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[2015] ZAGPPHC 221
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KJ Foods CC v First National Bank (75627/2013) [2015] ZAGPPHC 221 (23 April 2015)
IN
THE NORTH GAUTENG HIGH COURT, PRETORIA
[REPUBLIC OF
SOUTH AFRICA]
CASE
NUMBER: 75627 / 2013
DATE:
23 APRIL 2015
NOT
REPORTABLE
NOT
OF INTEREST TO OTHER JUDGES
In the matter
between:
KJ FOODS
CC
.............................................................................................................................
APPLICANT
(IN BUSINESS
RESCUE)
And
FIRST NATIONAL
BANK
…................................................................................................
RESPONDENT
REASONS FOR THE
ORDER GRANTED
MAVUNDLA J;
[1] On the 10
October 2014 I granted an order in the following terms:
(i) setting aside in
terms of
section 153(7)
of the
Companies Act No 71 of 2008
, the
result of a vote by the holders of voting Interest at the meeting of
affected parties, on 02 December 2013, in the business
rescue
proceedings of the applicant rejecting the revised business plan, on
the grounds that the voting against the plan was inappropriate;
(ii) that the
revised business plan be adopted by the affected parties of the
applicant in terms of the Companies Act No 71 of 2008;
(iii) that that the
Respondent is ordered to pay the costs of this application which
costs to include the reasonable expenses and
disbursements of the
joint business rescue practitioners in dealing with this application.
1 stated that the reasons would be furnished
in due course. I
therefore proceed to set the reasons for the said order.
[2] It is not
disputed that the company "applicant" is producing between
80,000 to 100, 000 loaves of bread daily, which
bread is distributed
to cash and carry wholesalers for distribution in the informal
market, to which informal market the company
is also distributing.
The company employs approximately 220 permanent employees, 50 drivers
and 100 assistants. Through the 220
permanent employees the company
sustains approximately 792 people.
[3] The applicant,
at the best of times, was baking 5 million loaves of bread per month,
and at the worst of times, is now producing
2.8 million loaves of
bread per month. The company has been banking with the respondent for
a period of over 20 years. The company's
financial woes which
resulted in the dramatic and drastic turnaround of its good business,
could be attributed to the fact that
SARS slapped the company with an
assessment liability of R4 million, which amount was paid in full
during the beginning of 2013
and well in advance of the commencement
of the business rescue proceedings in July 2013.
[4] The decline in
the production of bread negatively impacted on the financial means of
the applicant, compounded by the payment
of the liability to SARS in
the amount of R4 million. The combination of these two factors placed
a stain in the applicant's cash
flow. Consequently a dispute between
the applicant and one of its suppliers, namely Pioneer Foods, as
creditor, threatened the
well being of the applicant. This resulted
in the applicant commencing with the business rescue plan, against
which the respondent
subsequently voted against.
[5]
The applicant (in the business rescue), brought an application in
terms of sl53 (l)(a)(ii) of the
Companies Act, Act
No. 71 of 2008 to
set aside the respondent's vote against the business rescue plan. In
order to succeed in a business rescue application,
the applicant, as
aptly held, with respect, by Binn-Ward in
Koen
v Wedgwood Village Golf & Country Estate
1
"[17]
...must satisfy the court that there is a reasonable prospect that
the subject company can be rescued in the relevant
sense by being
placed under supervision. The information or evidence that will
suffice to meet this requirement will depend on
the object of the
proposed business rescue, viz whether it is to achieve the continued
existence of the company on a solvent basis;
alternatively, to allow
the company's business to be managed for an interim period to allow
for a better return for the company's
creditors or shareholders than
would result from the immediate liquidation of the company. Whatever
the object of the proposed
business rescue, however, in order to
succeed in the application the applicant must be able to place before
the
court
a cogent evidential foundation to support the existence of a
reasonable prospect that the desired object can be achieved.
While it
is the function of the business rescue practitioner, if appointed, to
draw up a business rescue plan to be considered
by the 'affected
persons', the founding papers in a business rescue application must
nevertheless contain sufficient factual detail
to enable the court to
determine whether the business rescue practitioner will probably have
a viable basis to undertake the task,
or, at the very least, make out
a case for the court to hold that an investigation by a business
rescue practitioner to that end,
in terms of s 141(1) of the Act,
appears to be justified."
Vide
also
Zoneska
Investments v Midnight Storm Investments
2
where
the court dealt with ss 128,131 & sl53 of the
Companies Act
71 of 2008
and held that where there are reasonable prospect of the
business being saved, then business rescue should be granted. In my
view,
the same consideration applies in respect of sl53.
[6]
Section s153
provides,
inter alia,
that:
(l)(a) If a business
rescue plan has been rejected as contemplated in
section 152(3)
(a)
(c) (ii) (bb) the practitioner may
(i) seek a vote of
approval from the holders of voting interest to prepare and publish a
revised plan; or
(ii) advise the
meeting that the company will apply to a court to set aside the
result of the vote by the holders of voting interests
or
shareholders, as the case may be, on the grounds that it was
inappropriate.
[7]
The jurisdictional facts which must be present, before an application
for business rescue may be brought, are that (i) there
must be a
rejection of the business rescue plan; (ii) there must be grounds
that satisfy the court that the rejection by the voting
interest
holder was inappropriate
3
.
[8] The issue to be
decided in this matter is whether the voting against the business
rescue plan by the respondent was inappropriate.
S153
(7) provides
that on an application contemplated in subsection l(a)(ii), or (1)
(b)(i)(bb), a court may order that the vote on
a business rescue plan
be set aside if the court is satisfied 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
interest of that person or persons; and
(c) A fair and
reasonable estimate of the return to that person or those persons; if
the company were to be liquidated."
[9]
In deciding the question of inappropriateness, which is a value
judgment, the Court must have regard to the general purpose
of the
Act as encapsulated in s7 of the Act. In the matter of
Nedbank
Ltd v Bestvest 153 (Pty) Ltd
4
;
Essa and another
v
Bestvest
5
Gamble
J,
quite
correctly held, with respect, that:
" [19] It is to
be noted in particular that specific mention is made in s 7(k) of the
necessity for the Act to provide for
the efficient rescue and
recovery of financially distressed companies while ensuring that the
rights and interests of the parties
affected thereby are preserved.
[20] It seems to me
then that a fresh approach must be adopted when assessing the affairs
of 'corporate South Africa'. The legislature
has pertinently charged
the courts with the duty to interpret the Act in such a way that,
firstly, the founding values of the Constitution
are respected and
advanced, and, secondly, so that the spirit and purpose of the Act
are given effect to. Fundamental to the Act
is the promotion and
stimulation of the country's economy through, inter alia, the use of
the company as a vehicle to achieve economic
and social wellbeing.
This must be done efficiently and in accordance with acceptable
levels of corporate stewardship, all the
while balancing the rights
and obligations of shareholders and directors in the company, its
employees and any outside parties
with which a company ordinarily
interacts in the course of its business.
[21] The general
purposes of the Act encapsulated in s 7 must be interpreted in
accordance with the interpretative provisions set
out in s 5.
Firstly, s 5 requires a purposive interpretation of the Act as a
whole. Further, it is said that a court interpreting
or applying the
Act is entitled to have regard to foreign company law. Neither
provision is in and of itself particularly innovative.
[22]
In the constitutional era a purposive approach to legislative
interpretation is the method mandated by s 39(2) of the Constitution.
As Langa OP observed in the
Hyundai
case:
'This means that all
statutes must be interpreted through the prism of the Bill of Rights.
All law-making authority must be exercised
in accordance with the
Constitution.
The Constitution
requires that judicial officers read legislation, where possible, in
ways which give effect to its fundamental
values'
[23] ....
Interpreting
the business rescue provisions of the Act
[27] The business
rescue provisions incorporated in ch 6 of the Act are innovative and,
while they resemble in certain respects
the judicial management
provisions of ch XV of the old
Companies Act, 7...
[36
]
In a more recent decision in this division, in
Gormiey
v West City Precinct Properties (Pty) Ltd and Another; Anglo Irish
Bank Corporation Ltd v West City Precinct Properties
(Pty) Ltd
6
,
Traverso
DJP commented as follows:
’
Business
rescue has as its aim proceedings to facilitate the rehabilitation of
a financially distressed company by providing for
the temporary
management of the affairs of the company, a temporary moratorium on
the rights of claimants, the implementation of
a plan to rescue the
company by restructuring its affairs in a manner that maximises the
likelihood of a company continuing to
function on a solvent basis or
if that is not possible, a plan that would achieve a better return
for the company's creditors than
the payment they would receive if
the company were to be immediately liquidated.’
[37]
In the
Ookdene Square case supra
G
Claassen J observed that the focus of the section was on business
rather than company rescue:
'This is in line
with the modern trend in rescue regimes. It attempts to secure and
balance the opposing interests of creditors,
shareholders and
employees. It encapsulates a shift from creditors' interests to a
broader range of interests. The thinking is
that to preserve the
business coupled with the experience and skill of its employees, may,
in the end prove to be a better option
for creditors in securing full
recovery from the debtor'. "
[10]
In my view, what is articulated in the above authorities equally
applies in respect of sl53 as well. A purposive interpretation
which
accords and promotes the values, ethos and rights enshrined in the
Constitution and the Bill of Rights, requires of the court
to do a
balancing act between the rights of the role players when dealing
with sl53.Where, it requires the protection of the rights
of
employees, in my view, the court must incline towards preserving the
rights of the workers rather than allow immediate liquidation
of the
company, depending on the circumstances of the business rescue
proposed. Where the interest of the creditors would still
be
protected through a business rescue and not be adversely affected,
then the court must be slow in countenancing liquidation
which would
have debilitating consequences to a large number of role players;
vide the preceding paragraph; vide also
African
Banking Corporation of Botswana Ltd v Kraiba Furniture Manufacturers
(Pty) Ltd.
7
[11]
In the matter of
Koen v Wedgewood Village Golf Estate
8
Binns-Ward J held as follows:
“
...It
is clear that the legislature has recognised that the liquidation of
companies more frequently than not occasions significant
collateral
damage, both economically and socially, with attendant destruction of
wealth and livelihoods. It is obvious that it
is in the public
interest that the incidence of such adverse socioeconomic
consequences should be avoided where reasonably possible.
Business
rescue is intended to serve that public interest by providing a
remedy directed at avoiding the deleterious consequences
of
liquidations in cases in which there is a reasonable prospect of
salvaging the business of a company in financial distress,
or of
securing a better return to creditors than would probably be achieved
in an immediate liquidation. "
Vide
also
DH
Brothers Industries v Gribnitz NO.
9
[12]
In the matter of
Cooper
Sunset Trading v Spar Group
10
Makgoba
J held that:
"[32]
Creditors should participate in good faith and objectively consider
the merits and demerits of a proposed business rescue
plan.(Unreported decision by Kollapen J in
Employees
of Solar Spectrum Trading 83 (Pty) Ltd vAfgri Operations Ltd
11
”
[13] According to
the applicant, in the event of liquidation the costs of the
liquidation for the realisation of the assets will
be Rll 137 317
calculated on the basis of the assets being sold for R34 775 070 on
auction. The creditors can therefore expect
the following in
liquidation: Secured creditors will receive 100 cents in the Rand for
their claim and Concurrent creditors will
receive 39 cents in the
Rand for their claim.
On
the other hand, with the implementation of the business rescue plan
the creditors' ability to recover their debt is substantially
improved. It is not envisaged that there would be any changes in the
number of employees or the terms and conditions of employment
if the
business rescue plan is adopted. All purchases will be on cash on
delivery basis if the plan is adopted and creditors will
receive
payments directly to their nominated bank accounts. In my view, it
would seem that the respondent as a secured creditor
in either
liquidation or business rescue plan will still receive 100 cents in
rand.
12
[14] The opposing of
the business rescue plan by the respondent is that the business plan
is unrealistic. In my view, where the
respondent stands to benefit
the most under liquidation, unlike the unsecured creditors, and
whereas under business rescue he would
still be receiving 100 cents
in a rand, the objection against the business rescue is not
appropriate but premised on self-interest
for a quick solution to the
financial woes of the applicant through its statutory burial in the
form of liquiation. It is noteworthy
that the applicant, besides
other financial management problems, its major problem stemmed from
the very fact that it paid its
liability to SARS promptly, this
resulting in liquidity difficulty. Notwithstanding this fact, the
applicant managed to stave off
the potential job loss which would
have resulted through liquidation. It needs to be borne in mind that
there is no glass prism
to know beforehand whether business rescue,
just like any other business, would be successful. Of importance is
whether there are
reasonable grounds to believe that business rescue
is viable and job loss for many can be averted or even delayed. That
is a value
judgment, the court must make. The very fact that the
respondent has managed to pay some of its debts, thus far, is an
important
consideration that moves this court to conclude that the
vote against the business rescue by the respondent was inappropriate
and
warranted the intervention of this court by setting it aside, as
already ordered.
[15] I therefore
hand down the reasons for the order delivered on the 10 the October
2014
N M MAVUNDLA
JUDGE OF THE HIGH
COURT
DATE OF JUDGMENT:
23/04/2015
APPLICANT'S ATT:
KOSTER ATTORNEYS
APPLICANT'S ADV:
ADV L. K. VAN DER MERWE
1ST RESPONDENT'S
ATT: RORICH, WOLMARANS & LUDERITZ
RESPONDENT'S
ADV: ADV L. MEINTJES
1
2012 (2) SA 378.
2
2012
(2) ALL SA 590
(WCC) at pars[28]-[36].
3
Vide
DH Brothers v Gribnitz
NO
2014 (1) SA 103
(KZP) at 118 para [35].
4
2012
(4) ALL SA 103
(WCC) at
107h.
5
2012 (5) SA 497
(WCC) at 502F.
6
Ft 14:
[2012] ZAWCHC 33
(18 April 2012)
7
2013 (4) ALL SA 432
(GNP) at para [23].
8
2012 (2) SA 378
(WCC) at 382H-383A.
9
2014 (1) SA 103
(KZP) at 108 par[10].
10
2014 (6) SA 214
(LP) at 221D-G.
11
(GNP
case No 6418/ 2011, 8 May 2012) at para 37.)
12
Vide
paginated pages 542-543.