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[2016] ZAKZDHC 24
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JVJ Logistics (Pty) Ltd v Standard Bank of South Africa Ltd and Others (7076/2015) [2016] ZAKZDHC 24; [2016] 3 All SA 813 (KZD); 2016 (6) SA 448 (KZD) (22 July 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
LOCAL DIVISION, DURBAN
CASE
NO: 7076/2015
REPORTABLE
In
the matter between:
JVJ
LOGISTICS (PTY)
LTD
............................................................................................
APPLICANT
And
STANDARD
BANK OF SOUTH AFRICA
LTD
...................................................
1
ST
RESPONDENT
THE SHERIFF OF
THE HIGH COURT FOR
THE
DISTRICT OF
INANDA
...............................................................................
2
ND
RESPONDENT
ADRIAN
VENGADESAN
......................................................................................
3
RD
RESPONDENT
J
U D G M E N T
Delivered
on: FRIDAY, 22 JULY 2016
OLSEN
J
[1]
Section 133(1) of the Companies Act, 71 of 2008 (the “Act”)
provides for a general moratorium on legal proceedings
against a
company during business rescue. There are exceptions to the
moratorium that do not feature in this case.
In its material
part s 133(1) reads as follows.
“
During
business rescue proceedings, no legal proceeding, including
enforcement action, against the company, or in relation to any
property belonging to the company, or lawfully in its possession, may
be commenced or proceeded with in any forum, except - …”
A
decision in the present application cannot be reached without first
considering the proper construction of the phrase “lawfully
in
its possession” where it appears in s 133(1). The issue
arises in the context of an assertion by the first respondent,
Standard Bank of South Africa Limited, that it is entitled to
repossess a Nissan motor vehicle currently possessed by the
applicant,
JVJ Logistics (Pty) Limited. Business rescue
proceedings commenced in respect of the applicant. There is a
dispute
on the papers as to whether those proceedings continue, but,
in the view I take of this matter, it is not one that needs be
resolved.
I proceed on the assumption that the applicant
remains in business rescue.
THE
FACTS AND THE RELIEF SOUGHT BY THE APPLICANT
[2]
The relevant facts are not disputed. The applicant is a
transport company. Its sole director and shareholder calls
it a
“micro enterprise”. It has only one vehicle.
It acquired possession of that vehicle under an instalment
sale
agreement concluded with the first respondent, in terms of which
ownership of the vehicle was retained by the first respondent.
The
applicant fell into arrears with its instalments owed to the first
respondent by a considerable margin, as a result of which
the first
respondent cancelled the instalment sale agreement and instituted
proceedings against the applicant seeking an order
confirming the
validity of the cancellation and an order for the immediate return of
the vehicle. Such orders were granted
by this court on 27 March
2015. The applicant’s business rescue commenced on 9
April 2015 following a resolution taken
on 31 March 2015, and the
third respondent, Mr. Adrian Vengadesan, was appointed on or about 30
April 2015 to oversee the company
during business rescue.
[3]
The third respondent prepared a business plan. (There is a
dispute about whether it qualifies as such, but that issue
need not
be considered. I will call it a “business plan”.)
The business plan disclosed the existence of
only two creditors,
namely the South African Revenue Services and the first respondent.
But the annexure to the plan which
was designed to list creditors did
not state how much each was owed. Nevertheless it is not disputed
that the first respondent’s
support for the plan was necessary
for its approval. Annexed to the plan was a set of
documents incorporating an income
statement and balance sheet which
sought to account for the forecasted financial situation of the
applicant under business rescue.
In essence the motor
vehicle owned by the first respondent was to comprise the capital of
the company, and was put into the statements
at a value of R900 000,
which approximated the amount which would have been owing to the
first respondent in terms of the
instalment sale agreement if it had
not been cancelled. The business plan was structured around the
proposition that the
applicant had managed to conclude a contract in
terms of which it would use the vehicle to transport steel products
around the
country. (There is a dispute on the papers as to
whether the terms of this contract were such as justified the
financial
forecast at the centre of the business plan. This
issue need not be considered.) At the meeting called for the
approval
of the business plan the first respondent voted against it.
There was an attempt on the part of the applicant to obtain more
and
better information in the hope that the first respondent could be
persuaded to change its mind, but it would not relent.
Instead
the first respondent notified the applicant that it intended to have
served and implemented what it called the “warrant
of delivery”
issued pursuant to the order of this court granted on 27 March 2015
directing the return of the motor vehicle
to the first respondent.
[4]
This last turn of events brought about the present application in
which the applicant (supported by the third respondent), seeks
an
order in terms of s 153(1)(a)(ii) of the Act setting aside the vote
of the first respondent against approval of the business
plan on the
ground that the vote was inappropriate; and an interdict restraining
the service and implementation of the warrant
under which the motor
vehicle would be seized and returned to the first respondent.
THE
POWER OF THE COURT TO RESCIND OR VARY ITS ORDER OF 27 MARCH 2015
[5]
The papers in this application are replete with allegations and
counter-allegations concerning the qualities of the business
rescue
plan, whether business rescue had come to an end and, of course,
whether it would be proper to classify the first respondent’s
rejection of the plan as inappropriate. Concerning the
prayer for an interdict, all that was said in support of it
in the
founding papers was that service of the warrant was forbidden by s
133(1) of the Act. In its answering affidavit the
first
respondent took the line that the moratorium could not operate
because business rescue had come to an end.
[6]
The judgment pronounced by this court on 27 March 2015 was final and
definitive with regard to the rights of the applicant and
the first
respondent to possession of the motor vehicle. The general
principle concerning the effect of a final judgment
was set out as
follows in
Firestone South Africa
(Proprietary) Limited v Genticuro AG
1977
(4) SA 298
(A) at 306F-G.
“
The
general principle, now well established in our law, is that, once a
court has duly pronounced a final judgment or order, it
has itself no
authority to correct, alter or supplement it. The reason is
that it thereupon becomes
functus
officio
: its jurisdiction in the case
having been fully and finally exercised, its authority over the
subject-matter has ceased.”
(The
established exceptions to the principle, dealt with thereafter in the
Firestone
judgment, do not require further attention.)
[7]
The general principle enunciated in
Firestone
was endorsed in
Minister of Justice v
Ntuli
[1997] ZACC 7
;
1997 (3) SA 772
(CC) paras 22 –
29. The principle has since been considered and restated by the
Constitutional Court on a number of
occasions. (See inter alia
Ex Parte Minister of Social Development
and Others
[2006] ZACC 3
;
2006 (4) SA 309
(CC) paras
29 – 40; and
Cross-Border RTA v
Central African Road Services
(Pty) Ltd
2015 (5) SA 370
(CC) paras 38 – 46.) Whilst the factual
backgrounds to the judgments of the Constitutional Court referred to
above
were quite different to the one now under consideration, the
principles remain the same.
[8]
Once pronounced, the judgment of a court is enforceable according to
its terms. Given the correct circumstances the judgment
itself
may be attacked, as occurs when it is sought to be rescinded, or
becomes the subject of an appeal. But where, as here,
the
judgment is not questioned, but the right to enforce it is
challenged, that may only be done on recognised grounds, such as
that
the judgment has been discharged or abandoned. Subject only to
the power of the court to supervise and regulate execution
(the ambit
of which power depends on the nature of the execution sought to be
levied), any order interfering with the right to
execute must be
carefully considered, as its effect if it is sought without proper
grounds for the relief is a variation of the
original judgment, a
matter beyond the power of the court. In this case the
interdict sought by the applicant is itself final
and open ended, and
would amount in its effect to a rescission of the order finally made
by this court in March 2015. Given
the context in which the
interdict is sought, one could say that what the applicant really
wanted, or needed, was an order varying
the order of March 2015 by
suspending it, or declaring it suspended by law, whilst business
rescue is underway. (Such an
order would leave open the
question as to who would have the right to possession of the motor
vehicle once business rescue terminates.)
[9]
With these matters in mind counsel for the applicant was requested at
the commencement of argument to consider the question
as to whether
this court had the power or jurisdiction in effect to vary its
original order other than on the basis contended for
in the answering
affidavit, that s 133(1) of the Act constitutes a statutory
injunction against the implementation or execution
of the judgment
under which the vehicle was to be restored to the possession of the
first respondent. Counsel answered, correctly
in my view, that
if the applicant did not enjoy the protection of a moratorium imposed
by s 133(1), then the interdict sought could
not be granted in any
terms. Counsel conceded further that if the interdict could not
be granted, the application to set
aside the first respondent’s
vote against the business plan had also to fail, as the business plan
was premised upon the
proposition that the applicant could keep and
use the motor vehicle against the will of its owner, the first
respondent.
[10]
In that context this court raised the question
mero motu
as to
whether it could grant any of the relief sought by the applicant
without first finding that the vehicle which the first respondent
sought to recover was lawfully in the possession of the applicant, as
contemplated by s 133(1) of the Act. It seems to me
that where
a question arises in the mind of the court, but not of the parties,
as to whether in the first place the court has the
jurisdiction or
power to grant any relief sought, the court is obliged to raise the
issue
mero motu
. That accords with what was said by Ngcobo J
in para 68 of the judgment of
CUSA v Tao Ying Metal Industries
[2008] ZACC 15
;
2009 (2) SA 204
(CC).
“
Where
a point of law is apparent on the papers, but the common approach of
the parties proceeds on a wrong perception of what the
law is, a
court is not only entitled, but is in fact also obliged,
mero
motu
, to raise the point of law and
require the parties to deal therewith. Otherwise, the result
would be a decision premised
on an incorrect application of the law.
That would infringe the principle of legality.”
[11]
As it turned out, at some stage after he had prepared his heads of
argument, the problem had struck counsel for the first respondent
as
well, and he handed up a copy of the judgment of Tolmay J in
Madodza
(Pty) Limited v ABSA Bank Limited and Others
[2012] ZAGPPHC 165 (15 August 2012). There the court was confronted
with the same question, and decided that certain vehicles which
had
been the subjects of finance agreements which had been cancelled were
not lawfully in the possession of the company in business
rescue, as
a result of which s 133(1) of the Act was not an obstruction to
recovery of those vehicles.
[12]
Given that counsel for the applicant had not previously considered
the question, the parties were granted leave to file additional
written argument on it. That has now been done.
THE
CONTENTIONS OF THE PARTIES
[13]
Counsel for the applicant has argued, with reference to
Cloete
Murray and Another NNO v Firstrand Bank Limited
t/a Wesbank
2015 (3) SA 438
(SCA) that the execution or enforcement of the order
of this court made in March 2015, prior to the commencement of
business rescue,
would amount to “enforcement action”, as
that term is employed in s 133(1) of the Act. In my view this
submission
is correct as far as it goes, and it is not contradicted
by counsel for the first respondent. (See in this regard para
32
of the judgment in
Cloete Murray
.)
[14]
Counsel for the applicant, citing both
Cloete Murray
and
Richter v ABSA Bank
2015 (5) SA 57
(SCA) para 13, argues
further that the net is cast so wide by s 133(1) of the Act that the
enforcement action proposed by the first
respondent must be hit by
the moratorium as otherwise it would be within the power of the first
respondent unilaterally to prevent
the rescue of the company,
contrary to the purpose of the Act. If counsel for the
applicant is correct the questions arise
immediately as to why:
(a)
the word “lawfully” appears in
the phrase “or lawfully in its possession” in s 133(1) of
the Act;
(b)
section 134(1)(c) of the Act deals with
exercising rights in respect of property in the “lawful”
possession of the company.
The
argument advanced on behalf of the applicant offers no suggestions as
to the meaning to be ascribed to the word “lawfully”
where it appears in s 133(1), nor any argument beyond what I have
already stated in support of the proposition that the word can
simply
be ignored. If counsel for the applicant is correct, then it
must be concluded that the word “lawfully”
where it
appears in the two sections should be regarded as having been
inserted through some “inadvertence or error”,
a
conclusion which can only be drawn as a last resort to avoid
insensibility or absurdity. (
Attorney-General,
Transvaal v Additional Magistrate for Johannesburg
1924 AD 421
at 436.) The present case is no occasion for
reaching that conclusion.
[15]
Counsel for the first respondent relies exclusively on the decision
in
Madodza
. Reading a little into para 17 of that
judgment, one might say that the court concluded that the moratorium
did not protect
the company in business rescue because:
(a)
the cancellation of the agreement terminated the right to possess;
and
(b)
the company had been ordered to return the vehicles.
Orders
for the delivery of property are not made by the court unless it
finds that the continued retention of the property by the
defendant
or respondent is unlawful as against the party claiming such relief.
INTERPRETING
THE SECTION
[16]
One would think that if any element of unlawfulness attaches to
someone’s possession of property, then such property
cannot be
said to be in the “lawful possession” of that person.
However the temptation to regard that proposition
as obvious and
decisive of this case, and to close one’s mind to other
possibilities, must be sternly resisted especially
when considering
the meaning of the provisions of the Act dealing with business
rescue. The approach to be followed in reaching
a decision on
the interpretation of the relevant words in s 133(1) of the Act is
the one set out in
Natal Joint Municipal Pension Fund v Endumeni
Municipality
2012 (4) SA 593
(SCA) para 18.
“
Interpretation
is the process of attributing meaning to the words used in a
document, be it legislation, some other statutory instrument,
or
contract, having regard to the context provided by reading the
particular provision or provisions in the light of the document
as a
whole and the circumstances attendant upon its coming into
existence. Whatever the nature of the document, consideration
must be given to the language used in the light of the ordinary rules
of grammar and syntax; the context in which the provision
appears; the apparent purpose to which it is directed and the
material known to those responsible for its production. Where
more than one meaning is possible each possibility must be weighed in
the light of all these factors. The process is objective,
not
subjective. A sensible meaning is to be preferred to one that
leads to insensible or unbusinesslike results or undermines
the
apparent purpose of the document. Judges must be alert to, and
guard against, the temptation to substitute what they
regard as
reasonable, sensible or business-like for the words actually used.
To do so in regard to a statute or statutory
instrument is to cross
the divide between interpretation and legislation; in a contractual
context it is to make a contract for
the parties other than the one
they in fact made. The “inevitable point of departure is
the language of the provision
itself”, read in context and
having regard to the purpose of the provision and the background to
the preparation and production
of the document.”
[17]
It is uncontentious that Chapter 6 of the Act constitutes an attempt
to address the failings of the system of judicial management
which
prevailed before. The
Companies Act of 2008
recasts the
corporate landscape, which perhaps rendered the statement of its
purposes in
s 7
imperative.
Section 7(k)
states that 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
”.
(My
emphasis)
Whilst
sight should not be lost of the other purposes of the Act set out in
s 7, that very much defines the context in which s 133(1)
appears,
and the apparent purpose to which it is directed. It also
causes me to reflect, respectfully, along the lines that
perhaps the
court in
Cloete Murray
went too far in para 34 of the judgment, in accepting the proposition
that the intention behind the moratorium is to “include
any
conceivable type of action against the company”, unless that
statement is seen only in the context of the distinction
drawn in s
133(1) between legal proceedings against the company and legal
proceedings in relation to property of or property lawfully
possessed
by the company. It is plain that an action in relation to
property not lawfully in the possession of the company
can be
maintained, notwithstanding the moratorium; the question being what
is meant by the requirement that possession must be
“lawful”
for the moratorium to protect it.
[18]
The context provided by the document within which the object of an
interpretative exercise resides is obviously of substantial
importance. Unfortunately, whilst s 7(k) of the Act speaks
plainly to the purpose of business rescue, the provisions of the
Act
designed to establish and regulate the process speak far from
plainly. Some provisions generate perplexity instead of
enlightenment.
In
African Banking Corporation of Botswana
Limited v Kariba Furniture Manufacturers (Pty) Limited and Others
2015 (5) SA 192
(SCA) para 43, Leach JA had this to say.
“
I
do not believe it is unfair to comment that many of the provisions of
the Act relating to business rescue, and s 153 in particular,
were
shoddily drafted and have given rise to considerable uncertainty.”
The
learned Judge went on to refer to an article by Dr A Loubser (“The
Business Rescue Proceedings in the
Companies Act of 2008
: Concerns
and Questions
(Part 2)
” :
2010
TSAR
689
at 700 – 701) where the learned author said the following.
“
It
is therefore regrettable that the drafters of the provisions
regulating the new rescue proceedings did not exercise more care
in
constructing the new procedure to avoid introducing principles and
provisions that are completely foreign and even in conflict
with our
established law. … The many unclear, confusing and sometimes
alarming provisions regulating the business rescue
proceedings in the
Companies Act of 2008
will certainly not assist in making the
procedure more acceptable or successful.”
[19]
For the reasons stated immediately above the necessary exercise of
reaching an understanding of any one provision which is
consistent
with the legislative framework as a whole is often not a simple one
in the case of the business rescue provisions.
Confronted with
just such an interpretative conundrum with regard to business rescue,
the learned Judge who penned the judgment
in
Endumeni
had the
following to say in
Panamo Properties (Pty) Limited and Another v
Nel and Others NNO
2015 (5) SA 63
(SCA) para 27.
“
When
a problem such as the present one arises the court must consider
whether there is a sensible interpretation that can be given
to the
relevant provisions that will avoid anomalies. In doing
so certain well-established principles of construction
apply.
The first is that the court will endeavour to give a meaning to every
word and every section in the statute and not
lightly construe any
provision as having no practical effect. The second and most
relevant for present purposes is that if
the provisions of the
statute that appear to conflict with one another are capable of being
reconciled then they should be reconciled.”
Thus
driven, the court came to the conclusion that, despite the fact that
s 129(5)(a) of the Act is to the effect that if certain
procedural
requirements are not met a resolution to begin business rescue
“lapses and is a nullity”, upon a proper
construction of
the provision in the context of the scheme of the Act the resolution
does not so lapse and become a nullity; that
is unless, and
until, a court sets it aside after a further requirement, that it is
just and equitable to do so, has been established.
My
respectful view is that the conclusion reached in
Panamo
Properties
is correct. It is
nevertheless undesirable that courts should have to explore the outer
limits of the meanings of words in
order to render a legislative
scheme consistent, logical and rational.
[20]
The interpretive exercise in this case is not free from the
difficulties discussed above. The definition of “business
rescue” in s 128(1)(b) of the Act must be reconciled with
sections 133(1) and 134(1)(c) of the Act. Another example
is s
134(3) which deals inter alia with a decision by a company to dispose
of property over which another person has a “title
interest”,
leaving the unfortunate reader to unravel the meaning of the term,
and in particular to discern whether the ultimate
form of title to
property protected by our law – ownership - is intended to be
regarded as a “title interest”.
The relationship
between the moratorium imposed by s 133 of the Act, and the one for
which the business plan may make provision
(see s 150(2)(b)(i)), is
not spelt out. In addition to difficulties of this type, the
outcome of one or the other interpretation
must be assessed as to its
outcome : is it sensible and businesslike : if it is carried to its
logical conclusion, does it meet
the apparent purpose of the
legislation, including the achievement of a balance between the
rights and interests of stakeholders
whilst searching for the relief
from financial distress which the company needs in order to survive.
CAN
MERE FACTUAL POSSESSION MEET THE REQUIREMENTS OF s 133(1) ?
[21]
Possession of corporeal property is a fact; or to put that more
accurately, a coincidence of two facts: physical detention
of the
property coupled with the existence of an intention to possess or
keep control of the thing. The fact of possession
does not of
itself speak to any right of the possessor to possess the property.
In my view a consideration of the remedy
of the
mandament
van spolie
illustrates this.
[22]
As the late Professor Silberberg pointed out in the first edition of
his work
The Law of Property
,
1975 (at pages 72 – 73), the mere fact of possession generates
a right which is generally referred to as the
jus
possessionis.
The content of that
right does not proceed beyond the right to the assistance of the
courts to restore factual possession
when dispossession against the
will of the possessor takes place without the sanction of law. It
is only to that extent
that the spoliation remedy is a reflection of
a right. It is not a right which is acquired from any person;
it is automatically
generated by a state of affairs – i.e. the
fact that the property is possessed.
[23]
In
Tswelopele Non-Profit Organisation and Others v City of Tshwane
Metropolitan Municipality and Others
2007 (6) SA 511
(SCA) para
21 Cameron JA had the following to say about the spoliation remedy.
“
Under
it, anyone illicitly deprived of property is entitled to be restored
to possession before anything else is debated or decided
(
spoliatus
ante omnia restituendus est
).
Even an unlawful possessor – a fraud, a thief or a robber –
is entitled to the
mandament’s
protection. The principle is that
illicit deprivation must be remedied before the Courts will decide
competing claims to the
object or property.”
When
the law protects mere factual possession it does not do so because of
the lawfulness of the possession, but in order to address
the
unlawfulness of the deprivation of possession.
Accordingly, the requirement of s 133(1) of the Act, that to enjoy
the benefits of the moratorium against proceedings in respect of
property possessed by a company, the possession should be “lawful”,
cannot be established merely by the fact that the company happens to
possess the property at the time when business rescue commences.
It is correct that the definition of “business rescue” in
s 128 of the Act speaks of a moratorium protecting “possession”
(ie without the qualification that it should be lawful), whilst the
operative provisions (the one under consideration and s 134(1)(c))
address only the protection of lawful possession. To the extent
that it may be said that there is a conflict it can only
be resolved
in favour of the operative provisions as, whilst they can be read
consistently with the definition, the converse is
not true if the
word “possession” in the definition is read to encompass
possession of any kind or origin.
TWO
POTENTIAL MEANINGS
[24]
It seems to me that there are two possible meanings to be
ascribed to the word “lawfully” in s 133(1) of
the Act.
The first is wider than the second.
[25]
The first, being the one adopted in
Madodza
,
regards the affected company’s possession of property as
unlawful, and therefore not protected by s 133(1) of the Act,
whenever the company lacks the so-called
jus
possidendi
, which Professor Silberberg
(
op cit
,
page 72) described as “a right which justifies a person’s
claim to have a thing in his possession”.
A
purchaser under a normal bank instalment agreement reserving
ownership to the bank acquires a
jus
possidendi
when put in possession of
the property in terms of the agreement; and loses it if the agreement
is cancelled. On this approach
the requirement of s 133(1) is
that the company’s possession should be lawful when judged from
any perspective; or if not
that, then lawful when judged from the
perspective of any claim by a third party to possession of the
property.
[26]
The second possibility involves a distinction not unknown to our law
between
iusta
and
iniusta
possession. Professor Silberberg (
op
cit,
page 76) considered this
distinction to be one between just and unjust possession. The
learned authors of the 5
th
edition of his work (
Badenhoff, Pienaar
and Mostert
, 2006) render the same
distinction in English as one between lawful and unlawful
possession. In both cases the examples of
unjust or unlawful
possession immediately dealt with are possession acquired by force or
stealth (secretly). The learned
authors of the 5
th
edition of the work add as a further example of unlawful possession
that which is exercised “on sufferance as against the
opponent”. (See page 285). They accordingly equate
the concept of lawful (or just) possession with possession
nec
vi, nec clam, nec precario
, as those
terms were used in s 2 of the repealed Prescription Act, 18 of 1943.
(See also
LAWSA
: Vol.27 : 2ed : para 84.)
[27]
From the moment that the contract relating to the vehicle between the
applicant and the first respondent was cancelled, the
former’s
possession of the vehicle was precarious, dependent as it was on the
will of the first respondent as to whether
it would or would not
exercise its right to dispossess the applicant. Such precarious
possession is a not uncommon occurrence
in modern commercial
relationships. I do not think that for that reason alone one
can discard the proposition that
the legislature required the
protected form of possession to be “lawful” in the
traditional sense of
iusta possessio
,
so as to exclude from the ambit of the moratorium a claim to return
of property if it had come into the possession of the company
by
force or stealth; i.e. the company fell within the range of examples
of unlawful possessors given in
Tswelopele
,
“a fraud, a thief or a robber”.
[28]
For the sake of convenient expression, I will refer to the wider
concept dealt with in paragraph 25 above as “civil”
unlawfulness; and to the narrower meaning canvassed in paragraphs 26
and 27 above as “criminal” unlawfulness.
These are
mere convenient labels, and in using them I intend no detraction from
nor any expansion of the scope of the concepts.
THE
LANGUAGE OF THE PROVISION
[29]
Possession which is unlawful in the criminal sense is possession
unlawfully acquired, such as is the case when it is acquired
by fraud
or theft. If it was intended only to allow proceedings in
relation to property unlawfully possessed in the criminal
sense, then
s 133(1) of the Act could have spoken to any property belonging to
the company, or any other property of which it had
lawfully acquired
possession. The section instead says nothing about how
possession must have been acquired (or must not
have been acquired)
in order to make its intention clear.
[30]
Apart from the case of property the possession of which is unlawful
in any circumstances (as to which see
Ngqukumba
v Minister of Safety and Security
2014
(5) SA 112
(CC)), the question as to whether possession is lawful
arises inevitably when one person (usually the owner, or alleged
owner)
makes a claim for possession against a person currently in
possession of the property. The issue then is as to whether the
claimant has a right to possession which trumps that of the
possessor, which would ordinarily occur because the possessor has no
right to maintain possession at all. The action for possession
would succeed if, as against the claimant, the retention of
possession by the possessor is unlawful.
[31]
Here, as against the first respondent, the applicant’s
possession of the vehicle in question is unlawful. In ordinary
language, then, the vehicle is not “lawfully in [the
applicant’s] possession”.
[32]
In my view the failure of the legislature to employ language which
would make it clear that the moratorium protects all except
possession unlawful in the criminal sense favours the conclusion that
the lawful possession addressed by the section must be lawful
also in
the civil sense if the moratorium is to protect it.
Nevertheless the section, read alone, can bear both meanings
.
THE
DURATION OF THE MORATORIUM
[33]
The issue in this case must be affected to some extent by the answer
to the question as to how long any moratorium endures.
If
possession can be maintained by a company in business rescue which
has no defence otherwise to a claim by an owner for return
of its
property, the longer the period of dispossession of the owner
endures, the greater the invasion of property rights which
would be
brought about by reason of the regime designed for the rescue of
companies.
[34]
It has been observed by our courts that business rescue proceedings
are intended to be conducted speedily. (See, for
instance,
Koen
and Another v Wedgewood Village Golf and Country Estate (Pty) Limited
and Others
2012 (2) SA 378
(WCC) para 10, where the court
observed that “it is axiomatic that business rescue
proceedings, by their very nature, must
be conducted with the maximum
possible expedition.”) In
AG Petzetakis International
Holdings Limited v Petzetakis Africa (Pty) Limited and Others (Marley
Pipe Systems (Pty) Limited and
Another intervening)
2012 (5) SA
515
(GSJ) para 29 the following was said.
“
Chapter
6 of the
Companies Act demonstrates
a legislative intention that
rescue proceedings must be conducted reasonably speedily. The
reason is obvious. Pending
rescue proceedings temporarily
protect the company concerned from legal proceedings by its creditors
for the recovery of legitimate
claims without any input of the
creditors and remove the unfettered management of the company from
the directors. Delays
will extend the duration of these
temporary statutory arrangements, of which the duration is restricted
by way of the procedure
prescribed by the Act. … If the
time periods are added up, it appears that the protection of the
company without the
co-operation of the creditors from the time of a
rescue order should not be more than two to three months, even if
there are many
intervening non-business days.”
Whilst
it is correct that the moratorium imposed by s 133(1) of the Act is
temporary, it appears not to be the case that its duration
is
intended to be confined to the period during which the necessary
procedures are followed with a view to achieving an approved
business
plan. The opening words of s 133(1) are to the effect that the
moratorium applies “during business rescue
proceedings”.
When a business rescue plan has been adopted those business rescue
proceedings will last until the supervising
practitioner has filed “a
notice of substantial implementation of that plan” (s
132(2)(c)(ii)). The moratorium
is temporary, not because it is
inevitably of short duration, but because it has a finite life.
[35]
If the business rescue proceedings do not end within three months (or
within such longer time as the court may allow) s 132(3)
provides
merely for the delivery of regular progress reports to all affected
persons as well as either to the court or to the Commission.
That provision, and the fact that there is no sanction against the
duration of proceedings beyond three months, conveys that the
legislation envisages business rescue proceedings enduring for such
period as the plan itself may contemplate, the only check against
ridiculous extensions of the life of such proceedings being that the
plan must earn the requisite approval. Some business plans
may in
effect be implemented automatically and immediately upon adoption.
(An example would be a plan which provides only
for the partial
release of a company from payment of its debts, because that is all
that is required in order to rescue the business
of the company from
its financial distress, and its creditors are willing to approve such
a scheme.) But where, as is the
case here, the business plan
contemplates the company trading out of its difficulties, the
implementation of the plan (under the
direction of the practitioner
as required by s 152(5)(b) of the Act) is likely to take place over a
relatively protracted period.
[36]
Section 150 deals with what a business plan should contain.
Section 150(2)(b)(i) requires the proposed plan to disclose
“the
nature and duration of any moratorium for which the business rescue
plan makes provision”. The implication
of that provision
must be that the moratorium imposed by s 133(1) of the Act can be
modified or replaced by the business plan.
Business rescue
plans are likely to be as variable (subject to the limitation that
what is proposed should be lawful) as the various
circumstances which
might give rise to and characterise a company’s state of
financial distress. During the life of
the plan the moratorium
for which s 133(1) provides, or such other or modified moratorium as
the business plan may impose, will
operate. It is difficult to
see how any plan which contemplates a company trading out of its
difficulties can be viable without
the protection of a moratorium.
[37]
I conclude that if the requirement for the operation of the
moratorium is merely that the company’s possession should
not
be criminally unlawful, the potential for a substantial period of
operation of the moratorium imposed by s 133(1) of the Act
suggests
that the burden it would impose on the owner of property is too great
to meet the requirement that there should be a balance
of rights and
interests as contemplated by s 7(k) of the Act. It should not
be overlooked that if s 133(1) protects a company’s
civilly
unlawful possession of another’s property, it would be
difficult to argue that a similar moratorium imposed by a
business
plan would not be enforceable. The business plan in this case seeks
to do just that for a period of over three years.
THE
RIGHTS OF OWNERS : DO THEY HAVE A VOICE?
[38]
If the “lawful possession” contemplated by s133 (1) of
the Act is any possession which is not unlawful in the criminal
sense, then one would expect the provisions of the Act dealing with
business rescue to reflect the requirement of s 7(k) that the
owner’s
rights and interests should be balanced with those of all other
relevant stakeholders. The principal provisions
of the Act
dealing with the rights of third parties who are not shareholders or
employees are those relating to creditors.
The word “creditors”
is not defined in the Act.
[39]
In insolvency proceedings, a person who has a claim against the
estate not sounding in money can be regarded as a creditor
for
certain purposes. (See
Grobler v
Grobler’s Trustee
1908 TS 423
at
437 – 438;
Ex Parte Vanqua
1928 WLD 294
; and
Mars
: The Law of Insolvency in South Africa
9
ed, page 372.) But the context there is quite different to the
present one, as under insolvency law the trustee or liquidator
would
be bound to return property possessed but not owned by the insolvent,
subject to the statutory provisions dealing with uncompleted
transactions.
[40]
One of the principal rights of a creditor is to vote when the Act
provides for stakeholders to do so. A creditor is allocated
a “voting
interest”. Section 145(4)(a) of the Act provides that the
voting interest of a creditor is “equal
to the value of the
amount owed to that creditor by the company”. Section
145(4)(b) deals with the special case of
a creditor whose claim would
be subordinated in a liquidation. In that case the claim would
be “independently and expertly
appraised” with a view to
determining what would be realised by the creditor on liquidation,
which amount would determine
the creditor’s voting interest.
[41]
No provision is made for the quantification of the voting interest of
a person whose property is possessed by the company without
any right
thereto vesting in the company. Nothing is said about such a
person having a vote at all. That suggests strongly
that such a
person is not regarded as a creditor of a company in business rescue.
It is inconsistent with the intention behind
the Act that the
rights of such an owner should be trampled upon by a moratorium in
the same way as are those of creditors whose
claims sound in money,
but that only the latter should have decision-making rights and
powers in connection especially with the
formulation and adoption of
a business plan.
PROTECTION
OF PROPERTY INTERESTS
[42]
If, upon a proper construction of s 133(1) of the Act, a company in
business rescue is entitled to retain possession of any
property when
such possession is unlawful in the civil sense, one would have
thought that the regulation of the consequences of
that would have
been dealt with in s 134 of the Act which is headed “Protection
of Property Interests”. As already
mentioned, s 134(1)(c)
is a provision which deals pertinently with property not owned by the
company but in its possession; but
there, as in s 133(1), what is
forbidden without the written consent of the supervising practitioner
is the exercise of any right
to property in the “lawful”
possession of the company. This section takes the matter no
further.
[43]
In its perhaps negatively relevant provisions, s 134(3) provides as
follows.
“
If,
during a company’s business rescue proceedings, the company
wishes to dispose of any property over which another person
has any
security or title interest, the company must –
(a)
obtain the prior consent of that other
person, unless the proceeds of the disposal would be sufficient to
fully discharge the indebtedness
protected by that person’s
security or title interest; and
(b)
promptly-
(i)
pay to that other person the sale proceeds
attributable to that property up to the amount of the company’s
indebtedness to
that other person; or
(ii)
provide security for the amount of those
proceeds, to the reasonable satisfaction of that other person.”
[44]
Quite what is meant by the concept of “title interest” is
perplexing. The word “title”
is frequently
used as a synonym for “ownership”, or in connection with
the phenomenon of ownership. The question
arises as to why, if
it is contemplated that a company in business rescue would be
empowered to sell
any
property owned by another without the owner’s permission, that
was not stated in so many words. The proper interpretation
of s
134(3) is of some importance in understanding the meaning of s 133(1)
of the Act. It would not possible for a company
to dispose of
property not owned by it without the permission of the owner, unless
such property is in its possession. Delivery
could not take
place without the consent of the owner unless the company possesses
the property. If s 134(3) sanctions the
forced sale of
any
property owned by another, that would be an indicator, and perhaps a
strong one, that the moratorium imposed by the Act extends
to prevent
the recovery of possession by an owner even where the company’s
possession is unlawful in the civil sense.
[45]
Section 134(3) of the Act provides that without the prior consent of
the so-called “other person” (i.e. the person
with “any
security or title interest” over the property), the sale and
delivery (which is what the word “disposal”
must
indicate) can be executed if the proceeds would be sufficient to
“discharge the indebtedness” protected by the
person’s
“security or title interest”. The section goes on
to provide that there must be prompt payment
to that other person
from the proceeds of such a sale “up to the amount of the
company’s indebtedness to that other
person”.
However, as between an owner of such property and the company there
is no “indebtedness” owed
to the owner merely because it
is the owner. If one regards the section as authorising the
sale of any property owned by
another, then it is difficult to see
how the sale proceeds “attributable to that property”
must be paid only “up
to the amount of the company’s
indebtedness to the other person”. From where does the
indebtedness spring?
Surely, to the extent that the value of
ownership can be reduced to money terms, whatever the sale proceeds
attributable to the
property may be, the full amount represents the
owner’s interest and entitlement. The value of property
to an owner
in money terms is the highest price offered which the
owner is willing to accept.
[46]
I conclude that the concept “title interest” is closely
related to the concept of a “security interest”.
Each is an interest in specific property. An example of a
security interest would be the interest of the holder of a notarial
bond over movable property owned by the company. An example of
a title interest is the interest of a seller of property to
the
company on credit, where ownership of the property is reserved to the
credit grantor to protect itself against losses in the
event of
default by the company. In the latter case, for so long as the
contract between the seller and the company subsists,
the seller’s
interest in the property lies in its title, which the seller is bound
to surrender if the money owed to it under
the contract is paid. The
seller’s reserved ownership provides security without the need
for the seller to acquire a right
in any property owned by the
company. In that sense the seller has a “title interest”
in the property, for so
long as the contract which gave rise to it
subsists. Section 133(3) allows such an existing contract to be
unwound through
the sale of the property against the wishes of the
seller as long as the proceeds are sufficient to discharge the debt
owed under
the contract. But in my view if the contract is
cancelled, insofar as the property itself is concerned, the seller is
restored
to its full rights as owner; its interest is no longer a
mere “title interest”. If, as in this case, the
seller
is entitled to have its possession of the property restored,
that must be done. If, as is presumably the case here, the
contract
provided for what the seller/owner should do with its
recovered property in order to determine the consequences of any
breach of
the agreement by the company, it is for the seller/owner to
comply with those provisions which are designed to survive the
cancellation
of the contract. I accordingly conclude that the
provisions of s 134(3) of the Act do not support the proposition that
the
moratorium provided by s 133(1) of the Act prevents recovery of
property possessed by the company unlawfully in the civil sense.
In reaching this conclusion I bring to account also that if s 133(1)
does protect a company’s unlawful (in the civil sense)
possession of property, it does so indiscriminately. Its reach
is not restricted to property of persons who have money claims
against the company which relate to the company’s possession of
such property.
THE
DIFFERENT INTERESTS OF AN OWNER DENIED POSSESSION AND A CREDITOR
[47]
The interests of a company’s creditors who are owed money, and
a person whose property is in the possession of the company,
are
quite different. Inevitably the money claims of creditors are
already compromised by the very financial distress which
justifies
the commencement of business rescue proceedings. The business
rescue scheme allows the existing claims of creditors
to be diluted
to such extent as is consistent with the ultimate aim of allowing the
business of the company to be resuscitated.
The position of the
owner of property which is possessed unlawfully (in the civil sense)
by the company is different. The
claim to possession is
unaffected by financial distress. The quality of the claim does
not diminish by reason of the possessor’s
financial distress;
just as it is not improved by the possessor’s financial good
fortune. If repossession is denied
by s133 (1) of the Act, that
prejudices the rights of the owner without any promise of improvement
in the owner’s rights
such as is intended to flow to and for
the benefit of creditors with money claims as a result of the
adoption and implementation
of a business rescue plan.
[48]
A company in business rescue which is to continue with its business
in terms of an approved plan has in effect the benefit
of the capital
provided by a full or partial moratorium on pre-existing debts
already owed to creditors. If it requires more
capital than
that to execute the business plan that must be acquired from a
financier, whether it be an existing creditor who sees
advantage in
providing it, or an outsider. In either event the capital can
only be acquired consensually. Self evidently
the provisions of
a business plan cannot compel anyone to finance the business by
providing additional capital. On the applicant’s
argument it is
permissible for a company in business rescue simply to appropriate
property unlawfully possessed by it (in the civil
sense) for use as
its own additional capital. (I call it capital as, if it
surrendered possession to the owner, the company
would have to
acquire money from somewhere else to replace the thing which it
requires to run its business.) The fact that
a business plan
may make provision for compensation to be paid to the non-consenting
owner of the property for its use is surely
indistinguishable from,
and no more legally cognisable, than a provision of a business plan
which purports to bind a non-consenting
bank to make a loan to the
company.
[49]
That being the case, there is no reason to deny the owner a right to
recover possession of its property if it has no desire
to allow its
retention by the company during business rescue proceedings.
CONCUSION
[50]
In the result I conclude that the interpretation of s133 (1) of the
Act which the applicant favours is insensible and unbusinesslike;
and
in the present context this latter consideration is of obvious
significance. It treats creditors and owners of property
possessed without right by the company unequally. The former
are not obliged to assist the company any further whilst the
latter
would be obliged to do so by statutory injunction. The former
have input into the design of the rescue plan, whilst
there is no
like provision empowering the latter to do so. Such an
imbalance cannot have been intended and will in many cases
result in
an imbalance in the treatment of these different stakeholders in
conflict with s 7(k) of the Act. The language
used in the
provision may well support both meanings I have explored above, but
better supports the meaning attributed to the provision
in
Madodza
.
[51]
I conclude that the applicant is not entitled to an order preventing
the enforcement of the order of this court made on 27
March 2015
because s 133(1) of the Act does not empower the court to grant such
an order. That being the case there is no
question of any other
relief being granted, as the business plan is incapable of being
implemented without the applicant acquiring
a right to the vehicle in
conflict with the order of this court of 27 March 2015.
IS
THE FIRST RESPONDENT’S VOTE INAPPROPRIATE?
[52]
Section 153(1)(a)(ii) permits a company in business rescue to apply
to court to set aside a vote by a holder of a voting interest
on the
grounds that it was inappropriate. Section 153(7) allows the
court to do that after having regard to the interests
represented by
the person who voted negatively; the provision, if any, made in the
plan with respect to the interests of that person;
and having regard
to a fair and reasonable estimate of the return to that person if the
company were to be liquidated. That
relief is sought by the
applicant, in addition to the interdict already discussed.
[53]
It strikes me as appropriate to mention that if I had not reached the
conclusion I have regarding the ambit of the moratorium
with regard
to property possessed by a company in business rescue, I would
nevertheless have refused to alter the vote of the first
respondent.
I say that it appears appropriate to mention this because my
principal reasons for adopting this view would have
been very similar
to the considerations which impel me to the conclusion that the first
respondent is entitled to enforce this
court’s order of 27
March 2015.
[54]
Whilst there are contradictions and inconsistencies in the business
plan which ought reasonably to raise the eyebrows of any
creditor
asked to sanction it, what comes through clearly is that as a result
of the cancellation of its agreement with the first
respondent, the
company to all intents and purposes has no capital. What is
clear is that the business plan proposes to appropriate
the vehicle
in question as the company’s capital.
[55]
In my view the business plan, if approved and implemented, would have
the effect of placing almost all of the risks with regard
to the
business venture, and indeed with regard to the first respondent’s
proprietary interests in the vehicle, on the first
respondent.
[56]
If s 133(1) of the Act does indeed forbid the enforcement of the
first respondent’s right to possession of the vehicle,
it does
not extinguish that right. (Neither, for that matter, does the
moratorium create for the applicant the right to use,
as opposed
merely to possess, the vehicle. This is especially so bearing in mind
that a vehicle is a thing the use of which causes
wear and
deterioration. Its use devalues the owner’s proprietary
right.)
[57]
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.
The
following order is made.
The
application is dismissed with costs.
OLSEN
J
Date
of Hearing: TUESDAY, 07 JUNE 2016
Date
of Judgment: : FRIDAY, 22 JULY 2016
For
the Applicant : MR D PILLAY
Instructed
by: ZAYEED PARUK & ASSOCIATES
APPLICANT’S
ATTORNEYS
SUITE
700, MANSION HOUSE
30
ALBERT STREET
DURBAN
(Ref.:
Mr Z Paruk)
(Tel
No. 031 – 301 3405)
For
the First Respondent: MR J C VILJOEN
Instructed
by: STUPEL & BERMAN INCORPORATED
FIRST
RESPONDENT’S ATTORNEYS
70
LAMBERT STREET
GERMISTON
c/o
DUNN & ASSOCIATES
12
JOE SLOVO STREET
DURBAN
(Ref.:
LSD/cn/DS3060)
(Tel.:
031 – 312 2211)