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[2016] ZAKZDHC 43
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Khan v Sprint Logistics SA (Pty) Ltd and Others (5924.2016; 12824.2015; 3167.2016; 78.2016) [2016] ZAKZDHC 43 (4 November 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
LOCAL DIVISION, DURBAN
Case
No: 5924/2016
In
the matter between:
MOHAMED
SALIM
KHAN Applicant
and
SPRINT
LOGISTICS SA (PTY)
LTD 1
ST
Respondent
NEDBANK
LIMITED 2
ND
Respondent
COMPANIES
AND INTERLLECTUAL
PROPERTY
COMMISSION
(CIPC) 3
RD
Respondent
MASTER
OF THE HIGH
COURT 4
TH
Respondent
Case
No: 12824 / 2015
In
the matter between:
NEDBANK
LIMITED Applicant
and
SPRINT
LOGISTICS SA (PTY)
LTD Respondent
Case
No: 3167/2016
In
the matter between:
SPODE
MARKETING CC T/A
SPODE
STORAGE
SOLUTIONS Applicant
and
SPRINT
LOGISTICS SA
CC Respondent
Case
No: 78/2016
In
the matter between:
MOMENTUM
PROPERTY INVESTMENTS (PTY)
LTD Applicant
and
SPRINT
LOGISTICS SA
CC First
Defendant
MOHAMED
SALIM
KHAN Second
Defendant
JUDGMENT
CHETTY
J:
[1]
The first application before me relates to an application for
business rescue in terms of s 131 of the Companies Act 71 of 2008
(“the Act”) of the entity known as Sprint Logistics SA
(Pty) Ltd (the first respondent), together with the appointment
of
Vishnu Roopnarain Maharaj (Mr Maharaj) as the interim business rescue
practitioner. This application is opposed by Nedbank,
the
second respondent in the business rescue proceedings. Prior to
the launching of the business rescue proceedings, Nedbank
launched an
application for the winding-up of Sprint Logistics SA (Pty) Ltd under
case number 12824/2015, which proceedings were
issued out of this
court on 3 December 2015, and set down for 22 December 2015. On
21 December 2015, MS Khan launched an
application for business rescue
of Sprint Logistics under case under 13414/2015. Both the
matters came before Lopes J on
22 December 2015. He adjourned
the applications
sine die
, and reserved the issue of costs.
[2]
Both applications came before me on 23 June 2016 when Mr
Moosa
appeared for Sprint Logistics in the business rescue proceedings
and in the winding-up application. At that stage, Nedbank
had
filed its opposing papers in which it attacked the
locus standi
of the applicant, MS Khan, to bring the business rescue proceedings
in as much as he is a trustee of the Mohamed Khan Family Trust,
which
is a 100% shareholder of Spring Logistics. In the application
under case number 13414/2015, the deponent to the founding
affidavit
in the business rescue application incorrectly stated that he was the
sole shareholder of Sprint Logistics. This
deficiency in the
papers was seized upon by Nedbank, who sought that the application be
dismissed on those grounds alone.
Faced with an insurmountable
difficulty on the founding papers, Mr
Moosa
sought leave to
amend his papers, which application I turned down. Counsel then
informed the court that his mandate in the
matter had been
terminated, but not before informing me that in as much as the
applicant intended withdrawing the defective business
rescue
application, it was in the process of having a new application
(supposedly with the deficiencies corrected) issued at the
offices of
the Registrar, and consequently I was precluded from continuing to
hear the application for winding up.
[3]
Section 131(6) of the Act reads as follows:
‘
If liquidation proceedings have
already been commenced by or against the company at the time an
application is made in terms of
subsection (1), the application will
suspend those liquidation proceedings until-
(a)
the court has adjudicated upon the application; or
(b)
the business rescue proceedings end, if the court makes the order
applied for.’
As
to the moment of the commencement of proceedings, see
Absa Bank
Ltd v Summer Lodge (Pty) Ltd
2014 (3) SA 90
(GP) para 19 where
the Court pointed out that:
‘
In my opinion what s 131(6)
means is that once liquidation proceedings have commenced by the
granting of a liquidation order, whether
provisional or final, the
mere issue and service of a business rescue application would suspend
the liquidation process.
’
[4]
Relying on
Standard Bank of South Africa v A-Team Africa Trading
CC
2016 (1) SA 503
(KZP), Mr
Moosa
submitted that the
issuing of the new business rescue application had the effect, in
terms of s 131(6), of suspending the application
for liquidation by
Nedbank. Section 132 spells out when business rescue
proceedings begin and end. Mr
Thatcher SC
who appeared
on behalf of Nedbank in both applications appeared to accept that the
application could not proceed in light of a
new business rescue
application having taken the place of the withdrawn application.
[5]
In any event, Mr
Thatcher
faced objection to proceeding with
the application for the liquidation of Spring Logistics following
upon the late intervention
by the employees of the company who
contended not to have been properly served with the application,
despite a candidate attorney
deposing to an affidavit of service
stating that on 15 December 2015 at 4:05pm he had left a copy of the
application with a Mr
Patric Medic at the security office at the
entrance to the company’s premises at 110 South Coast Road,
Congella, Durban,
and after the said employee confirmed (supposedly
with those in charge of the company) that he could accept service of
the papers.
[6]
Mr
Mfeka
, who appeared on behalf of the intervening employees
on 23 June 2016, submitted that the matter could not proceed while
there had
not been proper service on the employees as prescribed by s
346 of the Act. In light of the need to ensure proper service
on the employees, it appeared to be a view commonly shared amongst
all those involved in the matter that it was inappropriate for
the
matter to proceed while a new business rescue application was already
issued and about to be served on Nedbank. Moreover, there
was still
uncertainty as to whether proper service had been effected on the
employees. Without deciding whether there had been
compliance with s
346, I agreed to the matter being adjourned and to serve before me on
the next available date in the following
session.
[7]
Consequently, both matters came before me on 25 August 2016, on which
occasion the applicant in the business rescue application
was
represented by Mr
Choudree SC
, who argued the matter off a
fresh set of papers. Ms
Leonard
appeared on behalf of
Sprint Logistics to oppose the liquidation application. Mr
van
Rooyen
was present on behalf of Spode Marketing CC trading as
Spode Storage Solutions in respect of a liquidation application filed
under
case number 3167/2016. In the heads of argument filed by
Mr
van Rooyen
, he associates himself with the opposition by
Nedbank to the business rescue application. In respect of Spode
Logistics’
application for a provisional winding-up order, Mr
van Rooyen
submitted that his client has made out a case for a
provisional order, but accepts as both Nedbank and Spode Logistics
have both
sought the winding-up of Sprint Logistics, the general rule
is that where contemporaneous applications are made, with each making
out a case for the same relief, it is necessary to treat one of the
applicants as having priority – the general rule being
that the
applicant who first furnished security in terms of
s 9(3)
of the
Insolvency Act 24 of 1936
, has priority. First in the queue on
that basis is Nedbank. Mr
van Rooyen
further submitted
that Spode Logistics would therefore only move for a provisional
order in the event of Nedbank failing in its
application.
[8]
At the same time, Mr
Bingham
joined in the fray on behalf of
Momentum Property Investments (Pty) Ltd, which had on 18 August 2016
under case number 78/2016,
secured an order for the ejectment of
Sprint Logistics from the leased premises at 110 South Coast Road,
Congella, Durban, which
it occupied. An application for leave
to appeal against the eviction order was subsequently dismissed by
Kruger J.
The stance of Momentum is that Sprint Logistics is
now in unlawful occupation of the premises, as there is no longer a
lease with
the company. I shall refer later in this judgment to an
affidavit filed by Nolene Claasen, on behalf of Momentum, and the
impact
of the cancellation of the lease and the ejectment order on
the business rescue proceedings.
[9]
Prior to dealing with the main issues of the business rescue and the
liquidation proceedings, an interlocutory application was
filed by MS
Khan, Farhana Khan and Abdool Rahim Khan in their capacities as joint
trustees of the Mohamed Khan Family Trust.
The application is
dated 19 July 2016 and was set down on 23 August 2016 before
Henriques J. For reasons which were not apparent
from the
papers, the application was withdrawn before Henriques J and
subsequently re-enrolled before me. The applicants
sought leave
to intervene as the second, third and fourth applicants respectively
in the business rescue application. In
essence, their
intervention is intended to neutralise the point advanced by Mr
Thatcher
in the
business rescue application, that MS Khan did not have locus standi
to bring the application as he erroneously described
himself as the
sole shareholder of Sprint Logistics. The sole shareholder of
the company is the Mohamed Khan Family Trust,
and it follows that any
proceedings pertaining to the company can only be brought by all of
the trustees. “
Trustees
have to act jointly unless the trust deed provides otherwise and
trust deeds seldom do.” See
Nieuwoudt
and another NNO v Vrystaat Mielies (Edms) Bpk
2004
(3) SA 486
(SCA)
para 16. As a trust is not a separate juristic person, all the
trustees ought to have been parties to the original application.
Hence the application for the remaining trustees to be joined.
Despite the point being well taken by Nedbank, and notwithstanding
my
initial misgivings in relation to the application, as there was no
prejudice to any of the parties and particularly in light
of Mr
Thatcher’s
stance not to oppose the application, I granted the relief allowing
the remaining trustees of the Mohamed Khan Family Trust to
be joined
as second to the fourth applicants in the business rescue
proceedings.
[10]
Section 131(4)
(a)
of the Act provides as follows
:
(4) After considering an application
in terms of subsection (1), the court may
(a)
make an order placing the company
under supervision and commencing business rescue proceedings, if the
court is satisfied that -
(i) the company is
financially
distressed
;
(ii) the company has failed to pay
over any amount in terms of an obligation under or in terms of a
public regulation, or contract,
with respect to employment-related
matters; or
(iii) it is otherwise
just
and equitable
to do so for
financial reasons,
and
there is a
reasonable
prospect
for rescuing the
company…’
(
my
underling)
[11]
It is against this statutory framework that the applicant must make
out a case for business rescue. In dealing with the standard
to be
met by the applicant, the SCA in
Oakdene Square Properties (Pty)
Ltd and others v Farm Bothasfontein (Kyalami) (Pty) Ltd and others
2013 (4) SA 539
(SCA) para 21 made the following observation:
‘
In a case such as this, the
court’s discretion is bound up with the question whether there
is a reasonable prospect for rescuing
the company. The other
pertinent requirement in s 131(4), namely, that the company must be
financially distressed, seems
to turn on a question of fact. As to
whether there is a reasonable prospect of rescuing the company, it
can hardly be said, in
my view, that it involves a range of choices
that the court can legitimately make; of which none can be described
as wrong. On
the contrary, as I see it, the answer to the question
whether there is such a reasonable prospect can only be ‘yes’
or ‘no’.’
[12]
In unpacking the notion of what would constitute a ‘reasonable
prospect’, the Court in
Oakdene
at paras 29-31 accepted
that it means something less than a reasonable probability; something
more than a prima facie case; something
more than an arguable
possibility; a prospect based on reasonable grounds; and mere
speculative suggestion is not enough.
See
Pouroullis v
Market Pro Investments 106 (Pty) Ltd (South African Bank of Athens
Ltd and Absa Bank Ltd
(20370/2015) [2016] ZAGPJHC 12 (12 February
2016).
[13]
The Court in
Oakdene
stated further that the applicant must establish these grounds in its
founding papers, in accordance with the usual rules of motion
proceedings. While earlier cases like
Southern
Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd
2012
(2) SA 423
(WCC) were suggestive of the approach that an applicant
must provide a substantial measure of detail about the proposed plan
to
satisfy the requirement of a ‘reasonable prospect’,
the SCA in para 30 endorsed the views of Van der Merwe J (as he
then
was) in
Propspec
Investments v Pacific Coasts Investments 97 Ltd
2013
(1) SA 542
(FB) para 11:
‘
I agree that vague averments
and mere speculative suggestions will not suffice in this regard.
There can be no doubt that, in order
to succeed in an application for
business rescue, the applicant must place before the court a factual
foundation for the existence
of a reasonable prospect that the
desired object can be achieved. But with respect to my learned
colleagues, I believe that they
place the bar too high.
And
in para 15 Justice Van der Merwe noted:
‘
In my judgment it is not
appropriate to attempt to set out general minimum particulars of what
would constitute a reasonable prospect
in this regard. It also seems
to me that to require, as a minimum, concrete and objectively
ascertainable details of the likely
costs of rendering the company
able to commence or resume its business, and the likely availability
of the necessary cash resource
in order to enable the company to meet
its day-to-day expenditure, or concrete factual details of the
source, nature and extent
of the resources that are likely to be
available to the company, as well as the basis and terms on which
such resources will be
available, is tantamount to requiring proof of
a probability, and unjustifiably limits the availability of business
rescue proceedings.’
[14]
Brand JA in Oakdene para 31 succinctly pointed out that the plan
which the applicant is required to show 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 the liquidation process
.’
He added further that an ‘
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)
.’
[15]
Against this background I proceed now to consider those factors that
weigh in the present case. The company’s core
business is
a cold storage operation.
In
January 2015 the company concluded an agreement with Nedbank in terms
of which Nedbank provided overdraft facilities of R3,8m
as well as
vehicle and asset finance of R20 639 000, and two further such
facilities for R407 867.00 each. In December
2014 Nedbank
then sold to the company various refrigeration components for its
cold storage business, as well as motor vehicles
such as forklifts.
These were to be paid over sixty (60) instalments of R391 753.00
and R52 798.00 in respect of
two separate contracts. In
June 2015 the company breached the agreement as it failed to reduce
its overdraft and defaulted
on payment of the instalments in respect
of the two contracts concluded with Nedbank. The company was
requested by Nedbank’s
attorney to make proposals as to how it
intended to remedy these breaches. These approaches failed,
resulting in a demand
on the company in September 2015 to pay the
amount of R1,8m within three (3) weeks, failing which Nedbank
threatened to wind-up
the company. As at the end of November
2015 the company’s indebtedness to Nedbank was close to R20m.
In light
of the company’s inability to pay any of the amounts
set out in Nedbank’s demand in terms of ss 344 and 345(1) of
the
Act, proceedings were initiated for the winding-up of the
company. The application was issued out of this Court on 3
December
2015 and the matter set down for 22 December 2015.
[16]
As a response to the winding up application, Sprint Logistics
launched an application for business rescue on 21 December 2015,
a
day before the winding-up application was to be heard. As
referred to earlier, that original business rescue application
was
eventually withdrawn after certain fatal deficiencies emerged from
the papers. The deficient application is replaced
with that
which is currently before me. It is on these papers that I must
determine whether the applicant has made out a
case for relief. The
applicant, as a director of the company, resolved on 15 June 2016
that the business was financially
distressed in terms of s 128(1)(f)
of the Act and consequently approached Mr Maharaj, as a business
rescue practitioner, to accept
an appointment in terms of s 131(5) of
the Act, which he did. Nedbank, which opposes the application,
did not contest the
allegation of Khan and his fellow trustees to be
“
affected persons
” for the purposes of s 128(1)(a)
of the Act.
[17]
The basis on which the Sprint Logistics has brought the business
rescue application is that the ‘
material
assets of the company is the “get-up of the business”
together with the assets funded by Nedbank and a lease
held by the
company in respect of the immovable property located at 110 South
Coast Road, Durban, which it currently holds
’.
[1]
The applicant
bears the burden of satisfying the standard of proof as set out in
Oakdene
and
Propspec
Investments.
In addition to these grounds, the applicant relies heavily on the
report of the business rescue practitioner, which purports
to chart a
course for the recovery or rehabilitation of the company. Viewed
collectively, the goal or end result must be for the
company to
continue in existence on a solvent basis, alternatively to provide a
better return for the company’s creditors
or shareholders than
would result from the immediate liquidation of the company. See
Propsec
Investments
,
para 7.
[18]
There is nothing in the applicant’s founding papers in the
business rescue application to suggest that it does not owe
the
monies claimed by Nedbank. That must therefore account for the
first hurdle of the applicant being ‘
financially distressed
’
as contemplated in s 131(4)(a) of the Act.
[19]
Counsel for the applicant contended in argument that the applicant
was not obliged to present the entire business rescue plan
as part of
the founding papers. Whether this was intended to deflect some
of the criticism or deficiencies in the report
of Mr Maharaj as
pointed out by Nedbank in its opposing affidavit, is uncertain.
What is now settled law is that an applicant
need not set out a
detailed plan in the application for business rescue. As the
Court in
Oakdene
para 31 pointed out, this can be left to the
practitioner to compile, after a proper investigation in terms of s
141. It
added however ‘the applicant must establish
grounds for the reasonable prospect of achieving one of the two goals
in s 128(1)(b)’.
[20]
I now turn to the grounds relied on by the applicant. It avers
that one of its material assets is the ‘
get-up
’
of the business. Nedbank points out that there is nothing in the
founding affidavit to suggest that Sprint Logistics has
acquired a
reputation in the cold storage industry which indicates that it has
carved for itself a reputation in connection with
the services its
renders, making it distinctive from others in the industry.
[2]
One this basis, it was submitted that the get-up of Sprint Logistics
does not have any market value and therefore is not
to be relied on
as a ground to establish the prospect of the company being rescued.
I agree with Nedbank’s submission
in this regard and find
nothing on the papers before me to indicate the Sprint Logistics has
acquired a reputation in the market
place to which one can attach a
value to its name alone.
[21]
The second leg relied on by Sprint Logistics is the value of the
assets funded by Nedbank. In this regard Nedbank points
out
that the assets have been valued by its sworn appraiser at
R11 250 000.00. On the other hand, Sprint Logistics
rely on a valuation at a forced sale of R9,5m in comparison to that
relied on by Nedbank in the amount of R5,3m. Against
the
backdrop of the debt owed to Nedbank being R20m, Nedbank submits that
no reliance can be placed on the valuation of Mr Ferreira,
which is
relied upon by Sprint Logistics, that the equipment in the cold
storage unit has a total market value of R98,5m.
Counsel for
Nedbank pointed out that anyone wishing to make an offer to buy the
cold storage equipment would naturally have regard
to what the
equipment would fetch at a forced sale. Assuming that anyone
wishing to purchase this equipment would presumably
approach a
financial institution to fund such purchase, the latter would
necessarily have regard to what the initial cost of the
machinery was
in the first place. I am in agreement with the submissions by
Mr
Thatcher
that no reliance can be placed on the valuation of
Mr Ferriera insofar as his assessment that the market value of the
equipment
stands at R98,5m.
[22]
The weakest link, in my view, in the applicant’s case for
business rescue is its contention that part of its ‘
material
assets
’ is the lease which it holds over the immovable
property it currently occupies. The property in question is
owned by
Momentum. The rental for the property is approximately
R2,2m per month. As at 8 January 2016 (after the launching of
the first business rescue application) Momentum launched an
application under case number 28/2016 claiming an amount of
R5 722 444,00
being arrear rentals owed to it by the
applicant. It further sought the cancellation of the lease
agreement owing to the
breach and the consequent ejectment of the
applicant from the premises. Sprint Logistics continued to
occupy the premises
carrying on business from it. To compound
problems, the applicant was unable to pay for its electricity
consumption, resulting
in the eThekwini Municipality cutting off
electricity to the leased premises. An urgent application was brought
by the applicant
under case number 6263/2016 on 30 June 2016 for the
restoration of the water and electricity supply to the premises. That
application
was dismissed, resulting in there being no supply of
water and electricity. As this is a crucial component of any cold
storage
facility, the applicant was obliged to use diesel generators
for the supply of electricity. There is nothing on the papers as to
what alternative arrangement has been made in respect of water. What
is apparent from the report of Mr Maharaj is that the cost
of
providing electricity via diesel generators would be substantially
higher than electricity supplied by the municipality.
[23]
At the hearing of this matter, counsel for Nedbank brought to my
attention that the business rescue application and indeed
the report
prepared by Mr Maharaj is based on the assumption that the applicant
will be able to continue running its business from
the leased
premises and that it would be able to service certain existing
contracts in order to restore it to solvency. As stated
earlier,
judgement has been granted in favour of Momentum against the
applicant. An affidavit was also filed by Nolene Claassen
on behalf
of Momentum, in which she clarifies that the lease with the applicant
has been cancelled and that its occupation of the
leased premises
remains unlawful. As such there is no lease in respect of the
premises and while Momentum is prepared to engage
in settlement
negotiations with the applicant in respect of the arrears owing to
it, it has firmly resolved that on no account
will the applicant be
granted a right to occupy the premises. There is nothing on the
papers to refute these averments.
[24]
It also came to light that shortly prior to the hearing of this
application; the applicant had applied for leave to appeal
against
the order of Justice Kruger in the eviction application. The
application for leave to appeal was dismissed and Momentum
was
granted leave to execute the judgment. In my view, this is a mortal
blow to the business rescue aspirations of the applicant.
Without any
premises to trade from, the applicant would then have to dismantle
all of the components of the cold storage facility
and relocate to
other premises, on the assumption that it has the necessary funds to
afford the rental. It has not made out
any case in this regard,
and has rather approached this Court on the basis that it enjoys a
lease agreement in respect of the premises
located at 110 South Coast
Road. In light of the eviction application of 18 August 2016,
which was granted with immediate
effect, the applicant is left
without a premises from which to operate its business, irrespective
of however many contracts it
may have, existing or potential. It
would also follow that if the applicant is evicted from the premises
as at 18 August 2016,
this would have an immediate impact on those
employed at the site, in that their employment would come to an
abrupt end. This has
a bearing on the intervening application by the
employees in the liquidation application brought by Nedbank.
[25]
The remaining leg of the applicant’s argument to be permitted
the opportunity to rehabilitate its business rests on the
report of
Mr Maharaj. The report rests on three pillars – firstly,
that the affairs of the applicant will be ‘
rescued’
by the entity known as Sprint Logistics KZN CC, which is owned by the
Mohamed Khan Family Trust (who is the sole shareholder of
the
applicant) and the Ouiem Family Trust (controlled by one Yvette de
Beer) in equal shares. The second pillar is that new
contracts
are to be obtained for the cold storage business of the applicant,
presumably justifying the assumption that it can trade
as a solvent
business, and thirdly that a new investor will be brought on board.
Counsel for the applicant emphasised that
the threshold to be met by
the applicant was only to show that there was a reasonable prospect
of the business being rehabilitated
in a sense that there would be a
higher return to creditors if a business rescue practitioner were to
be appointed in contrast
to any potential dividend that would flow
from liquidation of the business. Counsel for Nedbank however
proceeded to dismantle
the assumptions underpinning the report and
conclusions of Mr Maharaj. Each of these assumptions is
considered below.
[26]
Firstly, Mr Maharaj is of the view that Sprint Logistics KZN CC will
be in a position to rescue the applicant. Mr Maharaj’s
report is laden with vague observations – for example he states
that the ‘
KZN entity has contracts for the cold storage that
would last seven (7) months into the year which will provide for the
contracts
in the off season to have sufficient income per month to
pay its liabilities and that of SPRINT SA
’. The
report lacks any detail to enable an interested party to reasonably
evaluate the veracity of the claim.
There are no details or
names of the parties holding these contracts and their worth. A
further problem which looms over
this pillar of the report is that
the applicant, as a consequence of the eviction judgment in favour of
Momentum, no longer has
leased premises from which it would service
these contracts, if they existed.
[27]
It was also correctly submitted that there is no evidence on the
papers before me to indicate that the Mohamed Khan Family
Trust or
the Quiem Family Trust, as joint owners of the KZN entity, have
consented to or resolved, to buy a shareholding in the
applicant.
Furthermore, if the Mohamed Khan Family Trust did have such
resources, surely it would have ploughed these first
into liquidating
the indebtedness of the applicant, an entity of which they are the
sole shareholder. Nedbank further contends
that it is doubtful
that either of these trusts has any money to invest in the applicant
in light of them having entered into a
joint venture agreement to
start a cold storage business, which ended with the liquidation of
Sprint Cold Storage Durban (Pty)
Ltd in 2015. The prospect of
Sprint Logistics KZN CC moving from a profit of R58 584.00 in
2015 to R6,3m in 2016/7 is
unrealistic and I am in agreement with Mr
Thatcher
that not much weight can be attached to these
forecasts as providing the basis for Sprint Logistics KZN CC coming
to the rescue
of the applicant.
[
28]
The second pillar of the report is that a new investor will be
brought on board to inject capital into the applicant, and more
specifically that a Kenyan businessman, Mr Ouya was to provide R42.6m
in guarantees to improve and expand the cold storage facilities,
which would increase the revenue of the business. This
injection would presumably have been used to settle the debt owing
by
the applicant to Nedbank. It is apparent from Mr Maharaj’s
report that this funding from Mr Ouya was not forthcoming
and
eventually fell through. However, later in his report, Mr
Maharaj still clings onto this thread noting at paragraph 84
that ‘
at
the time of this report Khan has been actively pursuing possible new
investors
’.
During argument, Mr
Choudree
attempted
to introduce new evidence not contained in any of the affidavits
before me to the effect that an entity referred to as
Podiso was
interested in providing the necessary finance to the applicant.
This was objected to by Mr
Thatcher
,
and correctly so in my view. In my view, I cannot take into
account information not on affidavit, and moreover under
circumstances
where Nedbank would not have had an
opportunity
of investigating these claims, and where to allow its admission would
be clearly prejudicial and would simply cause
a delay in the
finalisation of this matter.
[29]
Thirdly, the applicant relies on the assumption that it will secure
new contracts for the cold storage as well as the dry storage
component of the business. The applicant’s affidavits do
not say who these contracts are with, for what duration and
their
worth. Mr
Thatcher
trawled through the financial detail
contained in the report of Mr Maharaj to emphasise this point.
I am satisfied that on
a careful reflection of the figures contained
in the annexures to Mr Maharaj’s report, the figures do not
simply add up,
particularly against a scenario of the applicant
moving from a loss in 2016 of R7,5m, and where such loss is to be
made good by
Sprint Logistics KZN CC, which itself only returned a
profit of R58 584 in 2015.
[30]
In addition to the above, it also turned out that Sprint Logistics
was sub-letting part of the leased premises out to other
businesses,
including Sappi, from which it received rental but failed to pay
these over to Momentum as the landlord. The
applicant in his
replying affidavit simply ‘
notes
’ the averment
that Sappi has recently began paying the rental directly to the
landlord.
[31]
After carefully analysing the report of Mr Maharaj, I am satisfied
that there are fundamental fault lines in several of the
assumptions
he relies upon for concluding that there is a reasonable prospect
that Sprint Logistics can be rescued. Taking
into account the
current circumstances of Sprint Logistics being evicted from its
leased premises where it had a custom built cold
storage facility,
that it has no reliable source of electricity other than that
obtained via a generator and has no new investors
or identifiable
contracts for the foreseeable future, in my view it is neither just
nor equitable for Sprint Logistics to be placed
under business
rescue. As such, I am of the view that there are no prospects
of returning the affairs of Sprint Logistics
to solvency or to
provide a better deal for creditors than what they would receive
through liquidation. In the result, I
would dismiss the
business rescue application.
[32]
In now turn to the application in which Nedbank seeks a provisional
winding-up order arising from Spring Logistics inability
to pay its
debts of just under R20,5m owed to Nedbank. The background to the
indebtedness appears from para 13 above. In summary,
Nedbank lent and
advanced various sums to Sprint Logistics, being in the form of an
overdraft facility and vehicle and asset finance.
At the time
these proceedings were instituted the applicant was prima facie a
creditor of the respondent (Sprint Logistics)
in the sum of
approximately R20,5m. While the applicant contends that the
respondent was in breach of the various agreements
to make either
payments on due dates in terms of the instalment sale agreements or
to reduce its overdraft by a specified time,
the respondent in its
opposing affidavit simply denies the allegation and relies on the
contention that evidence will be placed
before this Court at the time
of trial.
[33]
The respondent denies having breached any of the agreements with
Nedbank, relying on the contention that it was under no obligation
to
pay the amounts, in as much as they were not due and payable.
While the respondent accepts that the letter of demand dated
30
September 2015 calling on it to pay the outstanding amounts was
issued in writing and delivered to its premises at 110 South
Coast
Road, Congella, Durban, it raises the point that this was not its
registered offices. What is not disputed is that the letter
of demand
was also sent to the postal box address of the respondent, as per the
CIPRO records. Nedbank further contends that
as at 30 November
2015, the total arrears owing by the respondent from the instalment
sale agreements and the overdraft was approximately
R20m. All
that the respondent proffers in reply is that these figures do not
accord with its records and are disputed.
It offers no
explanation at all as to what amounts, if any, it has paid towards
its indebtedness. Although it undertook to
investigate the
matter and place this information before the Court, nothing further
was forthcoming from the respondent at the
time when the matter was
argued.
[34]
In light of the respondent having been notified of its breach and its
failure to remedy the breach, whatever amounts were then
outstanding
became accelerated, with the consequence that the full amounts due
became due and payable. This was made abundantly
clear to the
respondent in Nedbank’s attorney’s letter of 3 November
2015, in which the respondent was forewarned that
failure to pay
would result in a winding-up application.
[35]
Having received no payment from the respondent, Nedbank launched the
winding-up application on the basis that the respondent
was
commercially insolvent in that it was unable to pay its debts within
the normal course of its business. The authorities
are clear
that the applicant would be entitled to a winding-up order ex debito
justitiae. In this regard see
Johnson v Hirotec
(Pty)
Ltd
[2000] ZASCA 131
;
2000 (4) SA 930
(SCA) and
ABSA Bank Ltd v Rhebokskloof
(Pty) Ltd
and others
1993 (4) SA 436
(C).
[36]
The winding-up application was opposed, with Ms
Leonard
strenuously arguing this segment of the application. Her contention
that the respondent is not factually insolvent is in stark
contrast
to the volume of evidence placed before me in the business rescue
application to show that Sprint Logistics was financially
distressed. In fact, the entire business rescue application was
premised on Sprint Logistics being financially distressed.
Most
significantly, the respondent has not put up a shred of evidence to
advance its claim that it is not indebted to Nedbank,
and more
particularly, to refute the claim that it is unable to pay its
debts. There is nothing before me on the papers to
indicate
that Sprint Logistics is in fact solvent. While the respondent
denies that it is insolvent, perhaps the sentiments
expressed by
Innes CJ in
De Waard v Andrew & Thienhans Ltd
1907 TS 727
at 733 are appropriate:
‘
To my mind the best proof of
solvency is that a man should pay his debts; and therefore I always
examine in a critical spirit the
case of a man who does not pay what
he owes’.
[37]
At
the provisional stage, all that the applicant has to make out is a
prima
facie
case – in the peculiar sense of that term explained in
Kalil
v Decotex (Pty) Ltd and another
1988
(1) SA 943
(A)
at 976D-978F. I am satisfied that it has.
[38]
I am furthermore satisfied that all the necessary statutory
formalities have been complied with for the granting of an order,
including service on the SA Revenue Service, and the Master.
[39]
As regards service of the liquidation application on the employees of
the company, the employees have intervened in the winding-up
application contending that there has not been compliance with s
346(4A) of the Act. It has been contended by Nedbank that
a
copy of the application papers were left with an employee, one Mr
Patric Medic. He and 52 other employees however aligned themselves
with the averments in the affidavit of a fellow employee, Mr Abdul
Sheik, who states that the winding-up application only came
to his
knowledge on 21 June 2016. On 23 June 2016, the employees were
represented by counsel and advanced their concern that
they were
unaware of the winding-up application. As a matter of interest, Mr
Sheik does not elaborate on how he came to know of
the matter on 21
June 2016 and who brought it to his attention. I can only assume that
he had sight of the papers on that date
as he was aware then that the
matter would be in court on 23 June 2016. Mr Sheik also
claims that ‘
neither
he nor the other employees
’
(presumably including Medic) had sight of this application as it was
never posted on the notice board inside the company
premises.
This statement stands in contrast to the service affidavit of the
candidate attorney Matthew Campbell who states
that on 15 December
2015 at approximately 4:05pm
he
left a copy of the application papers with a person he describes as
Medic. How would the candidate attorney know of Medic
if he had
not done as he states in his service affidavit? There is
nothing on the papers before me from Medic indicating
whether he
disputes the allegations made under oath by the candidate attorney,
and how it came about that the candidate attorney
would have named
him as the person who received a set of the papers.
[40]
To the extent that there is a dispute of fact, I am of the view that
this is a case deserving of a robust approach as the probabilities
are evident from the conflicting versions. I find no reason to
disbelieve the views expressed in the service affidavit of the
candidate attorney and I am of the view that the “intervening
application” is nothing more than a rear guard attempt
to stave
off the winding-up application by means of a technical defence.
[41]
In any event, to the extent that the employees allege that they have
not had proper notice of the winding up proceedings, the
passages
below from
EB Steam Co (Pty) Ltd v Eskom Holdings SOC
Ltd
2015 (2) SA 526
(SCA) are instructive:
‘
[22]
In order for the court to perform this function properly it will be
necessary for applicants, in the founding affidavit or
the affidavit
in terms of s 346(4A)(b), to deal with whether the respondent
has employees and if so where those employees
are working or are
likely to be found. It is only in the light of this information that
the court hearing the application can decide
whether there has been
compliance with the requirements of the section. If there is reason
to believe that the respondent does
not have employees then this and
the grounds for it must be stated.
[23]
To sum up thus far the position is as follows. The requirement that
the application papers be furnished to the persons specified
in
s 346(4A) is peremptory. It is not however peremptory, when
furnishing them to the respondent’s employees, that this
be
done in any of the ways specified in s 346(4A)(a)(ii). If those
modes of service are impossible or ineffectual another
mode of
service that is reasonably likely to make them accessible to the
employees will satisfy the requirements of the section.
If the
applicant is unable to furnish the application papers to employees in
one of the methods specified in the section, or those
methods are
ineffective to achieve that purpose and it has not devised some other
effective manner, the court should be approached
to give directions
as to the manner in which this is to be done. Throughout the emphasis
must be on achieving the statutory purpose
of so far as reasonably
possible bringing the application to the attention of the employees.
[24]
That leaves one final question, namely whether the inability of the
applicant, for whatever reason, to furnish the application
papers to
the employees before the hearing precludes the court from granting
any relief. Certainly the failure to provide a security
certificate
in terms of s 346(3) or the failure to lodge the papers with the
master in terms of s 346(4) is fatal to
the grant of immediate
relief. However, that is because of the nature and purpose of these
requirements…..The position in
regard to the notification
provisions in s 346(4A) is different. Their purpose is to ensure
that certain specified persons,
who may have an interest in the
winding-up, in order to protect their own interests, are, so far as
reasonably possible, furnished
with the application papers in order
to assess their own position in the light of the case made by the
applicant.…”
(footnotes omitted)
[42]
I am not persuaded that there is any merit in the arguments raised by
the employees. More importantly, the employees
have known of
this matter since June 2016 (on their version) and claim that their
livelihoods are at risk and want to place their
views before this
Court as to why a winding-up order should not be granted. They
have had ample opportunity and yet have
remained silent, without
explanation. That they have done so even after the electricity
has been cut at the premises where
they render their services, and
from which the company has been evicted with immediate effect on 18
August 2016, is telling.
[43]
In light of the above, I am satisfied that the applicant has made out
a case for the granting of a provisional winding-up order.
[44]
I accordingly make the following Orders:
(a) In the interlocutory application,
Mohamed Salim Khan NO,
Farhana Khan NO and Abdool Rahim Khan NO
are granted leave to intervene as the second, third and fourth
applicants in the business rescue application under case number
5924/2016
.
(b)
The
business rescue application under case number
5924/2016
is dismissed with costs.
(c) In the application
under case number
12824/2015
, I issue the following Order:
1.
Sprint
Logistics SA (Pty) and all other interested parties are called upon
to show cause, if any, before this court on
9
th
day of December 2016
at 09h30 in the forenoon or as soon thereafter as counsel may be
heard, why the respondent should not be finally wound up.
2.
This order
shall operate as an order provisionally winding up the respondent.
3.
A copy of
this order shall be served upon:-
(a)
The
South African Revenue Service; and
(b)
The
respondent at:-
(i) Its registered
address at 26 Eutectic Point, Alton, Richards Bay KwaZulu-
Natal; and
(ii)
Its
principal place of business at 110 South Coast Road, Congella Durban,
KwaZulu Natal.
4.
This order
shall be published on or before the
25
th
day of November 2016
once in Government Gazette and one in a daily newspaper published in
Durban and circulating in KwaZulu-Natal.
(d) That the liquidation
application under case number
3167/2016
by Spode Marketing CC
is adjourned
sine die
, with costs reserved;
(e) The application by
Momentum Property Investments (Pty) Ltd under case number
78/2016
is adjourned
sine die
, with costs reserved.
_______________
CHETTY
J
APPEARANCES
Case
no. 5924/2016
For
the Applicant: Adv.
RGB Choudree SC & Adv. A Moodley
Instructed
by: Yugan
Naidu & Associates, Reservoir Hills
(Ref:
YN/16/S685)
For
the Respondent: Adv.
GR Thatcher SC
Instructed
by: Shepstone
& Wylie
Umhlanga
Rocks – 031 575 700
(Ref:
JCS/mr/NEDC115761)
For
the intervening Applicants Adv. R
Kisten
Instructed
by: Yugan
Naidu & Associates, Reservoir Hills
Case
no. 12824/2015
For
the Applicant: Adv.
GR Thatcher SC
Instructed
by: Shepstone
& Wylie, Umhlanga Rocks
(Ref:
AF Donnelly.NEDC1.5761)
For
the Respondent: Adv.
U Lennard
Instructed
by:
Yugan Naidu, Reservoir Hills
For
intervening employees Ms
V Singh
Instructed
by: Yugan
Naidu, Reservoir Hills
Case
No. 78/2016
For
the Applicant:
Adv. RM Van Rooyen
Instructed
by:
Shepstone & Wylie
Umhlanga Rocks –
031 575 700
(Ref: AF
Donnelly.NEDC1.5761)
For
the Respondent:
Adv.U Lennard
Instructed
by:
Yugan Naidu, Reservoir Hills
Case
number
78/2016
For
the Applicant:
Adv. M Bingham
Instructed
by:
Kritzinger Ellish Attorneys, Durban
Ref: A Kritzinger /
MM/2/0001
For
the Respondent:
no appearance
Date
of hearing:
25 August 2016
Date
of judgment:
4 November 2016
[1]
Para
18 of the applicant’s founding affidavit: business rescue
application.
[2]
When
one generally considers the concept of a “get-up”, it is
the
form
in which the brand owner presents its product to the market and
typically includes the labelling and packaging of a product
which
consist of a number of features such as colour combinations,
arrangements, graphics and other design elements. In other
words,
the get-up of a product is the whole “dress” in which
the goods are offered to the public. For example, the
decor of
the
COCA COLA® line of products, namely the
distinctive
form of the words. See note by
Alicia
Castleman
,
February
2014,
“
Protecting
the get-up of a product and the benefits associated with it
”
.