About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: North Gauteng High Court, Pretoria
SAFLII
>>
Databases
>>
South Africa: North Gauteng High Court, Pretoria
>>
2016
>>
[2016] ZAGPPHC 1190
|
|
Absa Bank Limited v Marotex (Pty) Ltd and Others (1046/15) [2016] ZAGPPHC 1190 (28 October 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
Case
Number: 1046/15
28/10/2016
Reportable:
Yes
Of
interest to other judges: Yes
Revised.
In
the matter between:
ABSA
BANK
LIMITED Applicant
and
MAROTEX(PTY)LTD
First
Respondent
W
K CAWOOD
N.O Second
Respondent
J
C BEER
N.O Third
Respondent
THE
BODY CORPORATION OF HARMONY VILLAGE Fourth
Respondent
RUTH
ROSE
MAKIWANE Fifth
Respondent
MVUYO
MVELASE NDZIBA
Sixth
Respondent
LINDELWA
NOBANTU NDZIBA
Seventh
Respondent
DEBORAH
LOVELL
HARDING Eight
Respondent
JUDGMENT
HUGHES
J:
Introduction
[1.]
On 21 October 2013, the first respondent, a real estate investment
and development company, Marotex (Pty) Ltd, applied to the
Companies
and Intellectual Property Commission (CIPC) to be placed under
business rescue. The financial woes of the first respondent
arose
when a judgment of this court, in favour of an estate agent, Ms
Natalie Smit (Ms Smit). was granted against the first respondent
in
the amount of R141 319.20.
[2.]
The first respondent was in the business of acquiring vacant land for
the rezoning and development thereof or its resale. During
the course
of its business it failed to satisfy the judgment obtained by Ms Smit
which eventually led to her obtaining an attachment
of all the
companies' vacant stands and two townhouses. The result being, the
first respondent had to seize trading, as Ms Smit
refused to uplift
the attachment. Consequently this culminated in the company being
under financial distress. The first respondent
was placed under
business rescue, as stated above, and on 24 October 2013 the second
and third respondents were appointed as joint
business rescue
practitioners. The applicant in these proceedings is a major creditor
who holds more than 75% of the creditors
voting interest.
[3.]
The second and third respondents as the business rescue practitioners
take issue with the
locus standi
of those representing the
first respondent. In essence they champion that they are the only
ones who may represent or instruct representation
for the first
respondent in terms of the business rescue process. ln addition they
support the applicant's application to have
the first respondent
wound up.
[4.]
The fourth respondent is the body corporation of the first
respondent's development, whilst the fifth to eight respondent are
shareholders and sureties of the first respondent and have been
joined as interested parties in these proceedings.
Relief
Sought
[5.]
In the main application the applicant seeks that the business rescue
proceedings of the first respondent be terminated and
converted to
winding-up or liquidation proceedings.
[6.]
The first and fifth to seventh respondents filed a
counter-application seeking a declaratory that the adopted amended
business
rescue plan be declared binding on all the parties, that the
applicant be directed to comply with paragraph 11 (b) of the adopted
amended business rescue plan which seeks the applicant to consent to
nil release figures in order to release stands on immovable
property
covered by the applicant. They further seek the removal and
replacement of the business rescue practitioners as they have
failed
to perform their fiduciary duties and as such this is indicative of
them not being
bona fide
in representing the interests of the
stakeholders. The latter is premised on the business rescue
practitioners being held liable
for fruitless and wasted expenditure
in the business rescue proceedings and it is sought that they pay
costs on a
de bonis propriis
basis.
[7.]
Mention needs to be made of the fact that the second and third
respondent also filed a counter- application which stands as
an
opposing affidavit answering to the main application. In this
counter-application the business rescue practitioners sought the
adoption of paragraph 8 of the business rescue plan that enables the
sale of the property of the first respondent by public auction
within
three months of this order and failing which the winding up of the
first respondent in terms of section 141(2) (a) (ii)
of the Companies
Act 71 of 2008 (the Act) with costs in the liquidation, alternatively
the business rescue.
[8.]
At the commencement of these proceedings the business rescue
practitioners abandoned the relief sought to sell the first
respondent's
property by public auction and persisted with the
alternative relief to wind up the first respondent.
Suretvship
[9.]
The fifth to eighth respondents are shareholders and stood surety for
the first respondent. Their suretyship is security by
way of bonds
held over properties they own in favour of the applicant and as this
is common cause I do not propose to set out all
the properties bonded
as security in favour of the applicant save to say the applicant's
standard mortgage terms and conditions
were applicable to these
bonds.
[10.]
As shareholders and creditors these respondents have been joined in
these proceedings as interested parties albeit that they
were joined
during the course of these proceedings and not at the inception.
Adoption
of the Business Rescue Plan
[11.]
The adoption of the business rescue plan was a lengthily process as
the first meeting of creditors took place on 6 November
2013 whilst
the business rescue plan was only published on 7 February 2014. After
the second meeting was held on 20 February 2014
an amended business
rescue plan was submitted on 3 March 2014 for the applicant's
consideration. On 17 March 2014 the applicant
submitted feedback
which resulted in a further amended business rescue plan being
forwarded on 1 April 2014 for the applicant's
consideration and
feedback. Eventually, on 24 April 2014 a plan satisfactory to the
applicant was submitted and on 5 May 2014 a
meeting of all creditors
was held to which the applicant did not attend. However, by proxy
vote on the part of the applicant, all
the creditors agreed upon the
adoption of the business rescue plan.
[12.]
The applicant contends that the adoption of the business rescue plan
was premised on the fact that the first respondent had
given the
assurance that the appeal against the judgment granted in favour of
Ms Smit would seriously be pursued in order to uplift
the attachment
on the first respondent's properties. In addition, the applicant
sought comfort in the fact that the first respondent
had represented
that an amount of R716 621.06 was being held in trust with Neuhoff
Attorneys. The aforesaid amount would be an
encouraging factor for Ms
Smit to release the attachment knowing that the undertaking to settle
her debt, if the appeal fails,
would be fulfilled.
Locus
Standi
of those representing the First Respondent
[13.]
The business rescue practitioners contend that the first point of
departure in this application is the determination of the
locus
standi
of the erstwhile management who have taken it upon
themselves to represent the first respondent. This, even in the face
of the appointment
of the business rescue practitioners who have been
placed in control of the first respondent by virtue of the business
rescue proceedings.
[14.]
In the first respondent's answering affidavit, deposed to by the
seventh respondent, she states that she derives her authority
to
depose to the affidavit from the fact that she is co-founder,
director and shareholder of the first respondent, as such, she
is
authorised to depose to the affidavit.
[15.]
The first respondent states that in terms of s146 (b) of the Act the
seventh respondent as a shareholder is entitled to participate
in
these proceedings, on behalf of the first respondent, as the Act is
silent on whether the shareholders are subordinate to the
business
rescue practitioner or require their permission to participate in
court proceedings.
[16.]
For easy reference s146(b) of the Act states:
"During
a
company's business rescue proceedings, each holder of any
issued security of the company is entitled to
- ...
(b)
participate in any court proceedings arising during the business
rescue proceedings; "
The
fifth to eighth respondents being shareholders would qualify as being
holders of issued security in this instance.
[17.]
On 7 April 2015, the second and third respondents served a Rule 7
notice in terms of the Uniformed Court Rules upon the first
respondent's attorneys, C J Mkhaveke Inc. This notice disputes the
aforesaid attorney's authority to act on behalf of the first
respondent as the first respondent was under business rescue. The
business rescue practitioners submitted that they were the only
ones
that had the authority to appoint attorneys on behalf of the first
respondent. Further, they had not mandated the appointment
of C J
Mkhaveke Inc. to represent the first respondent and neither did they
give authority nor consent to the erstwhile management
to instruct C
J Mkhaveke Inc. No response was forthcoming from those representing
the first respondent. A further Rule 7 notice
dated 3 June 2015, this
time by the applicant was served on those representing the first
respondent. This notice disputed the authority
of the attorney
representing the first respondent. Yet again no response was forth
coming.
[18.]
In addition to the above, the business rescue practitioners submitted
that the erstwhile management has no authority to appoint
attorneys
in these proceedings to represent the first respondent and cannot do
so. The business rescue practitioners rely on s140
(1) (a) of the Act
which states that:
"During
the company rescue proceedings, the practitioner, in addition to any
other powers and duties ...
(a) has full management control of
the company in substitution for its board and pre existing
management;"
[19.]
The crux of the business rescue practitioners argument is that the
first respondent is placed under their management in terms
of s140
(1) (a) and as such its erstwhile management has no control over the
first respondent whilst under business rescue. On
the other hand the
first respondent contends that as s146 is not clear, as shareholders
and interested parties, they are not precluded
from representing the
first respondent. They state that the business rescue practitioners
are not given superior status and as
interested parties and
shareholders they can represent the first respondent.
[20.]
The answer, in my view, lies in two sections, the first being s140
(1) (a) and s137 (2) (a) read with s146 of the Act. The
former
section has already been quoted above and Ifind it necessary to
mention that s137(2) (a) states that:
"(2)
During
a
company's rescue proceedings, each director of the
company
-
(a) must continue to exercise the functions of the
director, subject to the authority of the practitioner;"
[21.]
Thus the seventh respondent who deposed to the affidavit as a
director, in terms of s137 (2) (a) she cannot represent the
first
respondent without the authority of the business rescue
practitioners. On this leg her
locus standi
to represent the
first respondent must fail. As shareholder, in terms of s146, she is
a holder of issued security in the first respondent
and as such she
is entitled to participate in any court proceedings arising during
the business rescue proceedings being an interested
party.
[22.]
Now s140 is clear that the business rescue practitioners are
authorised to manage the company in business rescue even though
the
directors retain their functions as such (s137 (2) (a)). However,
these functions are still subject to the authority of the
business
rescue practitioners in terms of s140. So whichever way one spins it
the authority to manage the company will always lie
with the business
rescue practitioner, whether one is a shareholder, director or
co-founder. In the result, the fifth to eighth
respondents do not and
would not have the right and authority to appoint the attorneys
representing the first respondent. This
could only come about with
the authorisation of the business rescue practitioners who are the
de
facto
managers of the company during business rescue proceedings.
[23.]
Therefore whether the joinder of the fifth to eighth respondents was
during the proceedings and not at the inception is of
no moment as
the business rescue practitioners would still be in the position as
set out above, that being, the authority that
would manage the
company during these business rescue proceedings.
[24.]
Consequently the seventh respondent together with the erstwhile
management cannot act for the first respondent without the
authority
of the business rescue practitioners. It stands to reason that the
only one able to act for the first respondent is the
business rescue
practitioners who seek that the current business rescue proceedings
be converted to winding up or liquidation proceedings
in terms of s14
[25.]
Bearing in mind that the first respondent has brought a
counter-application it follows that if the seventh respondent did
not
have
locus standi
to bring said application that application
brought on behalf of the first respondent is not properly before this
court.
[26.]
The applicants seek that the answering affidavit filed on behalf of
the first respondent be struck out as the seventh respondent
did not
have the authority to depose to same on behalf of the first
respondent. I deal with this in the following paragraphs.
[27.]
I agree with Adv. M P van der Merwe SC, who represents the applicant,
that the fifth to seventh respondents have not amended
their papers
to state that they are bringing the counter-application on their
behalf as affected and interested parties to the
main application.
This being the case the fifth to seventh respondent is left out in
the cold as they have not filed an answering
affidavit to the
applicant's founding affidavit. What is noted is that the heads of
argument is the only document that makes mention
of these respondents
who were recently joined to these proceedings. In essence, but for
the heads of argument, there are no papers
before me on behalf of the
fifth to seventh respondents.
[28.]
These respondents sought that they be allowed to make representations
as shareholders with an interest in the business rescue
proceedings,
in terms of Rule 28(10). Rule 28 (10) reads as follows:
"(10)
The court may, notwithstanding anything to the contrary in this rule,
at any stage before judgment grant leave to amend
any pleading or
document on such other
terms as
to
costs
or other
matters
as
it deems fit."
In
essence these respondents seek that the answering affidavit filed on
behalf of the first respondent serve as their answering
affidavit as
well bearing in mind that they have been joined in these proceedings
by the applicant after the respondents were supposed
to file their
answering affidavits.
[29.]
In light of the discretion that I possess in terms of rule 28 I am
not prepared to non-suit these respondents. This is a technicality
which in my view should not delay the finalisation of this matter any
further. In the circumstances as the fifth to seventh respondents
have filed heads and are represented at court I am inclined to allow
them to participate in the proceedings.
[30.]
Consequently, the answering affidavit filed on behalf of the first
respondent is also filed on behalf of the fifth to seventh
respondents who are a party to these proceedings. It stands to reason
that it would stand on behalf of these respondents'.
The
winding up in terms of s130 or s141 of the Act
[31.]
Having found that the first respondent cannot be represented by the
seventh respondent and the erstwhile management the only
issue that
remains is that which is now common cause between the applicant and
the business rescue practitioners and that is that
the first
respondent must be wound up or liquidated. This court needs to
determine whether it would be so in terms of ss 130 or
141 of the
Act.
[32.]
The applicant launched these proceedings under s130 of the Act whilst
the business rescue practitioners sought the winding
up in their
counter-application in terms of s141 of the Act.
[33.]
Adv. M P van der Merwe SC concedes that in terms of s130 of the Act
as an interested and affected party, such as the applicant,
one could
seek the setting aside of the business rescue resolution adopted by
the board; the setting aside of the appointment of
the business
rescue practitioners and/or calling on the business rescue
practitioners to pay security, prior to the adoption of
the business
rescue plan in terms of s152 of the Act. Once the business rescue
plan had been adopted in terms of s152, that is
to say a plan that
contains materially accurate information in terms of s150, the
applicant would be precluded from invoking this
section.
[34.]
However, in this case the applicant argues that one is still at
liberty to invoke s130, as the business rescue plan was not
adopted
in terms of s152. In that, in terms of s150 (2) the business rescue
plan must contain "a//
the information reasonably required to
facilitate affected person in deciding whether to accept or reject
the plan"
and in terms of s150 (4) at the conclusion of the
proposed plan a certificate by the practitioners must attest that the
information
provided is accurate, complete and up to date. In this
instance, the applicant submits that the business rescue plan
contained
materially fatal and major mistakes which had induced the
applicant to accept the plan.
[35.]
The plan was not accurate in that there was a major misrepresentation
as regards the funds (R716 621.06) being available in
Neuhoff
Attorneys trust account. These attorneys were responsible for the
transfer of the first respondent's properties which were
sold. These
funds, it was submitted, would hold over Ms Smit who had obtained an
execution order against properties of the first
respondent which the
applicant had financed. As these funds were not available, on that
basis alone, the applicant contends, the
business rescue plan was not
accurate, as contemplated in terms of s150, and as such, could not be
said to have been adopted in
terms of s152 of the Act.
[36.]
In addition, the applicant submits, in the plan no provision is made
for the inclusion of Ms Smit as a creditor of the first
respondent,
her judgment claim has been totally left out of the rescue plan. This
is yet a further indication that the plan is
not accurate. There is
also the matter of three property sales transactions of the first
respondents creating the impression that
there were prospects of
monies flowing into the first respondent's business. Lastly, the
monthly rentals collected for certain
properties of the first
respondent, as indicated in the rescue plan, were not collected for
as promised by the business rescue
practitioners. The rental was to
pay for property related expenses and the free residue to be paid
toward the debt of the applicant.
[37.]
With the aforesaid situation on hand the applicant contends that
there is no reasonable prospect of the company being rescued
as
anticipated by the business rescue practitioners and as the applicant
holds the majority of the creditors voting interests they
submit that
the plan doomed for failure leads to the foregone conclusion that the
first respondent be wound up as they are unable
to pay their debts
and it would be just and equitable.
[38.]
Adv. L K van der Merwe, for the second and third respondents, argues
that the applicant's reliance on the defects or incorrect
information
invalidating the plan is merely a creation of a simulated environment
for the applicant to rely on the provisions of
s130 of the Act. That
the basis set out above, is an attempt to create a basis for its
argument around s130 (1), which is disputed
by the business rescue
practitioners. Another aspect which the second and third respondents
contend cannot be dealt with under
s130 is that of the conduct of the
business rescue practitioners, which is also disputed. The business
rescue practitioner argues
that the only option in these
circumstances open to the applicant is to seek their removal which is
not catered for in s130. Lastly,
they submit that after the adoption
of the plan it is left to the business rescue practitioners to seek
the conversion if they
are of the view that the rescue proceedings
cannot be implemented and there are reasonable prospects of rescuing
the first respondent.
Section 141 (2) (a) impose this duty upon the
business rescue practitioners only.
[39.]
Adv. Ndziba, who represented the first respondent together with the
fifth to seventh respondents, argued on behalf of the
fifth to
seventh respondents, that the applicant's contention that it was
induced by the misrepresentations made in the business
rescue plan,
amounted to
ma/a fides
on the part of the applicant as it was
aware that paragraph 8 (d) of the plan sets out that the funds
complained of were to be generated
from the property sales and would
be retained in trust as security for Ms Smit's judgment debt, costs
and interest, in order to
secure her consent to uplift the interdicts
as each property is transferred. Adv. Ndziba points out that an email
dated 22 August
2014 from the transferring attorneys, Cawood
Attorneys, confirms that the applicant was aware how the aforesaid
amount would be
attained. Thus the respondents (fifth to seventh)
persist that the parties to the rescue plan were
ad idem
with
regards to the source of the funds to satisfy Ms Smit's debt. The
respondents submit that in terms of s152 (4) a plan that
had been
adopted was binding on the company, the creditors as well as the
holders of company securities.
[40.]
The respondents aver that the plan complies with s128 (1) (b) of the
Act, in that it satisfies the requirements contemplated
in this
section, and therefore the limitations of s130 are applicable in this
instance. The applicant, it is so submitted by the
respondents, by
virtue of it seeking to amend its notice of motion in order to have
the adopted plan set aside (in the alternative)
is an acknowledgment
on its part that it is bound by the limitations of s130.
[41.]
The applicant's contention that the plan has become impossible to
implement is disputed by the respondents (fifth to seventh).
They
submit that it is in fact the applicant who is frustrating the
implementation of the amended adopted plan. The issue raised
of Ms
Smit and the funds was an issue debated with the applicant and
consensus was reached with the applicant on a way forward,
prior to
the adopting and implementation of the plan. They further contend
that the applicant had given an undertaking to afford
the first
respondent with nil figures for the sale of the first three
properties and this was confirmed in correspondence dated
17
September 2014. Consequently, they submit that there is no stalemate
as alluded to by the applicant, and in fact the applicant
has abused
its powers as a secure creditor by holding the first respondent at
ransom in frustrating the implementation of the amended
adopted plan.
[42.]
In fact the respondents point out that as at 10 February 2015 the
first respondent had sold five properties, to the tune
of R1 225
000.00, that were ready for lodgement with the deeds office (letter
dated 10 February 2015 to deed office). The applicant's
conduct of
withholding the nil figures on these properties amounts to
sabotaging of the first respondent's successful implementation
of
the business rescue plan which would lead to rescuing it out of its
financial distress.
Analysis
[43.]
I think it is prudent that I set out the parties in the main
application, having made the finding above; these are the applicant,
second and third respondents as the business rescue practitioners and
the fifth to seventh respondents. The fourth respondent and
the
eighth respondent have not taken part in these proceedings.
[44.]
It was correct of the applicant to make the concession that in terms
of s130, as an interested and affected party, prior to
the adopting
of the business rescue plan in terms of s152, the applicant could
seek the setting aside of the business rescue resolution
adopted by
the board or the setting aside of the appointment of the business
rescue practitioners and/ or calling on the business
rescue
practitioners to pay security. See
African Banking Corporation of
Botswana v Kariba Furniture Manufacturers (Pfy) Ltd and Others
2013 4
All SA 432
(GNP) at paras [56] and [62].
[45.]
In essence, as long as the business rescue plan had not been adopted,
the only ones who could seek a conversion of the plan,
as is sought
in this instance, to liquidation proceedings, were the business rscue
practitioners. Section 141 (2) (a)
(i)
and (ii) clearly states
that the 'practitioner' must inform the court and apply to court for
the liquidation of a company under
business rescue.
[46.]
As I stated above the answering affidavit of the first respondent
serves as that of the fifth to seventh respondents. The
also sought
condonation for the late filing of their heads of argument which was
duly granted in order that the matter is heard
as it has been
dragging on for quite a while and it was in the interest of justice
to do so. In any event the condonation sought
was not opposed by the
other parties.
[47.]
Having stated the above the stance adopted by the applicant is that
even in the face of the aforesaid it is still able to
seek the
liquidation of the company on the grounds that the amended adopted
business rescue plan was not adopted in terms of s152,
as the plan is
not that which is contemplated in terms of s150.
[48.]
In terms of s150 (2) the business rescue plan needs to contain all
information
reasonably
required to assist various stakeholders
in accepting or rejecting the proposed plan. On my understanding of
s150 (2) there is merely
a structure which serves as guidance of what
the plan ought to consist of and a business rescue plan is developed
along this structure.
In my view, development of a plan along this
structure is dependent on specifics of each case ensuring that
sufficient information
is provided under the three components of the
structure being Part A-Background, Part B-Proposals and Part
C-Assumptions and Conditions.
According to s150 (4) provision is made
for a certificate at the conclusion of the proposed plan. Here the
practitioners confirm
the accuracy of the information contained in
the proposed plan. It has emerged through the cases that substantial
compliance with
the provisions of s150 (2) is all that is required.
See
CSARS v Beginsel
2013 (1) SA 307
(WCC) at [38] and Absa Bank
Ltd v Golden Dividend 339 Ltd and Others
2015 (5) SA 272
(GP) at
[44}.
[49.]
The applicant contends that there was no certificate, however on my
inspection of the said amended plan on hand, at the end
thereof, the
practitioners give assurance that the information supplied to them by
the directors and the company accounting officer
were reviewed by
them and were up to date; that the estimates were made in good faith
and the assumptions where based on factual
information gathered by
them in their dealings with the affairs of the company. Thus, to my
mind, this amounts to substantial compliance
with the provisions of
s150 (4) taking into account there are no prescripts of the
certificate anywhere in the Act.
[50.]
With regards to the content of the adopted amended plan of 14 April
2014 I do not propose to go through each and every consideration
set
out in s150 (2) save to state that the applicant does not take issue
with the composition of the plan but rather the content
thereof, as
the applicant alleges that the information therein was not factually
correct and consisted of misrepresentations that
induced it to
approve the plan.
[51.]
The first allegation that the applicant relies on is that a creditor,
Ms Smit's, claim is not catered for in the plan. However,
on
examination of the plan, the business practitioners address her claim
and the interdicts that she has against the first respondent
under
Part-A. In Part-B they set out a proposal on how they would deal with
this creditor and in Part-C they set out the manner
in which all the
creditors would be paid. Thus it cannot be said that they do not deal
with Ms Smit's claim in the plan and in
my view the addressing of
this claim would amount to substantial compliance with s150 (2).
[52.]
The second aspect that the applicant takes issue with is that the
plan misrepresents that an amount of R716 621.06 was available
in the
trust account of Neuhoff Attorneys in order to seek Ms Smit's
assurance that the interdicts she has over the first respondent's
properties would be uplifted. Combined with this issue is the
applicant's contention that Ms Smit's claim is not registered.
[53.]
I deal with the latter first, under paragraph 4 of the plan the
practitioners state that Ms Smit had presented her claim but
it was
rejected
'pending litigation between the parties regarding dispute
arising during approximately 2004'.
This litigation was also the
subject of a pending appeal in this court which with the
practitioners consent was to continue during
the rescue proceedings.
In addition with regards the interdicts under paragraph 5 of the
plan, it was noted by the practitioners
that they had received
confirmation from Ms Smit's attorneys that the interdicts would be
uplifted.
[54.]
Turning to the misrepresentation surrounding the alleged funds in
Neuhoff Attorneys trust account I find it prudent to quote
that which
appears in paragraph 8
(a)
and (d) of the adopted amended plan:
'8
(a) Appointing Henk Neuhoff from Neuhoff Attorneys
as
conveyancer for the Company. This appointment was made on 14
November 2013. Neuhoff has already communicated with the previous
conveyancers
and confirmed that
no deposits
and/or
funds are available for the Company.
R500 000 is currently
held in Cawood Attorneys' account ...
No other funds are
available.
(d)
The BRP's will endeavour to obtain an order declaring
a
re-trial of the litigation between the Company and Natalie Smit in
the North Gauteng High Court under
case
number 3532612005 on
the grounds that the entire court file and recordings were lost.
This
will in tum result in the funds R716 621.06
as
at
31 Januarv 2014 held in
trust with Neuhoff Attorneys
being made available for repayment towards Absa Bank. The R716 621.06
held in trust will be paid to
Absa within 30 days from the
date
the re-trial is concluded.'
[That underlined is my emphasis]
[55.]
From the aforesaid it would seem that the practitioners first say
that there are no funds with Neuhoff Attorneys and in the
same breath
they say there are funds with Neuhoff Attorneys to the tune of R716
621.06. It is also evident that the submission
advanced by Adv.
Ndziba, that of the applicant having been aware of how the aforesaid
funds would be attained and thus the applicant
was ma/a
fides
cannot be true as paragraph 8 (d) does not set out how the funds
would be attained, as was submitted by Adv. Ndziba. It in fact states
that the funds have been in trust since 31 January 2014 and this was
prior to the adoption of the plan on 14 April 2014.
[56.]
Of interest is the following factors:
·
The first meeting of creditors took place on 6 November 2013;
·
On 6 February 2014 a business rescue plan was drafted however it did
not contain the details as set out in paragraph 8
(d) above;
·
On
31 March 2014 the business rescue practitioners sent correspondence
to the applicant which contained a draft of the amended plan,
it is
in this draft that paragraph 8 (d) features for the first time
;
·
On 1 April 2014 the applicant sent correspondence with relevant
amendments to the amended plan to the practitioners;
·
After the applicant's request was met the amended plan was then
adopted on 14 April 2014.
[57.]
On 4 August 2014 the applicant sent correspondence to the second,
sixth and seventh respondents, amongst others, confirming
a
discussion that was held. It was recorded that the second respondent
had advised:
'That
the interdict instituted by Natalie Smit has not been lifted as yet;
That
there is not an amount of R716K held in trust as is stipulated in the
approved
business rescue p
lan:
That
transfer of the only property sold to date, Unit 20, will only take
place once an undertaking/guarantee for the R716K is given
to the
attorneys of Natalie Smit; ...'
[My emphasis]
The
applicant stated the following in that correspondence:
'We
wish to place on record that the Bank considers the incorrect and
misleading information in the business rescue plan in
a
serious
light as the Natalie Smit issue is the crux of the client's inability
to realize the asset in order to repay creditors.
The business rescue
plan was approved in April 2014 and it seems like there have been no
sincere effort to resolve the issue of
the interdict since then.'
[58.]
In
my
view, from the correspondence on file between the
applicant, practitioners and the fifth to seventh respondents there
was an array
of 'cloak and dagger' being played out by the
respondents and the practitioners against the applicant. There were
rental amounts
being collected by the sixth respondent for at least
two units owned by the first respondent. This collection of rentals
commenced
even before the rescue proceedings and continued during
these rescue proceedings. The practitioners professed not to know of
the
rental collection. Whilst, the explanation advanced by the sixth
respondent was that the tenants were being evicted. The practitioners
did not even take any steps to recover from the sixth respondent the
rentals paid over to the sixth respondent whilst the rescue
proceedings were underway.
[59.]
By virtue of the above conduct of the practitioners, I am therefore
not surprised that after the applicant agrees to the adoption
of the
amended plan the practitioners now come forward and say that the
amount stated as being in the trust account is in actual
fact not in
the trust account.
[60.]
The plan is compiled by the practitioners after consultation with
creditors, affected persons and management of the company
(s150 (1)).
The plan
'must contain all the information required to facilitate
affected persons in deciding whether or not to accept or reject the
plan'
for this reason mechanisms are in place to ensure that the
implementation of the plan is on a fair and equitable basis as
regards
all the creditors and affected persons (s150 (2)). In this
instance the plan was considered by the applicant, who is the holder
of 75% of the creditors voting interest, and was approved in terms of
s152 (2) (a). Once the plan had been adopted, in terms of
s152 (4),
the plan is binding on the company, the creditors and holders of
company securities.
[61.]
On implementation of the business rescue proceedings the business
rescue practitioner is responsible to develop the plan and
implement
the plan (s140). Whilst the rescue proceedings are under way the
practitioner may seek the conversion from rescue proceedings
to
liquidation proceedings, if the practitioner concludes that there is
no reasonable prospect of rescuing the company by way of
s141 (2) (a)
(i) and (ii). The court may make an order discontinuing the business
rescue proceedings and placing the company under
liquidation (s141
(3)).
[62.]
In light of what the applicant seeks of this court, that being to
read into s130, that the plan having not been adopted in
terms of
s152, as an affected party, the applicant, may proceed by way of s130
to seek the conversion from rescue proceedings to
liquidation
proceedings on the basis that 'there is no reasonable prospect for
rescuing the company in light of the misrepresentations
made.
Further, that the resolution to commence business rescue should be
set aside (s130 (1) (a) (ii)). This court is thus asked
to set aside
the resolution in term of s130 (5) (a) (i) and (ii) and convert the
rescue proceedings to liquidation as it is just
and equitable to do
so.
[63.]
To my mind this case is clearly a matter of interpretation of the
statute before me. Thus Iam mindful of the guidance set
out by Wallis
JA in
Natal Joint Municipality Pension Fund v Endumeni
Municipality
2012 (4) SA 593
(SCA) para [18]
which was reiterated
in
Panama Properties (PtyO Ltd and Another v Ne/ N.O and Others
2015
(5) SA 63
(SCA) para [27]:
"[27]
When a problem such as the present one arises the court must consider
whether there is a sensible interpretation that
can be given to the
relevant provisions that will avoid anomalies. In doing so certain
well-established principles of construction
apply. The first is that
the court will endeavour to give a meaning to every word and every
section in the statute and not lightly
construe any provision as
having no practical effect. The second and most relevant for present
purposes is that if the provisions
of the statute that appear to
conflict with one another are capable of being reconciled then they
should be reconciled. Is it then
possible to reconcile s 129(5)
(a)
and s 130(1)
(a)
(iii)? In my view it is possible without
doing damage to the language used by the legislature. "
[64.]
The only way a conversion of business rescue proceedings to
liquidation proceedings is by way of ss140, 141 and in circumstances
when ordered by the court in terms of s132 (2) (a) (ii). The latter
states that business rescue proceedings end when the court
has
converted the proceedings to liquidation proceedings.
[65.]
The reference to
'until the adoption of
a
business rescue
plan in terms of section 152',
which is relied upon by the
applicant, must be read in context of ss130 and 152. Evident to me is
that s130 specifically pertains
to the objection of the company's
resolution to commence with business rescue proceedings (s129). It is
so that in this case the
company took a resolution to commence with
business rescue proceedings in terms of s129. Now I believe that it
is not a coincidence
that s130 specifically provides a time frame
when one is able to object to the resolution, which is before the
adoption of the
plan. In this instance the business rescue plan has
already been adopted and the resolution has come and gone.
[66.]
In order to invoke s130 the business rescue plan should not have been
adopted and in place. Be that as it may, let's see how
s152 operates
with s130. When I look at s152 which deals with terms for the
adoption of the plan, nowhere in the conditions set
out in s152 does
it make mention of the content of the plan. It only states the
procedure for the adoption of the plan and this
procedure is not
contested in these proceedings, but rather the content of the plan.
Therefore reliance can't be placed on the
fact that the 'contents of
the plan containing misrepresentations' render the plan not adoptable
in term of s152, as is contended
by the applicant, as this section
only deals with the procedure for adoption of the plan. In the
circumstances the applicant's
reliance on s130 to set aside, the
resolution which adopted the plan in terms of s 152 must fail.
[67.]
The only section that addresses the contents itself of the business
rescue plan is s150 (2) where it states that:
'(2)
The business rescue plan must contain all the information reasonably
required to facilitate affected persons in deciding whether
to accept
or reject the plan,'
Thus,
if the information, as in this case, is not correct and was in fact a
misrepresentation, then it is logic that the applicant
having been
induced by the misrepresentation has a right of recourse. The
question is under which section of the Act? It's only
logical to me
to expect of the Act that there be some sort of recourse for a party
who is induced to accept and adopt a rescue
plan based on false
information provided therein. As I see it, this must be so even if it
is not spelt out in s150 (2) logic dictates
this from a reading of
this section.
[68.]
As the misrepresentation was provided by the business practitioners
in the plan and as it was conceded as such by the same
practitioners,
rationality dictates that the recourse ought to be sought from those
who made the misrepresentation. In the application
of interpretation
of the Act, in my view, the recourse available to the applicant would
be an application to court in terms of
s139 (2) (a) or (b) for the
removal of the business rescue practitioners and to proceed by way of
s140 (3) (c) (ii), in that, the
practitioner as an officer of the
court be held liable for the misrepresentation made in the plan.
However, even in light of the
above the applicant's woes surrounding
the business rescue plan and its conversion to liquidation
proceedings would not be cured.
In the circumstances, the applicant
cannot proceed as sought in its notice of motion as there is no
provision in the Act, but for
the removal of the practitioners and
that of holding the practitioners accountable as stated above.
[69.]
For the reasons set out above the applicants contention that the plan
containing inaccurate information was not a plan in
terms of s150 and
as such was not adopted as contemplated in s152, is in my view, not
correct. The application for the business
rescue proceedings to be
converted to liquidation proceedings must fail.
Leave
to amend
[70.]
In terms of Rule 28 (10), the applicant if necessary, seeks leave to
amend its notice of motion to seek an order setting aside
the adopted
business rescue plan. The applicant has argued that the amendment be
granted as it would be just and equitable to set
aside the business
rescue plan. The setting aside of the business rescue proceedings
would come about if this court sets aside
the resolution that
commenced these proceedings (s132 (2) {a) (i)). This would means that
this court would grant an order in terms
of s130 (5) (a) which in
effect not only sets the resolution aside but puts an end to the
business rescue proceedings as well.
This takes us back to s130
which, as I stated, is not available to the applicant in these
circumstances as the business rescue
plan has already been adopted.
Thus the applicant cannot seek to set aside the resolution adopted,
for the reasons I have already
set out above. As long as the
resolution stands the business rescue is not terminated. See
Panamo
Properties supra at para [28) and [33).
In
the circumstance, this amendment application must fail.
Counter
application by the business rescue practitioners
[71.]
Bearing in mind that the second and third respondent sought two
prayers in their counter application which encompassed, one,
giving
effect to paragraph 8 of the adopted amended plan by way of selling
the property of the first respondent by public auction
and two, in
the alternative, seeking the conversion to liquidation proceedings in
terms of s141(2) (a) (ii). At the commencement
of the business rescue
practitioner's argument the first prayer sought was abandoned.
[72.]
I now turn to deal with the business practitioner's counter
application where they seek that the business rescue proceedings
be
converted to liquidation proceedings, in terms of s141 (2) (a} (ii).
This section provides that this process could be invoked
at any time
of the business rescue proceeding by the practitioners. In this
instance the practitioners contend that there are no
reasonable
prospects of rescuing the company, and thus, the rescue proceedings
be converted to liquidation proceedings.
[73.]
In terms of s141 (2) (a) (i) the practitioners
'must inform the
court, the company, and all affected persons in the prescribed
manner'.
As per the definition in s128 affected persons would
include the employees who would be informed in terms of s144 (3) (a),
the creditors
in terms of s145 (1) (a) and the shareholders in terms
of s146 (a), of the practitioners intention to convert the rescue
proceeding
to liquidation proceedings. The prescribed notification is
not defined in s 128. However, I am of the view that notification in
terms of the Uniform Rules of Court, Rule 4 is what the legislature
intended as the 'prescribed manner'. This would enable all
those
affected persons to make an informed decision of whether to accept or
oppose the practitioners' proposed application of conversion.
See
Absa Bank Limited v Naude N.0.(2026412014)
[2015] ZASCA 97(1June
2015)
at para
[9]
[74.]
In this instance, the practitioners attempt to seek the conversion
via the back door by jumping on the applicant's wagon,
so to speak.
This, in my opinion, could not have been the intention of the
legislature of what they envisage of s141 (2) (a) (i}
as informing
those affected by the prescribed manner. In the circumstances in my
judgment the practitioners have not complied with
s141 (2) (a) (i) in
that they have failed to inform those affected persons in the
prescribed manner.
[75.]
In addition to the above s141 (2) (a) provides that the practitioners
must conclude that
'there is no reasonable prospects for the
company to be rescued'
in order to attain the conversion. It has
been said that 'no reasonable prospect of rescuing the company'
should not be mere speculation
but ought to be prospects based on
reasonable grounds as to why the liquidation process is now
preferred. See
Oakdene Square Properties (Pfy) Ltd and Others v
Farm Bothasfontein (Kyalami) (Pfy) Ltd and Others 2013 (4) SA 539
(SCA) at paras
[29] and [30].
[76.]
In the papers before me the business rescue practitioners have failed
to set out the prospects based on reasonable grounds
to advocate the
conversion sought. There is nothing for me to consider in order to
make an informed decision and determination
whether it would be in
all the affected parties' interest that the conversion be allowed. In
fact in the practitioners' papers
they promote the view that the
business rescue plan has not been given an opportunity to take off,
so to speak. They further champion
that given an opportunity the
business could be rescued. In this regard I refer to paragraph 14.6
of the answering affidavit of
the practitioners set out below:
"In
light of the above-mentioned it is therefore respectfully stated that
the success of the business rescue plan can only
be determined at
a
time after the three month period allowed for in the business
rescue plan had lapsed and the public auction of the properties had
taken place. I therefore reiterate the fact that the Applicant
cannot, at this stage, state that the plan failed miserably seeing
as
the plan,
as
it stands, still provides for
a
mechanism
to be utilized to the benefit of the Applicant."
Also
at paragraph 16.6:
As
is clear from the content of the adopted business rescue plan,
implementation of the plan only stood to take place after 18 months
period,
as
provided for in the plan, had lapsed.
As
an
alternative to the above-mentioned the sale of the properties on
public action would represent the time of implementation of
the plan
itself. I have already indicated to the Honourable Court that the
stage of the sale of the properties by auction has not
yet reached
and I therefore confirm that implementation of the plan, to date of
signing of this affidavit, had not been reached."
[77.]
From the aforesaid, to me it is clear that the rescue plan had not
been afforded an opportunity to get off the ground, so
to speak. The
practitioners admit that much in their papers. Without obtaining any
reasonable grounds as to why the plan would
now fail, how then do
they expect this court to make a decision to liquidate the company
without any reasonable ground before it
that the plan would now fail
or has indeed failed? The only reason that I can glean from these
papers for the practitioners seeking
the conversion is the change in
attitude of the applicant toward the adopted amended plan and the
fact that the parties are now
not all on the same page as when the
plan was adopted. That to my mind does not amount to the practitioner
putting forward a factual
basis that is reasonable for seeking the
conversion.
[78.]
As I have stated there is non-compliance with s141 (2) (a) (i) and
non compliance with the provision of reasonable grounds
for the
conversion. Thus, in these circumstances the application in terms of
s141 of the business practitioners must fail.
Counter
application of the fifth to seventh respondents
[79.]
The respondents, being the fifth to seventh, contend as their counter
application, that throughout the rescue proceedings
the actions of
the applicant were meant to frustrate the business rescue process and
its implementation as highlighted in s128
(1) (b) (iii). Further,
that the applicant's application was defective and they had not made
out a case in terms of s130. This
warrants the dismissal of the
applicant's application and the granting instead of the amended
adopted plan to be declared binding
on all the parties. It is trite
that the company, creditors, shareholders and affected parties are
bound by the business rescue
plan adopted. In the circumstances the
decelerator sought is in my view not competent as it stands to reason
that if the applicant
and the practitioners fail in attaining the
liquidation of the company then the business rescue plan is still in
place and the
rescue proceedings continue.
[80.]
The aforesaid will also cover the relief that is sought to direct
compliance with paragraph 11 (b) which relief I might add
does not
make sense at all.
[81.]
In light of my findings above, in my analysis, I have concluded that
the attorneys representing these respondents have
locus standi
to
represent them but not the first respondent. I have also concluded
that the business rescue practitioners misrepresented to the
applicant, the major creditor, that there was R716 621.06 in the
trust account of Neuhoff Attorneys when in fact this money was
not in
the trust account. Further, that the applicant's application was
defective as the adoption of the plan had taken place and
in terms of
s130 the applicant, at this stage, could not object to the resolution
to commence with business rescue proceedings.
Lastly, that the
business rescue practitioner's application in terms of s141 was
defective for want of compliance of notification
in the prescribed
manner and the practitioners having failed to provided reasonable
grounds to make out a case for the conversion.
[82.]
From the facts set out above both the practitioners and these
respondent's contend that it was the applicant who frustrated
the
implementation of the amended business rescue plan before it could be
implemented. The plan has not come to an end as is contemplated
in
s132 (2) and as there is no reasonable grounds for the plan not to be
implemented, before me, I cannot find that the plan is
impossible to
implement at this stage.
[83.]
In the circumstances I have set out above it is apparent to me that
the main application and the application to amend be dismissed.
Further, that the counter application of the second and third
respondents also be dismissed.
[84.]
The fifth to seventh respondents seek the removal of the
practitioners as they have failed to exercise proper degree of care
in the exercise of their duties and functions. In addition in the
practitioners handling of the main application they had shown
their
lack of
bona fide
in protecting the interest of all
stakeholders.
[85.]
Having already found that the practitioners misrepresent to the
applicant regarding the funds in trust as explained above,
this in
itself warrants their removal in terms of s139 (2) (a) and (b). A
further reason is that their sentiments have been highlighted
in that
they do not have faith in the amended plan that did not even get off
the ground. It would be harsh to say that their conduct
was not
bona
fides
as contended. In my view, they were bound to oppose the
main application for the grounds that they advanced. However, in
seeking
the conversion they showed little faith in the amended plan
and as such I find that this would amount to them failing to perform
their duties of this particular company. It would also lead to a
conflict of interest if they remain as they do not have faith
in the
plan which they have implemented.
[86.]
In the circumstances the business rescue practitioners are to be
removed as such. Are they liable for fruitless expenditure
as
submitted by the respondent's in terms of s140 (3) (c) (ii)? This
section states that the practitioner could be held liable
"...for
the consequences of any act or omission amounting to gross negligence
in the exercise of the
(their)
power and performance of the
(their)
functions of practitioner."
[87.]
I cannot find in these circumstances that the practitioners acted or
omitted to act in a manner that can be said to have been
grossly
negligent. With regards to the misrepresentation, this in my view,
was information forth coming from the same respondents
thus they
cannot place reliance on this conduct as information was out of their
control and within the control of these respondents.
Other than that
the respondents have not demonstrated to me that their conduct
amounted to that subscribed in s140 (3) (c) (ii).
[88.]
In the circumstances set out by both the applicant and these
respondents, it would have been ideal for the fees charged by
the
practitioners in terms of s143 (1) to be subject to taxation, however
there is no provision in the Act that subjects the remuneration
and
expenses charged and incurred by the practitioners to taxation. The
practitioners are entitled to charge remuneration and expenses
in
terms of s143(1) as prescribed in sub-section (6). As I am bound by
the prescripts of the Act the prayer for a taxation of the
practitioners fees cannot be granted.
[89.]
I do not find just cause for the costs prayers sought by these
respondents against the applicant and the practitioners. In
the
circumstances the scale sought by the fifth to seventh respondents of
attorney and client and
de bonis propriis
respectively, in my
view, is not warranted.
Costs
[90.]
The costs are to follow the result. In this instance the successful
parties being the fifth to seventh respondents are entitled
to their
costs, as affected parties. Such costs to be on a party and party
scale. They have been successful in attaining the dismissal
of the
applicants and practitioners application for a conversion to
liquidation proceedings and the removal of the practitioners.
[91.]
Consequently the following order is made:
[1.]
The main application and the application to amend of the applicant
are dismissed with costs;
[2.]
The counter application of the second and third respondents is
dismissed;
[3.]
The order sought of fifth to seventh respondents for the removal of
the practitioners, the second and third respondents, in
terms of s139
of the Act succeeds.
Judge
of the High Court, Pretoria
Counsel
for the applicant:
M
P van der Merwe SC
(012)
424 4009 Cell: 082 9204 228
Attorneys
for the applicant:
TIM
DU TOIT & CO INC
(012)
470 7777
REF:
JMA NELIA ENGELBRECHT/mm
Counsel
for the second and third respondents:
L
K van der MERWE
Attorneys
for the second and third respondents:
KOSTER
ATTORNEYS
072
973 5436
REF:
KOSTER/5M002(1 )
Counsel
for the fifth to seventh respondents:
M
M Ndziba
(012)
460 2179
Attorney
for the fifth to seventh respondents:
C
J MKHAVELE INC.
(012)
346 5548
REF:
MR JABU MKHAVELE