liquidation including such
costs incurred by the trustee in giving
security for his proper
administration of the estate as the Master considers reasonable, in
so far as they are not payable by a
particular creditor in terms of
section 89
(1), any expenses incurred by the Master or by a presiding
officer in terms of
section 53(2)
and the salary or wages of any
person who was engaged by the
curator
bonis
or the trustee in
connection with the administration of the insolvent estate.’
[47]
The argument that the BRP’s claim for remuneration takes
preference over secured claims against the company (other than
those
in respect of post-commencement finance) also flounders on the
wording of
s 95
of the
Insolvency Act. It
provides that the proceeds
of property which is secured shall, after deductions in respect of
the costs of maintaining, conserving
and realising the property,
[45]
be ‘applied in satisfying the claims secured by the said
property, in their order of preference’. It cannot, in my
view,
be said, without doing unjustifiable violence to the language of
s
95
, that the payment of remuneration to a BRP from the proceeds of
property secured in favour of someone else amounts to applying the
proceeds of the property to the satisfaction of a claim secured by
that property.
[48]
The argument advanced on behalf of Diener leads to other anomalies as
well. For instance, if, after business rescue proceedings
were
converted to liquidation proceedings, there was no free residue in an
insolvent estate to meet the costs of liquidation, the
argument that
has been advanced about the ‘super-preference’ would mean
that as a matter of fact, and in conflict with
s 97
of the
Insolvency
Act and
s 135(4) of the 2008 Act, the BRP would be paid his or her
remuneration out of realised secured property, while the costs of
liquidation
would not be. In this example, the effect of the
‘super-preference’ contended for is that the claim for
remuneration
of the BRP would, in fact, rank ahead of the costs of
liquidation. That result could not have been intended.
[49]
For these reasons, I conclude that s 135(4) and s 143(5), whether
taken individually or in tandem, do not create the ‘super-preference’
contended for on behalf of Diener. Section 135(4) provides to the
BRP, after the conversion of business rescue proceedings into
liquidation proceedings, no more than a preference in respect of his
or her remuneration to claim against the free residue after
the costs
of liquidation but before claims of employees for post-commencement
wages, of those who have provided other post-commencement
finance,
whether those claims were secured or not, and of any other unsecured
creditors.
[50]
The first question we were required to answer thus must be answered
against Diener.
The
effective date of liquidation
[51]
It was argued by Diener that the effective date of the liquidation of
J D Bester was 13 June 2012, the date on which it filed
its
resolution to commence business rescue proceedings. On this basis, it
is argued that everything done after that date by the
BRP is part of
the costs of liquidation.
[52]
The argument advanced is flawed for three reasons. First, it fails to
draw a distinction, as the 2008 Act does, between business
rescue
proceedings and liquidation proceedings. Section 132(1) of the 2008
Act provides that business rescue commences, inter alia,
when the
director’s resolution is filed and s 132(2)(
a
)
provides that business rescue ends, inter alia, when a court converts
business rescue proceedings into liquidation proceedings.
In the
context of this case, the 2008 Act clearly envisages an end to
business rescue proceedings and a commencement of liquidation
proceedings.
[53]
Secondly, the 2008 Act, by creating in s 135(4), the preference on
liquidation for post-commencement finance, including the
BRP’s
remuneration, and ranking these claims after the costs of
liquidation, drew a clear distinction between the costs of
business
rescue and the costs of liquidation.
[54]
Thirdly, irrespective of whether the 1973 Act or the 2008 Act applied
to the liquidation of J D Bester, the effective date
of the
liquidation would be the same. In terms of item 9 of Schedule 5 of
the 2008 Act, despite the repeal of the 1973 Act, chapter
XIV of that
Act continued to apply to the ‘winding-up and liquidation of
companies under this Act, as if that Act had not
been repealed’.
This is made subject , inter alia, to item 9(2) which provides that
‘[d]espite subitem (1), sections
343, 344, 346 and 348 to 353
do not apply to the winding-up of a solvent company. . .’. The
effect of items 9(1) and 9(2)
is that the relevant provisions of the
1973 Act are preserved and apply to the winding-up of commercially
insolvent companies,
while the 2008 Act applies directly to the
winding-up of commercially solvent companies.
[46]
[55]
In all likelihood, J D Bester was commercially insolvent, so the 1973
Act applied. If this is so, s 348 of that Act states
that a
winding-up of a company ‘shall be deemed to commence at the
time of the presentation to the Court of the application
for the
winding-up’. If J D Bester was commercially solvent, which
seems unlikely, the 2008 Act applied. In these circumstances,
s
81(4)(
a
)
provides that a winding-up of a company commences when ‘an
application has been made to the court in terms of subsection
1(
a
)
or (b)’.
[56]
In either event, the effective date of the liquidation is 1 August
2012, the day, according to the bill of costs of Cawood
Attorneys,
that the liquidation application was filed.
Was
Diener required to prove a claim?
[57]
Section 44(1)
, (3) and (4) of the
Insolvency Act provides
:
‘
(1)
Any person or the representative of any person who has a liquidated
claim against an insolvent estate, the cause of which arose
before
the sequestration of that estate, may, at any time before the final
distribution of that estate in terms of section one
hundred and
thirteen, but subject to the provisions of section one hundred and
four, prove that claim in the manner hereinafter
provided: Provided
that no claim shall be proved against an estate after the expiration
of a period of three months as from the
conclusion of the second
meeting of creditors of the estate, except with leave of the Court or
the Master, and on payment of such
sum to cover the cost or any part
thereof, occasioned by the late proof of the claim, as the Court or
Master may direct.
(2)
. . .
(3)
A claim made against an insolvent estate shall be proved at a meeting
of the creditors of that estate to the satisfaction of
the officer
presiding at that meeting, who shall admit or reject the claim:
Provided that the rejection of a claim shall not debar
the claimant
from proving that claim at a subsequent meeting of creditors or from
establishing his claim by an action at law, but
subject to the
provisions of section seventy-five: and provided further that if a
creditor has twenty-four or more hours before
the time advertised for
the commencement of a meeting of creditors submitted to the officer
who is to preside at that meeting the
affidavit and other documents
mentioned in subsection (4), he shall be deemed to have tendered
proof of his claim at that meeting.
(4)
Every such claim shall be proved by affidavit in a form corresponding
substantially with Form C or D in the First Schedule to
this Act.
That affidavit may be made by the creditor or by any person fully
cognizant of the claim, who shall set forth in the
affidavit the
facts upon which his knowledge of the claim is based and the nature
and particulars of the claim, whether it was
acquired by cession
after the institution of the proceedings by which the estate was
sequestrated, and if the creditor holds security
therefor, the nature
and particulars of that security and in the case of security other
than movable property which he has realized
in terms of section
eighty-three, the amount at which he values the security. The said
affidavit or a copy thereof and any documents
submitted in support of
the claim shall be delivered at the office of the officer who is to
preside at the meeting of creditors
not later than twenty-four hours
before the advertised time of the meeting at which the creditor
concerned intends to prove the
claim, failing which the claim shall
not be admitted to proof at that meeting, unless the presiding
officer is of opinion that
through no fault of the creditor he has
been unable to deliver such evidences of his claim within the
prescribed period: Provided
that if a creditor has proved an
incorrect claim, he may, with the consent in writing of the Master
given after consultation with
the trustee and on such conditions as
the Master may think fit to impose correct his claim or submit a
fresh correct claim.’
[58]
It is common cause that Diener never proved a claim in terms of s 44
for his remuneration and expenses as BRP. It was argued
on his behalf
that he was not required to prove a claim and that his position as
BRP was similar to that of a liquidator, who is
usually not required
to prove a claim.
[59]
The general rule, however, is that ‘a creditor who wishes to
share in the distribution of the assets in an insolvent
estate must
prove his claim against it at any meeting of creditors therein to the
satisfaction of the officer presiding at such
meeting’.
[47]
[60]
The authors of
Mars
draw a clear distinction
between those who are required to prove claims in terms of s 44 and
those who are not required to do so.
They say:
[48]
‘
Creditors
of the estate as discussed in this chapter are limited to creditors
for pre-sequestration debts. Persons who render services
in
connection with sequestration proceedings or the administration of
the estate, have to submit an account which is payable as
part of the
costs of administration. The latter are generally not deemed to be
‘creditors’ in terms of the Act.’
[61]
Those who render services in connection with the sequestration
proceedings and the administration of the insolvent estate are
identified in s 97. They are the sheriff, the Master, a debtor who
has voluntarily surrendered his or her estate, a creditor who
has
applied for the sequestration of an estate, a
curator
bonis
,
a trustee, persons employed by a
curator
bonis
or
a trustee to administer an insolvent estate and a presiding officer.
A BRP is not included in this list. He or she could not
be included
because of the distinction between business rescue proceedings and
liquidation proceedings.
[62]
In the result, Diener, in his capacity as BRP, was a creditor of J D
Bester and, in respect of his remuneration and expenses,
he was
required to prove his claim in terms of s
44
of the
Insolvency Act.
The
fees and disbursements of Cawood Attorneys
[63]
A complaint was made by Diener on behalf of Cawood Attorneys that its
fees and disbursements in respect of the urgent application
to
interdict the sale in execution, on the one hand, and its fees and
disbursements in respect of the application to convert the
business
rescue proceedings into liquidation proceedings, on the other, ought
to have been treated differently by the liquidators:
either as
expenses in the business rescue proceedings or as post-commencement
finance, rather than as a concurrent claim, in the
first instance, or
as costs in the liquidation, rather than as a concurrent claim, in
the second instance. Cawood Attorneys proved
these claims. It is not
a party to these proceedings and Diener has no standing to litigate
on its behalf. The issues raised on
its behalf are consequently not
properly before us, and do not require our attention.
Costs
and the order
[64]
This matter has significant implications for business rescue
proceedings and BRPs. For that reason, the matter was postponed
so
that
amici
curiae
representing
the views of as many stakeholders as possible could join the
proceedings. Because of the importance of the issues that
are dealt
with in this judgment, the matter was, in reality, a test case. It
was of considerable importance that the issues raised
in this case
were clarified. For that reason, we have decided that no order as to
costs should be made.
[65]
The appeal is dismissed.
_____________________
C
M Plasket
Acting
Judge of Appeal
APPEARANCES
For
the appellant:
J L Van der Merwe
SC (with him L K Van der Merwe)
Instructed
by:
Cawood Attorneys, Pretoria
McIntyre van der Post,
Bloemfontein
For
3
rd
Respondent:
K W Lüderitz SC (with him J Vorster)
Instructed
by:
Tintingers Inc, Pretoria
Symington & De Kock,
Bloemfontein
For
6
th
Respondent:
J E Smit
Instructed
by:
Werksmans Attorneys, Sandton
Symington & De Kock,
Bloemfontein
For
Amici Curiae:
South
African Restructuring and Insolvency Association (SARIPA): A Subel SC
(with him B Gilbert)
Instructed
by:
Norton Rose Fulbright South Africa Inc, Sandton
Honey Attorneys,
Bloemfontein
The
Banking Association of South Africa (BASA): A Bham SC
Instructed
by:
Edward Nathan Sonnenbergs, Sandton
Webbers Attorneys,
Bloemfontein
Independent
Business Rescue Association of South Africa (IBRASA): J P Vorster SC
(with him J Herschenson)
Instructed
by:
Couzyn Hertzog & Horak Inc, Pretoria
Spangenberg, Zietsman &
Bloem, Bloemfontein
Turnaround
Management Association – Southern Africa (TMSA-SA): X Stylianou
Instructed
by:
Hogan Lovells (South Africa) Inc, Sandton
McIntyre Van der Post,
Bloemfontein
[1]
See Farouk H I Cassim, Maleka Femida
Cassim, Rehana Cassim, Richard Jooste, Joanne Shev and Jacqueline
Yeats
The Law of Business
Structures
at 458. The
authors describe judicial management as ‘a dismal failure’.
[2]
Section 66(A1) of the Close
Corporation Act 69 of 1984 makes chapter 6 of the 2008 Act
applicable to close corporations.
[3]
Section 141(2)(
a
)
provides:
‘
If,
at any time during business rescue proceedings, the business rescue
practitioner concludes that –
(a)
there is no reasonable prospect for
the company to be rescued, the practitioner must –
(i)
so inform the court, the company, and
all affected persons in the prescribed manner; and
(ii)
apply to the court for an order
discontinuing the business rescue proceedings and placing the
company into liquidation.’
[4]
Natal Joint Municipal Pension Fund
v Endumeni Municipality
2012
(4) SA 593
(SCA);
[2012] ZASCA 13
para 18
[5]
Panamo Properties (Pty) Ltd &
another v Nel & others NNO
2015
(5) SA 63
(SCA);
[2015] ZASCA 76
;
African
Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers
(Pty) Ltd & others
2015
(5) SA 192
(SCA);
[2015] ZASCA 69
para 43.
[6]
Para 1.
[7]
Para 27.
[8]
Section 129(1).
[9]
Section 129(3).
[10]
Section 128(1)(
a
).
[11]
Section 130(1(
a
).
[12]
Section 130(1)(
b
).
[13]
Section 130(1)(
c
).
[14]
Section 131(4).
[15]
Section 131(5).
[16]
Section 132(1).
[17]
Section 132(2)(
a
).
[18]
Section 132(2)(
b
).
[19]
Section 132(2)(
c
).
[20]
Section 133.
[21]
Section 134.
[22]
Section 134(1)(
a
).
[23]
Section 138(1)(
a
).
[24]
Section 138(1)(
b
).
[25]
Section 138(1)(
c
).
[26]
Section 138(1)(
d
).
[27]
Section 138(1)(
e
).
[28]
Section 138(1)(
f
).
[29]
Section 139(2)(
a
).
[30]
Section 139(2)(
b
).
[31]
Section 139(2)(
c
).
[32]
Section 139(2)(
d
).
[33]
Section 139(2)(
e
).
[34]
Section 139(2)(
f
).
[35]
Section 140(1).
[36]
P A Delport (ed)
Henochsberg
on the Companies Act 71 of 2008
(Vol
1) at 500.
[37]
The appellant’s heads of
argument, para 13.
[38]
The appellant’s heads of
argument, para 16.6.
[39]
FirstRand Bank Limited v K J Foods
CC
2017 (5) SA 40
(SCA);
[2017] ZASCA 50
para 75;
Oakdene
Square Properties (Pty) Ltd & others v Farm Bothasfontein
(Kyalami) (Pty) Ltd & others
2013
(4) SA 539
(SCA);
[2013] ZASCA 68
para 29;
African
Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers
(Pty) Ltd & others
(note
5) para 42.
[40]
Section 132(2)(
a
)(ii)
and s 141 (2)(a)(ii).
[41]
Section 135(3).
[42]
Henochsberg (note 36) stated with
reference to s 143(5): ‘The purpose of this provision is not
entirely clear. It seems
unrealistic and impractical to expect a
successful business rescue plan to be implemented in circumstances
where there are insufficient
funds to pay the business rescue
practitioner’s fees; however, should this be the case the
amount of the practitioner’s
remuneration and expenses that
remain unpaid will be paid as a “super-preference” in
priority to all the secured
and unsecured claims against the
company.’
[43]
Energydrive Systems (Pty) Ltd v
Tin Can Man (Pty) Ltd & others
2017
(3) SA 539
(GJ) para 18.
[44]
Insolvency Act, s
2.
[45]
Insolvency Act s
89(1).
[46]
Boschpoort Ondernemings (Pty) Ltd
v ABSA Bank Ltd
2014 (2)
SA 518
(SCA);
[2013] ZASCA 173
paras 22-23.
[47]
Eberhard Bertelsmann, Roger G Evans,
Adam Harris, Michelle Kelly-Lowe, Anneli Loubser, Melanie Roestoff,
Alistair Smith, Leonie
Stander and Lee Steyn
Mars:
The Law of Insolvency in South Africa
(9
ed) para 18.1. (hereafter referred to as
Mars
.)
[48]
Mars
para
17.1.