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[2016] ZAGPPHC 353
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2001 Management Services (Pty) Limited and Another v Anappa (88079/14) [2016] ZAGPPHC 353 (20 May 2016)
SAFLII
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Certain
personal/private details of parties or witnesses have been
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IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG DIVISION,
PRETORIA
CASE NUMBER 88079/14
20/5/2016
In the matter between:
2001
MANAGEMENT SERVICES (PTY)
LIMITED
1
st
Applicant
STANDARD
BANK OF SOUTH AFRICA LTD
Intervening
Party and 2
nd
Applicant
and
KUMARVASAN
ANAPPA
Respondent
JUDGMENT
THULARE AJ
[1] The business rescue
practitioner, on behalf of the first applicant, applied for an order
that the business rescue proceedings
of the applicant be terminated
and that the applicant be placed in final liquidation in terms of
section 132 (2) of the Companies
Act 71 of 2008 (the Act). As regards
costs, it is prayed that the costs of the business rescue
practitioner in the business rescue
proceedings of the applicant
including all disbursements and legal costs incurred by him, be costs
in the winding-up of the applicant.
[2] The second applicant,
the Bank, applied for leave to intervene in the application, and an
order that the business rescue proceedings
of the applicant be
terminated and the applicant be placed in final liquidation in terms
of section 132 of the Act. In the alternative,
the second applicant
seeks an order granting them leave to institute liquidation
proceedings against the applicant in terms of
section 133 of the Act
and an order placing the applicant into final liquidation in the
hands of the Master, and that the costs
of the application, including
costs of intervening, be costs in the liquidation.
[3] Before me, the
business rescue practitioner did not pursue its motion, opting
instead to support the application by the Bank.
His interest and his
submissions, only related to the costs. His prayer was that the court
order, in relation to costs, be that
the costs incurred by him in
employing attorneys and counsel, in either defending or bringing
interlocutory applications pending
the winding-up application, are to
be regarded as administration costs in the winding up and further
that the question of his fees
are to be reserved. The Bank did not
support this stance of the business rescue practitioner. In its view
this court cannot be
asked to deal, in the main with costs related to
the application brought in the matter before another court in another
province,
and as regards fees the Bank’s view is that this must
be left up to the liquidator to decide which claims are to be
admitted
and which are not to be admitted.
[4] The Bank only pursued
its alternative motion before me.
[5] In his founding
affidavit in support of the application brought by first applicant,
Thomas Hendrick Samons (Samons) says he
deposed to the affidavit in
his capacity as the business rescue practitioner appointed as such on
11 July 2014 in terms of a resolution
dated 1 July 2014, passed by
the sole director of the applicant, Walter Frederick Stephen Ward
(Ward), in terms of the provisions
of section 129 of the Act. The
applicant commenced business rescue proceedings on 7 July 2014. He
took effective control of the
applicant on 11 July 2014.
[6] In the sworn
affidavit obtained from Ward, it is said that the applicant’s
primary business activity is that of property
investment. Ward
confirmed that the applicant is in financial distress due to the
following factors:
(a) applicant, as part of
a group of companies, bound itself as surety for overdraft facilities
of the group which the banks have
called up;
(b) the applicant owns
one residential property in La Lucia, Kwa-Zulu Natal;
(c) the property was then
vacant and not generating any income but had considerable expenses;
(d) Ward subsidized the
expenses of applicant from funds borrowed from banks which funds were
no longer available
[7] Ward goes on to
indicate that the assets of the applicant were far in excess of its
liabilities although it is unable to pay
its debts as and when they
became due. In his view, the applicant would be in a position to
rectify the problem within six months
due to the following
possibilities:
(a) Samons would be able
to find suitable tenants to lease the property.
(b) Samons would be in a
position to entertain offers to purchase the property of a value much
higher than the current covering
bond and/or the banks’
exposure
(c) the residual amount
generated from the sale of the property would be utilized to debts.
The applicant had 3
employees, nil turnover, two million rands third party liabilities
and 1 individual with an interest.
[8] Arising out of
meetings that Samons held with the director of the applicant and the
shareholders, he concluded that the applicant
was in distress due to
the fact that it major creditor, Standard Bank, could not be paid.
[9] The property that the
applicant owns is situated at 38 Lady Ellen Crescent, Umhlanga Rocks,
KwaZulu- Natal, more fully described
as Erf […] La Lucia
Extension 2, Local Authority Ethekwini, Registration Division FU,
Province of KwaZulu Natal, in extent:
1209 square metres. It is a
coastal house (the property). It is valued at a maximum market value
of R4 million.
[10] Standard Bank
Limited (the Bank) is a creditor of the applicant in an amount of not
less than R5 milllion, which debt is secured
by two covering bonds
which are registered in its favour over the property.
[11] After discussions
with the Bank, Samons decided to sell the property by means of a
public auction. His view was that this would
have enabled him to
conclude the business rescue proceedings within the prescribed three
months period. Samons instructed Aucor
Auctioneers to proceed with
the auction which was scheduled and advertised to take place on 26
September 2014.
[12] Samons had to cancel
the auction in the light of a court order which was obtained by
Kumarvasan Annappa (Annappa), who was
then occupying the property in
terms of an arrangement between him and the applicant’s
director in terms of which Annappa
allegedly purchased the property,
alternatively shares in the applicant. The order interdicted Samons
from selling the property
pending an application to set aside the
business rescue proceedings which Annappa was yet to institute. The
application to set
aside the business rescue proceedings has not been
served on Samons. As a result of the obstruction by Annappa, Samons
was unable
to conclude the business rescue proceedings within the
prescribed three month period.
[13] Samons submits that
it would be best for all parties if the applicant is wound up, and
then the liquidators can investigate
the Annappa transaction and set
it aside if they deem it to be impeachable. The liquidators can still
sell the property.
[14] Barry Terrence Wenke
(Wenke) is the manager in the business support-rescue and recoveries,
personal and business banking credit
division of the bank who brings
the application by the Bank on the authority granted by the Board of
Directors of the Bank. The
bank gave notice of its intention to
participate and intervene in this matter in terms of section
145(1)(b) of the Act. The Bank
supports the application by Samons to
have the business rescue of the applicant set aside on the basis that
there is no prospect
of rescuing the applicant and to seek the
winding up of the applicant, alternatively, the Bank seeks the
liquidation of the applicant,
in its own right.
[15] A copy of the
electronic print-out from the records of the Companies and
Intellectual Property Commission in respect of the
applicant,
attached to the Bank’s application, dated 16 March 2015,
indicates that Ward had resigned as a Director and that
Annappa is
the sole active director with an appointment date of 23 July 2013.
[16] According to Wenke,
applicant is a property owning company and does not trade. It is the
registered owner of the property,
and this is the applicant’s
only immovable property. The property is mortgaged to the Bank. The
mortgage bonds were registered
over the property by the applicant in
favour of the Bank on 1 August 2005 and 14 August 2006 respectively
under Bond numbers B43084/2005
and B48579/2006. The bonds were
registered as continuing covering security, for amongst others, the
obligations of the applicant
to the Bank as surety for amounts owing
by Ward to the Bank, which suretyships were limited to R4 million and
R1 million respectively,
R5 million in aggregate.
[17] The Bank afforded
Ward a facility known as a “Liberator Facility” in terms
of which a line credit of R12 million
was made available to him. Ward
availed himself of the facility, but fell in arrears with his
payments and as at 12 April 2012
the aggregate arrears amount was
R862 066-89. The Bank instituted action against Ward for the full
amount owing. As at date of
the affidavit, Ward is indebted to the
Bank in respect of the facility in the sum of R13 638 352-43 together
with interest on the
aforesaid amount at the prime rate from time to
time, then 9.25% less a concession of 2.25% i.e. 7% per annum, which
interest is
calculated daily and compounded monthly in arrears from
March 2015.
[18] The applicant was
cited as third respondent to the action pursuant its obligations to
the Bank as surety. Against the background
of the two suretyships
referred to earlier and the limitation thereon, the Bank claimed
payment in the amount of R5 million together
with interest thereon at
the prime rate as at 12 April 2012, which was 9% less 2.25% i.e.
6.75% per annum, calculated from 12 April
2012 to date of payment.
The applicant, according to Wenke, is indebted to the Bank, jointly
and severally with Ward’s insolvent
estate, as Ward has
subsequently been sequestrated, for payment of that amount.
[19] On 23 June 2013 Ward
informed the Bank’s attorneys that he was selling the shares he
held with the applicant to Annappa.
A copy of the sale of shares
agreement in terms of which Ward sold the shares he owns in the
applicant to Annappa for the consideration
of R5 million was availed
to the Bank’s attorneys on 15 July 2013 by Ward, and he
requested the attorneys to confirm
that the bonds registered in the
Bank’s favour would be cancelled. Ms Aphsana Yusuph (Yusuph)
also engaged with the Banks’s
attorneys regarding the sale of
shares agreement and the requirements of the Bank for the
cancellation of the bonds registered
in its favour.
[20] The sale of shares
agreement was concluded on the basis that the property formed part of
the assets of the applicant and that
same was encumbered to the Bank
to the capital amount of R5 million and this is the reason both Ward
and Annappa were advised of
the Bank’s requirement for it to
consent to the cancellation of the bonds registered in its favour.
[21] The Bank agreed to
the cancellation of the bonds registered in its favour, subject to
conditions, mainly that the cancellation
would only take place upon
payment of the amount of R4 715 000-00 to the Bank, which amount had
to be secured by an acceptable
guarantee by not later than 16 August
2016. These were communicated to both Ward and Yusuph. The bank
agreed to the delay in the
furnishing of the guarantees. The Bank
received payments of R200 000-00 on 21 and 23 October 2013
respectively from Annappa, which
amounts were taken on account of
Ward’s indebtedness at the time to the Bank, pursuant to the
sale of shares agreement. No
further payments were forthcoming,
despite some commitments made and not honoured. The Bank communicated
to Annappa, through his
attorneys that the indulgences granted to him
had fallen away due to the fact that the conditions for the Bank to
consent to the
cancellation of the bonds and the release of the
company as surety had not been fulfilled. This was also communicated
to Ward,
and also that that the Bank was proceeding with its action.
[22] On the 7
th
of July 2014, prior to his provisional sequestration, Ward passed a
resolution, referred to earlier in this judgment, to enter
business
rescue in terms of
section 129
of the
Companies Act. Ward
was
provisionally sequestrated on 22 July 2014 pursuant an application
brought by ABSA Bank. The provisional order was made final
on 1
October 2014. Due to Ward’s sequestration, the Bank was unable
to pursue the action against him. The bank was also unable
to
continue its action against the applicant as a result of the business
rescue proceedings.
[23] The Bank’s
view is that applicant is unable to pay its debts when they become
due and payable, and stands to be liquidated.
The amount of at least
R5 million is due and payable to the Bank. Its view is that it is
just and equitable for a liquidator to
be appointed, as he or she
would investigate the affairs of the company and subpoena witnesses
in order to ascertain what the true
position regarding the affairs of
the company are, and he or she may also engage with the trustees
appointed in Ward’s insolvent
estate in order to investigate
the sale of shares transaction and any payments made pursuant
thereto.
[24] The Bank’s
application as an intervening party was served on the applicant.
Annappa filed an intention to oppose the
Bank’s application. In
his affidavit, he indicates that he is the sole director and
shareholder of the applicant. The shareholding
and directorship of
the company has changed and passed through to him.
[25] He is aware that the
Bank held a mortgage bond over the property and that he had purchased
the shares of the applicant for
the sum of R5 million. Ward had
agreed to settle any indebtedness owed by the applicant to the Bank.
His arrangement with Ward
was that he would pay Ward R5 million and
Ward would in turn pay the Bank. In terms of the agreement and
arrangement with Ward,
he paid the sum of R2 698 750-00 for the
shares, which was used to partly release the applicant from the
limited suretyships agreement
with the Bank. This amount of R2 698
750-00 was paid to Ward. Ward transferred the shares to him in terms
of his arrangement with
Ward. Ward had informed him that he (Ward)
was selling other properties and that would also have the effect of
settling the indebtedness
to the Bank. The applicant had given
limited suretyship in favour of the Bank for the indebtedness of
Ward. He believed that the
property was not encumbered. He believed
that the applicant has stood surety for Ward and that at the time
that he took transfer
of the shares he believed that the company had
been released from the suretyship. For this reasons he holds the view
that the applicant’s
indebtedness to the Bank is in dispute. As
a result, his view is that the Bank cannot utilize the mechanism of
liquidation as an
instrument
in terrorem
to compel the
applicant to pay a disputed debt.
[26] His view is that the
cancellation of the bonds had nothing to do with the sale of the
shares. The Bank can easily rely on its
mortgage bond which affords
the Bank security so there can be no concern that the Bank is
prejudiced or compromised in any way.
The change of ownership of the
shares will have no impact on the security held by the Bank. The sale
of the shares in the company
will not affect its indebtedness to
third parties.
[27] When he became aware
of the of the business rescue proceedings against the applicant, he
brought an application in the KwaZulu-Natal
High Court in respect of
which he sought to set aside the business rescue proceedings. Samons
opposed the application. Samons failed
to provide a report to the
KwaZulu-Natal High Court and instead he brought this application in
the North Gauteng High Court for
the liquidation of the applicant.
His view is that Samons is working in cahoots with the Bank and that
they are attempting to prevent
matters from being dealt with in due
course and following due process, in respect of the action which is
still pending and his
application which is due to be set down and
argued on the opposed roll.
[28]
Furthermore, aside from the claim by the Bank, the applicant has no
other major creditors and in the circumstances the Bank
standing
alone as a single creditor must satisfy the court that it will not
obtain the redress required through simple execution
rather than the
expensive route of liquidation.
Furthermore, according to
him, Samons has failed to file any report to establish what enquiries
he has conducted on the financial
ability of the applicant. Because
of his inadequate conduct, his conclusions must be disregarded by the
court.
[29] He denies that the
applicant is indebted to the Bank in the amount claimed as pleaded.
He also denies that the applicant is
insolvent. As the director and
shareholder, upon any proven claim, he will be liable on behalf of
the applicant to the Bank. The
amount owing in terms of the sale
agreement is R2 301 250.00 and he undertakes to pay this amount to
the Bank in the event that
the Bank obtains judgment for its claimed
indebtedness. The property is valued at approximately R4 750 000-00.
If the claim of
the Bank is intact and sound in spite of his payment,
then the Bank has the security of the bond over the property.
[30] The Bank will be
levying interests on all amounts it alleges are owed to it, and as a
result will not suffer any prejudice
if it waits for due process and
allows the action and application to be determined. In the event of
the applicant being liquidated,
he will have no recourse to obtain
repayment of the sum of R2 698 750-00 from Ward, who is now
sequestrated. The Bank has the security
of a mortgage bond over the
property, which means that he cannot dispose of the property to
anyone, so the Bank shall have security
until the rights of all
parties are fully determined.
[31] The issue is whether
the Bank, as the intervening creditor, should be granted leave to
institute liquidation proceedings against
the applicant in respect of
a debt that is subject to business rescue proceedings.
[32] Section 133(1)(b) of
the Companies Act, 2008 (Act No. 71 of 2008) provides as follows:
“
133.
General moratorium on legal proceedings against company.- (1) 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 - …
(b) with the leave of
the court and in accordance with any terms the court considers
suitable;”
[33]
Henochsberg on
the
Companies Act, 71 of 2008
,
in his discussion of
section 133
,
under General Note, comments as follows:
“
The
moratorium granted by this section is designed to provide the company
with a breathing space while the business rescue practitioner
attempts to rescue the company by designing and implementing a
business rescue plan. This is a crucial element of any corporate
rescue mechanism, as it allows the company sufficient breathing space
to be able to find a solution to the financial problems it
is
experiencing at that time.”
[34] Samons, the business
rescue practitioner delivered an application to this court to have
the business rescue proceedings terminated.
The Bank also delivered
such an application to this court. Annappa does not want the business
rescue proceedings either. In his
effort to stop them, he filed an
application in the High Court in KwaZulu-Natal. All three parties
with an interest before me,
have one thing in common, and that is,
they do not support the business rescue proceedings and do not want
that to go ahead. It
is of course for different reasons. The attitude
and approach of the interested parties to the business rescue
proceedings, is
a factor to be taken into account, when leave is
sought to allow legal proceedings to commence against a company under
business
rescue proceedings.
[35] Against that
background, Ward signed a resolution, as a sole director, passed by
the applicant, to place the applicant under
voluntary business rescue
and to appoint Samons as the business rescue practitioner on 1 July
2014. Ward filed for the applicant’s
business rescue on 6 July
2014. Ward purportedly sold his shares to Annappa. Annappa is
purportedly registered as the only active
director of the applicant.
[36] The extracts of the
records from the Companies and Intellectual Property Commission are
not very helpful to the court as regards
to who was the director of
the applicant at the time that Ward filed for the business rescue of
the applicant. Samons was able
to retrieve what appears to be a
company report on the applicant, with the date of request being 14
November 2014. In terms of
that extract, Ward was the only active
director of the applicant. Annappa’s name does not feature at
all on that extract.
The Bank did its own search of the company
report on the applicant on 16 March 2015. According to that extract,
Annappa is registered
as the sole director of the applicant, with his
appointment date being 23 July 2013. According to that report, Ward
already purportedly
resigned as the director of the applicant on 27
July 2013. Ward sought to transfer shares in the applicant to
Annappa, and Annappa
sought to receive those shares, when both were
aware that the condition set by the Bank for the cancellation of the
bonds in its
favour were not satisfied.
[37] Where an applicant
did not file for business rescue because there was a reasonable
prospect of a successful business rescue
which existed at that time,
but instituted the business rescue proceedings for an ulterior and
improper motive, that is a factor
to be considered, which in my view
weighs in favour of the court granting leave for legal proceedings to
commence against a company
which was under business rescue
proceedings. The
bona fides
of the initiator of business
rescue proceedings, Ward, or any other relevant person, in this case
Annappa, when leave is sought
to lift the moratorium, in my view, is
an important consideration.
[38] Both Ward and
Annappa were aware that the Bank held a mortgage bond over the
property. Both were aware that the Bank agreed
to the cancellation of
the bond registered in its favour, subject to conditions, in the
main, that cancellation would only take
place upon payment of the
amount of R4 715 000-000 to the Bank, which amount had to be secured
by an acceptable guarantee. The
condition was not met, and both are
aware of this fact.
[39] Annappa’s bare
denial of the applicant’s indebtedness, beyond the common cause
payment of R200 000-00 twice, is
not supported by any evidence
presented to prove that the debt of the Bank was or is being met. The
reasons upon which he relies
to say that the Bank has been paid are
flimsy. He does not make full disclosure of the material facts on
which his claim that the
Bank has been paid, rests. On the papers,
Annappa does not raise a real and
bona fide
dispute of fact.
On the papers, the applicant is not only indebted to the Bank. It is
also unable to pay its debts and is in consequence,
commercially
insolvent.
(ABSA Bank v Hammerle Group
2015 (5) SA 215
(SCA)
at paragraph 12).
[39] In
Chetty v Hart
2015 (6) SA 424
(SCA) at paragraphs 40 and 45 the following is
said respectively:
“
[40]
… Thus
s 133
(1)(b), which is to be read disjunctively with
s
133(1)(a)
because of the use of the word ‘or’ in
exceptions (a) – (e), permits a creditor to seek the court’s
imprimatur
to initiate or continue legal proceedings against the
company in the event of a practitioner’s refusal to give
consent, or
directly, even without the permission of the practitioner
having been sought. …
[45] … So, as I
have pointed out earlier, during the moratorium there is no absolute
bar against legal proceedings. A creditor
may ask for the
practitioner’s written consent and, if refused, approach the
court under
s 133(1)(b).
In addition a creditor may approach the
court directly under this provision for leave to institute legal
proceedings, without having
asked for the practitioner’s
consent.”
[40]
Section 133(1)(b)
allows the Bank to approach the court directly, to seek the court’s
leave, to initiate legal proceedings against the company
that is
under business rescue, even without the permission of the business
rescue practitioner having been sought. The Bank, in
its alternative
motion, upon which it relied and proceeded before me, is well within
its right to seek such leave.
[41] The Bank seeks leave
to institute liquidation proceedings. In
Richter v ABSA Bank
2015
(5) SA 57
(SCA) Dambuza AJA gave the meaning of liquidation
proceedings as follows at paragraph 9:
“
[9]
… Generally, in law and in business, liquidation is the
exhaustive process by which a company is brought to an end and
the
assets thereof, if any, are redistributed. The authors of Cilliers &
Benade Corporate Law describe liquidation as follows:
‘
The
process of dealing with or administering a company’s affairs
prior to its dissolution by ascertaining and realizing its
assets and
applying them firstly in the payment of creditors of the company
according to their order of preference and then by
distributing the
residue (if any) among the shareholders of the company in accordance
with their rights, is known as the winding-up
or liquidation of the
company.”
[42] In my view, to
position the court to exercise its discretion judiciously, in
considering the leave sought, it is incumbent
upon an applicant who
seeks such leave of the court, to take the court into his/her
confidence and disclose to the court the legal
proceedings which he
or she intends initiating. This is to allow the court to determine
whether the facts as set out may stand
as valid grounds to sustain
such recourse. It will also assist the court to ensure that the
process of seeking leave is not abused
for ulterior purposes.
This will also assist the
court to determine whether it is just and equitable, under the
circumstances, to exercise its discretion
in favour of the leave
sought. In my view, liquidation is an appropriate recourse, and it is
just and equitable in this case, that
it be engaged as a process to
deal with the affairs of the applicant.
For these reasons I make
the following order:
1.
The intervening creditor, The Standard Bank of
South Africa Limited, is granted leave to institute liquidation
proceedings against
the applicant, 2001 Management Services (Pty)
Limited.
2.
The costs of the application, including the costs
of intervening, are costs in the liquidation.
_____________________
D.M. THULARE
ACTING
JUDGE OF THE HIGH COURT
Date of hearing: 12 May
2016
Counsel for the First
Applicant: Adv MH van Twisk
Attorney for the First
Applicant: K Maharaj Attorneys
Counsel for the Second
Applicant
and Intervening Party:
Adv X Stylianou
Attorney for the Second
Applicant
and Intervening Party:
RamsayWebber Attorneys
Counsel for the
Respondent:
Attorney for the
Respondent:
Date of Judgment: 20 May
2016