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[2016] ZAGPPHC 1148
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South African Property Owners Association v Minister of Trade and Industry and Others (66068/2016) [2016] ZAGPPHC 1148; 2018 (2) SA 523 (GP) (29 November 2016)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
29/11/2016
CASE
NO: 66068/2016
REPORTABLE
OF
INTEREST TO OTHER JUDGES
REVISED
In
the matter between:
THE
SOUTH AFRICAN PROPERTY OWNERS
Applicant
ASSOCIATION
and
MINISTER
OF TRADE AND INDUSTRY
First
Respondent
DEPARTMENT
OF TRADE AND INDUSTRY
Second
Respondent
MICHAEL
KATZ
N.O.
Thi
rd
Respondent
THE
TURNABOUT MANAGEMENT ASSOCIATION
SOUTHERN
AFRICA
Fourth
Respondent
JUDGMENT
VAN
DER WESTHUIZEN, A J
1.
This application was enrolled on the unopposed roll. It concerns the
interpretation of certain phrases appearing in sections
135(2) and
135(3) of the Companies Act, No. 77 of 2005 (the Act). I indicated
that I would require some time to prepare a considered
judgment in
view of the relief sought.
2.
In that regard, the applicant seeks a declaratory order that the
rights of a landlord in respect of rental and other services
rendered
to property utilised by a legal entity under business rescue fall
within the ambit of either the phrase
"post-commencement
financing'
, or the phrase
"costs arising out of the costs
of the business rescue proceedings"
.
3.
Section 21(1)(c)
of the
Superior Courts Act, 10 of 2013
, provides
that a court may in its discretion, subject to certain requirements,
on application by any interested party determine
any existing,
.future or contingent right or obligation, notwithstanding that such
person cannot claim any relief consequential
upon the determination.
The principles applicable to the exercise of such discretion are
succinctly set out in various judgments.
[1]
This application falls within the aforesaid principles.
4.
The applicant, the South African Property Owners Association (SAPOA)
is the umbrella organisation of Home Owners Associations
that are
members thereof. It acts as an association of property owners and
associated persons in the interest of its members in
terms of section
157(1) (c) of the Companies Act, 2008 (the Act). It represents
approximately 1300 companies and organisations
including major
players in the industry such as banks, property owing companies and
the like. Its members own or control about
90% of all commercial,
retail office and industrial properties in South Africa.
5.
The first respondent is the Minister of Trade and Industry. The
second respondent is the Department of Trade and Industry and
the
third respondent is Michael Katz N.O., the chairperson of the Katz
Committee. That committee has no juristic existence but
is appointed
by the first respondent to consider and recommend to the first
respondent changes required in respect of the Act.
6.
The fourth respondent is the Turnaround Management Association
Southern Africa, a representative body of business rescue
practitioners.
It has 123 members many of who give advice to or act
as business rescue practitioners.
7.
None of the respondents oppose the application and abide by the
court's decision thereon.
8.
The applicant contends that problems highlighted in the application
relate to business rescue proceedings under the Act and which
actually or potentially affect many of its members. In view of those
highlighted problems a declaratory order is sought on the
following
basis. The order sought is:
"1. Declaring that
the amounts payable by a company in business rescue proceedings in
respect of the rent for immovable property
occupied by the company
including amounts payable for the company's share of rates and taxes
and for public utility services including
electricity, water,
sanitation and sewage charges and payments to other service providers
that are disbursed by the lessor of such
premises:
1.1 Constitute
"
financing
” as contemplated in
section 135(2)
of
the
Companies Act, 2008
; or
1.2 Constitute "
costs
of the business rescue proceedings”
as contemplated in
section 135(3)
of·the
Companies Act, 2008
."
9.
Further in this regard, the applicant contends that more than often
companies are lessees in terms of a lease, agreement with
property
owners and business rescue proceedings usually commence while the
lease agreement is still in force and in terms of the
business rescue
application such companies rem in in occupation of the leased
property. As such, the particular company incurs
debt vis-a-vis the
lease agreement. The tenant's lease obligations more that often
include payment of rent and payment for public
utility services and
other services rendered to that company, either as part of the rental
amount, or accessory thereto.
10.
The practical effect thereof, once the company is under business
rescue, is that the lessor continues, and is obliged, to pay
those
expenses and which could be substantial. Those expenses include the
lessee's contribution to rates and taxes on the property,
the
lessee's share of the charges for electricity, water supplied to the
property, refuse removal services, sanitation, sewage
etc. Primarily
the lessor bears the obligation and liability to pay those expenses
or costs.
11.
It is further contended that although during business rescue
proceedings the company continues to trade from the leased premises,
it does not pay the rent (the rent either including the aforesaid
services, or in addition thereto). Furthermore, where the company
is
unable or unwilling to pay the aforementioned expenses, the business
rescue practitioner may in terms of section 133 of the
Act suspend
the obligation to pay those debts.
12.
The applicant submits that the question arises whether those debts
are preferent claims, either because they are "
costs of
business rescue proceedings
” or because they are "
post
commencement financing
" within the meaning of section 135(2)
of the Act.
13.
The aforesaid query was proposed to the third respondent. However,
the third respondent could not provide a definitive response.
The
third respondent advised the applicant that it was not prepared to
recommend any amendment to the Act in that regard unless
a
declaratory order to the effect that the debts are neither "
costs
of business rescue proceedings"
, nor "
post
commencement financing”
as contemplated in the Act.
14.
The Supreme Court of Appeal has recently confirmed the principles
applicable to the interpretation of documents, contracts,
statutes
and the like.
[2]
The principles
are trite and it is not required to restate them. What follows
becomes apparent when applying those principles to
the issues at hand
in this application.
15.
The applicant states that many business rescue practitioners do not
accept that those debts fall within either of the aforesaid
two
categories, and hence, lessors are left without any reasonable remedy
or preference in relation to the considerable costs they
have to
continue to pay on behalf of the companies under business rescue
proceedings.
16.
The legislator's intention with reference to business rescue
proceedings is contained in section 128(1)(b) of the Act. That
section provides:
"(b)
'business
rescue'
means proceedings to facilitate the rehabilitation of a
company that is financially distressed by providing for-
(i) the temporary
supervision of the company, and of the management of its affairs,
business and property;
(ii) a temporary
moratorium on the rights of claimants
against the company or
in respect of property in its possession; and
(iii) the development
and implementation, if approved,
of a plan to rescue
the company by· restructuring its affairs, business, property,
debt and other liabilities, and equity
in a manner that maximises the
likelihood of the company continuing in existence on a solvent basis
or, if it is not possible for
the company to so continue in
existence, results in a better return for the company's creditors or
shareholders than would result
from the immediate liquidation of the
company;”
17.
From the foregoing definition it can be discerned that the intention
is
to
assist a company in distress to trade out of its problems, primarily
that of financial nature.
[3]
18.
In order to achieve that aim, section 133 of the Act provides a
general moratorium on legal proceedings against the company.
Legal
proceedings against that company may not be commenced, and if
commenced, may not proceed without the written consent of the
business practitioner or with leave of the Court.
19.
A business rescue practitioner may in terms of the provisions of
section 136(2) of the Act either entirely, partially or conditionally
suspend, for the duration of the business rescue proceedings, any
obligation of the company that arises, whether from any agreement
towhich the company is a party at the commencement of the business
rescue proceedings.
[4]
4
20.
Counsel for the applicant submits, correctly in my view, that given
the clear intent of business rescue proceedings, the company
in such
proceedings would in all probability continue to remain on the
premises from which it conducts its business. Should that
company be
obliged to vacate those premises at the commencement of the business
rescue proceedings, the likelihood of a successful
outcome of the
business proceedings would diminish substantially.
21.
This application and in particular the relief claimed, is premised
upon the provisions of either section 135(2) or 135(3) of
the Act.
Those provisions provide:
"(2) During its
business rescue proceedings, the company may obtain financing other
than as contemplated is subsection (1),
and any such financing-
(a) may be secured to
the lender by utilising any asset of the company to the extent that
it is not otherwise encumbered; and
(b) will be paid in
the order of preference set out in subsection (3) (b).
(3) After payment of
the practitioner's remuneration and costs referred to in section 143,
and other claims arising out of the costs
of the business rescue
proceedings, all claims contemplated-
(a) in subsection (1)
will be treated equally, but will have preference over-
(i) all claims
contemplated in subsection (2), irrespective whether or not they am
secured; and
(ii) all unsecured
claims against the company;
or
(b) in subsection (2)
will have preference in the order in which they were incurred over
all unsecured claims against the company.”
22.
In my opinion, and applying the principles of interpretation, the
financing intended in subsection 2 of section 135 of the Act
relates
to the obtaining of financing in order to assist in managing the
company out of its financial distress, hence the provision
that any
asset of the company may be utilised to secure that financing to the
extent that the asset is not otherwise encumbered.
It does not lean
to an interpretation that encompasses existing obligations, other
than to company employees,
[5]
of
the company that are utilised to assist in managing the company
during the business rescue proceedings. Further in this regard,
sections 133 and 136(2) of the Act militate against such
interpretation.
23.
Section 135(3) of the Act provides for two categories of costs. The
first being those provided for in section 143 of the Act
and other
costs incurred due to the business rescue proceedings.
24.
The costs contemplated by the applicant and relating to the lease
agreement (either as part of rental or in addition thereto),
are
costs incidental thereto and are consequent upon the existence of the
lease agreement. Those costs are a direct result of the
terms of the
relevant lease agreement.
25.
It follows that those costs cannot constitute
"post-commencement
financing”
. Neither can those costs be classified as costs
occasioned by the business rescue proceedings.
26.
In my opinion, should it be held to be "
post-commencement
financing
", or for that matter "
costs arising out of
the costs of the business rescue proceedings”
, the lessor
would enjoy a preference over other creditors. To hold so, would
defeat the purpose or aim of business rescue proceedings
intended in
section 128(1)(b) of the Act. The legislator could not have intended
such a result or interpretation.
27.
The costs referred to in the application are costs incidental to the
leased property and are subject to the terms of the particular
lease
agreement and arise out of the terms of the lease agreement. Those
costs do not constitute by any interpretation costs arising
out of
the business rescue proceedings. Furthermore, the liability of such
costs arises out of the relevant lease agreement, despite
being
continually incurred, even after commencement of the business
proceedings. To hold that such costs constitute post-commencement
financing would elevate an obligation prior to commencement of
business rescue proceedings to a preference over other creditors
not
provided or contemplated by the provisions of section 135 of the Act.
28.
I am fortified in my view when regard is had to the provisions of
sections 136(2) and (3) of the Act. Those provisions relate
to
contracts and the suspension or cancellation thereof, or of any
provision thereof, in business rescue proceedings.
29.
Furthermore, those costs are not akin to those relating to employees'
remuneration contemplated in section 135(1) of the Act,
which qualify
as post-commencement financing.
30.
If, however, the legislator had intended that the costs referred to
in the application were either post-commencement financing,
akin to
that provided in section 135(1) of the Act, or to form part of the
other costs arising from the business rescue proceedings,
it would
have clearly provided so. It follows that in so far as a declarator
may be required, such would be along the lines of
the interpretation
of sections 135(2) and (3) as determined above, i.e. that it falls
outside the provisions of the aforesaid subsections
of section 135 of
the Act.
31.
It follows that the applicant is not entitled to the declaratory
relief sought in the notice of motion.
The
application is dismissed.
__________________________
C
J VAN DER WESTHUIZEN
ACTING
JUDGE OF THE HIGH COURT
On
behalf of Applicant: AEBhamSC
ADipa
Instructed
by: Norton
Rose Fulbright
South Africa
[1]
Trinity
Asset Management (Pty) Ltd v Investec Bank Limited
2009(4) SA 89 (SCA);
Reinecke
v Incorporated General Insurances Ltd
1974(2)
SA 84 (A);
Cordiant
Trading CC v Daimler-Chrysler Financial Services (Pty) Ltd
2005(6) SA 205 (SCA
);
Dempa Investments CC v Body Corporate, Los Angeles
2010(2)
SA 69 (W)
[2]
Natal
Joint Municipal Pension Fund v Endumsni Municipallty
2012(4)
SA 593 (SCA);
Bothms-Batho
TranllPOrl (Edms) Bpk v S Botha & Seun Transport (Edms) Bpk
2014(2) SA 494 (SCA);
Chetty
v Hart
2015(6)
SA 424 (SCA)
[3]
See
African
Banking Corporation of Botswana v Kariba Furniture
2015(5) SA 192 (SCA) at
[42]
[4]
See
Cloete
Murray et al v FirstRand Bank Limited t/a Wesbank
2015(3) SA 438 (SCA)
[5]
See section 135(1) of the Act.