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[2017] ZAKZDHC 6
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Mtolo and Others Guilder Investments 10 (Pty) Ltd and Others (8706/2016) [2017] ZAKZDHC 6 (2 March 2017)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, DURBAN
NOT
REPORTABLE
Case
No: 8706/2016
In the
matter between:
LUMKILE
MONDE MTOLO FIRST
APPLICANT
DEVANUNDHAN
PILLAY SECOND
APPLICANT
LEILA
MOODLEY
NO THIRD
APPLICANT
KITESH
MOODLEY NO FOURTH
APPLICANT
RIYA
MOODLEY NO
FIFTH
APPLICANT
KALAPPEN
VEDACHALLAM MOODLEY NO SIXTH
APPLICANT
YOGANANDA
DHANPAL NAIDOO NO SEVENTH
APPLICANT
TQM
CONTSTRUCTION SERVICES CC
EIGHTH
APPLICANT
and
GUILDER
INVESTMENTS 10 (PTY) LTD
FIRST RESPONDENT
LAND
AND AGRICULTURAL DEVELOPMENT
BANK
OF SOUTH AFRICA SECOND
RESPONDENT
COMPANIES
INTELLECTUAL PROPERTY
COMMISSION THIRD
RESPONDENT
Coram:
Kruger J
Heard
:
21 February 2017
Delivered:
2 March 2017
ORDER
1.
The application is
dismissed with costs, such costs are:
(a)
to be paid
jointly and severally, the one paying, the other to be absolved; and
(b)
to include the
costs of senior counsel.
2.
The first respondent is
hereby placed under provisional winding up.
3.
A Rule Nisi be and is
hereby issued calling upon all persons concerned to appear and show
cause, if any, to this Court at
09h00
on the
9th May 2017
why the first respondent company should not be placed under final
winding up order.
4.
That service of the
Rule Nisi be effected on the first respondent as follows:
4.1
By service at its
registered office and by publication forthwith once in each of the
Government Gazette and the Natal Mercury newspaper
and
4.2
By service upon the
employees of the first respondent and the relevant trade untion and
any other employee representative, if any.
5.
Costs of the
liquidation application are costs in the liquidation.
JUDGMENT
KRUGER
J:
[1]
The applicants seek an
order, in terms of Section 131(1) of the Companies Act, 71 of 2008
(“the Act”), placing the first
respondent (“Guilder”)
under supervision and commencing business rescue proceedings.
In this regard, the applicants
also seek an order that Ms Simi
Maharaj be appointed as the business rescue practitioner. The
application is opposed by the
second respondent (“the Land
Bank”).
[2]
This matter has a long
and chequered history. I will attempt to briefly summarise
same. During or about June 2006, the
Land Bank agreed to lend
Guilder the sum of R100 000 000,00. Pursuant to the
conclusion of this agreement, the
Land Bank advanced various amounts
to Guilder. As at 2
nd
July 2007, the amount advanced to Guilder was the sum of
R45 672 674,00. In terms of the agreement, Guilder
was
required to repay all amounts advanced to it, by the Land Bank,
within twenty four months of the first advance. The first
advance was made on the 20
th
September 2006. Therefore, the entire amount advanced by the
Land Bank to Guilder was payable on the 20
th
September 2008.
[3]
Guilder did not repay
the sum of R45 672 674,00 on the 20
th
September 2008. Following negotiations, an agreement was
reached, on or about the 26
th
February 2009, in terms of which the Land Bank agreed to accept
payment of the sum of R53 000 000,00 in full and final
settlement of Guilder’s indebtedness to the Land Bank. (as at
31
st
January 2009, this indebtedness was the sum of R66 135 455,68).
Payment of the agreed amount was to be secured
by a guarantee to be
furnished by ABSA Bank Limited, in favour of the Land Bank. The
said guarantee was duly furnished by
ABSA Bank Limited but was
subsequently cancelled and withdrawn by ABSA Bank allegedly upon
failure by Guilder to procure the fulfilment
of the conditions
precedent stipulated therein.
[4]
During March 2012,
summons was issued and served on Guilder by the Land Bank, in respect
of the amount due. This summons/action
was withdrawn on or
about 8
th
March 2016. On or about 1
st
April 2015 the Land Bank instituted an application in the
KwaZulu-Natal Division of the High Court of South Africa, Durban,
(Case
No. 3548/2015) for the provisional liquidation of Guilder.
This liquidation application was opposed by Guilder.
[5]
The liquidation
application was enrolled for hearing on the 12
th
May 2016. On that day, the parties sought and obtained the
following order by consent:
“
1. The application is postponed sine die.
2. The respondent shall pay the wasted costs occasioned by the
postponement which shall include the costs of the employment of
senior counsel.
3. The respondent shall deliver to the applicant by 7
th
June 2016 an unconditional and irrevocable bank guarantee for payment
of the sum of R53 000 000,00 (Fifty three million
rand)
payable upon cancellation of the mortgage bond registered against the
immovable properties of the respondent in favour of
the applicant
with the Registrar of Deeds, under Mortgage Bond No. B06/57473.
4. Should the respondent fail to deliver the bank
guarantee referred to in paragraph 3 above, on the date mentioned in
paragraph
3 above, then by agreement the respondent consents to the
applicant taking a provisional winding up order against the
respondent
on an unopposed basis.”
[6]
On the 7
th
June 2016 Guilder sought, and was granted an
indulgence until the 30
th
June 2016 to deliver the
guarantee foreshadowed in the aforesaid court order. However
the guarantee was not furnished by
the 30
th
June 2016.
[7]
Acting in terms of the provisions of paragraph 4 of the court order,
the Land Bank enrolled the liquidation application, on
the unopposed
roll, for hearing on the 6
th
September 2016. On the
day of the hearing, the present application for business rescue was
served on the Land Bank.
[8]
One of the purposes of the Act 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”.
(Section 7(k) of the Act). Business
rescue is defined in
Section 128(1)(b) of the Act as:
“”
Business rescue” means
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;”
[9]
In terms of Section 131(1) if a company has not adopted a resolution
contemplated in Section 129(1) of the Act, an affected
person may
apply to Court for an order placing the company under supervision and
commencing business rescue proceedings.
In terms of section
131(6) any such application has the effect of suspending liquidation
proceedings which have already commenced.
[10]
Section 131(4) is important and provides:
“
(4) After considering an application in
terms of sub-section (1), the Court may –
(a)
Make
an order placing the company under supervision and commencing
business rescue proceedings, if the Court is satisfied that –
i.
The
company is financially distressed;
ii.
The
company 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
iii.
It
is otherwise just and equitable to do so for financial reasons and
there is a reasonable prospect for rescuing the company; or
(b)
Dismissing
the application, together with any further necessary and appropriate
order, including an order placing the company under
liquidation.”
[11]
It is not in dispute that (a) One or more of the applicants are
affected persons as defined in Section 128(1)(a) of the Act
and (b)
that Guilder is financially distressed
[1]
.
[12]
The sole issue for determination is whether or not, on the papers
before me, the applicants have demonstrated that “there
is a
reasonable prospect for rescuing the company”.
[13]
The Act defines “rescuing the company” as “achieving
the goal set out in the definition of “business
rescue”
in paragraph (b)”. (Section 128(1)(h). (paragraph (b) is quoted
supra).
[14]
In
Propspec Investments (Pty) Ltd v Pacific Coast Investments
97 Ltd and another
2013(1) SA 542(FSB)
the Court, in
attempting to define the concept of “reasonable prospects”,
held (at 545, paragraphs 11 and 12):
“
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. …… 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 rests 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.”
See
also
Southern Palace Investments 265 (Pty) Ltd v Midnight Storm
Investments 386
Ltd 2012(2) SA 423 (WCC);
Koen
and another v Wedgewood Village Golf and Country Estate (Pty) Ltd and
others 2012(2) SA 378 (WCC)
.
[15]
The Supreme Court of Appeal, in
Oakdene Square Properties (Pty)
Ltd and others v Farm Bothasfontein (Kyalami) (Pty) Ltd and
others
2013(4) SA 539 (SCA)
, approved of the approach adopted in
Propspec Investments (Pty) Ltd
(supra). At
paragraphs 29, Brandt JA held:
“
It is generally accepted that it is a
lesser requirement than the “reasonable probability”
which was a yardstick for
placing a company under judicial management
in terms of Section 427(1) of the 1973
Companies Act ……
On
the other hand, I believe it requires more than a mere
prima
facie
case or an arguable possibility.
Of even greater significance, I think, is that it must be a
reasonable prospect –
with the emphasis on “reasonable”
– which means that it must be a prospect based on reasonable
grounds.
A mere speculative suggestion is not enough.
Moreover, because it is the applicant who seeks to satisfy the Court
of the
prospect, it must establish these reasonable grounds in
accordance with the rules of motion proceedings, which, generally
speaking,
require that it must do so in its founding papers.”
[16]
The applicants contend that their proposed business plan reveals that
Guilder can be rescued from its present financial distress
should it
be placed in business rescue. There are two aspects of this
proposed business plan that require consideration.
[17]
Firstly, the applicants contend that the sandstone in the Shandon
Quarry could be profitably mined. In their founding
affidavit,
the applicants have devoted only one paragraph on the subject.
In paragraph 14(d), the applicants aver:
“
There
is a mining component to the development where the property has a
potential to mine sandstone.
i.
The first respondent has the requisite
mining licence.
ii.
A report prepared by geologist Dr R Uken
which is contained in the business plan projects that the mine has a
potential capacity
of sandstone of approximately 46.8 million tons.
iii.
The mining project can yield in excess of
R2.3 billion calculated at a base selling price of R50 per ton.”
[18]
No further averments or elaboration has been made in the replying
affidavit.
[19]
It is noted that the averments in paragraph 14(d)(iii)
supra
are not supported by Guilder’s expert, Dr R Uken. His
report (dated January 2008) merely estimates the existence of
about
18 million cubic metres of sandstone available to be mined.
There is no indication, on the papers, of where the applicants
obtained the figures quoted in the business plan nor is there any
indication of how the figures referred to in paragraph 14(d)(iii)
are
arrived at.
[20]
During argument and in the heads of argument, counsel for the
applicant submitted that:
(a)
There is interest from various entities to mine the quarry;
(b)
These entities have expressed a willingness to pay Guilder a royalty
at a minimum of R10 per cubic metre;
(c)
The project manager has confirmed that the quarry can be mined in
five years which would result in a royalty income of R180
million;
and
(d)
The business rescue practitioner will not need funds to commence this
activity because the interested parties will provide their
own
equipment and sales team to mine and sell the material.
[21]
These submissions unfortunately are not supported by any averments in
the founding affidavit or for that matter in the replying
affidavit.
It is noted that Guilder has the requisite mining licence (granted
29
th
May 2012). The applicants have failed to
explain why the “interested entities” have not commenced
mining operations
in the last five years.
[22]
In the circumstances I am not persuaded that the applicants have
shown that there is a reasonable prospect of rescuing Guilder
by
ceding the mining rights or of it conducting the mining operations
itself.
[23]
Secondly, the applicants contend that a business rescue practitioner
will be able to rescue Guilder by selling off the individual
platforms. In this regard it was submitted that most of the
surveying of the area has been completed and that the township
will
soon be registered in the Deeds Office. Thereafter the
individual platforms could be sold to interested “potential
purchasers” and would yield a return of approximately R600 260
000,00. Apart from a reference in the business
plan of a
potential yield of R600 260 000,00 from the sale of individual
platforms, neither the founding affidavit or the
replying affidavit
confirm or support these submissions. It is not, for example,
known when the survey commenced; at what
stage it has progressed, nor
when the township plans are to be lodged in the Deeds Office.
Counsel has submitted that the
costs of finalising this process is in
the region of R1,75 million to R2 million and that the directors have
“committed themselves”
to sourcing the sum of R2 million
for this purpose. Once again these submissions are not
supported by any averments in the
founding affidavit or the replying
affidavit. It is further noted that the figures mentioned in
the business plan are speculative
and are dependant upon a variety of
circumstances. There is also a lack of detail relating to the
actual proposed development
of the area.
[24]
I am once again of the view that the averments and submissions
relating to the rescue of the business in this regard are vague
and
speculative and that the applicants have failed to show a reasonable
prospect of rescuing Guilder by means of the sale of the
individual
platforms.
[25]
As an alternative the applicants contend that a business rescue
practitioner may sell the properties together with a development
plan
to an investor in the open market. In the founding affidavit it
is averred that there are interested purchasers and
that the property
could be sold for at least R100 million. This, they allege,
would result in a better return for Guilder’s
creditors and/or
shareholders than would result from the liquidation of the company.
The applicants have assumed that a sale
of the property for R100
million would result in costs in excess of R10 million should the
company be sold by a liquidator.
Should the property be sold by
a business rescue practitioner, they assume a costs saving of 50%.
[26]
The difficulty that I have with these submissions is that the
applicants have not laid any factual basis upon which these
assumptions are made. In their costs assumptions, they have
failed to disclose the proposed fees of the business rescue
practitioner
or how same is to be assessed and calculated. The
source of funding for payment of the business rescue practitioner’s
fees is also unknown. It surely cannot come from Guilder itself
as Guilder is not trading. Its only assets are the
underdeveloped land and the sand mine. There is accordingly no
way of knowing whether a sale of the property by a business
rescue
practitioner will result in a better return for Guilder’s
creditors and/or shareholders.
[27]
There is also a lack of particularity in the founding affidavit
relating to the “interested buyers” – viz:
Who are
they? When did they make an offer to purchase the property?
How much did they offer? And the progress made
in finalizing the
sale. An attempt has been made in the replying affidavit to
substantiate these averments. However
these relate to interest
shown by prospective purchasers years ago and from which nothing
further materialised. I conclude
that the applicants have
failed to show that the sale of the property by the business rescue
practitioner would result in a better
return for Guilder’s
creditors and/or shareholders. I am fortified in my conclusion
by the remarks of Brandt JA in
Oakdene Square Properties (Pty)
Ltd
(
supra)
where he held, at paragraph
33:
“
My
problem with the proposal that the business rescue practitioner,
rather than the liquidator, should sell the property as a whole,
is
that it offers no more than an alternative, informal kind of winding
up of the company, outside the liquidation provisions of
the 1973
Companies Act …… I
do not believe, however, that this
could have been the intention of creating business rescue as an
institution. For instance,
the mere savings on the costs of the
winding up process in accordance with the existing liquidation
provisions could hardly justify
the separate institution of business
rescue.”
[28]
I am of the view that the basis upon which the applicants have
applied for the rescue of Guilder, do not meet the threshold
for the
test of “reasonable prospect for rescuing the company” as
set out in Section 131(4) of the Act. The application
for
business rescue must accordingly fail.
[29]
Given the consent order obtained on the 12
th
May 2016
(cited supra) I am of the view that a provisional liquidation order
is to be issued in terms of the provisions of Section
131(4)(b) of
the Act.
[30]
I accordingly grant the following order:
1.
The application is
dismissed with costs, such costs are:
(a)
to be paid
jointly and severally, the one paying, the other to be absolved; and
(b)
to include the
costs of senior counsel.
2.
The first respondent is
hereby placed under provisional winding up.
3.
A Rule Nisi be and is
hereby issued calling upon all persons concerned to appear and show
cause, if any, to this Court at
09h00
on the
9th May 2017
why the first respondent company should not be placed under final
winding up order.
4.
That service of the
Rule Nisi be effected on the first respondent as follows:
a.
By service at its
registered office and by publication forthwith once in each of the
Government Gazette and the Natal Mercury newspaper
and
b.
By service upon the
employees of the first respondent and the relevant trade union and
any other employee representative, if any.
5.
Costs of the
liquidation application are costs in the liquidation.
________________
KRUGER
J
DATE
OF HEARING:
21 February 2017
DATE
OF JUDGMENT:
2 March 2017
FOR
THE PLAINTIFF:
Y
N Moodley SC instructed by K Maharaj Incorporated
FOR
THE
DEFENDANT:
A E Bham SC instructed by Mkhabele
Huntley Adekeye Inc c/o Shepstone
& Wylie
[1]
Although this element was challenged in the answering affidavit, the
second respondent has agreed, for purposes of the argument,
to
accept that Guilder is financially distressed.