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[2016] ZAECELLC 5
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Al Maya International Limited (BVI) v Valley of the Kings Thaba Motswere Proprietary Limited and Others (EL926/2016, 2226/16) [2016] ZAECELLC 5 (23 August 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
EASTERN
CAPE DIVISION – EAST LONDON
Case
no EL: 926/2016
GHT:
2226/16
Date
Heard: 04/08/2016
Date
Delivered: 23/08/2016
In
the matter between:
AL
MAYYA INTERNATIONAL LIMITED (BVI)
APPLICANT
(formerly
AL MAYYA SOUTH AFRICA LIMITED (BVI)
And
VALLEY
OF THE KINGS THABA MOTSWERE
1
ST
RESPONDENT
PROPRIETARY
LIMITED
(Reg
no: 2008/012143/07)
Carrying
on business at THABA MTOSWERE, Thabazimbi)
THABA
MOTSWERE GAME FARM (PTY) LTD
2
ND
RESPONDENT
THE
COMPANIES AND INTELLECTUAL PROPERTY 3
RD
RESPONDENT
COMMISSION
PHILIPUS
JACOBUS MOSTERT
4
TH
RESPONDENT
THE
FIRST RESPONDENT’S EMPLOYEES
5
TH
RESPONDENT
FIRSTRAND
BANK LIMITED
6
TH
RESPONDENT
GOVERNMENT
OF FUJAIRAH
7
TH
RESPONDENT
SOUTH
AFRICAN REVENUE SERVICES
8
TH
RESPONDENT
MINISTER
OF TRADE AND INDUSTRY
9
TH
RESPONDENT
JUDGMENT
SMITH
J
Introduction
[1]
The
applicant seeks an order placing the first respondent under
supervision; commencing business rescue proceedings in terms of
sections 131 (1) and (4) of the Companies Act, 71 of 2008 (“the
Act”); and appointing the business rescue practitioners
mentioned in the notice of motion.
[2]
The
applicant is a company registered in accordance with the laws of the
British Virgin Island. It owns 55% of the issued shares
in the first
respondent.
[3]
The
first respondent is Valley of the Kings Thaba Motswere (Pty) Ltd, a
duly incorporated company (“the company”). The
company
carries on business as a game farm in the Thabazimbi region. Its main
object is to breed and sell game for commercial gain.
It also
conducts a safari and hunting lodge on the farm.
[4]
The
second respondent is Thaba Motswere Game Farm (Pty) Ltd, a duly
registered company with its registered head office in East London.
The second respondent owns the remaining 45% of the issued shares in
the company.
[5]
The
applicant also cited very various other parties against whom no
substantive relief is sought. The seventh respondent, in particular,
is the Government of Fujairah, a constituent state of the United Arab
Emirates. The applicant’s controlling shareholder,
namely
Prince Sheik Mohamed bin Hamad Al Sharqi, is also the Crown Prince of
the Government of Fujairah.
[6]
There
can be little doubt that the applicant has the necessary
locus
standi
to
bring these proceedings since it is an “affected person”
within the meaning of section 130(1) of the Act. In
addition to
being a shareholder, it is also a creditor of the company. The
company’s annual financial statements for the
period ending 31
December 2014 show that it owes the applicant the sum of some R4.05
million, which bears interest on the outstanding
monthly balance at
the rate of 10.5% per annum and is repayable from future profits.
[7]
The
fourth respondent, Phillipus Jacobus Mostert (“Mostert”),
is the company’s only director. In terms of the
shareholders’
agreement the applicant and the second respondent were each entitled
to appoint one director. The applicant
initially appointed one Sanjay
Gupta and the second respondent appointed Mostert. Gupta has,
however, since resigned and the applicant’s
new nominee, one
Mustafa Thanikkal, is yet to be formally appointed.
[8]
Mostert
has deposed to the answering affidavit on behalf of the company. He
avers that he has been duly authorised to oppose the
proceedings on
its behalf. The applicant contests his authority to act on behalf of
the company and contends in this regard that
the defence of legal
proceedings (other than those arising in the ordinary course of
business) constitute reserved matters which
require approval by way
of special resolution of the ordinary shareholders. The applicant, as
majority shareholder, would have
been party to such a resolution if
it had indeed been adopted. However, no meeting was called for that
purpose, and there can accordingly
be no special resolution to that
effect. However, for reasons which will become clear later, I do not
believe that it is necessary
for me to pronounce on this issue.
[9]
The
second respondent did not file an answering affidavit, but instead
filed a notice in terms of Uniform Court Rule Rule 6 (5)(d)(iii)
wherein the following legal points are raised:
“
1.
The applicant failed to make out a case in terms of section 131(4)(a)
of the Companies Act 71 of
2008 (the
Companies Act);
2.
The application seeks to achieve objectives not recognised in
section
128
(1)(b) of the
Companies Act, constituting
an abuse of process;
3.
The applicant failed to establish that the company is financially
distressed as is required
by
section 128
(1)(f), read with
section
131
(4)(a) of the
Companies Act;
4.
The
applicant failed to comply with
section 131
(2) of the
Companies
Act;
5.
The
applicant failed to establish grounds of urgency; and
6.
The applicant failed to address the requirements of
Rule 6(12)(
b) of
the Uniform Rules of Court in that it failed to advance any reasons
why it could not be afforded substantial redress at a
hearing in due
course.”
Factual
background
[10]
The
applicant purchased shares through a subscription agreement and
invested approximately R100 million in the company during 2012.
[11]
Mostert
is responsible for the management of the company in terms of a
management agreement concluded during 2012. In terms of that
agreement Mostert is required to carry out the management services:
“
3.3.1
In a transparent, faithful and diligent manner:
3.3.2
In accordance with the reasonable standards of a business, carrying
on a similar business to that
of the company;
3.3.3
In accordance with the business plan; and
3.3.4
In a way that will not through his intentional
actions/omissions or through negligence, cause damage to
the property
of the company.”
In
addition, Mostert is accountable to the board and responsible for,
inter
alia,
the
preparation of monthly management accounts; paying the
company’s day to day running expenses timeously; ensuring
that
proper books of account are kept, and notifying the company of any
legal claims exceeding the sum of R5 000 within 7
days of him
becoming aware of it.
[12]
During 2015 the company ran into financial difficulties, and in an
exchange of emails between it and the applicant during August
and
September 2015, one Morrison Smit, representing the company, declared
that it was struggling to make ends meet and was not
in a position to
pay its employees.
[13]
The company sought to address its cash flow problems by borrowing an
amount of USD 500 000 (R7.5 million) from the seventh
respondent
(the Government of Jumairah). The loan was secured by way of a
notarial security bond over all the buffaloes owned by
the company.
The loan amount was advanced to the company on 30 September 2015 and
was due to be repaid by 30 April 2016.
[14]
During January 2016, Thanikkal, acting on behalf of the applicant,
informed Mostert of the applicant’s intention to sell
its
shares in the company. Mostert replied to Thanikkal’s e-mail
effectively trying to dissuade the applicant from divesting.
It
appears that the parties did not pursue further discussions in this
regard.
[15]
The parties thereafter held a meeting in Pretoria during June 2016
where the applicant was represented by one Alexander George
McDonald,
who is also the deponent to the main founding affidavit. Also present
at that meeting was one Veldhuisen, the applicant’s
attorney,
and Neil Michael Hobbs, one of the proposed business rescue
practitioners. The company was represented by Morrison Smit
and
Advocate Murphy. At that meeting Morrison and Murphy explained that
the company was experiencing cash flow problems and as
part of its
strategy to address those problems had entered into a joint venture
agreement with Gamevest Gamebreeders (Pty) Ltd,
in terms of which the
company would accommodate and feed game owned by third parties in
exchange for half of the progeny. The company
would be responsible
for all costs in respect of the accommodation, maintenance and
feeding of the game.
[16]
It is common cause that the company has failed to comply with its
obligations in terms of the loan agreement and that the seventh
respondent consequently demanded payment in terms of section 345 of
the Act, by virtue of an email dated 20 July 2016. That loan
has
still not been paid.
Applicant’s
contentions
[17]
Mr
Woodland
SC, who appeared for the applicant, argued that it
has established that the company is financially distressed within the
meaning
of section 131 of the Act, and that there are reasonable
prospects that it can be rescued. He submitted in particular
that:
(a)
Mostert
has failed to manage the company properly and to account to the
applicant, despite repeated requests in this regard. The
arrangement
with Gamevest, apart from being unauthorised, is of questionable
benefit to the company and has instead placed additional
financial
burden on it, since it is now also liable for expenses in respect of
game owned by third parties. The fact that Mostert
is a director of
Gamevest, further casts doubt on his
bona
fides
and calls into question whether he had the company’s best
interests at heart when negotiating the deal. This is an issue
which
should be investigated by a business rescue practitioner;
(b)
in
addition, the company is in “financial distress” within
the meaning of section 128(g) of the Act. The company has
been
struggling to make ends meet. In support of this contention he
pointed to the exchange of e-mails between the applicant and
Mostert
wherein it was stated that the company was ‘stru
ggling
to make ends meet’
and
concern was expressed that it would not be in a position to pay
employees’ wages. The cash flow problems have also been
further
exacerbated by the Gamevest venture and the prolonged drought;
(c)
the
company has defaulted on its loan obligations to the seventh
respondent, and despite the section 345 demand, the money has not
been repaid. Mostert has admitted that the company has defaulted, but
stated that he has already selected buffaloes to sell in
order to
repay the loan. Although he has valued the buffaloes at about R13.5
million, he is still waiting for the results of blood
tests and does
not yet have prospective buyers. On his own version it would take at
least another two months to sell the buffaloes.
In the event, Mostert
had lost sight of the fact that the company cannot sell the buffaloes
since they are subject to a notarial
security bond. The company is
thus unable to pay its debts as they become due, and is consequently
commercially insolvent;
(d)
at
the meeting on 23 June, Mostert had shown the applicant’s
representative a demand by FirstRand Bank in terms of section
345 of
the Act, and indicated that the three week period for payment of that
debt had elapsed. In order to deal with that indebtedness
he had
obtained an unauthorised loan from one Henrieta Oosthuisen and
pledged the company’s game to her as security. He was,
however,
required to obtain a special resolution since the transaction
constituted a “reserved matter” within the meaning
of the
Memorandum of Incorporation. He has in any event not improved the
company’s financial situation and has effectively
only swopped
one liability for another;
(e)
the
cash flow projections put up by Mostert in the management accounts
are unrealistic and unlikely to be achieved. By way of example,
the
accounts forecast sales in the amount of R10 million for August 2016.
Apart from the fact that Mostert has admitted that no
sales are
likely for the next two months, the company has only achieved some
R1.1 million in sales for the entire year. The difference
between the
year-to-date sales and the expenses mean that the company will suffer
a loss (before tax) in the sum of some R8.2 million;
(f)
Mostert
has also encumbered the farm with a R20 million mortgage bond without
being properly authorised to do so; and
(g)
in
addition, during 2015 he repaid a loan amount in the amount of R5.8
million to one of his related companies, namely Consortio
Management
Company (Pty) Ltd. These unauthorised transactions must also be
investigated by the business rescue practitioners.
The
second respondent’s contentions
[18]
Mr
Liversage,
who appeared for the second respondent, correctly submitted that in
order to adjudicate the points raised by second respondent,
the court
should ignore the answering and replying affidavits, treat the facts
averred by the applicant in its founding papers
as having been
established, and determine whether those facts entitle the applicant
to the relief it seeks in its notice of motion.
[19]
He argued that when regard is had to those facts, certain solutions,
other than business rescue proceedings present themselves.
These are:
(a)
the
management agreement clearly defines the type of conduct which will
constitute a breach thereof. The company will thus be entitled
to
demand specific performance or cancel the agreement. The simple
effective remedy is thus a contractual one and not business
rescue
proceedings;
(b)
the
cash flow problem can be relatively easily alleviated by selling game
in the normal course of business; the applicant
raising further
cash from its shareholders; or raising a further mortgage bond on the
property (which it is common cause has substantial
value);
(c)
the
applicant’s real motives appear to be to dispose of its
shareholding, alternatively to increase its shareholding in the
company. It thus requires the moratorium provided by business rescue
proceedings only to afford itself sufficient time to implement
that
strategy;
(d)
since
the primary objective of the business rescue proceedings is to ensure
the likelihood of the company continuing in existence
on a solvent
basis, or to ensure maximum return for creditors, the application is
thus not
bona
fide
and
falls to be dismissed for that reasons alone;
(e)
the
applicant failed to serve the papers properly on the affected persons
mentioned in section 131(2) of the Act through the sheriff;
and
(f)
the
application was premature. The applicant should have waited until
after the seventh respondent has launched winding up proceeding.
It
has failed to establish that those proceedings are imminent and the
matter was thus not sufficiently urgent to justify the truncation
of
the time limits provided for by the Uniform Rules of Court.
Contentions
advanced on behalf of the first, fourth and fifth respondents
[20]
Mr Murphy, who appeared for the company, as well as for the fourth
and fifth respondents, made the following submissions in
support of
their assertions that the company is being properly managed; that it
is solvent; and will be able to trade out of its
difficulties in the
ordinary course of business:
(a)
while
the respondents admit that the loan by the seventh respondent was due
and payable by 30 April 2016 and that no payment had
been made, they
have shown that they have caught and selected a number of buffalo
which can be sold to meet that obligation. The
only obstacle being
that they are awaiting the results of blood test so that the buffalo
can be given a certificate of good health,
whereafter they can be
sold. The company will thus be able to repay the loan within the six
months period as required by the Act;
(b)
the
purported section 345 notice, which was sent on 20 July 2016, does
not comply with the Act. The applicant launched these proceedings
the
22
nd
of July 2016, scarcely two days after the notice was sent. The notice
is accordingly not a proper one in terms of section 345 of
the Act,
but merely a demand for payment;
(c)
in
terms of the business plan, which was agreed to at the inception of
the business, the shareholders were expected to contribute
financially over a period of ten years. The applicant, in particular,
was supposed to contribute some R11.1 million. It has, however,
failed to comply with those obligations, stating that royalty do not
concern themselves with budgets. The respondents thus have
a
counter-claim against the applicant for not honouring its obligations
in terms of that agreement;
(d)
the
respondents have shown that the company has paid its employees, and
has in this regard produced a letter from the company’s
auditors stating that it is solvent. There is thus no basis for
the applicant’s contention that the company cannot
meet its
current financial obligations, or those that will become due and
payable within the next six months;
(e)
when
the buffalo are sold, there will be more than sufficient funds
available to settle the seventh respondent’s loan. For
this
reason the company does not require the intervention of business
rescue practitioners since the sale of game is something
that occurs
within the normal course of business;
(f)
the
company’s financial statements evince that the company has
grown from a R189 million business to one which is now worth
R256.6
million. The financials also indicate that the company has
substantial assets and is properly managed. Mostert has maintained
comprehensive records of all the animals,
inter
alia
,
in respect of their ownership, weight, length and DNA, and is thus
able to account for each and every animal on the farm;
(g)
Mostert
has attempted to provide the applicant with regular reports
concerning the management of the business, but was discouraged
by the
applicant’s representative who made it clear that the Crown
Prince did not want to be bothered with details and reports.
It
accordingly does not lie in the mouth of the applicant to complain
that it did not receive regular reports; and
(h)
the
joint venture with Gamevest was not a clandestine affair, as the
applicant is trying to make it out to be, but a
bona
fide
and
profitable business venture which was undertaken with the applicant’s
knowledge and acquiescence, and which has resulted
in significant
growth for the company.
The
Law
[21]
In terms of sections 131 (1) and (4) of the Act the court may make an
order placing a company under supervision and business
rescue if it
is satisfied that:
(a)
the
company is financially distressed; or
(b)
the
company has failed to pay over any amount in terms of an obligation
under or in terms of a public regulation, with respect to
employment
related matters; or
(c)
it
is otherwise just and equitable to do so for financial reasons; and
(d)
there
is a reasonable prospect for rescuing the company.
[22]
The term “financially distressed” means:
“
(i)
it appears to be reasonably unlikely that the company will be able to
pay all of its debts as they become
due and payable within the
immediately ensuing six months or
(ii)
it appears to be reasonably likely that the company will become
insolvent within the immediately
ensuing six months”
[1]
[23]
The meaning of the phrase “
a
reasonable prospect for rescuing
”,
was explained as follows by Brandt JA in
Oakdene
Square Properties (Pty) Ltd and Others v Farm Bothasfontein
(Kayalami) (Pty) Ltd and Others
[2]
:
“
As
a starting point, it is generally accepted that it is a lesser
requirement than the 'reasonable probability' which was the yardstick
for placing a company under judicial management in terms of s 427(1)
of the
1973
Companies Act
(see
eg
Southern
Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386
Ltd
2012
(2) SA 423 (WCC)
para 21). On the other hand, I believe it requires more than a mere
prima facie case or an arguable possibility. Of even greater
significance, I think, is that it must be a reasonable prospect —
with the emphasis on 'reasonable' — which means that
it must be
a prospect based on reasonable grounds. A mere speculative suggestion
is not enough. Moreover, because it is the applicant
who seeks
to satisfy the court of the prospect, it must establish these
reasonable grounds in accordance with the rules of
motion proceedings
which, generally speaking, require that it must do so in its founding
papers.”
[3]
[24]
The prospect of rescue must accordingly be considered in the light of
the objectives of business rescue proceedings contemplated
by the
definition in terms of section 128 (1) (b) of the Act, which are: to
facilitate rehabilitation of the company in order to
(a) return the
company to solvency, or (b) provide a better return for creditors and
shareholders than what they would achieve
through liquidation. An
applicant for business rescue proceedings must thus place before
Court a factual foundation for its contention
that there are
reasonable prospects that the aforementioned objectives can be
achieved. However, he or she is not required to establish
that a
business plan is already in existence, or to provide comprehensive
details of the costs or resources available to the company
to return
it to solvency. In
Propspec
Investments (Pty) Ltd v Pacific Coast Investments 97 Ltd and
Another
[4]
Van der Merwe J held that to require proof of those factual
details would be tantamount to requiring proof of a more exacting
nature, namely a “reasonable probability”. The learned
judge said the following in this regard:
“
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.”
[5]
These
comments were cited with approval by Brandt JA in
Oakdene
Square Properties
(supra).
[25]
There can also be little doubt that the legislative scheme of the Act
envisages that where there are reasonable prospects of
rescue,
business rescue proceedings must be preferred to winding up so as to
avoid the adverse socio-economic consequences of liquidation.
Binns-Ward J explained the rationale for this preference as follows
in
Koen
and Another v Wedgewood Village Golf and Country Estate (Pty) Ltd and
Others
[6]
:
“
The
requirements for a supervision order for business rescue purposes are
materially different from those which pertain to judicial
management.
It is clear that the legislature has recognised that the liquidation
of companies more frequently than not occasion
significant collateral
damage, both economically and socially, with attendant destruction of
wealth and livelihoods. It is obvious
that is in the public interest
that the incidence of such adverse social economic consequences
should be avoided where reasonably
possible. Business rescue is
intended to serve that public interest by providing a remedy at
avoiding the deleterious consequences
of liquidations in cases in
which there is a reasonable prospects of salvaging the business of a
company in financial distress,
or of securing a better return to
creditors than would probably be achieved in an immediate
liquidation.”
[7]
Discussion
[26]
The respondents’ contentions regard urgency and the manner of
service cannot be upheld. In my view the applicant was
justified, in
the face of imminent liquidation proceedings, to take urgent steps to
protect its substantial investment in the company.
The extent to
which the prescribed time limits had been truncated was accordingly
justified under the circumstances. I am also
satisfied that all
affected persons have received due notice of the application.
[27]
I now turn to consider whether the applicant has successfully
established the abovementioned legal requisites.
[28]
There are, in my view, two grounds which compel the conclusion that
the company is in fact financially distressed. First, it
is common
cause that the company has defaulted on its payment obligations in
respect of the loan advanced by the seventh respondent.
As mentioned
before, the company owes some R7.5 million which was due and payable
on or before 30 April 2016.
[29]
Mr
Woodland
has
accordingly correctly submitted that the company is commercially
insolvent. The test for commercial insolvency was explained
as
follows by Berman J in
Absa
Bank Ltd v Rhebokskloof (Pty) Ltd and Others
[8]
“
The
concept of commercial insolvency as a ground for winding up a company
is eminently practical and commercially sensible. The
primary
question which a Court is called upon to answer in deciding whether
or not a company carrying on business should be wound
up as
commercially insolvent is whether or not it has liquid assets or
readily realisable assets available to meet its liabilities
as they
fall due to be met in the ordinary course of business and
thereafter to be in a position to carry on normal trading
- in other
words, can the company meet current demands on it and remain buoyant?
It matters not that the company's assets, fairly
valued, far exceed
its liabilities: once the Court finds that it cannot do this, it
follows that it is entitled to, and should,
hold that the
company is unable to pay its debts within the meaning of s 345(1)
(c)
as read with s 344
(f)
of the Companies Act 61 of 1973 and is accordingly liable to be wound
up.”
[9]
[30]
And in
Oakdene
Square Properties
[10]
Brandt JA held that although the company was factually solvent, in
that the value of its assets exceeded its debts, it was unable
to
satisfy the judgment debt and was accordingly commercially insolvent
for liquidation purposes, and thus “financially distressed”
within the meaning of the Act. Furthermore, although the court
has a discretion to refuse a winding up order, such discretion
is
limited where a creditor has a debt which a company cannot pay. In
such a case the creditor is entitled,
ex
debito justitiae,
to
a winding up order.
[11]
[31]
Mr
Woodland
has
also correctly argued that Mostert’s assertions that he has
already selected buffaloes for sale and that the realisable
assets
would accordingly be sufficient to satisfy the debt, cannot avail the
company. Mostert acknowledges that he does not have
any prospective
buyers, and it appears in any event that before the buffaloes could
be sold he would have to wait for the results
of blood tests, which
is a prerequisite for the sale of the animals. But there is yet
another insurmountable to this suggested
quick fix solution: the
company cannot legitimately sell the buffaloes since they are subject
to a notarial security bond.
[32]
It is thus manifest that:
(a)
the
debt has become due and payable by 30 April 2016;
(b)
the
company has defaulted on payment;
(c)
the
company presently does not have the necessary funds to repay the
debt; and
(d)
it
does not have liquid or readily realisable assets available out of
which it can pay the debt and remain buoyant.
There
can, in my view, accordingly be little doubt that the company is in
fact commercially insolvent (and thus “financially
distressed”
within the meaning of section 131 of the Act) and liable to be wound
up, should the seventh respondent decide
to launch liquidation
proceedings.
[33]
Mostert’s reliance on a counter-claim, which he appears to
suggest would be sufficient to stymie the seventh respondent’s
claim, is also misplaced. Even if the company does have a claim
against the applicant for defaulting on its financial obligations
arising out of the business plan, it is obvious that that claim
cannot be enforced against the seventh respondent, despite the
fact
that the sole controlling shareholder of the applicant is also the
Crown Prince of the seventh respondent. These are different
legal
entities and the applicant has not made out a case for the piercing
of the corporate veil.
[34]
Second, it is also manifest that the company has been experiencing
cash flow problems and has struggled to keep its head above
water for
some time. It has been unable to meet creditors’ demands out of
funds generated in the ordinary course of business
and was reliant on
shareholders’ loans to service its debts. And, as mention
before, the fact that the company has only been
able to achieve some
R1.1 million in sales for the entire year so far, renders Mostert’s
sales projections for the month
of August 2016 manifestly
unrealistic.
[35]
Mostert’s contentions regarding the validity of the section 345
notice issued by the seventh respondent is also inconsequential.
Mr
Woodland
has
correctly submitted that the only effect of such a notice is to bring
into operation a deeming provision to the effect that
the company is
unable to pay its debts. In this case it is manifest that the company
is currently unable to pay its debts.
[36]
Under these circumstances the applicant’s concern about the
increased risk jeopardizing its investment is understandable,
and in
my view its decision to institute these proceedings is fully
justified. The respondents’ contentions regarding the
applicant’s
bona
fides
and the legal points set out in the second respondent’s Rule
6(5)(d)(iii) notice can accordingly also not be upheld.
Reasonable
prospects of rescue
[37]
The only question that then remains to be answered is whether there
is a reasonable prospect that the company could be rescued,
in other
words, if it can be returned to solvency; or a better return for
creditors and shareholders can be achieved than what
they would
receive through liquidation.
[38]
As mentioned above, while the applicant is not at this stage required
to put up a comprehensive plan showing the prospects
of rescue, it
must establish a factual foundation for the existence of such a
reasonable prospect.
[12]
[39]
In this regard one of the proposed business rescue practitioners,
namely Neil Micheal Hobbs, has averred that it would be relatively
easy to restore the company to solvency by realising assets and using
those proceeds to pay third party debts; alternatively, to
canvass
shareholders to recapitalise the company. Mostert has also asserted
that the company would be able to trade out of its
difficulties by
selling game. It is also significant in this regard that the
applicant’s controlling shareholders indicated
their
willingness to provide finance once an approved business rescue plan
has been implemented. It is thus reasonable to conclude,
on the basis
of the established facts, that there is indeed a reasonable prospect
that the company can be rescued. This option
should, for the reasons
which I have already stated, be preferred to liquidation.
[40]
Mr
Woodland
has correctly submitted that it appears almost certain that the
seventh respondent will launch proceedings for the winding up of
the
company, if business rescue is not commenced. On the established
facts before me there can be little doubt that the winding
up of the
company would virtually be a foregone conclusion if such proceedings
are launched. The commencement of business rescue
would, in my view,
consequently allow the company the crucial breathing space which it
requires to return to solvency. And I do
not believe that these
objectives are achievable under the current management. Mr
Woodland
has correctly submitted that there are various questionable
transactions which should be investigated by the business rescue
practitioners,
not least of which is the repayment of a substantial
loan to a company of which Mostert is a shareholder.
Order
[41] I am thus satisfied that the
applicant has made out a case for the relief it seeks in the notice
of motion, and the following
order accordingly issues:
(a)
The
first respondent (“the company”) is hereby placed under
supervision and business rescue proceedings shall commence
in terms
of section 131(1) and (4) of the Companies Act 71 of 2008. (“the
Companies Act”).
(b)
In
terms of section 131 (5), Neil Michael Hobbs (senior business rescue
practitioner) and Stephanus Johannes Martinus Steyn (senior
business
rescue practitioner) are hereby appointed to act as the joint interim
business rescue practitioners of the company, subject
to ratification
by the holders of a majority of the independent creditors’
voting interest at the first meeting of creditors,
as contemplated in
section 174 of the Companies Act.
(c)
The
company is ordered to notify each affected person of this order 5
business days of the date hereof, in terms of
section 131
(8) (b) of
the
Companies Act.
(d
)
The
first, second, fourth and fifth respondents shall (jointly and
severally, the one paying the other to be absolved) pay the
applicant’s costs of suit, including the costs of two counsel
where employed.
________________________
J.E
SMITH
JUDGE
OF THE HIGH COURT
Appearances
Counsel
for the Applicant : Adv
G.W. Woodland SC
Adv C. Cutler
Attorney
for the Applicant : Squires
Smith & Laurie Inc
67 Beach Road,
Nahoon
East London
Counsel
for the 1
st
, 4
th
& 5
th
Respondents : Adv
A.J. Murphy
Attorneys
for the 1
st
, 4
th
and 5
th
Respondents: Gravett Schoeman Inc
The Hub
Bonza Bay Road
Beacon Bay
Counsel
for 2
nd
Respondent
: Adv A. Liversage
Adv M. Coetzee
Attorneys
for 2
nd
Respondent
: Gray Burmeister Inc
21 Tecoma Street
Berea
Date
Heard
:
04 August 2016
Date
Delivered
:
23 August 2016
[1]
Section
128 (1) (f) of the Act.
[2]
2013 (4) 539
(SCA)
[3]
At page 551,
para 29.
[4]
2013 (1) SA 542
(FB)
[5]
At para 15.
[6]
2012 (2) SA 378
(WCC)
[7]
At para 14.
[8]
1993 (4) SA 436
(CPD).
[9]
At page 440 F-H
[10]
Oakdene Square
Properties (supra) at page 543, para 7.
[11]
Absa Bank
Limited v Rhebokskoof (supra) at page 440H – 441B
[12]
See Propspec
Investments (Pty) Ltd (supra) at para 11.