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
>>
2015
>>
[2015] ZAGPPHC 255
|
|
Shoprite Checkers (Pty) Limited v Berryplum Retailers CC and Others (47327/2014) [2015] ZAGPPHC 255 (11 March 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
CASE NO:
47327/2014
DATE: 11 MARCH
2015
REPORTABLE
NOT OF INTEREST
TO OTHER JUDGES
In the matter
between:
SHOPRITE
CHECKERS (PTY)
LIMITED
....................................................................................
Applicant
and
BERRYPLUM
RETAILERS
CC
...........................................................................................
First
Respondent
MATHEUS
JOHANNES
SCHLECHTER
.......................................................................
Second
Respondent
VILJOEN
VAN ZYL
CRAFFERT
......................................................................................
Third
Respondent
BERRYDUST
75 (PTY)
LIMITED
................................................................
First
Applicant for Intervention
CLOETE
MURRAY
NO
.............................................................................
Second
Applicant for Intervention
IGNATIUS CLEMENT
MIKATEKO
SHIRILELE
NO
.............................................................................................
Third
Applicant for Intervention
JUDGMENT
Tuchten
J
:
1 The applicant
(Shoprite) carries on business as a central purchase organisation. It
buys commodities in bulk and manufactures
for the benefit of the
members of the organisation. The first respondent (Berryplum) was a
member of this organisation. Berryplum
carried on business through
two retail outlets in Mpumalanga, at Burgersfort and Dulstroom
respectively, and bought product from
Shoprite. Berryplum’s
members, at all relevant times, were the third respondent (WZ
Craffert) and LJ de Jager (De Jager).
2 Under a franchise
agreement concluded on 27 February 2013, Berryplum, represented by WZ
Craffert, became one of Shoprite’s
franchisees. On the same
date Berryplum, similarly represented by WZ Craffert, concluded a
credit facility agreement with Shoprite.
Both WZ Craffert and De
Jager signed unlimited suretyships for Berryplum’s
indebtedness, as did a corporation related to
Berryplum called
Berrydust 75 CC (Berrydust).
3 Berryplum gave
security for its indebtedness to Shoprite by way of two notarial
bonds, both of which were duly registered in the
Deeds Office in
Pretoria. The first such bond, no. BN105305/09, was registered on 23
June 2009 for the sum of R1,5 million. The
second such bond, no.
BN000001609/2013, was registered on 22 March 2013 for R3 million.
These bonds bound all the movable property
as defined in the bonds
for the indebtednesses of Berryplum to Shoprite up to the amounts
which I have mentioned together with
certain costs and finance
charges.
4
On 3 April 2014, pursuant to a resolution under s 129(1) of the
Companies Act, 71 of 2008 (the new
Companies Act), Berryplum
initiated business rescue proceedings. The prescriptions of
s 129
0
">
1
as to the publication and filing of the resolution were complied with
by 7 April 2014. One of these requirements is that such publication
be made to all “affected persons”. Affected persons are
defined in
s 128(1)(a)
to mean shareholders and creditors of the
company, any registered trade union representing employees of the
company and, if any
of the employees of the company are not
represented by a registered trade union, each of those employees or
their respective representatives.
5
Accordingly, it is common cause, the business rescue process
commenced on 7 April 2014.
2
The second respondent (the Practitioner) was appointed as Berryplum’s
business rescue practitioner on 11 April 2014.
6 The resolution
stated that Berryplum was “financially distressed’, an
expression defined in
s 128(1
)(f). This means in the present context
that it appeared to be reasonably unlikely that Berryplum would be
able to pay all of its
debts as they become due and payable within
the immediately ensuing six months or that it appeared to be
reasonably likely that
Berryplum would become insolvent within the
same period. Indeed, the papers demonstrate that Berryplum was, and
remains, unable
to pay Shoprite what it owes. Shoprite is Berryplum’s
major creditor. It is common cause that Shoprite holds more than 50%
of the creditors’ voting interest as defined in
s 128(1
)(j)
and may, depending on how certain issues in this regard are resolved,
in fact hold very nearly the whole of the voting interest.
7 At all relevant
times before the commencement of the business rescue proceedings,
Berryplum operated its two retail stores under
Shoprite’s brand
and as Shoprite’s franchisee. Shoprite cancelled the franchise
agreement but Berryplum continued while
under business rescue to
trade through the two outlets. On the date upon which Berryplum was
placed under business rescue, it owed
Shoprite R2 747 061 for goods
sold and delivered and monies loaned and advanced.
8
Under
s 150(1)
read with
s 150(5)
,
2
">
3
the Practitioner was required to prepare a business rescue plan which
Berryplum was obliged to publish within 25 business days
after the
date of the Practitioner’s appointment. The Practitioner did
not prepare such a plan.
Section 150(2)
sets out that such a plan
must contain
... all the
information reasonably required to facilitate affected persons in
deciding whether or not to accept or reject the plan
... .
9 Instead, on 23 May
2014, the last of the 25 days allowed under
s 150(5)
, the
Practitioner sent an email to “All Known Creditors and Affected
Persons” in which he said that he was unable to
publish a
business plan at that stage. He asked for an extension to 30 June
2014. He also disclosed that Berryplum was still trading.
10 Shoprite was
concerned to hear that Berryplum was trading. One can readily
understand why. Berryplum had effectively traded itself
into
commercial insolvency while it still received the benefits of the
credit facility extended to it by Shoprite as well as the
Shoprite
brand. If Berryplum continued trading, there was a risk that its
movable assets, over which Shoprite held notarial bonds,
would be
diminished or otherwise placed beyond the reach of Shoprite. Shoprite
refused the extension requested by the Practitioner.
11
Shoprite took the view, on the authority of
DH
Brothers Industries (Pty) Ltd v Gribnitz NO and Others
2014
1 SA 103
KZP, that once the 25 day period had elapsed without consent
of creditors or an extension allowed by the court upon an application
as contemplated by
s 150(5)
, the business rescue proceedings lapsed
by operation of law. By notice of motion dated 25 June 2014, Shoprite
applied to this court,
citing Berryplum and the Practitioner as
respondents, for orders declaring the business rescue proceedings to
be discontinued and
terminating such proceedings and for leave to
perfect its securities under its notarial bonds. The application was
not brought
solely on the narrow ground that the proceedings had
lapsed by operation of law. Shoprite also contended that it would be
just
and equitable to terminate the rescue proceedings.
4
All affected persons received notice of Shoprite’s application.
12 This case must be
seen against the background of the moratorium provided by
s 133.
This
provision drastically restricts the rights of a creditor such as
Shoprite to enforce its claims against a company under business
rescue. For present purposes, it is enough to say that during
business rescue proceedings, no creditor may enforce its claims
against the company under business rescue without the written consent
of the practitioner or the leave of the court in accordance
with such
terms as the court may consider suitable.
13 Despite
Shoprite’s refusal to grant an extension, Berryplum did not
apply to court for an extension, then or ever, This
is of some
importance, in view of what followed.
14 On 6 August 2014,
the Practitioner sent a “draft business rescue plan” (the
first plan) to Shoprite’s attorneys
together with a draft sale
of business agreement pursuant to which it was envisaged that
Berryplum would sell the Burgersfort outlet
to Natasha Geldenhuys CC
and the Dulstroom outlet to Middle East Holdings (Pty) Ltd. This
proposal was unacceptable to Shoprite
because, for one thing, it did
not preserve claims against sureties. The first plan was however
abandoned by the Practitioner.
15 No notice of
intention to oppose Shoprite’s application was delivered. The
application was set down in the unopposed motion
court for hearing on
13 August 2014. On 7 August 2014 (the day after the Practitioner
submitted the first plan to Shoprite) WZ
Craffert served a notice of
application for leave to intervene as third respondent. No affidavit
was attached to this notice. However,
on 13 August 2014, an order was
made, apparently by consent, providing for times within which WZ
Craffert was to file his affidavits
in support of his application to
intervene in the application and for Shoprite to reply. On 25 August
2014, WZ Craffert filed a
counter-application, seeking the extension
of the business rescue proceedings on various grounds.
16
On 30 January 2015, the Practitioner filed what he called an
affidavit to abide.
5
Under cover of this document, in which he recorded that the
negotiations with Natasha Geldenhuys and Middle East Holdings had
failed, the Practitioner put up the essence of a new plan. Under this
new plan (the January 2015 plan), circulated to affected persons
on
28 January 2015, the Practitioner on behalf of Berryplum concluded
sale agreements with Ndlaleni & Sombana Trading
CC for the
Burgersfort outlet and the Duvonka Family Trust for the Dulstroom
outlet. The two sale agreements were conditional upon
the approval of
the January 2015 plan. On the strength of these agreements, counsel
for WZ Craffert submitted that the business
rescue process should be
allowed to proceed. I shall analyse the two sale agreements below.
17 The present
application was enrolled for hearing before me during the week of 23
February 2015. However, by notice of motion
dated 20 February 2015,
yet another procedural development occurred. Berrydust and its
liquidators (collectively the Berrydust
intervening parties) applied
for leave to intervene to oppose the main application and, if their
opposition were unsuccessful and
Berryplum were discharged from
business rescue proceedings under the main application, to place
Berryplum yet again under business
rescue pursuant to
s 131(4)
or, in
the further alternative, to wind Berryplum up.
18 When the case was
called, counsel for Shoprite strenuously argued that I should not
even consider the Berrydust intervention.
After some discussion
between bench and bar, counsel reluctantly accepted that the
interests of justice overrode counsels’
objections to the
Berrydust intervening parties’ late attempt to enter into the
present proceedings and accepted that the
Berrydust intervention
should be considered together with the other applications before me.
Counsel also stated that Shoprite did
not need further time to
consider the Berrydust intervention and did not wish to file further
affidavits.
19 I accordingly
heard argument on behalf of Shoprite, WZ Craffert and the Berrydust
intervening parties. I mention this because
although I do not find it
necessary to decide the applications for intervention, I have heard
the submissions of counsel for those
parties who sought leave to
intervene. I need not decide the applications for intervention
because, as I see it, I can do justice
to the issues raised before me
on behalf of those parties in the context of the main application.
20 These issues are
firstly, whether the failure by the Company to publish a business
plan within the requisite 25 business days
resulted without more in
the ending of the business rescue proceedings; secondly, if those
proceedings have not ended, whether
it would be just and equitable to
order that they now end; thirdly, if termination is ordered, whether
a fresh business rescue
regime should be imposed; and, fourthly, if a
fresh business rescue regime is not imposed, whether a liquidation
order should issue.
21
The only reported judicial consideration of the effect of a failure
to comply with the provisions of
s 150(5)
which counsel and I have
been able to find is that in
DH
Brothers, supra
:
[25]
The Act does not anywhere specify the consequence of a failure to
publish a plan within the allotted time. This seems to me
to
constitute yet another drafting
lacuna.
Section
132(2) lists circumstances which bring business rescue proceedings to
an end. The failure to timeously publish a plan is
not listed. The
respondents submitted that this meant that such a failure did not
preclude a later publication or vote to extend
the allotted time. It
is therefore necessary to establish the effect of such a failure.
There are a number of pointers which assist
in this regard.
[26]
Business rescue proceedings place a moratorium on creditors enforcing
their claims against the relevant company. This, of course,
amounts
to a legislative intrusion into a contractual relationship between
parties. It is therefore an incursion into existing-law
territory. It
is a well-worn tenet of our law that the legislature does not intend
to alter the existing law more than is necessary,
particularly if it
takes away existing rights. There is a presumption against any
forfeiture of rights. Such a provision or set
of provisions must be
restrictively interpreted. In the context of business rescue the
incursion on rights of creditors has been
recognised in the following
dictum [in
Koen
and Another v Wedgewood Village Golf& Country Estate (Pty) Ltd
and Others
2012
2 SA 378
WCC para 10]:
'There is also the
consideration that the mere institution of business rescue
proceedings - however dubious might be their prospects
of success in
a given case - materially affects the rights of third parties to
enforce their rights against the subject company.'
[27]
The intrusion within the context of business rescue proceedings is
done for reasons of policy and within tightly set parameters.
Business rescue proceedings are geared at providing a window of
opportunity to restore an ailing company to financial health and
functionality. This is in case the company in question may be able to
continue to contribute to the flow of the lifeblood of the
economy by
way of a plan. In the context of business rescue proceedings, the Act
requires a number of formal steps to be taken.
It is clear that time
is of the essence. In
Koen
it
was stated to be 'axiomatic that business rescue proceedings, by
their very nature, must be conducted with the maximum possible
expedition'. Specific and short time limits are set which must be
adhered to, inter alia, because of the suspension of the common-law
rights of a party to a contract. The window of opportunity does not
remain open indefinitely. It follows, therefore, that the legislature
will impose and retain such a moratorium only where, in addition to
there being a reasonable prospect of rescuing the company,
the
provisions concerning business rescue proceedings are timeously
complied with.
[28] I favour the
approach that the failure to publish a plan within the given or
extended period results in the termination of
the business rescue
proceedings. This has the benefit of allowing creditors to enforce
their rights against the company as soon
as the time lapses. The need
for certainty is met and the rights of creditors in particular are
trespassed on to the least possible
extent. Even if the failure to
publish a business rescue plan timeously does not, in and of itself,
bring an end to the business
rescue proceedings, three possibilities
emerge. First, and perhaps most likely, the practitioner can file a
notice of termination
of the business rescue proceedings in terms of
s 132(2)(b). Secondly, an affected person would be entitled to bring
an application
under s 130(1) on the basis that it would be just and
equitable for the resolution to be set aside. Thirdly, since one of
the bases
listed in s 130(2)(a) for the termination of business
rescue proceedings is the setting-aside by the court of a resolution
or order,
an application may perhaps be brought under that
subsection. Any of these can be done as soon as the 25-day period
elapses without
being extended. For the purpose of this application
it is not necessary to make a positive finding on this issue.
However, what
is clear is that the stated need for strict adherence
to time limits and the need for certainty have as a necessary
corollary that
the time to publish a plan cannot be extended after it
has elapsed, [footnotes omitted]
22 In my opinion the
considerations mentioned in these paragraphs are apposite and
weighty. And yet I respectfully cannot agree,
if such was the finding
of the learned judge, that the effluxion of the 25 business day
period without a plan’s having been
published terminates the
business rescue process.
23 Firstly, I would
give more weight, at the level of language, to the omission of any
reference in s 132 to the position where
the 25 day period has
passed. Section 132(2) provides in terms for when business rescue
proceedings end:
(2) 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.
I can see no reason
why, if the intention had been to provide for termination upon the
failure timeously to publish a business plan,
an express provision to
this effect was not included in s 132(2).
24
Secondly: the measure must be interpreted in the light of the purpose
of the legislation.
6
Section 7(k) provides that one of the purposes of the new
Companies
Act is
to
provide
for the efficient rescue and recovery of financially distressed
companies, in a manner that balances the rights and interests
of all
relevant stakeholders.
I think that an
interpretation which would allow a court, on good cause shown, to
extend the 25 day period, even after its expiry,
would better promote
this purpose. To take an extreme example: if a practitioner were to
suffer some personal misfortune and be
unable to fulfil or neglect
his duties during the critical period, so that the plan was published
one day late, the inflexible
interpretation could cause a deserving
rescue to fail. The flexible interpretation, on the other hand, would
promote the balancing
of the rights and interests of “relevant
stakeholders”.
25 Thirdly, and
further on this score: the inflexible interpretation would similarly
defeat a potentially worthy rescue if instructions
for the necessary
application to court under
s 150(5)
were given timeously but, because
of misfortune suffered by or negligence on the part of, eg, the
company’s attorney, the
application were only brought (or
heard) after the expiry of the period. The flexible interpretation,
however, would enable a court
to balance competing interests as it
does, routinely, in cases where condonation is sought for failure to
comply with the Rules.
26 Fourthly, the
flexible interpretation would not lead to an absurdity because a
creditor, aggrieved by the failure of a practitioner
timeously to
publish a plan, is not left entirely without a remedy. As I read the
measures, a practitioner may of right prepare
and the company may of
right publish a plan within the 25 day period. If a plan is not so
published within that period, it may
only thereafter be published
with the consent of creditors or the leave of the court. A business
rescue cannot succeed unless there
is in the first instance a
business rescue plan. It follows, as I see it, that an application to
set aside a business rescue where
no plan has been published within
the prescribed period would generally have to succeed on that ground
alone unless the company
under business rescue obtained an extension
through the consent of creditors or order of court upon a
counter-application or other
appropriate procedural step.
27
A company that wants to avoid the legitimate commercial consequences
of a failure to pay its creditors and has no prospect of
being
rescued can, pursuant to
s 129(1)
, achieve by a stroke of its own pen
the moratorium provided for in
s 133.
The ease with which this may be
done has produced a mischief commonly encountered in this Division.
The flexible interpretation
would undoubtedly give cynical business
persons more scope to duck and to dive, as the expression is. But I
do not think that this
consideration, weighty as it is, justifies the
inflexible interpretation. I agree with the view expressed in
DH
Brothers, supra
,
para 25 that there is a loophole in the legislation which governs
business rescue proceedings. But the reduction of the scope
for this
mischief is in my view for the Legislature to deal with, if it sees
fit. I wish that the Legislature would make it more
difficult for
such stratagems to succeed. Legislative measures that facilitate the
evasion of obligations do not promote the interests
of justice.
However, courts must guard against the temptation to use, under the
guise of interpretation, their interpretational
powers to amend
statutory measures of which they do not approve.
7
28 For these reasons
I conclude that the failure by a company under business rescue to
publish a proposed business rescue plan within
the 25 business day
period prescribed by
s 150(5)
does not of itself put an end to the
business rescue process. I find, therefore, that the business rescue
process in relation to
Berryplum has not yet come to an end.
29 The next question
I must consider is whether the current business rescue process should
be perpetuated or, if the current process
is to come to an end,
whether a new such process should be imposed. I deal with these two
questions together because to my mind
they turn on the same
consideration.
30
Section 128(1
)(b) defines business rescue as proceedings to facilitate the
rehabilitation of a company that is financially distressed. Berryplum
is financially distressed.
Section 128(1
)(b)(iii) requires that
provision be made during the business rescue proceedings for
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.
31 How the plan
contemplated in
s 128(a)(b)(iii)
must be prepared by the
practitioner, published and considered is dealt with in
ss 150
and
151
.
Section 151(1)
provides that the plan must be considered at a
meeting of “creditors and other holders of a voting interest”.
32
“Voting interest” means, as defined in
s 128(1
)(j), an
interest as recognised, appraised and valued in terms of
section 145
(4) to (6).
Section 145(4)
to (6) refers to the interests of
creditors. It seems, therefore, that the phrase “and other
holders of a voting interest”
in
s 151(1)
is tautologous and
that the meeting contemplated in those sections is a meeting of
creditors alone.
8
However, under
s 152(1)(c)
, the practitioner is required to provide
an opportunity for employees’ representatives to address the
meeting.
33
After discussion of the plan and subject to certain procedural
qualifications, the practitioner must call for a vote for preliminary
approval of the plan. A plan will be approved on a preliminary basis
only if, amongst other things, it is supported at the meeting
by the
holders of more than 75% of creditors’ voting interests that
were voted.
9
34
If the plan is not approved, a number of options are provided by
s
153
for the further conduct of the business rescue. All but two of
these options require, directly or indirectly, the approval of
creditors.
The other two options provide for an application to court
by the practitioner
10
or an affected person present at the meeting
11
to set aside the result of the vote on
... the grounds that
it was inappropriate.
35 The term
“inappropriate" in its context was debated in argument.
Counsel for the Berrydust intervening parties submitted
that a vote
against the acceptance of a plan by creditors where the vote of each
such creditor was cast on the basis that the creditor
concerned
believed that its interests were better served by a rejection of the
plan could in some circumstances nevertheless be
inappropriate. In
what counsel advanced as the strongest example in support of the
submission, counsel pointed to a vote which
would result in a
substantial number of employees of the company losing their jobs.
36
The loss of jobs weighed with the court in
Copper
Sunset Trading 220 (Pty) Ltd v Spar Group Ltd and Another
2014
6 SA 214
LP para 36. No analysis of the meaning of the term
inappropriate was undertaken by the learned judge but it appears that
the court
found that a vote was inappropriate where the major
creditor, which voted against the plan, would be the only beneficiary
upon
liquidation and that it “sound[ed] reasonable” [para
25] to grant an order setting aside the vote coupled with an order
that if the finance necessary for the plan to succeed were not raised
within a stated time, the practitioner would be obliged to
file a
notice of termination of the business rescue proceedings. What the
likely dividends would be if the plan were allowed to
go ahead, over
what period these dividends would be paid, what security the major
creditor, which had notarial bonds over some
or all of the
applicant’s movables, would receive if the plan were approved
and finance obtained do not appear from the judgment.
12
37
I respectfully disagree with this approach. The
Shorter
Oxford Dictionary
gives
inappropriate
the
meaning of
not
appropriate; not suitable to the case; unfitting; improper.
The
same work gives as the meaning of
appropriate
apposite
to the present enquiry
specially
suitable; proper.
The
word “inappropriate” is used in the new
Companies Act
only
in two instances, both in the present context.
13
The word is used once in the Companies Act 61 of 1973, (the old
Companies Act) with the meaning of
unsuitable
and
thus in a context that sheds no light the present interpretational
problem.
14
38
I do not accept that a vote by a creditor which is cast in good
faith, in the sense that the creditor genuinely believes that
a vote
against the proposed plan would advance that creditor’s
interests, can be inappropriate. I can see nothing
unsuitable,
unfitting
or
improper
in
a vote that honestly reflects a voter’s opinion as to his best
interests. I can find, against counsel’s submission
to the
contrary, nothing in the purposes of the new Companies Act and in
particular those purposes expressed in s 7(k) which supports
counsel’s contention. Subject to s 146(d), only creditors vote
on the proposal that a plan be approved and the meeting is
a meeting
of creditors, not affected persons in general. Representatives of
employees have no more than a right to be heard at
such a meeting
before a vote is taken. The purposes of business rescue, broadly
stated, are to revive faltering companies or achieve
improved
dividends for those companies which cannot be revived; in short, to
put more money in the pockets of affected persons
in general. In this
context the interests of creditors, whose own money is at risk, are
predominant. Whether either of these results
can be achieved in a
particular case depends on a forecast, which itself is based on one
or more assumptions; in short on an assessment
of risk. The business
of companies and their creditors, in the present context, is the
pursuit of monetary profit. I do not think
that the purposes of the
new Companies Act will be advanced by vesting in the courts a power
to impose upon business people financial
risks which they, on honest
reflection, judge ill advised.
39
Henochsberg
on
the Companies Act 71 of 2008 (looseleaf ed) in the note to s 153(1
)(a) takes the view that it is not clear what is envisaged
by the
term
inappropriate
in
this context and that it is difficult to think of circumstances where
the creditors’ votes for the rejection of a business
rescue
plan would be inappropriate. I agree. The lack of clarity is
regrettably compounded by s 153(7) in which provides that in
cases
including those where the court is approached on the ground that the
vote rejecting such a plan is inappropriate, the court
may set aside
the vote not on the ground that it is inappropriate, but that
... it is reasonable
and just to do so, having regard to-
(a) the interests
represented by the person or persons who voted against the proposed
business rescue plan;
(b) the provision,
if any, made in the proposed business rescue plan with respect to the
interests of that person or those persons;
and
(c) a fair and
reasonable estimate of the return to that person, or those persons,
if the company were to be liquidated.
40 In my view, a
court considering an attack on a vote under s 153(7) must first
determine whether the vote was inappropriate. Only
if it finds that
the vote was inappropriate, can the court proceed to consider
whether, taking this into account, it would be reasonable
and just to
set the vote aside.
41
Under s 311 of the old
Companies Act, the
court had the power to
sanction a compromise or arrangement approved by three-fourths of,
broadly, creditors and members, voting
separately at meetings called
for the purpose of considering such a proposal and thereby render the
compromise or arrangement binding
on all such creditors and members,
including those who had voted against the proposal. Approval was
generally granted in such a
case when the compromise or arrangement
was such as a person of business would generally approve and be fair
and reasonable as
regards the various classes of creditors and
members.
15
42
Under
s 155
of the new
Companies Act, compromise
proposals by
companies other than those under business rescue may be put to any
class of creditors of the company. If such a proposal
is accepted by
a majority in number representing 75% in value of the creditors or
class at a meeting called for that purpose, the
company has the
right
16
to apply to court for an order approving the proposal. The court is
then empowered
17
to approve the proposal, if it considers it just and equitable to do
so, having regard to the number of creditors who were present
at the
meeting and voted in favour of the proposal and, in the case of a
company being wound up, a report by the Master.
43
It seems to me that the power to assess whether a proposal is just
and equitable is wider than a power to determine whether a
vote was
inappropriate. It will be seen further that no power was or is
conferred on the court to override the decisions of creditors
where
they voted sufficiently
against
a
compromise or arrangement. I see no reason why this sound legislative
policy should not operate, within the limits I have described,
in
relation to plans in business rescue proceedings.
44 It appears,
moreover, having regard to the factors listed in
s 153(7)
, that the
enquiry into inappropriateness should be viewed purely from the
perspective of the persons who voted against the plan.
It would seem
to follow that a consideration such as the loss of jobs by employees
is not even one of the factors a court may take
into account, at
least directly, in the evaluation of an application to set a vote
aside on the ground that it is inappropriate.
45 Returning to the
facts of the present case: such a meeting was convened for 9 February
2015 but adjourned at the request of Shoprite,
pending judgment on
the present application, until 9 March 2015. If a vote were to be
taken at that meeting, it is commercially
certain that Shoprite would
vote against the January 2015 plan. The reason why Shoprite will so
vote is made clear on the papers:
the two sale agreements, if allowed
to proceed, will prejudice Shoprite’s position. I shall later
say why this is so.
46 Counsel for the
Berrydust intervening parties submitted that employees of Berryplum
(whom counsel of course did not represent)
should not be denied a
hearing and suggested that the position of employees at such a
meeting was analogous to that of a director
at a board meeting. I do
not think that the analogy is apt.
47 The Dulstroom
outlet was funded by Berrydust, which claims to be a creditor of
Berryplum in the sum of R1 538 831. The directors
of Berrydust at all
relevant times were WZ Craffert and LJ de Jager. Berrydust itself,
also formerly a franchisee of Shoprite,
was liquidated on 24 March
2014 pursuant to an urgent application brought by Absa in this court
under case no. 72384/13. The Berrydust
liquidation application was
not opposed. It appears from the papers in the Berrydust liquidation
that Berrydust was indebted to
Absa in the sum of more than R8
million. Berrydust did not have an overdraft with Absa but succeeded
in withdrawing from its bank
account with Absa more than R8 million
in excess of monies deposited to its credit in that account.
Berrydust achieved that, according
to the undisputed allegations in
the Berrydust liquidation, because WZ Craffert carried out a scheme
of raising false, fraudulent
credits; in short by what is known as
kite flying.
48 On the strength
of this information, Shoprite makes two points: firstly, that both
Berrydust and Berryplum were controlled by
the same two people, WZ
Craffert and LJ de Jager; and, secondly, that at least WZ Craffert is
a person with whom carrying on business
would carry an unacceptably
high moral risk.
49 The financial
arrangements embraced under the two sale agreements are the
following:
49.1 Shoprite holds
in trust the sum of R300 000 which it may appropriate if and when the
January plan is carried into effect.
49.2 The proposal
would require the consent of Shoprite under
s 134(3)
because the
proposal involves the disposal of property over which Shoprite holds
“security or title interest” as contemplated
in that
subsection. That consent will not be forthcoming.
49.3 The purchase
price for the Burgersfort outlet is R2,4 million, while that for the
Dulstroom outlet is R1,5 million, in both
cases exclusive of stock,
for which the purchaser must pay cash within 48 hours of a stock take
to be carried out very shortly
before the purchaser takes possession
of the business.
49.4
In each case the purchase price is to be paid in instalments.
18
No security is contemplated in the agreements in respect of the
obligations of the purchasers.
49.5 No information
has been provided in respect of the person or persons controlling the
proposed purchaser of the Burgersfort
outlet except that the person
representing the purchaser is described as Joseph Mputana Mohlala.
49.6 No information
is provided in respect oftheDuvonka Trust, the proposed purchaser of
the Dulstroom outlet. However, the trustees
of the Duvonka Trust
according to the resolution accompanying the Dulstroom outlet
agreement are Karin Craffert, Duan van Zyl Craffert
and WZ Craffert.
49.7 The structure
of both transactions is that Berryplum, represented by the
Practitioner, will sell the businesses to the respective
purchasers,
which will thus be liable to Berryplum. Berryplum in turn will,
according to the plan, be liable to creditors. But
Berryplum will
only be obliged to pay over to creditors monies that it actually
receives. If one or both of the purchasers default,
Shoprite will
have lost the security which it presently holds and will, in
commercial terms, be remediless. Shoprite’s only
legal remedy
would be to demand that Berryplum take proceedings against the
defaulting purchaser.
50 The irresistible
conclusion is that creditors are being asked to approve a plan under
which the purchase prices for the businesses
are to be funded from
the conduct of the businesses themselves. These are the very
businesses which, even though assisted by the
purchasing power of
Shoprite and the goodwill that attracts to its brand, became
financially distressed. There is nothing to suggest
that either of
the purchasers has any capital of its own or that either of the
businesses is to be recapitalised. No capital is
being put into the
transaction other than the R300 000 which I mentioned earlier. No
security is provided against the risk of default
by either of the
purchasers. The legal remedy available to Shoprite on default is
almost certainly commercially worthless.
51 No reasons are
advanced why it is believed that the businesses will fare better
under their proposed new owners than they did
under Berryplum. There
appears to be no reason to believe that the businesses which failed
while operated by Berryplum will succeed
under the allegedly new
regimes to be created pursuant to the sale agreements.
52 And finally and
to my mind of the utmost importance: Shoprite is being asked to
approve a plan under which it has good reason
to believe that at
least one of the businesses will continue to be controlled by WZ
Craffert and LJ de Jager, the very men responsible
for the demise of
Berryplum and at least one of whom, if the allegations made on behalf
of Absa are correct, has committed very
substantial commercial
frauds. The moral risk to Shoprite implicit in the plan is
intolerable.
53 I would go so far
as to say that no reasonable person of business would approve the
January 2015 plan. No matter what pleas were
to be made to Shoprite
at the proposed meeting, the plan will not be approved. On the papers
before me, which run to well over
800 pages, there is no reasonable
prospect that any court would find that a vote rejecting the plan was
inappropriate. But even
if a court were minded to declare the vote
inappropriate, the refusal of consent by Shoprite under
s 134(3)
,
required because the proposal involves the disposal of property over
which Shoprite holds security or “title interest”,
will
not be forthcoming. Shoprite cannot be compelled so to consent.
Without such consent, the plan can simply not be implemented,
regardless of the views of the court on the appropriateness of the
vote.
54
No purpose will therefore be served by allowing the business rescue
process to continue. The only plan presently proposed for
consideration is doomed to rejection.
Section 130(1
)(a)(ii) empowers
the court on application by an affected person to set aside a
s
129(1)
resolution if there is no reasonable prospect of rescuing the
company. This is so in the present case because there is no
reasonable
prospect either that pursuant to the January 2015 plan
Berryplum would continue on a solvent basis
19
or that a better return would be achieved for creditors under the
plan than would be achieved on an immediate liquidation.
55 The Practitioner
has during the ten months he has held office proposed two plans, both
of which had or have no reasonable project
of being accepted. There
is no indication in the evidence that a new business rescue process
with a different practitioner, as
suggested by the Berrydust
intervening parties, would do any better. And indeed, counsel for the
Berrydust intervening parties
did not argue that a new business
rescue process should be instituted.
56 It follows that
an order ending the current business rescue process must be made and
that no order for a fresh such process should
be made. The remaining
question is whether, under
s 130(5)(c)(ii)
, an order for the
liquidation of Berryplum should issue. A liquidation order was urged
by counsel for the Berrydust intervening
parties but resisted by
counsel for Shoprite.
57 Counsel for
Shoprite submitted that Shoprite would be prejudiced by an immediate
order for liquidation because a portion of its
claim would only
become completely secured upon perfection of its bonds before
liquidation. However, the portion of Shoprite’s
security which
requires perfection to achieve that end will nevertheless rank above
the claims other concurrent creditors in a
liquidation. The only
respect in which counsel suggested Shoprite might be at risk in this
regard is in relation to claims of employees.
Having regard to the
balancing of interests enjoined by
s 7(k)
, I do not think that this
consideration should weigh against an immediate liquidation order.
58 Berryplum is
unable to pay its debts and its position can only worsen, to the
detriment of creditors and employees generally.
In these
circumstances, in my view, immediate liquidation is appropriate.
Counsel were agreed that no purpose would be served by
an order
provisionally winding up Berryplum.
59 There remains the
question of costs. The arguments of all three parties represented
before me have met with substantial success.
Counsel for Shoprite
have persuaded me to put an end to the business rescue process and
not to order a fresh such process. Counsel
for WZ Craffert has
persuaded me that the business rescue process did not end by
operation of law upon the effluxion of the period
allowed for the
publication of a business rescue plan. Counsel for the Berrydust
intervening parties has persuaded me that a liquidation
order should
immediately issue. I shall therefore direct that the costs of all
those parties be costs in the liquidation.
60 I make the
following order:
1 The resolution of
the first respondent (Berryplum) adopted on 3 April 2014 to begin
business rescue proceedings in terms of
s 129(1)
of the
Companies
Act, 71 of 2008
is hereby set aside;
2 The appointment of
the second respondent as business practitioner of Berryplum is hereby
set aside;
3 A final winding-up
order is hereby granted placing Berryplum under liquidation;
4 The costs of the
applicant, the third respondent and the first, second and third
applicants for intervention will all be costs
in the liquidation of
Berryplum. In the case of the applicant, such costs are to include
those consequent upon the employment of
both senior and junior
counsel.
NB Tuchten
Judge of the High
Court
9 March 2015
For the applicant:
Adv PT Rood SC and
Adv M Suttner
Instructed by Honey
Attorneys
Johannesburg
For the third
respondent:
Adv H van der Vyver
Instructed by Nel
Van der Merwe and Smalman Inc
Pretoria
For the first,
second and third intervening parties:
Adv GW Amm
Instructed by
Lowndes Dlamini
Johannesburg
1
All
references to statutory material are to the new
Companies Act unless
otherwise stated.
2
No
issue arose in argument whether Berryplum constituted a company as
defined in
s 1
and thus qualified for business rescue. I shall
therefore assume that it did.
3
Section
150(5)
provides: “The business rescue plan must be published by
the company within 25 business days after the date on which the
practitioner was appointed, or such longer time as may be allowed by-
(a) the court, on application by the company; or (b) the holders
of a
majority of the creditors' voting interests.”
4
Subject
to a qualification not presently relevant, an affected person may at
any time until the adoption of a business rescue plan
in terms of
s
152
apply to court under
s 130(1)(a)(ii)foran
order setting aside the
s 129(1)
resolution, on the grounds that there is no reasonable
prospect for rescuing the company.
5
Consistent
with that approach, Berryplum and the Practitioner abide the decision
of the present application.
6
Dexgroup
(Pty) Ltd v Trustco Group International (Pty) Ltd and Others
2013
6 SA 520
SCA para 16, referring to the cases of
KPMG
Chartered Accountants (SA) v Securefin Ltd and Another
2009
(4) SA 399
(SCA) and
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012
(4) SA 593 (SCA)
7
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012
4 SA 593
SCA para 18
8
This
conclusion, however, is apparently inconsistent with the provisions
of
s 146(d)
under which each holder of an “issued security”
of the company is entitled to vote to approve or reject the plan if
the plan would alter the rights associated with the class of
securities held by that person.
Securities
means,
under
s 1
, any shares, debentures or other instruments, irrespective
of their form or title, issued or authorised to be issued by a profit
company. This difficulty is however of no moment in the context of
the present case.
9
Section
152(2)(a)
15
0%">
10
Section
153(1
)(a)(ii)
11
Section
153(1
)(b)(ii)
12
The
only other reported judgment touching on the point which I have been
able to find is
Advanced
Business Technologies & Engineering Co (Pty) Ltd (In
Business Rescue) v Aeronautique et Technologies
2012
JDR 0345 GNP.
13
Sections
153(1
)(a)(ii) and 153(1 )(b)(i)(bb)
14
Section
297(GA)(b)(ii)
15
0%">
15
Henochsberg
on
the Companies Act 61 of 1973 (looseleaf ed) note to s 311 sv
“Sanctioned by the Court”.
16
Section
155(7)(a)
17
Section
155(7)(b)
18
In
the case of the Dulstroom outlet, 24 instalments of R114 000; in the
case of the Burgersfort outlet, 22 instalments of R75 000
and a final
instalment of R60 000.
19
Because
the plan envisages that Berryplum will be divested of all its
potentially revenue generating assets.