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[2016] ZAFSHC 212
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Bell v Bruwer N.O. and Others (971/2016) [2016] ZAFSHC 212 (15 December 2016)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Reportable:NO
Of Interest to other
Judges:NO
Circulate to
Magistrates:NO
Case number:
971/2016
In
the matter between:
IZAK
DIDERICK JOHANNES BELL
Applicant
and
NICOLAAS
JOHANNES BRUWER N.O.
1st Respondent
(in
his capacity as trustee of the BETHLEHEM
FARMERS’
TRUST – Master’s reference no:
IT392/99)
PIETER
WILLEM VAN HELDSLAND FOURIE N.O.
2nd Respondent
(in
his capacity as trustee of the BETHLEHEM
FARMERS’
TRUST – Master’s reference no:
IT392/99)
TENDANI
COLLEN NEL WAMONDO N.O.
3rd
Respondent
(in
his capacity as trustee of the BETHLEHEM
FARMERS’
TRUST – Master’s reference no:
IT392/99)
INDUSTRIAL
DEVELOPMENT CORPORATION OF
1st Intervening
SOUTH
AFRICA LTD
Creditor
UNIGRO
FINANCIAL SERVICES (PTY) LTD
2nd
Intervening
Creditor
CORAM:
DAFFUE,
J
HEARD
ON:
1 DECEMBER 2016
JUDGMENT
BY:
DAFFUE, J
DELIVERED
ON:
15 DECEMBER 2016
I
INTRODUCTION
[1]
This is the extended return date of a rule
nisi
granted in sequestration proceedings on 3 March 2016. The
future of an apple orchard project established as long ago as 1998
for the ultimate benefit of some one hundred and nine farmers in the
Bethlehem district, selected from the previously disadvantaged
community, and their families is at stake. Many aspects were in
dispute in these prolonged proceedings and voluminous papers
were
filed, but in the final analysis the only real dispute and pivotal
question to be adjudicated is whether sufficient evidence
has been
provided to satisfy the requirement of s 12(1)(c) of the Insolvency
Act, 24 of 1936 (“the Act”), providing
that at the final
sequestration stage the court must be satisfied that there is
“
reason
to believe that it will be to the advantage of creditors of the
debtor if his estate is sequestrated.”
II
THE
PARTIES
[2]
Mr IDJ Bell, a private person who delivered transportation services
for the debtor
in
casu,
is a creditor with a concurrent claim in the amount of R176 791,20.
Initially the debt was in dispute, but the applicant’s
locus
standi
as creditor has been conceded eventually.
[3]
The debtor is the Bethlehem Farmers’ Trust, IT392/1999, (herein
later referred to as “BFT”), it being represented
by
three trustees, to wit Messrs Bruwer, Fourie and Wamondo.
[4]
The first intervening creditor is the Industrial Development
Corporation of South Africa Ltd (herein later referred to as “IDC”).
Leave was granted to it on 12 May 2016 by Mocumie J (as she then was)
to intervene as creditor.
[5]
The second intervening creditor is Unigro Financial Services (Pty)
Ltd (herein later referred to as “Unigro”).
On 1
December 2016 its opposed application for leave to intervene served
before me. However, the opposition was withdrawn
as informed
from the bar by IDC’s counsel, Ms Dippenaar, who conceded that
Unigro could be given leave to intervene.
I granted such leave
and Unigro’s status as the second intervening creditor was thus
confirmed.
III
THE
RELIEF SOUGHT
[6]
Applicant seeks confirmation of the rule
nisi
issued on 3 March 2016, some nine months earlier. Unigro
supports the relief sought, seeking not only a final order of
sequestration,
but a further order that applicant and Unigro’s
costs of the sequestration application (including the costs of the
second
intervention application) be paid by IDC on an attorney and
client scale, including the costs consequent upon the employment of
two counsel. Alternatively, Unigro seeks a provisional
sequestration order against BFT, IDC to pay its costs on a similar
basis as mentioned
supra
.
[7]
IDC seeks the discharge of the provisional sequestration order and a
further order in terms whereof its costs be borne jointly
and
severely by applicant and Unigro. In the event that a final
sequestration order is to be granted, it requests that its costs
be
costs in the administration of BFT’s insolvent estate in
accordance with the provisions of s 97(3) of the Act.
IV
HISTORY
OF THE LITIGATION
[8]
Applicant sought and obtained a provisional sequestration order
against BFT on 3 March 2016. Prior thereto and on 2 March
2016
the sheriff attempted service of the notice of motion with annexures
on the farm at Wolhuterskop, district Bethlehem, being
the business
address of BFT. According to his return of service no trustees
or workers could be found and the main place
of business was
abandoned.
[9]
On 10 March 2006 service was effected on third respondent in Sandton,
first respondent in Centurion and second respondent in
Bethlehem. Mr
Fourie, the second respondent, also accepted service on behalf of the
employees and reported that the employees
did not belong to any trade
union. On 10 March 2016 and in an attempt to serve the
provisional order, the sheriff could again
not find anybody on the
farm at Wolhuterskop which was in line with second respondent’s
communication to him.
[10]
On 21 April 2016 IDC applied for leave to intervene as creditor which
application was opposed by applicant. On 12 May
2016 Mocumie J
delivered judgment as indicated
supra
.
She ordered, as requested by IDC, that the costs of the intervention
application be costs in the main application, i.e.
the sequestration
proceedings. Leave was also granted to IDC to file a
supplementary affidavit in respect of the main application
and
consequently the rule
nisi
was extended to 9 June 2016.
[11]
Hereafter the rule
nisi
was extended on several occasions. On 16 September 2016 Unigro
filed its application for leave to intervene as second intervening
creditor. As mentioned, this application was initially opposed
by IDC, causing the rule
nisi
to be extended again in order for the intervention application to be
adjudicated as well.
[12]
On 1 December 2016 I heard argument in respect of the application for
sequestration after having granted leave to Unigro to
intervene as
indicated
supra
.
In order to consider the matter and to present a fully reasoned
judgment I extended the rule
nisi
to 15 December 2016 and indicated that judgment would be delivered
then.
V
THE
VIABILITY OF THE APPLE ORCHARD PROJECT AND SOME HISTORICAL BACKGROUND
[13]
The apple orchard project was initiated in 1998, i.e. eighteen years
ago. A co-operation agreement was entered into on
23 December
1998 between IDC and the Development Bank of South Africa Ltd
(“DBSA”) (the initial financiers) and Sentraal
Oos
Corporate Ltd (SOC)). The BFT was created and the trust entered
into a management agreement with SOC in order to manage
the apple
orchard project. The idea with the agreements was
inter
alia
to
establish an apple orchard on 109 hectares of land on a farm at
Wolhuterskop, district Bethlehem which was obtained and registered
in
the names of the trustees for the time being of BFT. SOC had to
manage the project as project manager for and on behalf
of BFT.
SOC was also obliged to provide training and development to selected
farmers, such farmers to be selected by SOC
in co-operation with the
former Bethlehem transitional local council from the previously
disadvantaged community.
[14]
On 14 November 2008 DBSA informed BFT of its decision not to advance
any further funding for the project and I quote the following
from
the letter:
“
The
Trust was established in 1997 by the IDC, Sentraal Oos Koöperasie
(now Afgri) to fund the Bethlehem apple’s project.
The
funders are also beneficiaries of the project. The intention
was that the nominated farmers would buy-out the funders
interests at
orchard maturity which was initially scheduled to occur in 2005.
As the appointment management agent, Afgri
was to manage the project
until the buy-out date. The main objective of the project was
“to further land reform in
the Eastern Free State through the
settlement of 109 farmers to produce apples in the Bethlehem district
and to provide financial
assistance for orchard establishment,
production, pre-harvesting, harvesting, packing and marketing through
a Trust for a period
of 7 years.” The long term objective
was “to develop a model that will mobilise private sector
involvement in
capital intensive agricultural projects aimed at the
empowerment of emerging farmers and re-distribution of land”.
The long term objective of the farmers owning the land has not yet
been achieved.”
In
the year 2009 DBSA wrote off the BFT’s exposure to it in the
amount of R39 970 430,20.
[15]
Grants were made and loans provided to BFT over the years to such an
extent that BFT is indebted to IDC in the aggregate amount
of
R24 778 538,73 (as at the date of IDC’s answering
affidavit). Loans were regularly made as follows: R7.2m
in
1999, R2.7m in 2002, R6m in 2006, R2.3m in 2007, R3.5m in 2010 and
R3.1m in 2012. In January 2015 a grant of R3m was approved,
but
only R1m paid out. Notwithstanding BFT’s critical
financial position the balance of R2m has not been paid to it.
[16]
BFT’s indebtedness to Unigro as at 2 March 2016 amounted to
R29 691 618,07. The claim is partially secured
by
first mortgage bonds over two immovable properties of the trust in
the total amount of R14 800 000,00. Smaller
amounts
are due and payable to the employees and concurrent creditors.
Even though there may be a dispute as to the exact
amount owing to
Unigro, IDC admits that BFT’s liabilities in the amount of
R56 216 978,12 according to it is about
double the market
value of BFT’s assets of approximately R28 529 849,03.
[17]
IDC’s deponent alleges that BFT was experiencing liquidity
challenges in February 2016 (as if it was a once-off and new
situation), but submits that these challenges could be overcome and
resolved with funding from IDC and additional financial support
from
the Department of Rural Development and Land Reform (DRDLR).
[18]
Although applicant’s claim was disputed in the answering
affidavit and in IDC’s heads of argument, it was eventually
conceded that applicant was a creditor for purposes of the
Insolvency
Act. It
is apparent from the papers and concessions made by
IDC’s counsel during argument that the only and real dispute is
whether
sequestration would be to the benefit of the general body of
creditors. It is alleged that Unigro as secured creditor would
be the only creditor that would conceivably benefit by the granting
of a final sequestration order, whilst the general body of
creditors,
including employees and the neighbouring communities of
Bethlehem/Bothlokong would be severely prejudiced.
[19]
Several meetings took place between various stakeholders during the
last few years, especially since 2014. Unigro was
even prepared
to write off a huge amount of its claim in order to assist IDC and
BFT to solve BFT’s financial problems, but
this was all to no
avail. IDC’s deponent alleges that BFT could trade on its
own and sustain itself. According
to her BFT has been farming
successfully since the 1990’s under the management of Afgri,
but in the same breath it is submitted
that any failures in BFT’s
business model can be ascribed directly to the management functions
performed by Afgri.
[20]
If the figures referred to
supra
are considered, approximately R100 million was spent over a period of
less than two decades in order to ensure BFT’s financial
sustainability, but figuratively speaking the enormous financial aid
did not bear any fruit.
[21]
BFT did not conduct any business at all at the time when the
sequestration proceedings were initiated. The farm was
abandoned and no farmers and/or employees could be found on the
property. Electricity supply was cut although it is in dispute
whether it was done just before or just after the provisional
sequestration order.
[22]
A severe hailstorm damaged a substantial portion – about 25% -
of the apple orchard after the provisional sequestration
order was
granted, but fortunately, the provisional liquidators took out
insurance and it is common cause that an amount of approximately
R7
million will be paid out by the insurer for the benefit of BFT’s
estate.
[23]
Nine months since the issue of the provisional sequestration order
have lapsed, but notwithstanding this and all the previous
undertakings and promises, no financial assistance has been
forthcoming. IDC went so far to allege under oath that a
certain
Mr Maartens, an experienced business rescue practitioner, had
been appointed as a business turn-around specialist by it in order
to
try and save BFT. It appeared later that although talks were
entered into with Maartens, he was never appointed to act
in that
capacity.
[24]
It is ironic that neither the sequestration application, nor the
intervention application of Unigro is opposed by the trustees
of
BFT. Their attitude is however clear from the evidence to be
discussed
infra.
They
also believe that sequestration is the only option.
[25]
I shall deal with the requirements for a final sequestration order,
including the relevant authorities and material facts,
in separate
paragraphs
infra
.
[26]
Section 12 of the Act reads as follows:
“
Final
sequestration or dismissal of petition for sequestration
(1)
If at the hearing pursuant to the aforesaid rule nisi the court is
satisfied that-
(a)
the petitioning creditor has established against the debtor a claim
such as is mentioned in subsection
(1) of section nine; and
(b)
the debtor has committed an act of insolvency or is insolvent; and
(c)
there is reason to believe that it will be to the advantage of
creditors of the debtor if his estate is sequestrated,
it
may sequestrate the estate of the debtor.
(2)
If at such hearing the court is not so satisfied, it shall dismiss
the petition for the sequestration
of the estate of the debtor and
set aside the order of provisional sequestration or require further
proof of the matters set forth
in the petition and postpone the
hearing for any reasonable period but not sine die.”
VI
APPLICANT’S
LOCUS
STANDI
AS CREDITOR
[27]
Section 9(2) of the Act provides as follows:
“
A
liquidated claim which has accrued but which is not yet due on the
date of hearing of the petition, shall be reckoned as a liquidated
claim for the purposes of subsection (1).”
[28]
In paragraph 31 of her heads of argument IDC’s counsel makes
the following submission:
“
The
central focus of debate in this matter pertains to: (1) whether there
is a reason to believe that a final sequestration order
would be to
the advantage of creditors; and (2) how this Honourable Court is to
exercise the discretion afforded to it.”
Counsel
then proceeded in her heads of argument to deal extensively with the
advantage of creditors as well as the court’s
discretion and
reiterated these aspects during oral argument. She claimed that
sequestration would not be to the advantage
of creditors and
submitted that in the ultimate analysis I should exercise my
discretion against the applicant and discharge the
rule
nisi
.
As an afterthought and in a few paragraphs in her heads of argument
reference is made to the fact that applicant’s claim
was
reasonably contested on
bona
fide
and valid grounds. It is faintly submitted in the heads of
argument that the provisions of s 9(2) of the Act does not assist
applicant insofar as his claim has not yet accrued. This line
of argument was not proceeded with during oral argument.
[29]
It is evident that the invoices relied upon by applicant, attached to
his founding affidavit, differ from the invoices sent
to BFT which
were attached to IDC’s answering affidavit pertaining
inter
alia
to the date of the invoices. Applicant explained the difference
in his replying affidavit. According to him the carbon
copies
of the invoices in his invoice book were illegible and in order to
prepare for the sequestration application he
“
wrote
over the faint manuscript of the carbon copy in his possession so as
to make the contents thereof clear and legible”.
This
caused the difference between the date of 22 February 2016, the
correct date, and the date of 20 February 2016 reflected in
the
invoices attached to the founding affidavit. The allegation
that applicant’s claim was only payable thirty days
after
invoice is denied by him and he showed in the replying affidavit that
an invoice presented to BFT in January 2016 was paid
within days.
[30]
Applicant was at all relevant times regarded as a creditor of BFT.
This appears from applicant’s version, read
with annexure “FA4”
to the founding affidavit, being BFT’s letter dated 25 February
2016 written by Mr Fourie
and addressed to
“
all
creditors, service providers and or people monies are owed to.”
This
letter reads as follows:
“
Due
to the bad weather conditions and heavy heat, as well as no rain,
Bethlehem Farmers Trust has almost lost 70% of their crop.
Therefore Bethlehem Farmers Trust is unfortunately not in the
position to honour all outstanding debts. The trustees have
taken the decision to apply for provisional sequestration.”
This
letter is highly contested by IDC on the basis that the trustees, and
Mr Fourie in particular, did not have authority to write
such a
letter and also on the basis that it was not meant for distribution.
In a dramatic turn-around Mr Fourie deposed to
a confirmatory
affidavit in support of IDC’s version in an attempt to distance
himself from the version put forward by applicant.
I reject
this new version as being highly suspicious, untenable and false
insofar as it is in direct conflict with applicant’s
version as
well as the objective facts. The logic of IDC’s reasoning
escapes me, especially if the trustees’
resolution to apply for
sequestration referred to
infra
and
the various letters written in February 2016 are considered.
[31]
Applicant’s status as creditor could not and should never have
been disputed by IDC. A list of BFT’s liabilities,
including the claim of Sakkie Bell Vervoer in the amount of
R176 791,20, is attached to IDC’s answering affidavit and
the claim is clearly acknowledged. This is in line with a
letter of Mr Fourie on behalf of BFT dated 11 February 2016 from
which I quote two paragraphs:
“
Mr
Sakkie Bell of Bell Transport does the transporting of apples from
the farm to the packhouse and packhouse to Crispy for the
past 14
years…
BFT
has contracted Mr Bell for the transport for the 2016 season.”
[32]
The papers before me are voluminous and consist of over one thousand
pages. A simple sequestration application was transformed
into
an expensive paper war. If IDC were so keen to assist BFT by
preventing its sequestration, it could have settled applicant’s
claim on receipt of the news pertaining to the provisional
sequestration order and that would have been the end of the matter as
applicant’s
locus
standi
as creditor would have fallen away. Instead it elected to
proceed with an expensive exercise, making use of two sets of
attorneys and senior counsel. Notwithstanding its attitude that
it had the interests of employees at heart, it persuaded Mocumie
J to
order that the costs of its intervention application be costs in the
sequestration proceedings. They did this well-knowing
that the
free residue in the estate might be insufficient to settle the claims
of preferent creditors without security such as
the employees as well
as all other concurrent creditors.
[33]
I find, as effectively conceded by IDC’s counsel during oral
argument, that applicant is indeed a concurrent creditor
of BFT with
the necessary
locus
standi
in this application.
VII
DEED
OF INSOLVENCY OR ACTUAL INSOLVENCY
[34]
Applicant relies on the letter of 25 February 2016 attached as
annexure “FA4” to the founding affidavit which I
quoted
above as a deed of insolvency in accordance with the provisions of
section 8(g) of the Act. As mentioned, IDC’s
attitude is
that BFT’s trustees, and Mr Fourie in particular, did not have
any authority to write this letter and furthermore,
that it was not
intended to be distributed to creditors. It is apparent from
the papers, read as a whole, that BFT’s
trustees, i.e. the
management of the trust, were left with their hands in their hair and
did not know how to handle their predicament.
On 18 February
2016 the three trustees, Mr Fourie as chairperson, Mr Bruwer,
appointed as the DBSA trustee and Mr Wamondo, appointed
as the IDC
trustee, held a meeting in Johannesburg and resolved as follows:
“
1.
Bethlehem Farmers Trust are experiencing a serious cash shortage and
therefore are unable to pay salaries, wages
and creditor accounts;
and they do not foresee any improvement in the financial situation
any time soon;
2.
The Trustees of Bethlehem Farmers Trust requested that Pieter Fourie
in his capacity as Trustee and Manager
of BFT, request the lodging of
an application at the High Court for urgent Sequestration.”
As
mentioned it is IDC’s unsubstantiated version that the trustees
were never authorised to resolve to sequestrate the trust.
[35]
IDC’s version is that the purpose of annexure FA4 was merely to
place pressure on the financiers to release additional
funding
already approved by IDC to alleviate the cash flow difficulties which
they were experiencing and which became critical
during February
2016. Also, the resolution to sequestrate was taken by the
trustees in order to protect their own positions
and at a time when
they were concerned about their personal interests as trustees.
Whatever IDC’s deponent wants to
communicate does not change
the facts before me. It is clear that the trustees, the actual
people in charge with fiduciary
responsibilities towards the trust
and its beneficiaries found themselves in a dead end. They knew
that there was no real
opportunity for BFT to solve its financial
predicament. They could not continue with business and could
not even pay salaries.
I am satisfied that a deed of insolvency
has been committed, but as indicated
supra,
this is really neither here nor there insofar as it is common cause
that BFT is hopelessly, factually and commercially insolvent.
VIII
ADVANTAGE
TO CREDITORS
[36]
It is true that Unigro, it being a secured creditor with mortgage
bonds registered over BFT’s immovable properties, will
probably
receive a substantial dividend. This is a privilege afforded to
secured creditors. I do not have to find that
there is a real
likelihood that concurrent creditors will receive dividends, but
merely that there is a reasonable prospect that
some pecuniary
benefit will result to creditors.
[37]
In
Stratford
& Others v Investec Bank Ltd and Others
2015 (3) SA 1
(CC) at 19E-G the Constitutional Court held as follows:
“
[45]
The correct approach in evaluating advantage to creditors is for a
court to exercise its discretion guided
by the dicta outlined in
Friedman. For example, it is up to a court to assess
whether the sequestration will result
in some payment to the
creditors as a body; that there is a substantial estate from which
the creditors cannot get payment except
through sequestration; or
that some pecuniary benefit will result for the creditors.”
[38]
There is a reasonable possibility that the immovable properties of
BFT may be sold for more than the amounts due in respect
of the
mortgage bonds and costs of administration related thereto, bearing
in mind the valuations placed before me. I accept
that the
apple orchard has been damaged, but I also accept that the farm has
been improved with an infrastructure such as a well-developed
apple
orchard and that any potential purchaser would be prepared to pay an
amount in excess of the amount of the bond, even though
a purchase
price close to the market value referred to in the papers is not
obtained. The other bond is registered over a
property on which
the “pack-house” is erected. There is also reason
to believe that it would obtain a purchase
price in excess of the
amount of the bond.
[39]
The insurance claim of approximately R7 million will in normal
circumstances accrue to Unigro as the secured creditor, bearing
in
mind the terms of the mortgage bond. Mr Terblanche on behalf of
Unigro conveyed to me in open court and after obtaining
instructions,
that Unigro would, in the circumstances, not lay claim to this
amount, the effect being that it would then form part
of the free
residue and available to preferent creditors such as the employees
and concurrent creditors. Over and above this,
it appears from
the inventory provided by the sheriff in terms of s 19 of the Act
that BFT owns numerous moveable assets such as
vehicles and farming
equipment which may yield quite a substantial amount. It is
alleged by IDC that it is the holder of
a general notarial bond over
the movables. It attached a great many voluminous documents to
the answering affidavit, but
failed to attach the notarial bond.
Such bond, if it exists indeed, will not afford any security to IDC.
There is no
evidence or even a suggestion that it obtained a court
order perfecting the bond.
[40]
Before me the majority of creditors in value and in number, i.e.
Unigro and applicant, seek the final sequestration of BFT.
It
is only the IDC who seeks the discharge of the provisional
sequestration order. The numerous promises by IDC and others
to
inject cash into the apple orchard project remain just empty promises
and real substantial financial aid is a pie in the sky.
I am
not prepared to accept that any of the entities mentioned would be
prepared to make any further financial contributions in
the event
that the provisional order is discharged, bearing in mind that R100
million has already been wasted whilst there is no
reasonable hope
that the project will ever reach its ultimate goal.
Notwithstanding IDC’s version under oath that the
apple orchard
project was sustainable and making profits, the contrary is true.
BFT is unable to trade profitably or to become
self-sustainable.
There is no hope of its miraculous resuscitation, notwithstanding the
fact that all relevant parties over
the last eighteen months made
efforts to come to a solution. It may be asked how ethical can
it be to pour extra millions
of Rands into the project to assist a
few people whilst the money could be spent much more wisely on other
sustainable projects.
[41]
IDC wants to hold Unigro and other creditors at ransom. It is
submitted that sequestration would not be to the advantage
of
creditors and to bolster this submission reliance is placed on the
financial assistance to be provided to BFT by IDC and Government
as
well as money to be paid in accordance with a plan prepared for BFT
to which I shall refer
infra
.
Nothing has been forthcoming, although vague promises based on
inadmissible hearsay evidence are relied upon.
[42]
The longer the matter is dragged out, the more interest will accrue
to the claims of creditors and especially the two biggest
creditors,
IDC and Unigro. This will be to the disadvantage of the small
concurrent creditors as well as the employees.
Any advantage
that there may be at this stage will disappear like mist before the
rising sun if a final sequestration order is
not issued now.
IX
DISCRETION
OF THE COURT
[43]
One consideration to be taken into account in exercising discretion
is the possibility that the debtor’s debts will be
paid if a
sequestration order is not granted. I quote the following from
the unreported judgment of
Nedbank
Ltd v Johan Hendrik Potgieter
2013 JDR 2290 (GSJ) at paras [19] and [20]:
“
[19]
If the debtor is to persuade the court to exercise its discretion in
his or her favour, he or she must place evidence before
the court
that clearly establishes that the debts will be paid if a
sequestration order is not granted. If that contention is based
on a
claim that the debtor is in fact solvent then that should be shown by
acceptable evidence. In this regard the often quoted
words of Innes
CJ in De Waard v Andrew & Thienhaus Limited are pertinent:
“
Now,
when a man commits an act of insolvency he must expect his estate to
be sequestrated. The matter is not sprung upon him …
Of
course; the Court has a large discretion in regard to making the rule
absolute; and in exercising that discretion the condition
of a man’s
assets and his general financial position will be important elements
to be considered. Speaking for myself, I
always look with great
suspicion upon, and examine very narrowly, the position of a debtor
who says, ‘I am sorry that I cannot
pay my creditor, but my
assets far exceed my liabilities’. To my mind the best proof of
solvency is that a man should pay
his debts; and therefore I always
examine in a critical spirit the case of a man who does not pay what
he owes.”
[20]
In R v Meer and Others Holmes J observed as follows:
“
I
have stressed that the
Insolvency Act was
passed for the benefit of
creditors and not for the relief of harassed debtors.”
This
statement remains apposite today as it was then. In Hill House v
Scott, Leveson J stated as follows:
“…
A
debtor knows his own business and can adduce facts to show advantage
to creditors. A creditor, on the other hand, is seldom in
the happy
position of being in possession of sufficient facts relating to the
debtor’s assets as to be able to furnish details
to the Court.”
I
should be satisfied that BFT’s debts will be paid if a
sequestration order is not granted in order for me to exercise my
discretion in favour of BFT.
[44]
The vagueness and careful choice of words of IDC’s deponent is
a feature of the affidavits placed before me. At
one stage the
following is stated:
“
The
IDC has sufficiently demonstrated that in light of the funding it and
the DRDLR have already approved, it is not impossible
for the BFT to
return to normal trading status.”
The
double negative is telling. In any event, reliance is placed on
inadmissible hearsay. DRDLR is a national department.
It
allegedly approved financial support as far back as 2012, but on
condition that Unigro (not Afgri as alleged) relinquish its
mortgage
bonds over the immovable properties. I cannot see how it could
be expected from a commercial lender like Unigro
with shareholders to
consider to act accordingly. IDC’s version that Unigro’s
refusal to relinquish its bonds
is a stumbling block is unfortunate.
In fact, it is arrogant to state that a secured creditor should waive
its rights as
suggested. Although the national DRDLR appears to
be involved, the Provincial Head of the Free State DRDLR stated the
following
in a letter dated 20 April 2016 in support of its
opposition of the sequestration application:
“
Whilst
we all wonder what could have gone so wrong with such a project with
massive potential, we have demanded a change of shareholding
to
ensure majority-shareholding by house-holds, as part of the
turnaround strategy, and only after such change can we see how we
can
assist the project further in whatever possible way, contributing to
our overall strategy thrust.”
There
is not an iota of evidence that this department has got any funds
which it could make available to the project or that it
may obtain
funds from national treasury in this regard. It is one thing
for a public official to state that money may be
provided by his/her
department, but it is a totally different kettle of fish to say under
oath that the department has gone through
all its approval processes,
that a particular amount has been earmarked, that the funds are
indeed available and more specifically,
when exactly will the funds
be paid over. IDC and its Government partners must provide
funds to settle Unigro’s claims
for it to consent to
cancellation of the mortgage bonds, but it appears as if they are of
the view that Unigro must write off its
claim. No entity and no
court can direct it to consent to cancellation without payment of the
secured debt.
[45]
In the exercise of my discretion I must in particular consider the
plight of the employees and/or farmers and their families,
all being
members of the previously disadvantaged community. These people
and their families are supposed to be the eventual
beneficiaries of
the apple orchard project as it was indeed anticipated that they
would become owners of the immovable property.
This should have
happened as long ago as 2005. The primary objectives of the
apple orchard project were land reform, job
creation and poverty
eradication by ensuring the ultimate settlement of small scale
farmers on the land. Unfortunately these
could not be achieved
and I cannot see that there is a reasonable prospect or possibility
that it can be achieved with the facts
presented to me.
[46]
A turnaround plan is relied upon by IDC. The plan is premised
on inadmissible hearsay evidence and extremely vague allegations.
In terms hereof Distell, apparently the well-known public and listed
company, is prepared to inject R20m into the apple orchard
project.
National Treasury’s so-called Jobs Fund National Programme will
inject a similar amount. There is no
evidence that these
entities are indeed willing to come on board, and if so, on what
conditions. I am not prepared to accept
that a proper case has
been made out for payment of BFT’s creditors within a
reasonable period. In fact, I regard the
plan as speculative
and presumptive at best and nothing more than a pie in the sky, not
worthy of consideration by any of the creditors.
It has been
rejected by applicant and Unigro and they cannot be blamed. It
appears that Unigro has heard these stories many
times in the past
and as its deponent correctly states, there is no proof that these
two entities are prepared to assist.
[47]
If DRDLR and/or IDC are so assertive that they would at all cost
ensure that the employees/farmers and their families are properly
cared for in future, the better exercise appears to be for these
parties to ensure that the immovable properties are purchased
on the
auction to be held by making use of a proper vehicle such as a trust
or company and to ensure participation by all these
farmers and their
families. It might be a much cheaper option, bearing in mind
the present condition of the farm and the
huge debts already
incurred. Hopefully they may salvage a project that was many
years ago doomed to be a failure.
[48]
Whoever purchases the farm will obviously need employees, especially
bearing in mind the labour intensive nature of an apple
orchard.
The present employees/farmers have accrued experience over time and
they would be ideally suited to be appointed
by the new purchaser,
although employment opportunities may be lost in the process. I
am mindful of the fact that the right
of employees is not the only or
predominant right to be considered in the exercise of my discretion,
but IDC’s attitude is
akin to that of the proverbial “tail
wagging the dog.” I also take cognisance of the alleged
altruistic goals
of IDC that motivated opposition of the application,
but have serious doubts in this regard bearing in mind the cost order
already
sought and obtained from Mocumie J referred to
supra
,
as well as the cost order sought in the event of a final
sequestration order being granted.
[49]
BFT’s farm has been abandoned, it has been subjected to a
severe drought over some time and a recent hailstorm has damaged
about 25% of the orchard. There is no hope of any harvest
during the 2017 season for the reasons set out in the papers, but
there may be a glimmer of hope of a harvest in 2018 if an affluent
person or entity with the necessary skills is prepared to come
on
board immediately. IDC has not proven to me that it can achieve
this. I refer to the well-known
dictum
of Selke J in
Trust
Wholesalers and Woollens (Pty) Ltd v Mackan
1954 (2) SA 109
(N) at 115A-B:
“
In
substance the respondent here says to his creditors: 'I cannot pay
you, but give me time, let me go on trading, and let me collect
the
debts which are owed to me, and I hope to be able, and I believe I
shall be able, over a number of years to pay you in full
by way of
instalments.' In the meantime, of course, the creditors are laying
out much of their capital, and they will never get
any interest and
they are asked to allow the respondent to continue to trade on terms
which many of them regard as precarious,
and some as impossible, and
over the conduct of which trading all of them have no, or very
little, control.
In
my opinion, I ought not, in these circumstances, to exercise the
discretion against making a final order of sequestration. Accordingly
the provisional order is made final.”
[50]
A trust is not an entity that can be placed under business rescue.
However, it is instructive to consider Brand JA’s
explanation
in
Oakdene
Square Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami)
(Pty) Ltd and Others
2013 (4) SA 539
(SCA) at para [29]. According to the learned
judge the words
“
reasonable
prospect”
in
section 131(4)(a)
of the
Companies Act, 71 of 2008
constitute a
lesser requirement than a
“
reasonable
probability”
contained
in the old
Companies Act, but
the new requirement requires more than
a mere
prima
facie
case or an arguable possibility. Reasonable prospect must be
based upon reasonable grounds.
In
casu,
and
although I do not deal with a business rescue application, I am
entitled to consider all alternatives to final sequestration,
but any
alternative suggestion to prevent sequestration must be based on fact
and not speculation to make it worthy of consideration.
[51]
I am not prepared to exercise my discretion in favour of BFT based on
speculation, inadmissible evidence and vague promises,
especially
insofar as it has not even opposed the application,
X
SECOND
INTERVENTION APPLICATION AND COSTS OF SEQUESTRATION
[52]
I have already granted leave to Unigro to intervene and the only
issue that needs to be considered now is the costs of the
sequestration application as well as the costs of the second
intervention application. Mocumie J ordered that the costs of
the first intervention application shall be costs in the main
application. IDC should never have asked for the costs of the
intervention application to be costs in the sequestration
proceedings, especially bearing mind the alleged altruistic purpose
for which it intervened in these proceedings. Unigro seeks an
order in terms whereof IDC be ordered to pay applicant and Unigro’s
costs in the sequestration application, including its costs of the
second intervention application on an attorney and client basis.
Unigro’s intervention assisted me considerably to understand
the background and history of the apple orchard project.
Its
deponent has personal knowledge of all negotiations between the
various parties since at least 2014, whilst all documents relating
to
the apple orchard project and BFT’s indebtedness are in his
possession and under his control. The insight
provided by Unigro could not have been provided by applicant as an
outsider and therefore Unigro’s intervention and the evidence
tendered by it bolstered applicant’s case. It is
entitled to its costs.
[53]
IDC’s deponent alleges that Unigro failed to prove that it is a
creditor, let alone secured creditor of BFT, notwithstanding
the fact
that the two mortgage bonds, clearly showing that Unigro is a
registered cessionary, are attached to Unigro’s founding
affidavit in the second intervention application. IDC’s
counsel submitted that it only became evident from Unigro’s
replying affidavit that it is a creditor. This submission is
unfortunate and probably made without considering the undeniable
documentary evidence presented by Unigro. Relying on wrong
assumptions, the intervention application was opposed initially.
IDC shall bear the costs of this application.
[54]
IDC’s opposition of the sequestration application was
unreasonable for the reasons set out
supra.
I
have considered the various submissions and in the exercise of my
discretion I believe that BFT’s insolvent estate should
not be
burdened with any cost orders. I am not prepared to grant an
order in terms of s 97(3) of the Act as requested by
IDC.
[55]
IDC should be ordered to pay applicant and Unigro’s costs
pertaining to the sequestration application, as well as Unigro’s
costs of the second intervention application, in both instances
including the costs consequent upon the employment of two counsel
in
respect of Unigro.
[56]
Although I was requested to grant costs on an attorney and client
scale, I am not prepared to do that as I am satisfied that,
although
a borderline case, IDC should not be penalised with punitive costs.
XI
ORDERS
[57]
The following orders are made:
1.
The rule
nisi
is confirmed and a final sequestration order is
issued.
2.
Applicant and Unigro’s costs of the sequestration proceedings,
as well as Unigro’s
costs of the second intervention
application, shall be paid by Industrial Development Corporation of
South Africa Ltd, such costs
to include the costs occasioned upon the
employment of two counsel where applicable.
_____________
J.P.
DAFFUE, J
On
behalf of applicant: Adv. S.
Tsangarakis
Instructed
by:
Honey
Attorneys
BLOEMFONTEIN
On
behalf of the first
intervening
creditor: Adv. E. F.
Dippenaar SC
Instructed
by:
Hofmeyer
Incorporated
JOHANNESBURG
On
behalf of the second
intervening
creditor: Adv.
F. H. Terblanche SC
with
Adv. A. J. Wessels
Instructed
by:
E G
Cooper Majiedt Inc
BLOEMFONTEIN
/EB