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[2016] ZAFSHC 220
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Luthuli Power Corporation (Pty) Ltd and Others v Transfix Transformers SA (Pty) Ltd and Another (1981/2016) [2016] ZAFSHC 220 (22 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:
1981/2016
In the matter between:
LUTHULI
POWER CORPORATION (PTY) LTD
1
st
Applicant
THE EMPLOYEES OF
TRANSFIX TRANSFORMERS
SA
(PTY) LTD
2
nd
Applicant
MTHUNZI
ALBERT
LUTHULI
3
rd
Applicant
and
TRANSFIX
TRANSFORMERS SA (PTY) LTD
1st
Respondent
TRANSFIX S.A.
2nd Respondent
CORAM:
DAFFUE, J
HEARD
ON:
13 OCTOBER 2016
JUDGMENT BY:
DAFFUE, J
DELIVERED ON:
22 DECEMBER 2016
I
INTRODUCTION
[1]
A financially distressed company is the subject of the litigation in
casu. The court is faced with a main application,
inter alia to
place the financially distressed company in business rescue and a
counter-application in terms whereof,
inter
alia,
a declaratory order is sought to the effect that second respondent
has validly exercised a call option granted to it in respect
of the
sale of shares in the financially distressed company.
II
THE
PARTIES
[2]
First applicant is Luthuli Power Corporation (Pty) Ltd, an entity
with a 30% shareholding in first respondent and therefore
an affected
person as contemplated in s 128(1)(a)(i) of the Companies Act, 71 of
2008 (“the Act”).
[3]
The employees of Transfix Transformers SA (Pty) Ltd are cited as the
second applicant.
[4]
The third applicant is Mr Mthunzi Albert Luthuli, an adult male
engineer and businessman and the sole shareholder and director
of
first applicant.
[5]
First respondent is Transfix Transformers SA (Pty) Ltd, a financially
distressed company.
[6]
Second respondent is Transfix SA, a company registered and
incorporated in terms of the company laws of France, the parent
company of first respondent, it being the holder of a 70%
shareholding in first respondent.
[7]
In order to avoid confusion and without disrespect to any of the
parties, I shall refer to first applicant as LPC, second applicant
as
the employees, third applicant as Luthuli, first respondent as TTSA
and second respondent as Transfix.
III
THE
RELIEF SOUGHT
[8]
The following relief is sought in the main application:
“
1.
Placing the first respondent under supervision and commencing
business rescue proceedings as contemplated in section
131(1)(4)(a)
of the Companies Act, 71 of 2008 (“the Act”).
2.
Appointing Jay Pema or such other person as this honourable court
sees fit, as the interim business rescue
practitioner as contemplated
in section 131(5) of the Act.
3.
In the alternative to prayer 2 above, directing the Companies and
Intellectual Property Commission (“the
Commission”) to
appoint Jay Pema as interim business rescue practitioner as
contemplated in section 131(5) of the Act.
4.
Further in the alternative to prayers 2 and 3 above, directing the
Commission to appoint such suitably qualified
person as business
rescue practitioner who satisfies the requirements of section 138 of
the Act.
5.
Costs of the application in the event of it being opposed.
[9]
In paragraph 1 of the counter-application second respondent seeks the
following relief:
“
1.
An order in terms whereof it is declared that the second respondent
has validly exercised the call option granted to the second
respondent by the first applicant in terms of clause 4.1.9 of the
Reinstatement and Amendment to Sale Agreement dated 11 February
2013
(sic) concluded on 3 October 2013 hereinafter the “Reinstatement
Agreement”, annexed to the answering affidavit
in the main
application as annexure “A10”, read with the Sale of
Shares Agreement concluded 11 February 2013, hereinafter
the Sale of
Shares Agreement, annexed to the founding affidavit in the main
application as annexure “MAL6”.
[10]
Second respondent seeks further orders which will not be quoted
verbatim
.
In terms hereof first applicant is to be directed to transfer its
shares in first respondent to second respondent and to
cede its
claims on loan account in first respondent to second respondent
against set-off of the purchase price payable in terms
of the call
option, and in the event of first applicant’s failure to
transfer the shares and/or to cede the claims, that
the sheriff of
the court be authorised and directed to sign all documents needed for
the transfer of the shares and cession of
the claims on loan
account. Second respondent also seeks the costs of the
counter-application.
IV
FACTUAL
MATRIX
[11]
Groupe Cahors (Cahors) is a foreign company registered in the
Republic of France. Its business is to manufacture and
supply
electrical equipment including transformers worldwide. Transfix
is a subsidiary of Cahors.
[12]
During or about 2008 Cahors extended its business activities in South
Africa, the result being that in about 2010 Transfix
acquired all the
shares in TTSA. At the time TTSA traded in the supply of
electrical equipment, including transformers, although
it did not
manufacture transformers. Currently TTSA carries on business as
an importer, manufacturer and supplier of transformers,
components of
transformers, transformer consumables and related products within and
around the Republic of South Africa.
[13]
In 2010, after the acquisition of the TTSA shares, Transfix and TTSA
concluded a technology licence agreement for the manufacture,
sale
and supply of transformers and related equipment. In terms of
this agreement TTSA was licensed to use the intellectual
property of
Transfix in the manufacturing of transformers and related equipment.
[14]
The majority of TTSA’s customers and potential customers are
State-owned companies and municipalities within South Africa.
These customers are required to follow a procurement process which
includes the public invitation of bids in terms of a tender
process.
In order to be more competitive in the tender processes required by
the State-owned companies and municipalities,
TTSA resolved to engage
a shareholder that would enable TTSA to satisfy the relevant
requirements of the Broad Based Black Economic
Empowerment Act, 53 of
2003
.
[15]
After negotiations Transfix and LPC concluded a sale of shares
agreement on 11 February 2011. In terms of this agreement
LPC
purchased 30% of the shares in TTSA and 30% of Transfix’ claims
on loan account against TTSA. The agreed purchase
price was
R10,7m.
[16]
Notwithstanding extensions agreed upon, LPC was unable to obtain the
required financing. The sale of shares agreement
eventually
lapsed on 30 September 2013 in that no financing could be obtained
notwithstanding several extensions of the deadline.
A
reinstatement agreement was concluded between the particular parties
on 3 October 2013. The purchase price was reduced
to R9,134m.
In terms hereof Transfix lent and advanced the amended purchase price
to LPC by means of a loan which had to
be repaid on or before 30 June
2015. The 30% shareholding and 30% of the claims on loan
account passed to LPC effectively
from 1 September 2013.
Another extension was granted to LPC, but it failed to repay the loan
on or before the agreed deadline,
to wit 30 December 2015.
[17]
In terms of the reinstatement agreement LPC granted Transfix the
option to call upon LPC to sell the relevant shares and its
claims on
loan account against TTSA to Transfix at a purchase price equal to
the aforesaid loan granted to LPC which purchase price
would be
set-off against the amended purchase price referred to
supra
.
[18]
LPC has no assets, save for its shareholding in and loan account
against TTSA. Luthuli is the sole director of Madlanduna
Corporation (Pty) Ltd which company was placed under business rescue
on 18 August 2015. Three judgments, one by Nedbank Ltd
in the
amount of R1 308 710,00, the second by The Patrick
Partnership in the amount of R78 485,00 and a third
by
Growthpoint Properties in the amount R62 585,00 were obtained
against Luthuli during December 2014, April 2011 and September
2010
respectively. During June 2015 Luthuli obtained a personal loan
from Societe Nouvelle Transfix Toulon in the amount
of R178 240,00.
According to respondents Luthuli also undertook to contribute an
amount of between R4m and R5m to TTSA
for working capital by the end
of March 2016 which he failed to do. LPC and/or Luthuli elected
not to respond pertinently
to these allegations in the replying
affidavit.
[19]
It is TTSA and Transfix’ case that the aforesaid facts
illustrate that it is highly unlikely, in the event that TTSA
is
placed under the business rescue, that LPC and Luthuli would be able
to contribute to post commencement finance; in this regard
a total
amount of R32m will be needed as set out in the draft business rescue
plan to which I shall refer
infra
.
[20]
During the beginning of 2016 Luthuli expressed an interest to
purchase 100% of the shares in TTSA and in fact applied to the
National Empowerment Fund (NEF) for funding in respect of the amount
of R20m, being the proposed purchase price. LPC admitted
in its
application to NEF, compiled by Luthuli, the following in respect of
LPC’
s 30%
shareholding in Transfix:
“…
For
various reasons LPC’
s 30%
(shareholding) has reverted back to
Transfix.”
This
application was unsuccessful, as was the case with a similar
application, simultaneously made to the Industrial Development
Corporation (“IDC”).
[21]
During the first few months in 2016 Transfix through its
Bloemfontein’s attorneys corresponded with LPC and Luthuli in
terms whereof the call option was exercised and efforts made to
arrange for the signing of the required documentation to re-transfer
the shares and cede the claims on loan account. I refer to the
letters dated 27 January 2016, 17 February 2016, 8 March 2016
and 11
April 2016. On 13 April 2016 Transfix’s attorneys
requested a meeting in this regard, but were informed the
next day
that the issue surrounding the shares was irrelevant and not
pressing. Three weeks later the business rescue application,
i.e. the main application, was issued.
[22]
In terms of its audited financial statements for the 2015 financial
year TTSA’s accumulative financial loss amounted
to R58,3 m.
Mr Steyn Strauss, TTSA’s attorney pointed out at a board
meeting of 9 March 2016 that if a company does
not pass the liquidity
and insolvency test under s 4 of the Act, it must consider filing for
business rescue. However no
such decision was taken at the
time. Subsequently TTSA issued a notice to employees in terms
of
s 189
of the
Labour Relations Act, 66 of 1995
wherein it
categorically stated that it was financially distressed. A
further notice to employees was sent, indicating that
TTSA
anticipated that between 17 to 20% of its employees were likely to be
retrenched. It is admitted by Transfix that it
has decided to
disinvest in South Africa, but that TTSA together with its plant and
infrastructure would remain in the country.
In order to
successfully dispose of its shares, Transfix has to ensure that TTSA
remains operational. It is in its interest,
it being the only
shareholder that has provided financial assistance to TTSA all along.
[23]
On 21 April 2016 LPC, represented by Luthuli, also a director of TTSA
and without the knowledge and consent of TTSA and Transfix
and/or
their directors, concluded a memorandum of understanding with JSHP
Transformers (China) (“JSHP”) and Shanbao
Machinery (Pty)
Ltd (“Shanboa”), two rival companies. In a letter
dated 28 April 2016 the managing director of
Shanbao stated
inter
alia
that this company is the sole agent for JSHP and continued as
follows:
“
The
parties are currently in
negotiations
in respect of the deal. Our representatives are also currently
in China with JSHP
discussion
the acquisition
.
…
We
together with JSHP, are willing to support the business rescue of
TTSA as s post commencement financier
should the parties agree
to the deal.
…
As
a point of departure, should we decide to invest in TTSA through the
provision of post commencement finance, we
would
require new class A shares to be issued to the investors
proportionate to their contributions.
All
existing issued shares in TTSA will also have to be converted into
class B shares
.
The
rights
associated with the respective share classes will have to be
negotiated
and determined in due cause.”
(emphasis
added.)
A
copy of the letter is attached to the papers, but more importantly,
it is not confirmed under oath and therefore contains inadmissible
evidence. In a letter of 30 April 2016 LPC indicated that it
would also be prepared to act as post commencement financier
as
envisaged in the draft business rescue plan. I referred to its
financial position
supra
.
[24]
A draft business rescue plan (“BRP”) is attached to the
founding affidavit. The draft BRP makes it clear
that the plan
is premised on the injection of post commencement finance without
which there is no reasonable prospect of rescuing
the company.
R32m would be required in the form of post commencement finance in
order to give effect to the declared proposals
and turnaround
strategy.
[25]
Luthuli claims that he has a 15,1% shareholding in Nuclear
Consultants International (Pty) Ltd which shares have been valued
between R15m and R28m. At the time of deposing to his founding
affidavit on 4 May 2016 he was allegedly in the process of
disposing
these shares. According to him the proceeds or part thereof
would be used towards TTSA’s post commencement
funding.
This version is highly contested. Luthuli does not have any
shares in the particular company, but the shares
are held by
Madlanduna Investment Corporation (Pty) Ltd
ex
facie
the
financial statements attached to the replying affidavit in the main
application.
[26]
The draftsman of the draft BRP, Mr Stefan Steyn, is a business rescue
practitioner who also assisted Luthuli and/or LPC with
the loan
application made to the NEF referred to
supra
.
Mr Steyn never consulted with any of the other directors of Transfix
or TTSA and it is also apparent that he is the very
same person who
valued the shares of Nuclear Consultants International (Pty) Ltd as
is evident from his letter dated 29 July 2016
to the directors of
Madlanduna Investment Corporation (Pty) Ltd. It is
respondents’ case that Mr Steyn is not
an independent person,
but in any event, the draft BRP is premised on the injection of post
commencement finance subject to certain
conditions, at least one
which will never be obtained, i.e. Transfix will not agree to
conversion of its shares as anticipated,
and therefore business
rescue as suggested remains a “pie in the sky”.
V
APPLICABLE
PRINCIPLES IN MOTION PROCEDURE
[27]
In motion proceedings the affidavits not only serve as the pleadings,
but must also contain the essential evidence which would
ordinarily
be let at the trial. See
Transnet
Ltd v Rubenstein
2006 (1) SA 591
(SCA) at para [28].
[28]
A party in motion proceedings is obliged to state the facts as well
as the conclusions drawn from such facts in his or her
affidavits and
is not allowed to base an argument on passages and documents annexed
to the papers unless the conclusions sought
to be drawn from such
passages have been canvased in their affidavits. See
Minister
of Land Affairs and Agriculture and Other v D & F Wevell Trust
and Others
2008 (2) SA 184
(SCA) at 200B-E. An applicant must make out his
case in the founding affidavit and will not be allowed to do so
and/or to
rely upon new matter in the replying affidavit,
notwithstanding the fact that such matter has not been struck-out.
See
Van
Zyl and Others v Government of the Republic of South Africa
2008 (3) SA 294
(SCA) at 307E - 308A and see also
Oakdene
Square Properties (Pty) Ltd and Others v Farm Bothasfontein Kyalama
(Pty) Ltd and Others
2013
(4) SA 539
(SCA)
at
para [29].
[29]
In line with
Plascon-Evans
final relief may only be granted in motion proceedings if the facts
averred by the applicant which have been admitted by the respondent
justify such an order, unless the allegations and denials by the
respondent are so far-fetched or untenable that the court is entitled
to reject the respondent’s version merely on the papers.
In general, decisions of fact cannot properly be made in motion
proceedings on a consideration of the probabilities, unless the court
is satisfied that there is no real and genuine dispute on
the papers
regarding the facts in question, or that one of the parties’
allegations are so far-fetched that it may be rejected
on the papers,
or
viva
voce
evidence
would not disturb the probabilities. See
Administrator
of the Transvaal and Others v Theletsane & Others
[1990] ZASCA 156
;
1991 (2) SA 192
(A) at 197A-B.
VI
PRINCIPLES
APPLICABLE TO COUNTER-APPLICATIONS
[30]
Rule 6(7) of the Uniform Rules of Court provides as follows:
“
Any
party to any application proceedings may bring a counter-application
or may join any party to the same extent as would be competent
if the
party wishing to bring such counter-application or join such party
were a defendant in an action and the other parties to
the
application were parties to such action. In the latter event
rule 10 shall apply
mutatis
mutandis
.”
[31]
It is the premise of the rule that the main and counter-application
should be adjudicated
pari
passu
.
The purpose of the established practice to dispose of a claim and
counter-claim
pari
passu
is
to avoid a multiplicity of actions and to dispose of all issues
between the parties in a single trial.
VII
PRINCIPLES
PERTAINING TO BUSINESS RESCUE IN PARTICULAR
[32]
In
Absa
Bank Ltd v Caine NO and Another, in re: Absa Bank Ltd v Caine NO and
Another
3813/2013, 3915/2013
[2014] ZAFSHC 46
(2 April 2014). I pointed
out in paragraph [39] that business rescue proceedings are much
better suited to provide solutions
for financially distressed
companies than was the situation with judicial management under the
Companies Act, 61 of 1973, in particular
insofar as one of the
prerequisites of that Act was that a reasonable probability had to be
shown that if a company was placed
under judicial management, it
would be enabled to pay its debts or meet its obligations and become
successful. The legislature
earnestly tried to avoid the
problems experienced with judicial management. Business rescue
proceedings are much more flexible
and financially distressed company
friendly than judicial management. The Act must be interpreted
and applied in a manner
that gives effect to the purposes set out in
s 7 of the Act. One such purpose is of particular relevance,
i.e. 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. See s 5, read with s
7(k) of the Act.
[33]
“Business rescue” is defined in s 128(1)(b) of the Act
as:
“
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)
the 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 an immediate
liquidation of the company.”
[34]
The
locus
classicus
on business rescue is
Oakdene
Square Properties
supra.
Insofar
as major creditors may be opposed to a contemplated or potential BRP,
it is apposite to quote the following
dicta
contained in paragraphs [37] and [38] of
Oakdene
Square Properties
supra
:
“
[37]
In these circumstances I do not believe Nedbank and Imperial can be
branded unreasonable in their declared
intent to oppose any business
plan in line with either of the two options proposed by the
appellants. The court a quo regarded
this declared intent by the two
major creditors – and the holders of 60 per cent of the
shareholding in the company –
as one of the reasons why
business rescue was doomed to fail (see para 47). In argument before
us the court a quo was criticised
for doing so. Authority for this
criticism was sought in the following statement from Nedbank Ltd v
Bestvest 153 (Pty) Ltd; Essa
v Bestvest 153 (Pty) Ltd
2012 (5) SA 497
(WCC) in para 55:
‘
In
the answering affidavit both [the major creditors] make it clear that
they are not in favour of any BRP plan, and that they will
vote
against it at any meeting to be convened by the business rescue
practitioner in terms of ss 132(2)(c) and 152 of the Act.
They
accordingly urged the court not to sanction an exercise in futility,
and to rather make an order of winding-up. Such an approach
appears,
at first blush, to be a stratagem to advance the argument for
winding-up: one would have expected a responsible creditor
to be open
to any proposal that may ultimately redound to its benefit. Such an
approach certainly does not accord with the overall
purpose of BRP
which, as I have demonstrated above, are aimed at saving rather than
destroying a business, and in which consultation
and
consensus-seeking would be the point of departure.’
[38]
If the statement is intended to convey that the declared intent to
oppose by the majority creditors should in principle be
ignored in
considering business rescue, I do not agree. As I see it, the
applicant for business rescue is bound to establish reasonable
grounds for the prospect of rescuing the company. If the majority
creditors declare that they will oppose any business rescue scheme
based on those grounds, I see no reason why that proclaimed
opposition should be ignored. Unless, of course, that attitude can
be
said to be unreasonable or mala fide. By virtue of s 132(2)(c)(i)
read with s 152 of the Act, rejection of the proposed rescue
plan by
the majority of creditors will normally sound the death knell of the
proceedings. It is true that such rejection can be
revisited by the
court in terms of s 153. But that, of course, will take time and
attract further costs. Moreover, the court is
unlikely to interfere
with the creditors’ decision unless their attitude was
unreasonable. In these circumstances I do not
believe that the court
a quo can be criticised for having regard to the declared intent of
the major creditors to oppose any business
rescue plan along the
lines suggested by the appellants.”
[35]
I was also referred by Mr Van der Walt on behalf of respondents to
Shoprite
Checkers (Pty) Ltd v Berryplum Retailers CC and Others
47327/2014 [2015] ZAGPPHC 255 (11 March 2015) at para [38];
ex
parte: Target Shelf 284 CC; Commissioner, South African Revenue
Service and Another v Cawood NO and Others
21955/2014; 34775/2014 [2015] ZAGPPHC 740 (13 October 2015) at para
[44];
Senwes
Limited v Zellenhen Boerdery CC and Others; Zellehen Boerdery CC v
Senwes Ltd
50799/2015; 50486/2015 [2016] ZAGPPHC 373 (31 March 2016) at paras
[26], [27] and [39] and
JVJ
Logistics (Pty) Ltd v Standard Bank of South Africa Ltd and Others
7076/2015
[2016] ZAKZDHC 24 at para [57]. Applicants’ counsel, Mr
Bitter, submitted that these judgments were irrelevant
and
distinguishable insofar as all of them dealt with the situation where
business rescue proceedings had been commenced with and
the business
rescue practitioners having presented affected persons with their
business rescue plans for voting. In any event,
according to Mr
Bitter,
in
casu
the applicants went further than was required by the Act and relied
on a draft BRP, but it was not for the respondents to at this
stage
voice their objection as this can be done when the business rescue
practitioner to be appointed eventually presents his plan
to affected
persons.
[36]
I quote from para [38] of the judgment of Tuchten J in
Shoprite
Checkers
supra:
“
I
do not accept that a vote by a creditor which is cast in good faith,
in the sense that the creditor genuinely believes that a
vote against
the proposed plan would advance that creditor’s interests, can
be inappropriate. I can see nothing unsuitable,
unfitting or improper
in a vote that honestly reflects a voter’s opinion as to his
best interests
.
… The purposes of business rescue, broadly stated, are to
revive faltering companies or achieve improved dividends for
those
companies which cannot be revived; in short, to put more money in the
pockets of affected persons in general. In this context
the interests
of creditors, whose own money is at risk, are predominant. Whether
either of these results can be achieved in a particular
case depends
on a forecast, which itself is based on one or more assumptions; in
short on an assessment of risk. The business of
companies and their
creditors, in the present context, is the pursuit of monetary profit.
I
do not think that the purposes of the new Companies Act will be
advanced by vesting in the courts a power to impose upon business
people financial risks which they, on honest reflection, judge ill
advised
.”
(emphasis
added.)
[37]
In
Senwes
supra
Molefe J dealt with matter as follows:
“
[26]
It is evident from the record that at the time when Senwes exercised
its vote against the plan, it knew that there was a substantial
yield
which would become available from the crops. Senwes was not willing
to sacrifice its security in exchange for the hope that
over a period
of a year, contemplated by the plan, it must hope for a favourable
realization of the other assets of the CC and
its sureties. Had the
CC been put in liquidation, Senwes would have enjoyed a first right
to the entire proceeds of the crops ahead
of all the other creditors.
Therefore, it cannot be said to be inappropriate for Senwes to prefer
a winding-up instead of a business
rescue. I have no doubt that
Senwes exercised its vote by voting against the plan in the belief
that it would further its interest
this way.
I
do not find anything unsuitable or improper by Senwes voting against
the plan.
[27]
There is nothing in section 134 (3) of the Act that suggests or
indicates that a secured creditor can be compelled
to surrender his
security. It is inconceivable to view a vote against the plan
to be inappropriate, if the bona fide belief
is that the plan entails
a risk for security.
…
[39]
By voting against the plan, Senwes casted a vote in good faith in
genuine belief that its vote against the plan
would advance its
interests because if there is no business rescue plan and the CC is
liquidated, Senwes would outrank the claims
of all other creditors on
the proceeds of the crops.
In
the prevailing circumstances, I find nothing unfit, unsuitable or
improper in Senwes' vote which is inappropriate.
I therefore cannot, from these considerations conceivably think how
it can be contended that Senwes had exercised its vote
inappropriately.”
(emphasis
added.)
[38]
In para [57] of
JVJ
Logistics
supra
Olsen J expressed him in the following terms:
“
The
business plan postulates the first respondent capitalising the
company and for the achievement of that purpose being kept out
of its
lawful entitlement to possession of its property for over three
years.
The
plan did not propose merely to compromise the first respondent’s
existing claim as a creditor, but sought to compel the
first
respondent to fund the company, and against its will to submit to a
regime of risks, and infringements of its own future
rights
represented by its proprietary interest in the vehicle. I
cannot discern any basis upon which a court could burden
the first
respondent with these obligations against its will by declaring its
vote “inappropriate”
,
and in effect thereby giving the plan the requisite approval.”
(emphasis
added.)
[39]
There is no doubt that “reasonable prospects” is a lesser
requirement than “reasonable probability”
which was the
yardstick for placing a company under judicial management as
mentioned
supra
.
Brand JA dealt at paragraph [29] in
Oakdene
Square Properties supra
with the term “reasonable prospect” and submitted that
the emphasis should be on “reasonable”, i.e. that
the
prospect must be based on reasonable grounds. A mere
speculative suggestion is not enough and the same applies to an
arguable possibility. Furthermore reasonable grounds must be
established in accordance with the laws of motion proceedings
stated
supra
,
which generally speaking, require that an applicant must make out its
case in its founding papers. Brand JA, in dealing
with a
submission of appellant’s counsel and dismissing it as
incorrect, made the following remarks at paragraph [31] of
Oakdene
Square Properties
supra
:
“…
Self-evidently
the development of a plan cannot be a goal in itself. It can only be
the means to an end. That end, as I see it,
must be either to restore
the company to a solvent going concern, or at least to facilitate a
better deal for creditors and shareholders
than they would secure
from a liquidation process. I have indicated my agreement with the
statement in Propspec that the applicant
is not required to set out a
detailed plan. That can be left to the business rescue practitioner
after proper investigation in
terms of s 141.
But
the applicant must establish grounds for the reasonable prospect of
achieving one of the two goals in s 128(1)(b)
.”
(emphasis
added.)
VIII
EVALUATION
OF THE EVIDENCE AND SUBMISSIONS OF THE PARTIES
[40]
Although respondents’ case is that Luthuli is neither a
creditor, nor an employee of TTSA and that he has no
locus
standi
in the application, which I am prepared to accept based on
Plascon
Evans,
it is apparent that LPC as a 30% shareholder is an affected person.
However I accept respondents’ version that LPC
is not a
creditor of TTSA. Respondents deny that NUMSA and the employees
of TTSA are properly cited as parties to the proceedings
and/or have
been joined properly. I tend to agree with this submission, but
it is not taking the issue any further insofar
as LPC as an affected
person has
locus
standi
in the main application for business rescue.
[41]
There is no doubt severe animosity between Luthuli and TTSA’s
other directors and Mr Hibon, the deponent to the affidavits
on
behalf of Transfix and TTSA, in particular. I considered the
various accusations made in the letters and emails attached
to the
papers, but it would serve no purpose to evaluate the accusations in
any detail and I shall refrain from doing so.
The most
important aspects relating to the main and counter-application will
be dealt with in my evaluation of the evidence.
Bearing in mind
the versions presented to me, I wish to state already at this stage
that I am prepared to accept, on the basis
of
Plascon
Evans,
the version of respondents in respect of the factual disputes
relating to the main application. There is no reason to find
respondents’ version as far-fetched, false or even improbable.
[42]
It is clear that neither Luthuli, nor LPC, has any funds readily
available to make any meaningful contribution to the financial
obligations of TTSA and/or to contribute to post commencement finance
as anticipated in the draft BRP. I accept that Luthuli
was
instrumental in TTSA receiving substantial orders from Eskom in
particular, but as indicated by respondents, he exposed TTSA
to
business risks in that he negotiated prices that were too low and on
more than one occasion accepted orders from Eskom whilst
TTSA did not
have the required cash flow to purchase the relevant components and
was unable to deliver accordingly. His actions
were even
considered to be out of control, reckless and unacceptable.
Simultaneously it may be pointed out that Luthuli received
commission
on sales and it would therefore be in his interest to obtain so many
orders as possible, notwithstanding the fact that
it might not be in
the interest of TTSA. I do not have to make any finding in this
regard as the dispute is not relevant
for present purposes and
consequently I shall refrain from doing so.
[43]
Luthuli makes a song and dance of the fact that the purchase price
initially agreed upon for 30% shareholding in TTSA, as well
as the
revised purchase price, is out of proportion with the value of the
shareholding, relying on misrepresentations pertaining
to the
financial position of TTSA. This can never be regarded as
acceptable evidence. He was presented with the 2013
financial
statements of TTSA before the re-instatement agreement was entered
into and had an opportunity to study these audited
financial
statements. He made several comments in this regard in his
email of 29 July 2013 and even made the following comment:
“
We
are business people and we can settle on any reasonable figure that
we are both comfortable with. Over the years, I have
come to
realise that value is not always determined by financial figures
only. What figure do you suggest we settle on –
a figure
that is fair to both Transfix and LPC?”
LPC
and Luthuli failed to disclose that the re-instatement agreement was
concluded against the background that Luthuli addressed
the email
communication on behalf of LPC wherein he specifically recorded that
the parties should settle upon a reasonable purchase
price.
[44]
One gets the impression from LPC’s answering affidavit to the
counter-application deposed to by Luthuli that LPC is entitled
to the
30% shareholding in TTSA without any consideration payable by it.
On 21 December 2015 two letters were addressed to
Transfix, one by
Luthuli personally and the other by his attorney. The attorney
sought extension for repayment of the loan
until 30 May 2016.
In Luthuli’s letter he requested that the LPC shares be
transferred to Madlanduna Investment Corporation
(Pty) Ltd,
“
which
is the company that has money and assets”
.
[45]
It is respondents’ case that the business rescue application
has been filed with an ulterior motive, i.e. to open the
door for the
acquisition of TTSA’s shareholding and its business operations
by JSHP and Shanboa. LPC’s submissions
that the
counter-application is irrelevant, does not hold any water as alleged
by respondents who submitted that the counter-application
is indeed
relevant. Respondents submitted that, once relief is granted in
terms of the counter-application and the shares
in and claims on loan
account against TTSA are retransferred and ceded respectively to
Transfix, Transfix would be in total control
of TTSA. It would
then be able to either subordinate its claims on loan account against
TTSA or to convert such claims on
loan account into shares in order
to place TTSA in solvent circumstances. Once TTSA is solvent,
Transfix will be able to
alienate or dispose of its interest in TTSA
on favourable terms. This proposition cannot be rejected and
bearing in mind
the enormous financial contributions already made by
Transfix, it is only reasonable that its views and vision be
considered thoroughly.
If TTSA is sold as a going concern, the
employees or the majority of them, will probably be retained by the
new owners if their
expertise and experience are taken into
consideration.
[46]
It is unacceptable that LPC can rely on its 30% shareholding in TTSA
to be regarded as an affected person with
locus
standi
to bring the business rescue application, but simultaneously
persisting in its failure (and/or refusal) to settle its indebtedness
relating to acquisition of the shares. In any event, in its
application to NEC, it unambiguously made it clear that its 30%
shareholding in TTSA had reverted back to Transfix and therefore it
needed funds to obtain a 100% shareholding in TTSA (and not
only
70%). This serves as proof that Transfix is entitled to relief
in the counter-application which I shall discuss
infra.
[47]
It is no doubt true as stated by Brand JA in
Oakdene
Square Properties supra
that it is not required of an applicant to set out a detailed
business rescue plan in its founding affidavit. The fact of
the
matter is that the applicant must establish grounds to show a
reasonable prospect of achieving one of the goals in section
128(1)(b) of the Act. Respondents have criticised the draft BRP
presented by Mr Steyn and in order to counter that, LPC submitted
in
reply that the draft BRP is not the alpha and omega and that the
business rescue practitioner to be appointed may eventually
come up
with a different final plan. LPC therefore submitted that
Transfix was premature to voice its objection to business
rescue and
the draft BRP. Mr Bitter also submitted as mentioned
supra
that
the various judgments referred to by Mr Van der Walt should not be
followed as they are distinguishable on the basis that in
all those
cases business rescue proceedings had been commenced and affected
persons were called upon to vote for or against the
plans as
presented.
[48]
In my view Transfix as majority shareholder and majority creditor
with a total value of approximately 92% of the total claims,
is the
major role player whose views must be considered seriously. I
refer to Brand JA’s comments in
Oakdene
Square Properties
pertaining
to the views of Nedbank and Imperial. I have considered Transfix’s
reasons why it would not support the BRP prepared
by Steyn and cannot
find any reason to differ from its approach. It is apparent
that LPC, JSHP and Shanboa were in the process
of negotiating and no
firm agreement was entered into. It is highly unlikely that the
two international companies will contribute
to any post commencement
finance, considering the condition that new class A shares be issued
to investors proportionate to their
contributions and that all
existing shares in TTSA should be converted into class B shares and
Transfix’ declared unwillingness
to consent to such
conversion. This should really be the end of the road.
Furthermore it is clear that the prospects
of these two companies
contributing to post commencement finances are dependent upon a
number of contingencies and consequently
highly speculative. In
any event, Transfix is not prepared to accept R20m in full and final
settlement of its claim on loan
account which claim is in excess of
R65m, while other creditors are paid in full. The Memorandum of
Understanding has lapsed
in the meantime and no evidence has been
tendered in respect of alternative plans.
[49]
Mr Steyn assumes in his draft BRP that TTSA will be able to increase
its share in the South African transformers supply market
to 25% by
the year 2020. No substantive and acceptable evidence
supporting this assumption is disclosed in the BRP or in
the founding
affidavit, rendering the assumption mere conjecture. Currently
TTSA’s market share is merely 5%.
[50]
The draft BRP is also premised on the basis that TTSA must produce 52
units per week whilst it is currently only producing
20 units per
week. In order to double its production TTSA would require a
larger industrial plant as well as an increased
workforce. This
will result in a serious increase in respect of the overhead costs
and would jeopardise any prospect of rescuing
TTSA.
[51]
Mr Steyn emphatically states in the draft BRP that without the
injection of post commencement finance in the amount of R32m,
there
is no reasonable prospect of rescuing TTSA. Bearing in mind the
acceptable and admissible evidence placed before me,
I am of the view
that Transfix as the major creditor and shareholder cannot be
criticised for adopting its stance. Its declared
intent is to
vote against any BRP plan to be drafted on the basis of the draft
BRP. In doing so I am satisfied that it will
act in good
faith. There is no reason to believe that Transfix is
unreasonable or
mala
fide.
There is nothing unsuitable, unfitting or improper in the stance
taken. It must be remembered that Transfix invested
millions of
Rands in TTSA, whilst LPC has not provided any financial assistance
at all. Notwithstanding Transfix’ financial
assistance,
TTSA is running at a loss. Transfix should be allowed to deal
with TTSA as suggested in the papers.
[52]
Luthuli does not have any shares in Nuclear Consultants International
(Pty) Ltd. His version is in direct contrast with
the
documentary evidence presented by him. The 15.1% shareholding
referred to by him is held by Madlanduna Investment Corporation
(Pty)
Ltd, a company which is presently under business rescue. As a
result Luthuli is not entitled to dispose of the shares
which this
company holds, even if he is a director thereof. LPC, by its
own admission, does not have any assets, save for
its shareholding in
and claims on loan account against TTSA. LPC was, for a period
of about three years, unable to make any
payment in respect of the
purchase price pertaining to the shares in and loan account against
TTSA following the conclusion of
the sale of shares agreement.
When the re-instatement agreement was entered into, it also failed to
repay the loan amount
notwithstanding an extension of the deadline.
LPC tried to raise finance to purchase the entire shareholding in
TTSA, but
neither NEC, nor IDC was prepared to come to its
assistance. Luthuli and/or LPC also failed to raise an amount
of between
R4m and R5 m agreed upon to contribute to the working
capital of TTSA which amount had to be paid before the end of March
2016.
The inability of LPC and Luthuli to settle their debts
and/or to successfully apply for financing, stands in sharp contrast
to
the financial position of Transfix. It has a claim on loan
account against TTSA in the amount of R65 429 021,00
resulting in it holding more than 92% of the creditors’ voting
interest in TTSA. It has been supporting TTSA financially
since
2010 and is not prepared to accept R20m only in respect of its loan
account.
[53]
I am satisfied that even if the inadmissible evidence pertaining to
the negotiations between LPC, JSHP and Shanboa is considered
for
purposes of evaluation of the evidence, these negotiations remain
nothing more than talks. It was pointed out during
oral
argument that the Memorandum of Understanding relied upon by LPC had
lapsed in the meantime without any indication that a
new agreement
had been entered into. Any suggestion that business rescue
would achieve any of the two purposes mentioned
in the Act is
speculative and baseless. Business rescue is doomed to fail
in
casu.
[54]
LPC has not presented any defences whatsoever to Transfix’
counter-application and in my opinion a proper case has been
made out
why the counter-application should be granted. Insofar as LPC
contradicts Transfix’s version in the counter-application,
it
is rejected as far-fetched and improbable. Luthuli,
representing LPC, admitted on 28 January 2016 at a TTSA shareholders’
meeting that LPC was not able to settle the loan owed to Transfix and
that Transfix was entitled to exercise the call option.
It is
not LPC’s case that the call option was not properly
exercised. Luthuli also admitted in the loan
application to NEC that LPC is not entitled to any shareholding in
TTSA as the 30% shareholding it previously held, had reverted
back to
Transfix. The defences relied upon by LPC are unfounded, either
in law or in fact. I have indicated
supra
that the alleged inflated valuation of TTSA was irrelevant to the
final purchase price agreed upon in terms of the re-instatement
agreement concluded on 3 October 2013. The liquidity and/or
profitability of TTSA are irrelevant
in
casu
and there is no basis to read a tacit term into the written contract
that the purchase price had to be paid out of monies generated
by
TTSA. The full purchase price was advanced by Transfix on loan
to LPC and as a result it was be able to and did make payment
of the
purchase price. LPC had to, if needed, obtain third party
finance to settle the loan which it failed to do. I
am
satisfied that a call option was contractually agreed upon and that
Transfix was entitled to exercise it, which it duly did.
LPC
failed to sign the relevant documentation as requested.
IX
CONCLUSION
[55]
It follows that applicants have not made out a case for the relief
claimed the main application, but that second respondent’s
counter-application should succeed. There is no reason why
costs should not follow the event.
X
ORDERS
[56]
1.
The main application
:
1.1
The
main application is dismissed with costs, such costs to be paid
jointly and severally by first and third applicants, the one
to pay,
the other to be absolved.
2.
Counter-application:
2.1
It is declared that second respondent has validly exercised the call
option granted to it by first applicant in terms
of clause 4.1.9 of
the re-instatement agreement concluded on 3 October 2013, read with
the sale of shares agreement concluded on
11 February 2013;
2.2
First applicant is directed to transfer the relevant shares which are
the subject matter of such call option to the second
respondent
against set-off of the purchase price payable in terms of the call
option against the second respondent’s claim
against first
applicant in terms of the loan granted by the second respondent to
the first applicant in terms of clause 4.1.5 of
the re-instatement
agreement read with the sale of shares agreement, i.e. the capital of
such loan together with the accrued interest
thereon in terms of such
re-instatement agreement read with the sale of shares agreement.
2.3
First applicant is directed to sign all documents required in terms
of the provisions of the
Companies Act, 71 of 2008
to effect the
transfer of such shares to the second respondent in the securities
register of first respondent.
2.4
The sheriff of this court is authorised, mandated and directed to do
everything necessary and to sign all documents required
to effect the
transfer of such shares as set out above in the event that the first
applicant fails to sign such documents within
10 days after written
request thereto by second respondent’s attorneys of record.
2.5
First applicant is directed to cede its claims as shareholder on loan
account which are the subject of such call option,
to the second
respondent against set-off of the purchase price payable in terms of
the call option against the second respondent’s
claim against
first applicant in terms of the loan granted by the second respondent
to the first applicant in terms of clause 4.1.5
of the re-instatement
agreement read with the sale of shares agreement, i.e. the capital of
such loan together with the accrued
interest thereon in terms of such
re-instatement agreement read with the sale of shares agreement.
2.6
First applicant is directed to sign an agreement of cession in
accordance with the provisions of annexure “A20”
to the
answering affidavit filed in the main application.
2.7
The sheriff of this court is authorised, mandated and directed to do
anything necessary and to sign all the documents
required to effect
the cession of such claims on loan account as set out above in the
event that the first applicant fails to sign
such documents within 10
days after written request thereto by the second respondent’s
attorneys of record.
2.8
First applicant is ordered to pay second respondent’s costs of
the counter-application.
_____________
J.P.
DAFFUE, J
On behalf of
applicants: Adv. J. J. Bitter
Instructed
by:
Govender
Patel Dladla Inc.
c/o
Webbers Attorneys
BLOEMFONTEIN
On behalf of the
respondents: Adv. D. J. van der Walt SC
Instructed
by:
Phatshoane
Henney Attorneys
BLOEMFONTEIN
/EB