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[2016] ZAGPPHC 737
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Commissioner for the South African Revenue Service v Primrose Gold Mines (Pty) Ltd and Others (A932/14) [2016] ZAGPPHC 737 (23 August 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
APPEAL
CASE NO: A932/14
23/8/2016
Not
reportable
Not
of interest to other judges
Revised.
In
the matter between:
THE
COMMISSIONER FOR THE SOUTH
AFRICAN
REVENUE
SERVICE
Appellant
(Intervening
Party a
quo)
and
PRIMROSE
GOLD MINES (PTY) LTD
(In
Business
Rescue) First
Respondent
WERNER
CAWOOD
N.O.
Second
Respondent
JOHAN
BEER
N.O.
Third
Respondent
JUDGMENT
MURPHY
J
1.
The second and third respondents ('the respondents")
were appointed as business rescue practitioners in respect of
Primrose
Gold Mines (Pty) Ltd ("Primrose") on 3 June 2013.
In early August 2014, having concluded that there was no reasonable
prospect for Primrose to be rescued, they applied
ex
parte,
as a matter of urgency, in terms of
section 141(2)(a)(ii) of the Companies Act 71 of 2008 ("the
Act"),for an order discontinuing
the business rescue proceedings
and placing the company into liquidation. On 18 August 2014, the
Commissioner for the South African
Revenue Service ('the
Commissioner"), the appellant, filed an application applying for
an order joining it as a respondent
in the
ex
parte
application. In addition the
Commissioner sought an order declaring that the respondents did not
have
locus standi
to
bring the application for the liquidation of Primrose and made a
counter-application for the liquidation of Primrose. The Commissioner
contended that the business rescue proceedings had terminated prior
to August 2014 and hence the respondents did not have standing
to
bring the application for liquidation. The court a
quo
held that Primrose was still under business
rescue proceedings, that the respondents accordingly had
locus
standi
to make the application and dismissed
both the application to intervene and the counter-application.
2.
The Commissioner appeals to this court with the leave of
the court a
quo
and
seeks orders declaring that the respondents lack
locus
standi,
granting him leave to intervene and
declaring that he has
locus standi
to
bring the application for the liquidation of Primrose.
3.
The single and narrow issue in this appeal is whether
the respondents still held office, and hence had
locus
standi,
when they brought the application for
the liquidation of Primrose in August 2014. If the business rescue
proceedings were still
in place at that time the respondents would
have had
locus standi.
If
the business rescue proceedings had terminated before that time, then
they lacked
locus standi.
4.
The relevant facts are common cause and can be
summarised as follows. The respondents, as mentioned, were appointed
as the business
rescue practitioners of Primrose on 3 June 2013.The
first meeting of creditors was held on 14 June 2013 and the second
meeting
of creditors on 22 July 2013, 17 September 2013 and 8 October
2013. During the second meeting of creditors the proposed business
rescue plan was put to a vote and rejected by the creditors of
Primrose. After the business rescue plan was rejected by the
creditors,
none of the affected parties, including the respondents,
took any steps as envisaged in section 153(1) of the Act in the
applicable
time period. The relevant part of section 153(1) provides
that if a business rescue plan has been rejected the business rescue
practitioner or any affected person may seek a vote of approval from
the holders of voting interests to prepare and publish a revised
plan
or may advise the meeting that the company will apply to court to set
aside the result of the vote on grounds that it was
inappropriate.
Section 153(5) of the Act reads:
"If no person takes
any action contemplated in subsection (1). the practitioner must
promptly file a notice of the termination
of the business rescue
proceedings."
5.
In the light of the failure by the respondents and the
affected parties to take steps in terms of section 153(1) of the Act,
on
16 October 2013 the respondents filed a notice of termination with
the Companies and Intellectual Property Commission ("the
CIPC").
It was headed - "Notice of Termination of Business Rescue
Proceedings Primrose Gold Mines (Pty) Ltd" and
read:
"The
above mentioned company commenced business rescue proceedings by
resolution on 29 May 2013.
In
terms of
section 152
of the
Companies Act 71 of 2008
, the business
plan was rejected by the majority of the holders of voting interests.
In
terms of section 153 of the Act no affected party took any action
within 5 days from the date the business plan was rejected.
This
notice stands to confirm that business rescue proceedings are
terminated in terms of section 132(2)(c)(i).'
6.
Section 132(2) of the Act governs the termination of
business rescue proceedings. It reads:
"Business rescue
proceedings end when –
(a)
the court-
(i)
sets
aside the resolution or order that began those proceedings; or
(ii)
has
converted the proceedings to liquidation proceedings.
(b)
the practitioner has filed with the Commission a notice
of the termination of business rescue proceedings; or
(c)
a business rescue plan has been –
(i)
proposed
and rejected in terms of Part D of this Chapter, and no affected
person has acted to extend the proceedings in any manner
contemplated
in section 153; or
(ii)
adopted
in terms of Part D of this Chapter, and the practitioner has
subsequently filed a notice of substantial implementation of
that
plan."
7.
After the respondent filed the notice of termination on
13 October 2013, the directors of Primrose proceeded to issue a
resolution
to place Primrose in business rescue again. The notice of
termination filed by the respondents was also not accepted as a valid
termination of the business rescue proceedings by the CIPC. The CIPC
informed the respondents that in its view they remained the
business
rescue practitioners for Primrose and that the new resolution was
regarded as non-existent. Due to the confusion caused
by the attitude
of CIPC, the respondents approached the court for a declaratory order
in respect of their status as business rescue
practitioners. A
declaratory order was granted by Barn J on 30 May 2014 in the
following terms:
"... declaring that
business rescue proceedings only end in circumstances where a rescue
plan has been proposed to, and rejected
by the creditors of the
entity in rescue, in terms of Part D of Chapter 6 of the Act, and
none of the effect (sic) persons/parties
has acted in order to extend
the proceedings in any way or manner as contemplated in Section 153
of the Act and a practitioner(s)
takes action as envisaged in Section
132(2)(a)(ii), read together with Section 141 or 132(2)(b).'
8.
In terms of the order, business rescue proceedings end
when a business rescue plan has been proposed and rejected by the
creditors
and no party has taken any further steps as contemplated in
section 153 of the Act and the business rescue practitioners take
action
in terms of s 132(2)(a)(ii) of the Act, read with s 141 or
section 132(2)(b) of the Act. The respondents interpreted the order
to confirm that they remained the appointed business rescue
practitioners and that the business rescue proceedings in respect of
Primrose were still pending. For reasons which will appear in what
follows, their interpretation was misplaced. They then proceeded
to
launch the ex
parte
application
for the liquidation of Primrose, which is the subject of this appeal.
9.
In deciding that the business rescue proceedings were
still subsisting, the court a
quo
had
regard to section 141 of the Act. Section 141(1) requires a
practitioner, as soon as practicable after being appointed, to
investigate the company's affairs, business, property, and financial
situation, and after having done so, consider whether there
is any
reasonable prospect of the company being rescued. Section 141(2)(a)
and (b) are of particular relevance. They read:
"If, at any time
during business rescue proceedings, the practitioner concludes that –
(a)
there
is no reasonable prospect for the company to be rescued, the
practitioner must –
(i)
so inform the court, the company and all affected
persons in the prescribed manner; and
(ii)
apply to the court for an order discontinuing the
business rescue proceedings and placing the company into liquidation;
(b)
there
are no longer reasonable grounds to believe that the company is
financially distressed, the practitioner must so inform the
court,
the company and all affected persons in the prescribed manner, and –
(i)
if
the business rescue process was confirmed by a court order in terms
of section 130, or initiated by an application to the court
in terms
of section 131, apply to a court for an order terminating the
business rescue proceedings; or
(ii)
otherwise,
file a notice of termination of the business rescue
proceedings..."
10.
The court a
quo
held
that the business rescue proceedings were still subsisting at the
relevant time because in its view business rescue proceedings
only
end after the process set out in sections 141(2)(a) and (b) of the
Act have reached finality in terms of sections 132(2)(a)
of the Act
when the court sets aside the resolution or order; or when under
section 132(2)(b)of the Act the business rescue practitioner
files a
notice of termination with the CIPC. Such filing, the court held,
could only occur in the circumstances envisaged in section
141(2)(b)
of the Act, i.e. when the company is no longer financially
distressed.
11.
The court a
quo
reasoned
that in order to reach the finality contemplated in section 132(a)
and (b) of the Act, the practitioner must either apply
for the
discontinuing of the business rescue proceedings or file a notice of
termination. The action taken by the practitioners
in terms of
section 141(2)(a)(ii) of the Act, applying for orders discontinuing
the business rescue and placing the company in
liquidation, will
result in the state of affairs (the end of business rescue
proceedings) contemplated in section 132(2)(a)(ii)
of the Act. While
the action taken in terms of section 141(2)(b)(ii) of the Act will
culminate in the state of affairs contemplated
in section 132(2)(b)
of the Act To repeat, the situation contemplated in section
141(2)(a)(ii) of the Act is where the practitioners
conclude that
there is no reasonable prospect of the company being rescued, while
section 141(2)(b)(ii) of the Act, on the other
hand, pertains to a
situation where the practitioners conclude that the company is no
longer financially distressed. In other words,
in the opinion of the
court a
quo,
business
rescues in all cases end either in a liquidation under section
142(2)(a) or a notice of termination under section 142(2)(b)
on the
basis that there are no reasonable grounds to believe the company is
financially distressed. The learned judge thus concluded
that notice
in terms of section 132(2)(b) can only be given where the company is
no longer in distress. It was common cause before
her that the
company was still financially distressed and as such section
132(2)(a)(ii) read with section 141(2)(a)(ii) was applicable.
The
court thus held that the respondents accordingly had
locus
standi
to bring an application for
liquidation and the CIPC was correct to regard the filing of the
notice of termination by the practitioners
as invalid.
12.
The Commissioner's main ground of appeal was that the
court a
quo
overlooked
the fact that the possibility of a notice of termination is not
restricted to the circumstances envisaged in section
141(2)(b)(ii) of
the Act. Section 132(2)(b) covers another case. A notice of
termination is also required in the different circumstances
contemplated in section 153(5) of the Act. It was common cause that
the situation provided for in section 153, the rejection of
a
business plan and the failure of the practitioner or affected parties
to take the steps referred to in section 153(1), had in
fact arisen
and a notice in terms of section 153(5) of the Act had been filed on
16 October 2013, some 10 months before the application
by the
respondents was brought.
13.
Section 132 of the Act regulates the duration of
business rescue proceedings. Section 132(1) outlines the
circumstances under which
business rescue proceedings begin; and
section 132(2) delineates when they end. Section 132(2)(b) states in
general terms that
business rescue proceedings end when a
practitioner has filed a notice of termination with the CIPC. It does
not say that they
end only when a notice of termination is filed in
terms of section 141(2)(b)(ii) of the Act on the grounds that the
company is
not financially distressed. A notice of termination filed
in terms of section 153(5) of the Act must be filed on account of the
business rescue plan having been rejected and none of the affected
parties taking any further steps as contemplated in section
153.
Section 141(2)(b)(ii) of the Act, by contrast, requires a business
rescue practitioner to file a notice of termination, when
the company
is no longer financially distressed. In terms of section 132(2)(b) of
the Act, once a notice of termination has been
filed, either in terms
of section 153(5) or section 141(2)(b)(ii) of the Act, it will end
the business rescue proceedings.
14.
The interpretation of the Act by the court a
quo
is accordingly untenable and unduly
restrictive. It would mean that all business rescue proceedings end
either in liquidation at
the instance of the business rescue
practitioner or when the company is no longer financially distressed.
That is not the correct
legal position. The proposition ignores the
purpose and intended effect of section 153 of the Act, namely that
where a business
rescue plan has been rejected, affected persons,
including the creditors, and not only the business rescue
practitioners, should
be allowed to pursue their rights against the
company.
15.
In terms of section 141(2)(a) of the Act a business
rescue practitioner has a duty to apply for liquidation only once he
concludes
that "there is no reasonable prospect for the company
to be rescued". His conclusion in that regard, being a condition
precedent to bringing the application for liquidation, does not
equate with the scenario contemplated in section 153 of the Act
arising on the failure to adopt a business rescue plan. It does not
axiomatically follow from the failure to adopt a particular
business
rescue plan that there is no reasonable prospect for the company to
be rescued. Nonetheless, once the practitioner files
the notice of
termination in terms of section 153(5) of the Act, the business
rescue proceedings end in accordance with the general
provisions of
section 132(2)(b) of the Act. That is what happened in this case. The
business rescue proceedings ended on 16 October
2013 when a notice of
termination was filed in terms of section 153(5) of the Act. The
submission of the Commissioner that the
business rescue practitioners
had no
locus standi
to
apply for the liquidation of Primrose after that date is accordingly
correct.
16.
Much was made in argument about the interpretation and
effect of the declaratory order of Barn J. The respondents submitted
that
the order stands (until rescinded) to confirm that the business
rescue proceedings remain until a necessary further step is taken
in
terms of section 132(2)(a)(ii), read together with section 141 or
section 132(2)(b) of the Act. I do not read the order of Barn
J to be
inconsistent with the interpretation of the relevant provisions in
this judgment. But even if it were, that would be neither
here nor
there. This court is not bound by the declarator handed down in that
application.
17.
Finally, the respondents maintained that the business
rescue proceedings did not terminate with the filing of the
termination notice
on 16 October 2013 because this was merely an
"attempted filing" and not an effective filing because the
CIPC refused
to recognise the notice. Section 153(5) of the Act
requires the practitioner, in the circumstances there set out, to
"promptly
file a notice of the termination of the business
rescue proceedings." The term 'file", when used as a verb,
is defined
in section 1 of the Act as meaning:
"to deliver a
document to the Commission in the manner and form, if any, prescribed
for that document.”
No
regulation prescribes the form of the notice of termination
contemplated in section 153 of the Act or the manner of delivery.
Moreover, the respondents stated on affidavit more than once that the
notice of termination was filed with the CIPC; and the CIPC
did not
file any affidavit contradicting these allegations. In the
circumstances, there are uncontested and repeated allegations
in the
affidavits that the notice of termination was filed with the CIPC.
The CIPC in correspondence did state that it had not
received any
prescribed notice of termination, thereby indicating that it regarded
the initial business rescue proceedings as still
in effect. The
attitude of the CIPC has not been fully explained. Whatever its
position, the CIPC's comment does not detract from
the fact that the
notice of termination was filed and
ipso facto
became
effective. The CIPC has no adjudicative function in this regard. Its
role is simply to receive and deposit documents required
to be filed
in terms of the Act. The notice was delivered and that is sufficient.
18.
In the result, the appeal must be upheld. The applicant
has not sought any order as to costs. The order of the court a
quo
is consequently set aside and substituted
with orders declaring that:
(i)
the
business rescue in respect of the first respondent (Primrose Gold
Mining (Pty) Ltd) ended when the notice of termination was
filed by
the business rescue practitioners on 16 October 2013;
(ii)
the
respondents do not have
locus standi
to
proceed as business rescue practitioners of the first respondent
Primrose Gold Mines (Pty) Ltd;
(iii)
the
application to intervene is granted and the appellant has
locus
standi
to bring an application for the
liquidation of Primrose Gold Mines (Pty) Ltd.
________________________
JR
MURPHY
JUDGE
OF THE HIGH COURT
I
agree
________________________
P
MABUSE
JUDGE
OF THE HIGH COURT
I
agree
________________________
H
FABRICIUS
JUDGE
OF THE HIGH COURT
Heard
on:
27 July 2016
For
the Appellants :
Adv MD Kuper SC
Adv C Louw SC
Instructed
by:
Maponya Incorporated
For
the Defendant:
Adv L van der Merwe
Instructed
by:
Cawood Attorneys
Date
of Judgment:
23 August 2016