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[2015] ZAKZPHC 51
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Standard Bank of South Africa Ltd v A-Team Africa Trading CC (7233/15) [2015] ZAKZPHC 51; 2016 (1) SA 503 (KZP) (17 November 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Reportable
CASE
NO: 7233/15
STANDARD
BANK OF SOUTH AFRICA LTD
Applicant
and
A-TEAM
AFRICA TRADING CC
Respondent
JUDGMENT
Ploos
van Amstel J
[1]
This is an application for the provisional winding-up of a close
corporation (the
respondent) on the basis that it is unable to pay
its debts. After the application was launched, but before it was
heard, an application
was brought in the Local Division in Durban for
an order placing the respondent under supervision and commencing
business rescue
proceedings in terms of section 131 of the Companies
Act.
[1]
The issue before me was whether the effect of the business rescue
application was to suspend the liquidation application in terms
of s
131(6).
[2]
[2]
The background is briefly as follows. The applicant, Standard
Bank,
[3]
entered into seventeen instalment sale agreements with the respondent
during the period 2010 to 2013 relating to vehicles, plant
and
equipment. The bank’s case is that the respondent fell into
arrears with the instalments and that in spite of several
written
demands it continues to be in arrears, which amounted to some
R927 490 when the liquidation application was launched.
The
respondent does not dispute that it is in arrears, but challenges the
calculation of the amount outstanding and the bank’s
entitlement to cancel the agreements. On any basis it seems clear
that the respondent is currently commercially insolvent as it
is
unable to pay its debts as they fall due.
[3]
The only issue which was argued before me is whether it is competent
to grant a provisional
winding –up order in the light of the
business rescue application. Counsel for the respondent
submitted that the effect
of the business rescue application was to
suspend the liquidation application in terms of section 131(6).
Counsel for the bank
contested this and submitted that what is
suspended in terms of the section is not the liquidation application,
but the liquidation
process which follows upon a liquidation order,
until either of the events referred to in section 131(6) (a) and (b)
occur. The
answer to these competing contentions lies in the proper
interpretation of s 131(6).
[4]
In
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[4]
the court dealt with the current approach to statutory interpretation
and said:
[5]
‘
Interpretation
is the process of attributing meaning to the words used in a document
… consideration must be given to the
language used in the
light of the ordinary rules of grammar and syntax; the context in
which the provision appears; the apparent
purpose to which it is
directed and the material known to those responsible for its
production. Where more than one meaning is
possible each possibility
must be weighed in the light of all these factors … A sensible
meaning is to be preferred to one
that leads to insensible or
unbusinesslike results or undermines the apparent purpose of the
document. Judges must be alert to,
and guard against, the temptation
to substitute what they regard as reasonable, sensible or
businesslike for the words actually
used … The “inevitable
point of departure is the language of the provision itself”,
read in context and having
regard to the purpose of the provision and
the background to the preparation and production of the document’.
[5]
In
Panamo
Properties (Pty) Ltd and Another v Nel and Others NNO
[6]
Wallis
JA said business rescue is a process aimed at avoiding the
liquidation of a company if it is feasible to do so. Section 7
sets
out the purposes of the Act, which includes
[7]
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’.
[6]
Section 131(1) reads as follows:
‘
Unless
a company has adopted a resolution contemplated in section 129, an
affected person may apply to a court at any time for an
order placing
the company under supervision and commencing business rescue
proceedings’.
Section
131(6) reads as follows:
‘
If
liquidation proceedings have already been commenced by or against the
company at the time an application is made in terms of
subsection
(1), the application will suspend those liquidation proceedings
until-
(a)
the court has adjudicated upon
the application; or
(b)
the business rescue proceedings
end, if the court makes the order applied for.’
[7]
In support of his argument that ‘liquidation proceedings’
in subsection
(6) does not include an application for a provisional
winding-up order, counsel for the bank submitted that it was held in
FirstRand
Bank Ltd v Imperial Crown Trading 143 (Pty) Ltd
[8]
that liquidation proceedings only commence after a provisional
winding-up order is granted, and that I am bound by this decision
unless I am satisfied that it is clearly wrong. I do not think this
is what was decided in that case.
[8]
In
Imperial
Crown Trading
a bank sought an order for the provisional liquidation of the
respondent company on the ground that it was unable to pay its debts.
At the hearing before Swain J the respondent sought a postponement of
the matter so as to enable it to investigate the advisability
of
launching an application for business rescue. Counsel for the bank
urged the court to grant a provisional winding-up order with
an
extended return date so as to give the respondent sufficient time to
bring a business rescue application if it was so advised.
Counsel for
the respondent asked the court not to grant a provisional order as,
he submitted, it would preclude an application
for business rescue.
Swain J pointed out that this was not so and said the following:
[9]
‘
Consequently,
on the facts of this case, if a provisional order of liquidation is
granted, the board of the respondent will be precluded
from resolving
that the respondent voluntarily begin business rescue proceedings and
place the company under supervision. The grant
of such an order will,
however, not preclude an “affected person” from applying
to court to place the respondent under
supervision and the
commencement of business rescue proceedings.’
Whether
the launching of the liquidation application itself precluded the
adoption of a resolution by the board to begin business
rescue
proceedings was neither argued nor decided. The decision must be read
in the context of the facts of the case. I do not
consider that it is
authority for the proposition that the expression ‘liquidation
proceedings’ in section 131(6) does
not include an application
for a liquidation order.
[9]
I should add that I do not think it is helpful in determining when
liquidation proceedings
commence, for the purposes of s 131(6), to
have regard to sections 348 and 352 of the 1973 Act.
[10]
Those sections do not define when liquidation proceedings commence.
Section 348 provides as follows:
‘
A
winding-up of a company by the Court shall be deemed to commence at
the time of the presentation to the Court of the application
for the
winding-up’.
And
s 352(1):
‘
A
voluntary winding-up of a company shall commence at the time of the
registration in terms of section 200 of the special resolution
authorising the winding-up’.
[10]
These sections deal with the commencement of the winding-up, in other
words the time from when
the company is, or is deemed to be, in
liquidation. A distinction must be made between the proceedings
which lead to a winding-up
order, and the winding-up process during
which the liquidator performs his duties in terms of the Act.
[11]
Further reliance was placed on two decisions of the North Gauteng
High Court in
Absa
Bank Ltd v Summer Lodge (Pty) Ltd
.
[11]
Three applications for provisional winding-up orders were heard
together by Van Der Byl AJ.
[12]
Before the hearing, applications were launched for orders placing the
respondents under supervision and commencing business rescue
proceedings. In the light of this it was contended that the
liquidation applications had been suspended in terms of section
131(6).
The learned judge rejected this contention and concluded as
follows:
‘
In
my opinion what s 131(6) means is that once liquidation proceedings
have commenced by the granting of a liquidation order, whether
provisional or final, the mere issue and service of a business rescue
application would suspend the liquidation process.’
[13]
He
held that the business rescue applications did therefore not suspend
the liquidation applications and granted provisional winding-up
orders in all three cases. On the return day the matters came before
Makgoba J and the issue whether the liquidation applications
had in
terms of section 131(6) been suspended by the business rescue
applications was argued again. The learned judge agreed with
the
conclusion reached by Van Der Byl AJ and granted final orders.
[12]
I regret to say that I find the reasoning of both judges in
Summer
Lodge
unpersuasive. They seem to have overlooked the fact that liquidation
proceedings are commenced by the launching of an application,
and
that subsection (6) refers to liquidation proceedings ‘by or
against‘ the company. If a liquidation application
is dismissed
the proceedings come to an end. That does not mean that the
application did not constitute liquidation proceedings.
If a
liquidation order is granted the company is, in terms of section 348
of the Companies Act of 1973, deemed to have been placed
in
liquidation when the application was launched. And the
liquidation proceedings continue until the order is discharged
or the
company is deregistered on completion of the liquidation process.
[14]
I think with respect that Van Der Byl AJ misread section 348. It is
not the liquidation proceedings which are deemed to have commenced
when the application was presented - it is the winding up of the
company. The reliance by Makgoba J on the dictionary definition
of
the words ‘liquidation’ and ‘proceeding’ is
not helpful. The words are used together in section 131(6)
and they
must be understood in the proper context. By way of analogy, eviction
proceedings in every day practice commence with
an application for an
eviction order and include the process of serving the eviction order
and ejecting the unlawful occupant.
I do not see why it should be
different in the case of liquidation proceedings.
[13]
It follows that I respectfully disagree with the conclusions reached
in the
Summer
Lodge
cases. I also disagree with the similar conclusion reached in
Absa
Bank Ltd v Makuna Farm CC.
[15]
The decision in
Vermeulen
and Another v CC Bauermeister (Edms) Bpk and Others
[16]
on which the learned judge relied does not appear to me to support
his conclusion. It dealt with the commencement of the winding-up
process, which, upon the granting of an order, is deemed to have
commenced when the application was presented to the court.
[14]
Counsel for the bank submitted that it is essential for a provisional
order to be granted so
that those who control the respondent can be
deprived of the control of the business until the respondent is
either placed under
supervision or the winding-up recommences. The
notion that a business rescue application should not have the effect
of suspending
an application for the winding-up of a company because
the persons who run the company should be stopped in their tracks is
not
consonant with the idea of business rescue. In
Richter
v Absa Bank Ltd
[17]
Dambuza
AJA said:
‘
It
is
meant to be a flexible, effective process of extending the life span
of companies and businesses. A necessary consequence thereof
is
limitation, to some extent, on the power of creditors to
single-handedly curtail the life of a company’.
[15]
Regard should also be had to s 134(1), which provides for a
limitation on the disposal of the
company’s property during
business rescue proceedings, which, in terms of s 132(1) (b), begin
when an affected person applies
to the court for an order placing the
company under supervision. This provides some comfort with regard to
the company’s
property while the liquidations proceedings are
suspended.
[16]
If counsel’s submission is correct and a provisional winding-up
order is granted in this
case, the respondent will be precluded from
running its business, but so will the liquidator, as the winding-up
process will be
suspended in terms of section 131(6). This hiatus
will continue until the court has adjudicated upon the business
rescue application.
In the interim the respondent may lose its
contracts and its customers and there may be no basis for a rescue
plan. The interpretation
suggested by the bank does not seem to me to
be a sensible one, nor is it supported by the wording of s 131(6).
[17]
Part of the context in which s 131(6) must be interpreted are some of
the other sections in Chapter
6. Section 133 deals with a general
moratorium on legal proceedings. It provides that during business
rescue proceedings no legal
proceeding, including enforcement action,
against the company, or in relation to any property belonging to the
company, or lawfully
in its possession, may be commenced or proceeded
with in any forum, except in the circumstances set out in the
section. This seems
to me to include an application for the
liquidation of the company, with the result that during business
rescue proceedings an
application for the winding-up of the company
may not be commenced or proceeded with. Section 134 provides for a
limitation on
the disposal of property by the company during its
business rescue proceedings. Section 131(4) provides that after
considering
an application in terms of subsection (1) the court may
make an order placing the company under supervision and commencing
business
rescue proceedings, or dismissing the application, together
with any further necessary and appropriate order, including an order
placing the company under liquidation.
[18]
Section 132 deals with when business rescue proceedings begin and
end. Section 132(1) (b) is
relevant in the present context and
provides that business rescue proceedings begin when an affected
person applies to the court
for an order placing the company under
supervision in terms of s 131(1).
[18]
It seems to follow that the moratorium on legal proceedings in s 133
then takes effect, and also the limitation on the disposal
of the
company’s property in terms of s 134.
[19]
It is in this context that a meaning must be attributed to the words
in s 131(6). Legal proceedings
are commenced by the launching of an
application or the institution of an action. Liquidation proceedings
are invariably brought
by way of an application. In my view the
application itself forms part of the liquidation proceedings, just as
an application for
the eviction of an unlawful occupier forms part of
the eviction proceedings. The label merely tells one what the nature
of the
proceedings is. This approach seems to me to be
fortified by the wording of subsection (6), which refers to
liquidation proceedings
which have already been commenced ‘
by
or against’
[19]
the company. The winding-up process which follows a liquidation order
also forms part of the liquidation proceedings,
[20]
in the same way that the issue of a warrant of eviction forms part of
the eviction proceedings.
[20]
This approach finds support in dicta in
Richter
v Absa Bank Ltd
,
[21]
Boschpoort
Ondernemings (Pty) Ltd v Absa Bank Ltd
,
[22]
Taboo
Trading 232 (Pty) Ltd v Pro Wreck Scrap Metal CC and Others
[23]
and
Blue
Star Holdings (Pty) Ltd v West Coast Oyster Growers CC
.
[24]
Also see
Henochsberg
on the Companies Act
,
where the learned authors say the following in their commentary on
section 131:
‘
An
important aspect of this section is that an application for the
winding-up of a company can be superseded by an application placing
the company under business rescue. This is a sensible provision
considering that in many cases a company that is about to be wound
up
may in many cases (sic) still be rescued. However, the provision
appears to go further, also allowing for a company that has
already
been placed in liquidation to be placed under business rescue
proceedings’.
[25]
[21]
I conclude therefore that the business rescue application had the
effect, in terms of s 131(6),
of suspending the application for the
liquidation of the respondent. It is arguable that the liquidation
application may in any
event not proceed as a result of the
moratorium on legal proceedings in s 133, which took effect, in terms
of section 132(1) (b),
when the business rescue application was made.
Counsel for the bank, in supplementary heads of argument, submitted
that the moratorium
will only take effect in this case if and when
the court makes an order in terms of s 131(4), placing the respondent
under supervision
and commencing business rescue proceedings. I
refrain from expressing any firm view on this aspect of the matter as
it was not
dealt with in argument before me. The competing
contentions in the supplementary heads of argument demonstrate that
the issue is
not free from difficulty and needs to be fully argued.
[22]
The order which I make is as follows:
(a)
It is declared that the application for the liquidation of the
respondent has been suspended
as contemplated in s 131(6) of the
Companies Act 71 of 2008;
(b)
The applicant is ordered to pay the costs of the opposed hearing on
22 October 2015.
_______________________
Ploos
van Amstel J
Appearances:
For
the Applicant
: Adv. A.J
Rall SC / H Van Der Merwe
Instructed
by
:
Martins
Weir-Smith Inc.
Durban
c/o
Redfern & Findley Attorneys
For
the Respondent
: Adv. S
Alberts
Instructed
by
:
Booysen
& Co.
Inc.
Durban
Date
of Hearing
: 20, 22
October 2015
Date
of Judgment
: 17 November
2015
[1]
Act 71 of 2008.
[2]
All the sections
referred to in this judgment are references to the
Companies Act 71
of 2008
, except where indicated otherwise.
[3]
The Standard Bank
of South Africa Ltd.
[4]
2012 (4) SA 593
(SCA).
[5]
Per Wallis JA in
para 18.
[6]
2015 (5) SA 63
(SCA) para 8.
[7]
Section 7(k).
[8]
2012 (4) SA 266
(KZD).
[9]
Para 22.
[10]
The Companies Act
61 of 1973
.
[11]
2014 (3) SA 90
(GP) for the provisional winding-up orders and
2013 (5) SA 444
(GNP)
for the final orders.
[12]
2014 (3) SA 90
(GP).
[13]
Summer Lodge
2014 para 19.
[14]
Richter supra.
[15]
2014 (3) SA 86
(GJ)
[16]
1982 (4) SA 159
(T)
[17]
2015 (5) SA 57
(SCA) para 13.
[18]
Also see Davis et
al
Companies
and other Business Structures in South Africa
3ed p245
.
[19]
My emphasis.
[20]
Richter v Absa
Bank Ltd
2015
(5) SA 57
(SCA) para 18.
[21]
Ibid para 1
[22]
2014 (2) SA 518
(SCA) para 25
.
[23]
2013 (6) SA 141
(KZP).
[24]
2013 (6) SA 540
(WC).
[25]
P Delport
et
al Henochsberg on the Companies Act 71 of 2008
(May 2015 – Service Issue 10) 463.