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[2015] ZAECMHC 65
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Industrial Development Corporation of SA Limited and Another v Schroeder N.O and Others (1958/2015) [2015] ZAECMHC 65 (17 September 2015)
IN THE HIGH COURT OF
SOUTH AFRICA
[EASTERN CAPE LOCAL
DIVISION, MTHATHA]
CASE NO: 1958/2015
DATE: 17 SEPTEMBER 2015
Not Reportable
In the matter between:
INDUSTRIAL DEVELOPMENT CORPORATION
OF SA
LIMITED
..............................................................................................................
First
Applicant
THE DEVELOPMENT BANK OF SOUTHERN
AFRICA
LIMITED
......................................................................................................
Second
Applicant
And
CAROL-ANN SCHROEDER
N.O
.............................................................................
First
Respondent
THAMSANQA EUGENE MSHENGU
N.O
..........................................................
Second
Respondent
PATRICK DUMISANI BUWA
N.O
..........................................................................
Third
Respondent
MASTER OF THE HIGH COURT
MTHATHA
...................................................
Fourth
Respondent
COMPANIES AND INTELLECTUAL PROPERTY
COMMISSION
.............................................................................................................
Fifth
Respondent
KWANE CAPITAL (PTY)
LIMITED
........................................................................
Sixth
Respondent
LAMAN (PTY) LTD (In provisional
liquidation)
................................................
Seventh
Respondent
NATIONAL UNION OF
MINEWORKERS
................................................................
Affected
Person
RISK TRANS INSURANCE BROKERS (PTY)
LTD
................................................
Affected
Person
JUDGMENT
Heard on: 06/08/2015
Delivered on: 17/09/2015
NHLANGULELA ADJP:
[1] These proceedings concern an
application for business rescue in terms of s 131, Chapter 6 of the
Companies Act 71 of 2008 (the
Act).
[2] As described in the papers, the
first applicant is a wholly owned state corporation which is
established in terms of s 2 of
the Industrial Development Corporation
Act 22 of 1940. The second applicant is also a wholly owned state
corporation, but which
is established in terms of
s 2
of the
Development Bank of Southern Africa Act 13 of 1997
. Both these
entities have headquarters in the Province of Gauteng. For the
purposes of convenience the applicants will hereinafter
be referred
to as the IDC and DBSA respectively.
[3] A company described as Laman
Proprietary Limited is currently placed under provisional liquidation
by virtue of an order of
this court issued on 08 August 2014 under
Case No. 2107/14 at the instance of IDC and DBSA. This company is
cited in this matter
as the seventh respondent. It will hereinafter
be referred to as Laman for the purposes of convenience.
[4] More must be said about the
business object of Laman. It is a private company registered and
incorporated in accordance with
the company laws of the Republic of
South Africa. It carries on business of mining and quarrying at
Gungululu Location, being
a village situated at approximately 12
kilometres from the central business district of Mthatha.
[5] The first, second and third
respondents were appointed by the Court on the request of the Master,
the fourth respondent, to
act jointly as the Liquidators of Laman.
In this application, these respondents have been cited as parties due
to the fact that
they have direct and substantial interest in the
relief sought by the IDC and DBSA against Laman.
[6] Laman, the Companies and
Intellectual Property Commission, Kwane Capital (Pty) Ltd, the
National Union of Mineworkers and Risk
Trans Insurance Brokers (Pty)
Ltd are the affected persons who must be served with the application
papers as envisaged in
s 128
(1) (a) and s 131 (2) of the Act. Save
Laman, these have been cited as the fifth, sixth respondents and the
Affected Persons respectively.
[7] All the respondents, save the
fourth, fifth and seventh respondents, and the Affected Persons
oppose the relief sought by IDC
and DBSA.
[8] I interpose here to state that a
number of members of the community in which Laman is situated have
filed affidavits, some supporting
and others opposing the relief
sought. It would appear that the members of the community were
prompted to file their affidavits
by virtue on clause 3 of the order
granted on 14 July 2015, which reads:
“All opposing and affected
parties are directed to file their opposing and/or supporting papers,
if any, by 14h00 on Thursday
the 16th July 2015.”
[9] It is common cause that the members
of the community did not intervene in the matter as is envisaged in
Rule 7 of the rules
of this Court. Further, they are not the
affected persons within the meaning of s 128 (1)(a) and s 131 (2) of
the Act and thus,
by extension, do not have a direct and substantial
interest in the relief sought by the applicants. Remote though the
interest
of the members of community is in the matter the Court
cannot help it but note that the existence of Laman business has a
significant
impact in the community of Gungululu, and thus in the
Eastern Cape Province.
[10] I further digress to reflect, as I
think that it is necessary to do so, on the preliminary steps taken
up to the day of the
argument of the application on 06 August 2015.
Following upon the issuance of the practice directive by me that the
applicants
may bring the application for business rescue on 14 July
2015 on service of the papers upon the first to sixth respondents,
then
cited on the certificate of urgency, the matter indeed served
before me in the urgent court. However, the fourth and fifth
respondents
did not appear before court, it having been within their
rights to oppose the relief sought or to abide the decision of the
Court.
It transpired later on that they abide the decision of this
Court. The matter was postponed for hearing on 23 July 2015, it
having been conceded by all the parties that there was a need for the
full sets of affidavits to be filed so that the matter may
be
adjudicated for hearing in one-vel-soup¬. Other reasons weighed
upon the Court’s decision to postpone the matter:
the facts
that Laman had not been joined, the trade union members sitting in
the gallery and brandishing some placards exhibited
a desire to put
their story before the court, the mention by the Liquidators that
certain creditors who were not served with the
papers might wish to
join in the proceedings, that the respondents before Court expressed
a desire to supplement their opposing
affidavits and that there was a
need for the parties to file heads of argument. In a nutshell all
the things as aforementioned
necessarily had to be done for the
matter to be adjudicated on the basis of urgency, and about which I
was persuaded did exist
to warrant abridgment of the ordinary rules
applicable to hearing of applications in the High Court. It was
more, or less, on
the same considerations that on 23 July 2015 the
matter was again postponed to 04 August 2015, and finally to 06
August 2015.
[11] The business rescue application
was brought against the backdrop of pending multifarious
interlocutory applications arising
from the liquidation proceedings,
the judgment on which was reserved on 18 June 2015. In substance,
IDC and DBSA seek a relief
placing Laman under supervision and
commencing business rescue proceedings in terms of s 131 (4)(a) of
the Act; discharging the
provisional winding-up order granted on 08
August 2014, alternatively, suspending the liquidation proceedings
and all related proceedings
under Case No. 2107/14 sine die. The
applicants seek a further relief that one Mr Sipho Sono of OPJS
Advisory, Gauteng be appointed
as a business rescue practitioner as
envisaged in sections 131 (5) and 138 of the Act.
[12] It is common cause that the
applicants are qualified, as they are the affected persons in terms
of subsection 128 (1)(a) to
bring the present application. But that
the applicants have satisfied the requirements as set out in
subsections 131 (2) and (4)
is in dispute. The subsections read as
follows:
“(2) An applicant in terms of
subsection (1) must –
(a) serve a copy of the application on
the company and the Commission; and
(b) notify each affected person of the
application in the prescribed manner.
…
(4) After considering an application in
terms of subsection (1), the court may –
(a) make an order placing the company
under supervision and commencing business rescue proceedings, if the
court is satisfied that
–
(i) the company is financially
distressed;
(ii) the company has failed to pay over
any amount in terms of an obligation under or in terms of a public
regulation, or contract,
with respect to employment-related matters;
or
(iii) it is otherwise just and
equitable to do so for financial reasons and there is a reasonable
prospect for rescuing the company;
or
(b) dismissing the application,
together with any further necessary and appropriate order, including
an order placing the company
under liquidation.”
[13] In my view, nothing much turns on
the issue of notice the applicants had to give to the affected
persons that the application
will be brought. The thrust of the
respondents’ objection, as raised by Mr Rall, counsel for the
Liquidators, in argument
is that on the authority of Taboo Trading
232 (Pty) Ltd v Pro Wreck Scrap Metal CC And Others
2013 (6) SA 141
(KZN) at 147, paragraph 11.4 the liquidation proceedings already
commenced against the company are not suspended by the application
for business rescue as envisaged in s 131 (6) of the Act unless the
application has been lodged with the registrar, duly issued
and a
copy thereof served on the Commission and each affected person
properly notified of the application. In essence the contention
advanced on behalf of the respondents is that the applicants’
application is not properly before the Court because of absence
of
proof that the Sheriff served the application on the Commission, as
adumbrated in Engen Petroleum Ltd v Multi Waste (Pty) Ltd
And Others
2012 (5) SA 596
(GSJ), and that all the known creditors of Laman were
notified of the application as envisaged in s 131 (2)(b) read with s
6 (10)
of the Act, and Regulations 7 and 124 read with Table CR 3.
The upshot of Mr Rall’s submissions, based on the legal
instruments
as aforementioned, is that notification by means of
electronic transmission or electronic mail showing, inter alia, the
names of
the creditor or description of the intended recipients did
not take place, I have said that nothing much turns on the issue of
delivery of the application because it soon turned out that the
return of service on the Commission and documentary proof of
notification
to a long list of creditors had been filed of record on
behalf of the applicants. The objection with regard to service to
the
Commission and notification to the affected persons is,
therefore, dismissed.
[14] Without detracting from the
decision already made on the notification argument I may state that
electronic mail notification
would have been addressed to those
creditors, pre and post liquidation, which were identified by both
parties as is provided in
clause 2 of the order dated 23 July 2015
that the Liquidators, in so far as they were concerned with the
business affairs of Laman
since the order of provisional liquidation
on 08 August 2014, must provide the applicants with a full list of
creditors of Laman.
The Court was not told at any stage that the
applicants sent notices of the application to only those creditors
known to them.
And I have to rely on the bona fides of the
Liquidators that they did provide the applicants with names of all
the creditors,
including Risk Trans who chose to oppose the
application for business rescue.
[15] I proceed to deal with the
jurisdictional factors that are set out in s 131 (4) of the Act, and
which must be proved to exist
for the application to succeed. And
recounting the salient background facts to the matter is necessary. I
do so in the paragraphs
that follow.
[16] On 03 November 2009 DBSA concluded
a written senior loan agreement with Laman in the sum of R133 501
715,10. On 26 March 2012
IDC concluded a written loan agreement with
Laman in the sum of R97 890 270,25. As security for the repayment of
the loans, on
23 April 2013 DBSA, IDC and Laman concluded an
inter-creditor sharing agreement, thus regulating the relationship of
the lenders
under the loans as well as the obligations of Laman
towards the applicants in repaying the loans. As further security,
Laman
caused its business assets to be notarially bonded in favour of
the lenders. In accordance with the loan instruments monies loaned
were advanced to Laman, which Laman used to set up the business and
commence trading. In breach of the agreed terms for repayment
of
loans, and Laman having been placed in mora, on 13 March 2014, the
lenders obtained a final court order perfecting the bond,
which
allowed the lenders to take possession of the movable assets of Laman
with immediate effect. It is not in dispute that as
at 08 August
2014, when Laman was placed in provisional liquidation, Laman’s
indebtedness to the Applicants stood at ±
R200 million. And
with further interest and other expenses the debt has escalated to ±
R250 million. Laman has not been
able to repay the debt, making it
financially distressed within the meaning of s 131 (4)(a) of the Act.
[17] Up until the middle of July 2014
Laman’s business was operating at approximately 30% of its
capacity, the situation which
led to the provisional liquidation at
the instance of IDC and DBSA on 08 August 2014. The application for
a final order of liquidation
is as yet to be made, the rule nisi
having been extended from time to time until 15 October 2015. There
have been a number of
intervening interlocutory applications that
started with an application by the Liquidators to extend their powers
in order to trade
(Case No. 2666/14); the application by the
Liquidators to sell the assets of Laman (Case No. 555/15);
application by Mlonzi Family
Trust (the Trust) to intervene and
interdict the disposal of Laman’s assets; and the applications
by Kwane to intervene,
remove the Liquidators, set aside the
provisional liquidation and re-instate a provisional liquidation at
its instance. None of
the substantive issues arising from the main
and interlocutory applications have been decided due to the fact that
IDC and DBSA
have now brought the application for business rescue.
[18] The factual disputes around the
question whether the relief sought should be granted range from the
periphery to the centre.
I do not deem it necessary to delve much
into the peripheral disputes, which concern the blame game arising
from unpreparedness
by any of the parties/stakeholders involved in
the business of Laman to shoulder responsibility for the poor
performance of Laman.
The blame game would have been heightened by
the information received by the applicants on 02 July 2015 that the
Liquidators harboured
an intention to stop the business of Laman by
reason that the actions of Mr Mlonzi, through the Trust and Kwane, in
opposing all
the efforts made towards keeping the business as a going
concern to achieve maximum dividends for the creditors undermined the
preservation of value of Laman’s estate; and that the
applicants were reluctant to give further financial assistance for
fear of dissipation of the funds by Mr Mlonzi whilst the Liquidators
and other stakeholders remain watching. Trust would breakdown
in
such circumstances, hence the mudslinging and exchange of hard words
between the parties such as: “abuse of power”,
“hell
bent”, “extorting”, and “own agenda”.
The ruling that I made that such words be expunged
from the record
were not helpful for the determination of the issues for the
application of business rescue was appropriate. The
opportunity that
later availed the respondents to respond to the applicants’
replying affidavit in which the inflammatory
words as aforementioned
originated brought a sense of relief for the parties. On the
consideration of such words against the Plascon
Evans Paints rule the
Court was put in a position where it had to assess the papers on the
basis that the Liquidators have not
abused their power to imperil the
business of Laman. But the suspicion remains whilst the Liquidators
and Mr Mlonzi, together
with his business entities, continue to seek
individual and collective exoneration from the poor performance of
Laman.
[19] The Court is required to be
satisfied that the applicants have proved the existence of any one of
the requirements in subsections
131 (4)(a)(i), or (ii) or (iii).
See: AG Petzetakis International Holdings Ltd v Petzetakis Africa
(Pty) Ltd and Others (Marley
Pipe Systems (Pty) Ltd and Another
Intervening)
2012 (5) SA 515
(GSJ) at 521. And critical to the
consideration of these requirements, individually or collectively, is
the exercise of the court’s
discretion based on value judgment.
See: Oakdene Square Properties (Pty) Ltd And Others v Farm
Bothasfontein (Kyalami) (Pty) Ltd
And Others
2013 (4) SA 539
(SCA) at
549.
[20] In this case the applicants rely
on subsections 131 (4)(a)(i) and (iii), contending that based on
these requirements which
they say are proved by evidence there is a
reasonable prospect for rescuing Laman as envisaged in s 128
(1)(b)(iii), which reads:
“business rescue” means
proceedings to facilitate the rehabilitation of a company that is
financially distressed by
providing for –
(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.”
[21] The applicants’ case as
encapsulated on affidavit is that when Laman experienced financial
difficulties during 2013/2014
the shareholders and creditors of Laman
always harboured the intention to effect a turnaround in the business
of Laman or to find
a prospective buyer for its business so as to
achieve maximum value in the Laman’s estate for the benefit of
all the affected
persons, including its creditors. IDC and DBSA who
are the majority creditors with secured debts together with smaller
creditors
who are unsecured would not receive any dividend if the
value of Laman’s estate is not maximised. It was then thought
that
it would be proper that, after the provisional liquidation
order, instead of closing down the business the applicants would use
their concerted efforts to assist Laman in making a financial
recovery, alternatively, to assist in the sale of its business
as a
going concern at the best possible price in the best interest of its
entire body of creditors and save the jobs for the employees.
To
achieve those goals IDC and DBSA provided funding in the sum of R6.7
million to enable Laman and the Liquidators to preserve
the existing
assets, assist with the continuation of trading activities and to
preserve the employment of the employees. Further,
the applicants
supported a proposal by the Liquidators to test the market in order
to determine whether there would be any interest
in the sale of
Laman’s business. Indeed in February 2015 the market gave a
price of approximately R70 million. However,
the attempt by the
Liquidators to obtain powers through the court to sell the business
was opposed by Mr Mlonzi’s Trust and
Kwane. In the meantime
the funds provided by IDC and DBSA were depleted, the
employer-employees relations declined and, consequently,
the business
performance declined. The business of Laman deteriorated to the
point of a threat issued by the Liquidators to stop
trading unless
IDC and DBSA injected further funds into the business, the request
which the applicants could not accept due to
risks attendant thereto.
The applicants see merit in providing funds after the commencement
of business rescue regime if the Court
allows it. In that event the
management of Laman, as the applicants’ assert, would be placed
under the business rescue practitioner,
not Mr Mlonzi who is a
suspect in the mismanagement of Laman business and responsible,
through the Trust and Kwane, for blocking
efforts to continue Laman
business as a going concern. The mining licence will be saved from
lapsing. The employment of the employees
will be continued under
business rescue, rather than terminate. The applicants allege that
there is a strong business case for
Laman’s business operations
being rescuscitated in that its products are on great demand, orders
for its products are prepaid
and the recent post liquidation income
statements prepared by the Liquidators as at May and June 2015
reflect a total income of
R639 719,00 against expenses of R1,2
million. IDC makes an undertaking that it is willing to advance
funds to Laman to cover losses
incurred by it and enable Laman to
continue trading activities, increase its production capacity and
thus preserve the value in
the best interest of all creditors. The
applicants state further that Mr Sono is a suitable manager who is
possessed of skills
and experience to serve as a business rescue
practitioner. Mr Sono is expected to draw a business rescue plan in
the event that
the relief sought is granted. They request that Laman
be placed under business rescue to turn around Laman business to
solvency
or maximise the prospects for a far better return for
creditors, shareholders and other affected persons than would be
achieved
in a liquidation scenario.
[22] The Liquidators oppose the
application for business rescue on various grounds. They contend
that unless the applicants provide
more funds at this stage for Laman
business to continue the route to final liquidation, rather than the
commencement of business
rescue process, must be pursued. They go on
to say that as a further pre-condition for their acceptance of
business rescue, the
costs incurred by them since the commencement of
liquidation must be paid by the applicants by way of issuing a
guarantee that
the business rescue regime will not convert their
status prevailing under liquidation as the preferent creditors of
Laman. In
the eyes of the Liquidators obtaining final liquidation
on the return day of the provisional winding up order is free from
obstructions
as they are confident of success in the application to
sell the assets of Laman. The Liquidators contend further that the
cost
of operations of Laman business until final liquidation would be
ameliorated by leasing the business at R200 000,00 per month.
They
state that the introduction of business rescue is the intervention
strategy introduced by the applicants with intention to
delay final
liquidation that will guarantee equitable dividends to the creditors,
payment of liquidators’ fees, payment of
employee salaries and
guarantee continued employment of the employees under a new buyer.
For these reasons they see the applicants
as having designed the
business rescue strategy in order to subvert the process of
liquidation to the detriment of the stakeholders.
[23] Further, the Liquidators assert
that business rescue process does not have a reasonable prospect for
rescuing the Laman business
because the applicants’ promise to
inject finances post commencement of business rescue is not supported
by a proposal based
on a fixed amount of money, Laman does not have
enough plant and equipment to fully exploit its mining rights,
Laman’s static
crusher has not been commissioned and is not
operational, and the canopy’s road infrastructure is in a poor
state of repair.
Arrears for rentals due for the leasing of the
mobile crusher in the amount of approximately R500 000,00 has not
been paid by
Laman. The supplier of the mobile crusher requires a
sum of R15 million to commission it. Yet the proposed introduction
of working
capital does not disclose whether or not it will include
the cost of commissioning the crusher.
[24] Kwane is a smaller and unsecured
creditor of Laman who opposes the relief sought on the basis that in
the absence of an undertaking
for payment of R7 million fee due to De
Loitte & Touche, the auditors, and the facts showing that Laman
can afford to inject
R55 million required to turn the business around
as assessed for the period up to 2013, the application for business
rescue cannot
succeed. Kwane is the only party which opposes the
appointment of Mr Sono to serve as the business rescue practitioner
saying
that Mr Sono is just too busy to have time to manage Laman
business. There is paucity of evidence supporting these assertions.
[25] Mr Mlonzi, also the managing
director of Laman, denies the allegations made against him that the
insolvency of Laman is attributably
to mismanagement on his part.
He alleges that the audit report given by De Loitte & Touche in
2013 exonerated him from such
accusations.
[26] Risk Trans opposes the relief
sought on the basis that since it is the secured creditor of Laman,
and protected under the liquidation
regime as the preferent creditor,
the business rescue process converts its status to that of a
con-current creditor. It maintains
that in the absence of a
guarantee for payment of fees incurred by it in securing the assets
of Laman, the liquidation process
must be preferred.
[27] The NUM’s opposition is
premised on the allegation that the provisions of s 197 (A) read with
s 197
of the
Labour Relations Act 66 of 1995
, not business rescue,
will offer protection of the jobs for the employees of Laman after
its business has been acquired by the
new owner once the winding-up
process is finalized. However, some of the members of NUM give
support to the applicants. The non-unionised
employees of Laman also
support the relief sought.
[28] All the respondents opposed to
business rescue are also opposing the discharge of the order of
provisional winding-up of Laman
as sought by the applicants in terms
of
s 131
(7) read with s 135 (4) of the Act. They rely on the case
of Van Staden v Angel Zone Products CC (In liquidation) And Others
2013 (4) SA 630
(GNP) where the following appears at 635G:
“[30] I share the view expressed
in Henochsberg on the
Companies Act 71 of 2008
vol 1 at 471, wherein
it is suggested that it appear for more likely that the provisions of
s 131
(7) read with
s 135
(4) contemplate the conversion of a
liquidation into rescue proceedings no matter how far the liquidation
and winding-up proceedings
might have progressed.”
[29] The co-respondents join issue with
the Liquidators in saying that the applicants do not have a plan to
rescue Laman business
and that, thus, it has not proved the existence
of a reasonable prospect for rescuing Laman.
[30] The evidence as set out in the
affidavits filed by all the parties in this matter is to a large
extent common cause. The
ambivalence shown by the NUM members does
not take the case of NUM any further. All we now know is that the
employees, unionised
or not, are concerned about the security of
their employment irrespective of the outcome of this application. I
say this because
the majority of the 229 employees of Laman have
already been retrenched by reason of operational requirements. An
outcome which
is less than substantial economic recovery of Laman
will not provide security for the workers. Simplistic as though my
views on
the matter may be interpreted, the bottom-line remains only
that continued trading in Laman will offer ample security for job
creation.
[31] In my view, to the extent that the
application before the Court is one of business rescue, the question
to be answered is whether
the applicants have met test in
s 131
(4)
read with
s 128
(1)(b)(iii) and, as correctly submitted by Ms
Dippenaar on behalf of the applicants, as further read with the
provisions of s 7
(k) of the Act. The provisions of s 7 (k) read as
follows:
“The purposes of this Act are to
–
...
(k) provide for the efficient rescue
and recovery of financially distressed companies, in a manner that
balances the rights and
interests of all relevant stakeholders.
…”
[32] On the issue of the purpose of
business rescue in general one cannot ignore the statement made by
the Supreme Court of Appeal
in Dawid Jacques Richter v Absa Bank
Limited (Case No. 20181/2014)
[2015] ZASCA 100
(01 June 2015) issued
on 01 June 2015 in the following terms, at [13]:
“A review of the background to
the introduction of the business rescue process into our law gives an
insight as to the intention
of the legislature in introducing the
procedure. Our business rescue regime is adapted from similar
concepts in other jurisdictions
such as the United States and great
Britain. In South Africa it was introduced against the background of
general acceptance that
the judicial management process provided for
under chapter XV of the 1973 Act was failing the local economy
because only few, if
any, judicial management orders resulted in the
saving of companies experiencing financial difficulties. Its purpose
is stated
as: ‘to provide for efficient rescue and recovery of
financially distressed companies in a manner that balances the rights
and interests of all relevant stakeholders.’ It is meant to be
a flexible, effective process of extending the lifespan of
companies
and businesses. A necessary consequence thereof is limitation, to
some extent, on the power of creditors to singlehandedly
curtail the
life of a company. But this is subject to compliance with the
procedural and substantive requirements set out as in
s 129 of the
Act. (per Dambuza AJA with Mhlantla, Leach, Pillay JJA and Fourie AJA
concurring) (the underlining is mine for emphasis)”
[33] Laman is undeniably in financial
distress, and it has even closed down its business on 31 July 2015 on
the initiative of the
Liquidators because, according to them,
applicants have refused to inject funds for the business to be
continued. But it would
seem that the applicants’ refusal to
provide additional funds was due to risk of financial exposure caused
by protracted
litigation and mismanagement of the business. It is
common cause that the nature of business of Laman makes it a
potentially viable
business project. It was argued strenuously on
behalf of the respondents that rescuing Laman business is an empty
promise, leaving
it with no possibility of return to solvency,
reliance being made on the statement of Tsoka J in Anthonie Welman v
Marcelle Props
193 CC and Investec Bank Ltd, Case No. 33958/2011
(GSJ) at page 12 paragraph 28 where the learned Judge said:
“In my view, business rescue
proceedings are not for the terminally ill close corporations. Nor
are they for the chronically
ill. They are for ailing corporations,
which, given time, will be rescued and become solvent.”
[34] I do not think that it is fair to
be said that Laman business will never recover given that the reason
for closure of the business
is the absence of capital funding that,
if injected, will ensure availability of equipment to enable Laman to
exploit its mining
opportunities fully. For instance, the crusher
will be commissioned to re-activate the production of stone and the
products associated
therewith. The introduction of a new and
different management office that is sufficiently credible could, in
my view, alter the
management circumstances. With funding at ±
R6.7 million injected previously, the business of Laman was able to
sustain
its business until the Liquidators took a unilateral decision
to stop trading on 31 July 2015. A persuasive account for this step
is lacking. It seems to me that had favourably circumstances
prevailed for more funds to be provided to a credible manager Laman
would, at the very least, still be operating its business regardless
of the operational capacity at 30%.
[35] It was submitted on behalf of the
respondents that Laman has no reasonable prospect of either
recovering its business and return
to solvency or to provide a better
dividend to creditors and shareholders than what they would receive
through liquidation. In
Oakdene, supra, Brand JA stated as follows
at 551 - 552:
“[29] This leads me to the next
debate which revolved around the meaning of a ‘reasonable
prospect’. As a starting
point, it is generally accepted that
it is a lesser requirement than the ‘reasonable probability’
which was the yardstick
for placing a company under judicial
management in terms of s 427 (1) of the 1973
Companies Act (see
eg
Southern Palace Investments 265 (Pty) Ltd v Midnight Storm
Investments 386 Ltd
2012 (2) SA 423
(WCC) para 21). On the other
hand, I believe it requires more than a mere prima facie case or an
arguable possibility. Of even
greater significance, I think, is that
it must be a reasonable prospect –with the emphasis on
‘reasonable’ –
which means that it must be a
prospect based on reasonable grounds. A mere speculative suggestion
is not enough, Moreover, because
it is the applicant who seeks to
satisfy the court of the prospect, it must establish these reasonable
grounds in accordance with
the rules of motion proceedings which,
generally speaking, require that it must do so in its founding
papers.
[36] The learned Judge of appeal stated
further in the case of Oakdene, supra that, adopting the relevant
statements in Prospec
Investments (Pty) Ltd v Pacific Coast
Investments 97 Ltd and Another
2013 (1) SA 542
(FB) at paras. [11]
and [15], there is no need for the courts to set the bar too high in
the requirement that the applicant for
business rescue must place
before court factual foundation for the existence of a reasonable
prospect that the desired object can
be achieved. But of greater
significance is that the facts stated on affidavit must disclose a
prospect based on reasonable grounds.
Allied to this point is the
argument advanced on behalf the respondents that in so far as the
applicants have not given a fixed
amount of money that they intend to
inject in Laman a plan for the anticipated business rescue process
was not made available,
the founding affidavit is vague and the
business rescue is a speculative and costly exercise which disregards
the costs of liquidation
already incurred. The arguments advanced
overlook the statement in Oakdene at 553 that the applicant is not
required to set out
a detailed plan, which can be left to the
business rescue practitioner after proper investigation in terms of s
141 of the Act.
[37] The grounds for the reasonable
prospect of achieving the goals in s 128 (1)(b)(iii), a return of
Laman to solvency or to provide
a better deal for creditors and
shareholders than what they would receive through liquidation, have
been disclosed in the founding
affidavit. The applicants are the
majority creditors whose role in the business rescue sought cannot
be underestimated. The
± R70 million that the Liquidators
hope to recover from the sale of the assets of Laman (and already
perfected under the
bond in favour of the applicants) cannot provide
a better deal for all the existing creditors and shareholders in
where the applicants
alone are owed ± R250 million. That
situation is exercebated by the closure of the business on 31 July
2015. The applicants
are not ordinary commercial creditors but they
hold dear to their hearts socio-economic responsibilities towards all
the stakeholders.
To them, as the champions of development in the
Eastern Cape Region, the rescuscitation of Laman business is a matter
of priority.
The applicants, having provided funds to Laman
previously would be expected to know, duly assisted by the
practitioner, what problems
to look for and resolve in Laman so that
the next funding they provide is put to good use. As the development
institutions possessed
of appropriate mandate and resources for
developing projects such as that of Laman it would be unreasonable to
doubt their institutional
capacities. It is more probable, than not,
that the size of funding as assessed by the practitioner will be met
at an appropriate
time. The potential of Laman as a successful
business operation under a sound management will always be matched by
the proven
demand for its products. These factors are neither vague
nor speculative, only if some time may be given for Laman to be
subjected
to proper supervision.
[38] On the aforegoing, I am of the
view that there is a reasonable prospect for rescuing the Laman
business and that, taking the
interest of all the stakeholders into
account, it is just and equitable to grant an order placing the Laman
under supervision and
commencing business rescue proceedings.
[39] The opposition to Mr Sono being
appointed as the business rescue practitioner has no merit. That
relief sought by the applicants
falls to be granted.
[40] I do not think that the issue of
the liquidation fees for the Liquidators and Risk Trans should be the
reason for refusing
the relief sought. In terms of s 132 (1)(c) of
the Act business rescue proceedings begin as soon as a court makes an
order placing
a company under supervision during the course of
liquidation. The liquidation proceedings would have already been
suspended in
terms of s 131 (6) at the time when the application for
business rescue was lodged and served upon the affected persons. The
same
liquidation proceedings may be converted by the court under
appropriate circumstances in terms of s 131 (7) at any time during
the course of liquidation proceedings to business rescue proceedings
on application having been made. As to what is the meaning
of the
term “liquidation proceedings” the Supreme Court of
Appeal in the case of Dawid Jacques Richter, supra, said
the
following at page 6 para. [9]:
“Generally, in law and in
business, liquidation is the exhaustive process by which a company
is brought to an end, and
the assets thereof, if any, are
redistributed. The authors of Cilliers and Benade; Corporate Law
describe liquidation as follows:
‘(27.01’ … The
process of dealing with or administering a company’s affairs
prior to its dissolution by
ascertaining and realising its assets and
applying them firstly in the payment of creditors of the company
according to their order
of preference and then by distributing the
residue (if any) among the shareholders of the company in accordance
with their rights,
is known as the winding-up or liquidation of the
company.’”
And at para. [12] it said:
“Consequently, the conversion of
liquidation to business rescue even after a final liquidation order
has been granted, was
clearly envisaged by s 136 (4).”
[41] In this case the provisional
liquidation order is as yet to be confirmed, meaning that the process
of winding-up has not yet
started. The issue of fees for the
protected creditors has to be seen in that context. Nevertheless, it
is not disputed that
some fees have been incurred between 08 August
2014 and todate, which would not be substantial taking into account
that the actual
winding-up process is, theoretically, still
outstanding.
[42]Section 143 provides for the
remuneration of the business rescue practitioner, not the
Liquidators. Section 136 (4) provides
that the liquidator is the
creditor of the company but without giving preference of such a
creditor above others. It would seem
that the liquidators’
claim against the company is protected only under the liquidation
proceedings, and they are the concurrent
creditors under business
rescue. The protected creditors under liquidation will be best
advised not to conflate the processes
of liquidation and business
rescue. I accept the submission made on behalf of the applicants
that the Liquidators may not impose
the issue of payment of fees
under business rescue as their fees are protected in terms of s 384
(1) of the old
Companies Act which
reads:
“ (1)In any winding-up a
liquidator shall be entitled to a reasonable remuneration for his
services to be taxed by the Master
in accordance with the prescribed
tariff of remuneration: Provided that, in the case of a members’
voluntary winding-up,
the liquidator’s remuneration may be
determined by the company in general meeting.
(2)The Master may reduce or increase
such remuneration if in his opinion there is good cause for doing so,
and may disallow such
remuneration either wholly or in part on
account of any failure or delay by the liquidator in the discharge of
his duties.”
[43] The changed status of the
Liquidators forms the basis for their resistance against the relief
sought that the provisional liquidation
order be discharged.
Discharging a provisional liquidation order is different from
suspending liquidation proceedings. A suspension
of liquidation
proceedings under
s 131
(6) does not mark the end of liquidation.
For present purposes there is no need to deal with a situation where
the application
for business rescue is brought on the face of
liquidation proceedings that have commenced. In the circumstances it
will not be
correct to grant an order discharging the order of
provisional liquidation without any substantive application having
been brought.
It seems to me that the provisions of
s 354
(1) of the
old Companies Act 61 of 1973, not a mere bringing of the application
for business rescue, is the relevant machinery
to be used for
discharging the provisional liquidation order. The subsection reads
as follows:
“(1) The Court may at any time
after the commencement of a winding-up, on the application of any
liquidator, creditor or member,
and on proof to the satisfaction of
the Court that all proceedings in relation to the winding-up ought to
be stayed or set aside,
make an order staying or setting aside the
proceedings or for the continuance of any voluntary winding-up on
such terms and conditions
as the Court may deem fit.”
[44]I remain persuaded that this matter
is urgent despite obvious difficulties with regard to service, which
in my view can be attributed
to the fact that all the parties
involved in the matter, save Laman, do not reside in the Eastern Cape
Province. The service
of papers was bound` to be a daunting task as
a lot of loose ends had to be closed up and often during an eleventh
hour. In some
instances the need to secure presence of all the
affected parties in court and the filing of papers required
postponements to be
made. Notwithstanding all that the commercial
reasons always dictated that the matter be heard on urgency basis.
[45]I could not find fault, such as a
breach of court orders or general dilatoriness, on the part of any of
the respondents to warrant
any of them being mulcted in costs. The
Liquidators and Risk Trans opposed the relief sought out of concern
for loss of protection
as the preferent creditors of Laman. Kwane
has been used by Mr Mlonzi as an instrument of interference in just
about every good
step(s) that have been taken by the affected persons
in sorting out the problems of Laman. For that reason they are not
entitled
to any costs. The concern by NUM in this application was
to protect their jobs. I do not have a reason to deny costs due to
them. Ordinarily the applicants would shoulder the blame for all the
postponements for they would have been incurred primarily
to enable
them to present their application. However, the principle that the
cost follows the result cannot find application
in this matter
because in applications of this nature the costs of the application
for business rescue become the post commencement
costs.
[46]In the result I make the following
order:
1.That Laman (Pty) Ltd be and is hereby
placed under supervision and commencing business rescue proceedings
under Section 131 (4)(a)
of Act 71 of 2008 (“the Act”);
2.That the liquidation proceedings and
all related proceedings under Case Number 2107/14 be and are hereby
suspended;
3.That Mr Sipho Sono of OPIS Advisory,
Nelson Mandela Square, 2nd Floor, West Tower, Sandown, Sandton,
Gauteng be and is hereby
appointed as interim business rescue
practitioner of Laman (Pty) Ltd, subject to ratification by the
holders of the majority of
the independent creditors’ voting
interests at the first meeting of creditors as contemplated in
Section 147 of the Act;
4.That the costs of this application be
costs in the business rescue proceedings, except that the sixth
respondent (Kwane) shall
pay its own costs.
5.That a copy of this order be served
by hand delivery, alternatively via electronic email on all affected
persons of Laman (Pty)
Ltd.
Z. M. NHLANGULELA
ACTING DEPUTY JUDGE PRESIDENT
Counsel for the applicants : Adv.
Dippenaar S.C.
with Adv. A. Bodlani
Instructed by : Cliffe Dekker
Hofmeyer Inc c/o Smith Tabata Attorneys
MTHATHA .
Counsel for 1st, 2nd and 3rd
respondents : Adv. A.J. Rall S.C.
Instructed by : Grant &
Swanepoel Attorneys
c/o JH Heunis & Associates
MTHATHA
Counsel for the 6th respondent :
Adv. Quinlan
Instructed by : Messrs Lyle &
Lambert Attorneys c/o J A Le Roux Attorneys
MTHATHA.
Counsel for the Affected
Parties: Adv. D. Schaup
Instructed by:Lister & Lister
c/o Keightley Inc
MTHATHA.