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[2014] ZAGPPHC 181
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Absa Bank Limited v Naude N.O and Another (66088/2012, 66087/2012) [2014] ZAGPPHC 181 (24 January 2014)
NORTH GAUTENG
HIGH COURT, JOHANNESBURG
CASE
NO: 66088/2012
DATE:
24 JANUARY 2014
In the matter
between:
ABSA BANK
LIMITED
................................................................................................
Plaintiff
And
ETIENNE JACQUES
NAUDE
N.O
..............................................................
First
Respondent
LOUIS PASTEUR
INVESTMENTS LIMITED
.......................................
Second
Respondent
LOUIS PASTEUR
HOLDINGS (PTY) LIMITED Affected Party
JUDGMENT
Ismail J:
[1] This matter
embraces an application and a counter application. During the course
of this judgment I will deal with the application
and the counter
application in turn under different heads.
[2] The applicants
also launched an urgent application against Viador SA Limited
[Viador] on the 15 November 2012, in this court,
in order to set
aside the resolution taken to place Viador under business rescue.
Viador was placed under business rescue in terms
of section 129 (1)
of the Companies Act. The application did not proceed as the papers
were not in order. The parties agreed that
that matter would also be
argued during these proceedings as the issues are similar.
Background
[3] The applicant in
the main application seeks an order setting aside The business rescue
plan which was adopted in respect of
the second respondent. The first
respondent was appointed the business rescue practitioner [BRP] of
the second respondent.
[4] Apart from
setting aside the business rescue plan the applicant also seeks an
order for the removal of the first respondent
as the BRP of the
second respondent in terms of s139(2) of the Companies Act No 71 of
2008 (as amended).
[5] On the 30 August
2012 the applicant supplied the first respondent with details of its
claim against the second respondent. The
second respondent is
indebted to the applicant in the sums of R 5 776 836,52 and R2 675
132, 83 respectively as principal debtor.
It is also indebted to the
applicant as surety and co-principal debtor for three sums amounting
to approximately R143 758 859,
00. The second respondent is indebted
as surety arising out of a cross-suretyship. The sureties, including
the second respondent,
are jointly and severally liable to the
applicant as principal debtors.
[6] Correspondence
was exchanged between the applicant and the first respondent’s
representatives. Mr Du Toit on behalf of
the applicant dealt with the
applicant’s voting rights in terms of the suretyships. In an
e-mail he referred to the applicant’s
claims in terms of the
suretyships as ‘contingent liabilities’ and enquired why
they were not recorded for the purposes
of voting rights.
[7] Further
correspondence was exchanged wherein the first respondent in an
e-mail dated 3 October 2012 stated:
“ it is my
view that a contingent creditor does not have voting rights”.
In response to this
view expressed by the first respondent, Mr van Wyk, on behalf of the
applicant, through an e-mail, expressed
his disagreement with the
first respondents view.
[8] A meeting in
terms of section 151 of the Act was held in order to consider the
business rescue plan. This meeting was held o
the 12 October 2012.
The business rescue plan was passed by a majority.
[9] The applicant
avers that if it were awarded its full voting rights the business
rescue plan would not have been approved, since
section 152 (2)
(a) of the Act
prescribes the support of more than 75% of the creditors voting.
The issues:
[10] The applicant
in its papers alleges that the s 151 meeting held on 12 October 2012
was fatally flawed and unlawful in that
unsecured creditors, in
particular, the applicant, was not afforded a voting interest equal
to the value of its claim. The applicant
avers that had its voting
interest been properly allocated, the business rescue plan [the plan]
would not have been passed by virtue
of the threshold, stipulated in
section 152 (2) of the Act not having been met.
[11 ] The applicant
also alleges that the plan was not published as required in terms of
section 150(5) of the Act and that proper
notice of the meeting was
not given in terms of the Act. The Applicant in this regard relied
upon the matter of D H Brothers Industries
(Pty) Ltd v Karl Johannes
Gribnitz N.O and Others [an unreported decision of Gorven J in the
KwaZulu Natal Division, Pietermaritzburg
under case number
3878/2013). Since reported in
2014 (1) SA 103
(KZP) at paragraph [28]
of the judgment the learned judge stated:
“ [28] I
favour the approach that the failure to publish a plan within the
given or extended period results in 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 elapses
However, what is clear is that the stated need for strict adherence
to time limits and the need for certainty
has a necessary corollary
that time to publish a plan cannot be extended after it has elapsed.
[29] This brings me
to the manner in which an extension can be allowed by creditors under
s 150(5)(b). as already mentioned, business
rescue proceedings
contain strict
parameters This
provision does not lend credence to a submission that the legislature
envisaged an informal approach to extending
the time period.”
[12] The applicant’s
view is that its claim for voting purposes should have been
considered in terms of s 145(4)(a) of the
Act and not 145(4)(b)
of the Act, which it
claims simply does not apply. The applicant in this regard relied
upon the matter of the Commissioner of the
South African Revenue
Service v M B Beginsei N.O. and other [unreported, WCC. Case No
15080/12] where Fourie J at par [25] stated:
" In my
opinion, the wording of section 145(4) is clear and unambiguous and
leaves no room for the artificial and strained
interpretation that
SARS wishes to place on it.
Section 145(4)(a)
refers to secured or unsecured creditors who have a voting interest
equal to the value of the amount owed to them
by the company. The
categorization of creditors is uncontentious and well-known in legal
parlance. Secured creditors are those
who hold security over the
company’s property such as a lien or a mortgage bond Unsecured
creditors are those whose claims
are not secured, including
concurrent creditors. The unsecured creditors are either preferent or
concurrent creditors. ”
[13] The applicant
is of the view that the position taken by the first respondent
whereby the applicant was not accorded the full
extent of its voting
interest was wrong and misconceived. It was submitted that the first
respondent did not appreciate the nature
of its claim. The first
respondent’s construing of the applicant’s claim as being
‘contingent’, thereby
not entitling it to voting interest
for such a claim, was misconstrued and incorrect. It relied upon the
proposition set out in
Milman and Another NNO v Masterbond
Participation Bond Trust Managers (Pty) Ltd (Under Curatorship) and
Others
1997 (1) SA 113
( C) where Friedman JP and Farlam J held:
“ In our
judgment the liability of a surety and co-principal debtor is not
contingent unless the principal debt itself is
contingent..”
[14] It was
submitted on behalf of the applicant that it’s claim as
contemplated by section 145(4)(a) of the Act as it was
not subject to
assessment. Only subordinated claims in terms of section 145(4)(b) of
the Act are subject to an independent appraisal.
Furthermore the
appraisal must be done by an independent appraiser and not the BRP-
section 145(5)(b). The applicant in its papers
contends that the
first respondent believed that he had the power to assess and
allocate voting interest. In his answering affidavit
at p 240 par
40.4 the following is stated:
“ On
registration each creditor received a hand held electronic device
disclosing it’s particulars and voting rights
that I had given
it" ( my underlining)
[15] The applicant
is of the considered view that the approval of the plan is unlawful
and invalid as it was denied a voting interest
equal to the value of
the amount owed to it by the second respondent.
[16] Apart from the
voting interest referred to above, the applicant avers that the
business rescue plan does not comply with the
provisions of section
150 (1) of the Act. The plan must comply with all the requirements
set out in section 150(2) of the Act.
The applicant contends that the
plan does not indicate when a creditor(s) qualifies as secured,
statutory,
preferent and
concurrent in terms of the laws of insolvency and it does not
indicate which creditors have proved their claims. In
this regard the
plan does not comply with this section of the Act.
[17] The applicant
also raised the issue of non compliance with the provisions of
section 150 (2)(b)(iii) and (iv) of the Act. The
role of ongoing
contracts and the property from which creditors are to be paid should
be specified. In this regard the plan merely
states;
1 No agreements will
be cancelled and the company will continue with the normal
operations.’ and
‘ when market
conditions improve, it may be in the interest of the Company to sell
some of its assets in order to pay the
creditors.’
No mention is made
of the property from which creditors may be paid, nor is any mention
made of whether the company would be in
a position to honour the
contracts which it concluded timeeously. The plan is also silent
regarding when and the manner in which
the creditors will be paid
before the ten year moratorium. The applicant submitted that the plan
does not meet the requirements
of section 128 (1 )(b)(iii) of the
Act. In this regard the applicant relies upon the dicta of Eloff AJ
in Southern Palace Investment
386 Ltd v Midnight Storm Investment 386
Ltd
2012 92) SA 423
( WCC):
“ [24] While
every case must be considered on its own merits, it is difficult to
conceive of a rescue plan in a given case
that will have reasonable
prospects of success of the company concerned continuing on a solvent
basis, unless it addresses the
cause of the demise or failure of the
company’s business, and offers a remedy therefor that has a
reasonable prospect of
being sustainable. A business plan which is
unlikely to achieve anything more than to prolong the agony, i.e. by
substituting one
debt for another without there being light at the
end of a not too lengthy tunnel, is unlikely to suffice”
[18] The applicant
also raised an issue that the first respondent failed to publish the
business rescue plan within 25 days of his
appointment as the
business rescue practitioner. It was published on 6 October 2012,
namely seventy business days after his appointment
(26 June 2012).
The first respondent
tried to overcome this difficulty by suggesting that the creditors
condoned the lateness, in that the meeting
had to be postponed
because of the Muslim month of Ramadan as many creditors were unable
to attend during that period.
[19] The applicant
submitted that the first respondent did not seek condonation for an
extension of the period to be extended prior
to the expiry of the
period . The first respondent simply ignored the prescribed time
period in terms of the Act- see D H Brothers
matter, par [10] supra.
[20] On behalf of
the first and second respondent it was submitted that the applicant
was present at the meeting of creditors when
the issue of business
rescue was decided. The applicant participated at the meeting. The
applicant’s view was defeated and
the majority of creditors
voted in favour of the plan. The applicant now cries foul and seeks
to have the business rescue proceedings
set aside. It was suggested
on behalf of the first and second respondents that if the applicant
felt aggrieved at the allocation
of its voting rights it should have
sought a review of such rights.
Apart from this, the
applicant’s own functionaries descried their claims as being
contingent. Even if the BRP was wrong in
determining their claim to
be contingent it was not done with any mala tides, and at best he was
mistaken. Such a mistake in itself
is not sufficient ground for his
removal as a practitioner of the second respondent.
[21] Mr Suttner SC
on behalf of the first and second respondents raised two grounds in
opposition to the setting aside of the business
rescue plan, firstly
the issue of non-joinder and secondly the question of a moratorium
which applies in business rescue proceedings.
I will deal with both
points in turn.
[22] The point
relating to non-joinder is that the creditors were paid in terms of
the plan adopted and such payment was also made
to the applicant,
over the period 12 to 16 November 2012. The respondents argued that
the effect of undoing the plan would be (1)
that it would undo what
the majority of the creditors voted for and (2) all the creditors who
have been paid would be required
to repay such amounts to LPI.
[23] The argument
goes further in that all the creditors who received a payment would
be an ‘interested party’ in this
application and a
fortiori therefore they ought to have been joined in this
application. In Amalgamated Engineering Union v Minister
of Labour
1949 (3) SA 637 (A) the court held that it could mero motu raise this
issue. At p 659 the court referring to Home Sites
(Pty) Ltd v Senekal
1948 (3) SALR 514
(AD) and Collins v Toffie
1944 AD 456
stated:
“ The two
cases last mentioned are both instances in which the question of
non-joinder of a third party who was found to have
a direct and
substantial interest in the decision of a point before the Court was
taken by the court mero motu."
[24] The issue of
non- joinder must also be viewed with the issue of the applicant’s
failure to give creditors notice.
Section 145
(1) of the
Companies
Act stipulates
that:
“ each
creditor is entitled to -
(a) notice of each
court proceeding, decision, meeting or other relevant event
concerning the business rescue proceedings;
(b) participate in
any court proceedings arising during the business rescue proceedings;
(c) formally
participate in the company’s business rescue proceedings to the
extent provided for I this Chapter; and
(d) informally
participate in those proceedings by making proposals for the business
rescue plan to the practitioner.”
The first and second
respondents submitted that apart from the issue of non-joinder, an
applicant has to satisfy the court that
it has taken all reasonable
steps to notify all affected parties.- see Engen Peroleum Ltd v Multi
Waste (Pty) Ltd & Others
2012 (5) SA (SG) at 602 par [24]
“ An applicant
must satisfy the court that all reasonable steps have been taken to
notify all affected persons known to the
applicant, by delivering a
copy of the court application to them in accordance with reg 7. Where
compliance proves impossible,
an applicant may apply to the high
court for an order of substituted service (see reg7(3))...”
During argument
before me it appeared as if the applicant sent notices of a
prospective application which would be launched, however
the first
and second respondent submitted that they were not privy to such
notices and in any event the application was not served
on each of
the creditors in terms of
section 145
Mr Suttner submitted
that on this ground alone the application should fall to be
dismissed.
Moratorium issue
[25] Section133 (1)
of the Act provides a moratorium which precludes any form of
litigation against a company in business rescue,
except in six
instances. The section reads as follows:
“ 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 possession, may be
commenced or proceeded with in any forum, except-
(a) with the written
consent of the practitioner;
(b) with the leave
of the court and in accordance with any terms the court considers
suitable;
(c) as a set- off
against any claim made by the company in any legal proceedings,
irrespective of whether those proceedings commenced
before or after
the business rescue proceedings began;
(d) criminal
proceedings against the company or any of its directors or officers;
(e) proceedings
concerning any property or right over which the company exercises the
power of a trustee;
(f) proceedings by a
regulatory authority in the execution of its duties after written
notification to the business rescue practitioner.”
The question
regarding the moratorium has been dealt with in two judgments in this
division of the High court, namely African Banking
Corporation of
Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd and Others [a
judgment by Kathree-Setiloane J in the North
Gauteng High Court under
case no 20947] and the matter of Redpath Mining South Africa (Pty)
Ltd v Piers Marsden NO and Others [a
judgment by Kgomo J in the South
Gauteng High Court under case no 18486/2013 delivered on 14 June
2013].
[26] There is no
need for me to re-invent the wheel on this aspect and suffice it to
say that I agree with both my colleagues on
the issue of a
moratorium. Kgomo J dealt with this aspect at para’s [54]; [55]
and [70] in his judgment, whilst Kathree Setlioane
J dealt with it at
para [4] - [7],
[27] Section 133 (1)
(b) is worded in the following terms- “that no proceedings may
be ....except with the leave of the court”.
Mr Suttner
submitted that where a party seeks to bring proceedings against a
company which is in business rescue it should have
a prayer akin to
that where a litigant applies to bring an urgent application. He
submitted that such a party needs to obtain the
court’s
permission to bring the application before the merits are
entertained. It was submitted that the notice of motion
does not
include a prayer for the leave of the court to overcome the
moratorium nor does it give reasons why the moratorium be
ignored.
This problem, it was submitted, was compounded by the fact that the
respondents raised this aspect in their answering
affidavit and
despite this, nothing was done to
overcome the
problem.
[28] I am persuaded
by the arguments raised by the first and second respondents regarding
the issues of non-joinder and the issue
regarding the moratorium.
Having said that, it is so that the business rescue practitioner did
not follow the spirit of the Act
in that he did not comply with the
procedure as prescribed by the Act such as holding meeting promptly
as prescribed and not having
the plan within the stipulated period.
Notwithstanding these infractions I am of the view that the company
was under business rescue
and the applicant was duty bound to bring
the application within the parameters of section 133 and it ought to
have joined the
other creditors in this application. The applicant’s
failure in this regard is fatal and for that reason I am of the view
that the application ought to be dismissed.
[29] Having made the
above finding I am of the view that the applicant has not made out a
case for the removal of the first respondent
as BRP of the second
respondent. Section 139 (2) of the Act governs the issue regarding
the removal of a business practitioner.
The section sets out
six reasons for the removal of a BRP. I do not intend to repeat them
herein, they were adequately dealt with
in the heads of argument. The
applicant did not specifically refer to which of the grounds it
relies upon in order to remove the
first respondent. Looking at the
grounds it appears to me that grounds (a); (c) (d) (e) and (f) do not
apply. The only ground,
although not specified, which the applicant
could possibly rely on is ground 139(2)(b), namely “failure to
exercise the proper
degree of care in the performance of the
practitioner’s functions.”
[30] Mr Burman SC,
who appeared for the third respondent, during his Address, also
argued that the first respondent at best made
a mistake when he
categorized the applicant’s claim as contingent. This error was
also made by the applicant’s own
representatives. This error,
he submitted, was not in itself a ground for the first respondent’s
removal as the BRP of the
second respondent. The reason for the delay
in the holding of the meeting was given under oath, namely that the
creditors expressed
a desire that it be held later for the reasons
alluded to in para [17] above. The delay was attributed to religious
and compassionate
grounds rather than incompetence on the part of the
first respondent.
Counter
application:
[31] The parties in
the counter application will be referred to as referred to as in the
main application. The applicants in the
counter application are the
first and second respondents. The respondent in the counter
application is the applicant in the main
application. For the
purposes of convenience they will be referred to as cited in the
heading.
[32] The first and
second respondents seek an order that the cross¬suretyship
referred to in para [5] supra, is deemed to be
void by virtue of the
provisions of s 226 (1) of the Companies Act No.61 of 1973.
[33] In terms of the
cross-suretyship Medical Review Corporation Limited (MRC); Medical
Empowerment Consortium Investment Limited
(‘MECI’),
FirstClinic (‘FirstClinic’); Viador SA Ltd (‘Viador’)
and the second respondent bond
themselves jointly and severally as
sureties and co¬principal debtors for each other’s
obligations to the applicant.
[34] The first and
second respondent aver that it is common cause that the that:-
34.1 Dr. Mohammed
Adam [Dr Adam] was a member of MRC; MECI; FirstClinic Viador and LPI;
34.2 Dr Adam was a
director of the companies referred to in 32.1;
34.3 MRC; MECI;
FirstClinic and Viador were subsidiaries of LPI;
34.4 LPI was a
subsidiary of LPI Holdings (Pty) Ltd;
34.5 LPI Holdings
(Pty) Ltd was a subsidiary of Louis Pasteur Holdings (Pty) Ltd;
34.6 the provisions
in the articles of association of MRC, MECI, First
-Clinic, Viador,
LPI, LPI Holdings (Pty) Ltd and Louis Pasteur Holdings (Pty) Ltd do
not dilute a majority shareholder’s normal
right to appoint
directors;
34.7 the provisions
of the articles of association of MRC, MECI,
FirstClinic and
Viador do not detract in any respect from the powers that Dr Adam has
by virtue of his position as the decision
maker and representative of
the majority shareholder in LPI; and
34.8 no members
resolution was adopted in LPI as contemplated by the provisions of
section 226 (2)(a)(iv) of the old Companies Act
[35] Section 226 of
the Companies Act stipulates:
“226.
Prohibition of loans to, or security in connection with transactions
by, directors and managers.
(1) No company shall
directly or indirectly make a loan to-
(a) any director or
manager of-
(i) the company; or
(ii) its holding
company; or
(iii) any other
company which is a subsidiary of its holding company; or
(b) any other
company or other body corporate controlled by one or more directors
or managers of the company or of its holding company
or of any
company which is a subsidiary of its holding company;
or provide any
security to any person in connection with an obligation of such
director, manager, company or other body corporate.
(1 A) For the
purpose of subsection (1 )-
(a) 'loan' includes-
(i) a loan of money,
shares, debentures or any other property; and
(ii) any credit
extended by a company, where the debt concerned is not payable or
being paid in accordance with normal business
practice in respect of
the payment of debts of the same kind; and
(b) one or more
directors or managers of a company contemplated in subsection (1) (b)
shall be deemed to control another company
or body corporate only if-
(i) such director or
manager or his nominee is a member or such directors or managers or
their nominees are members of such other
company or body corporate
and the composition of its board of directors is controlled by such
director, manager or nominee or such
directors, managers or nominees,
and such composition shall be deemed to be so controlled if such
director or manager or his nominee
or such directors or managers or
their nominees may, by the exercise of some power and without the
consent or concurrence of any
other person, appoint or remove the
majority of the directors concerned, and such director, manager or
nominee or such directors,
managers or nominees shall be deemed to
have power to appoint a director where a person cannot be appointed
as a director without
his or their consent or concurrence; or
(ii) more than
one-half of the equity share capital of that other company or body
corporate or, if that other body corporate is
a corporation as
defined in section 1 of the Close Corporations Act, 1984 (Act 69 of
1984), more than 50 per cent of the interest
in such corporation is
held by such director, manager or nominee or such directors,
managers, or nominees; and
(2) The provisions
of subsection (1) shall not apply- (a) in respect of-
(i) the making of a
loan by a company to its own director or manager;
(ii) the provision
of security by a company in connection with an obligation of its own
director or manager;
(iii) the making of
a loan by a company to any other company or other body corporate
controlled by one or more of the directors
or manager of the
first-mentioned company; or
(iv) the provision
of security by a company in connection with an obligation of any
other company or other body corporate controlled
by one or more of
the directors or managers of the first-mentioned company,
with the prior
consent of all the members of the company or in terms of a special
resolution relating to a specific transaction:
Provided that in
respect of any such loan made or security provided at any time before
the date of commencement of the Companies
Amendment Act, 1992, such
consent shall be deemed to have been given if the transaction
concerned has subsequently, whether before
or after that date, been
ratified by all the members of the company
[36] The first and
second respondents submitted that the general principles of
interpretation of statutes leads inevitably to a
conclusion that
section 226 (1B) does not constitute an absolute exception to the
provisions of section 226(1 )(b). I was referred
to several decisions
relating to the interpretation of statutes. The most recent being
Natal Joint Municipal Pension Fund v Endumeni
Municipality
2012 (4)
SA 593
(SCA) at par [18] and what Wallis JA stated therein.
I am also alive to
the remarks of Innes CJ in Dadoo Ltd and Others v Krugersdorp
Municipal Council
1920 AD 530
at 543 where the following was stated:
“ A judge has
authority to interpret, but not to legislate, and he cannot do
violence to the language of the lawgiver by placing
upon it a meaning
of which it is not reasonably capable, in order to give effect to
what we may think to be the policy or the object
of the particular
measure”
[37] Section 226(1)
and (1 A) prohibit the making of a loan or the granting of security
when the company to which the loan is made
or the security furnished
is controlled by one or more directors or managers of (a) the lending
or securing company; or (b) its
holding company; or (c) any company
which is a subsidiary of its holding company.
[38] Directors or
managers of a company are deemed to control another or body corporate
only if: (a) they or their nominees hold
more than one half of its
equity share capital or if the other body corporate is a close
corporation, more than 50 per cent of
the interest in such
corporation; or
(b) they are members
of it and can control the composition of the board. They are deemed
to control the composition of its board
if they may, by the exercise
of some power and without the consent or concurrence of any other
person, appoint or remove the majority
of its directors; and they are
deemed to have the
power to appoint a director where a person cannot be appointed as a
director without their consent or concurrence.
These deeming
provisions constitute an exhaustive definition of ‘control’
for the purposes of the section. See: The
Law of South Africa W A
Joubert First reissue Volume 4 Part 2 251 par 148
[39] The first and
second respondents were of the view that Dr Adam controlled MRC,
MECI, First Clinic Viador and the second respondent
and that the
provisions of section 226(1) and (1A) (b)(i) of the Act applied. They
were of the view that the cross-suretyship contravened
the provisions
of these sections and for that reason it was void.
[40] The applicant
on the other hand submitted that the companies referred to belonged
to a group and for that reason the exemption
in terms of s 226(1 B)
applied and that it made no difference that Dr Adam may have had
control of the group of companies. In this
regard the applicant
relied on the matter of S v Pouroulis and Others
1993 (4) SA 575
(W).
[41] On behalf of
the first and second respondents counsel submitted that Pouroulis
judgment was decided in the context of a criminal
case, and must be
seen from that angle. Whilst it is true that it was a criminal trial
and the
onus in a criminal
matter differs from a civil dispute, the judge in the matter dealt
with the provisions of section 226 of the
Act in a carefully reasoned
and scholarly manner. Stegmann J dealt with the issue of section 226
from pages 587-604 under the rubrics
of loans made directly or
indirectly; simulated transactions; indirect economic benefit to
prohibited borrowers; differences between
s 37 and s 226 and deemed
control of directors, managers or nominees.
[42] At 5881 the
learned Judge stated the following:
“ Before
grappling with the detailed problems of construction of this section,
I propose to consider the broad object. In
Neugarten and Other y
Standard Bank of South Africa Ltd
1989 (1) SA 797
(A), the following
statement by Nicholas AJA at 802A-C was concurred in by Smalberger
JA:
' The first question
which arises are, what is the purpose of s 226, and in whose interest
was it enacted? Goldblatt AJ said (at
658F-G):
“ the clear
purpose of s 226 of the Act is to prevent directors or managers of a
company acting in their own interest and
against the interest of
shareholders by burdening the company with obligations which are not
for its benefit but are for the benefit
of another company and/or for
the benefit of its directors and/or managers. "
Flemming J expressed
a similar view. I respectfully agree. Subsection (2), by providing
that ss (1) shall not apply where the transaction
specified are
concluded “with the consent of all the members of the company
or in terms of a special resolution relating
to a specific
transaction”, makes it clear that the prohibition in ss (1) is
solely for the benefit of the members of the
company."
[43] Stegmann J
dealt with the group of companies scenario at 596D- 587A to
illustrate the provisions of s 226 and the provisions
of s 226(1 B)
in his example. The illustration in my view is both useful and
helpful in understanding the provisions of section
226. Although I am
alerted by respondent’s counsel’s remarks that Pouroulis
was decided in the criminal context, the
principle regarding s226 is
erudite and in my view correct and therefore relevant.
[44] Counsel for the
applicant submitted that the exemption in terms of section 226 (1B)
applies to a group scenario as is the situation
in casu. At 596E the
judge stated:
' It is, I think
quite clear that s 226 (1B) specifically leaves every company in this
model group of four free to make loans to
every other company in the
group. Such freedom is unaffected by the fact that the same directors
may control all the companies
in the group.
The situation would
be different where a company is loosely associated to a group.
Specifically where the director, one D, owns
the majority of the
equity shares of X. Mr D therefore controls X in terms of section s
226(1 A)(B)(II). Section 2226(1 B) does
not deal with the position of
X. Because Mr D is the director of S2 and also controls X, section
226(1 )(b) prohibits loans by
S2 to X. -see Pouroulis 586E-F
[45] Dr Adam may be
a person who is a director of the companies as set out in par [34],
supra, and he may be in control as suggested.
The question that
arises is was the loan made in a holding- subsidiary relationship or
whether the cross -suretyship was made by
one company in favour of
another company wherein the director happened to be the common
denominator and the companies were not
related to each other.
[46] I am of the
view that the provisions of section 226(1 B) constitutes an exception
to the provisions of section 226(1 )(b) and
that the cross
suretyships are not void in terms of the latter section.
[47] On behalf of
the first and second respondents, it was submitted that there is no
reference to section 37 in the provisions
of section 226 and the
converse is also true, namely there is no reference to section 226 to
section 37 it was submitted that section
37 was aimed at regulating
the way loans, between holding and subsidiary companies are noted in
the annual financial statements.
The applicant on the
other hand contended that section 37 of the Act applies in this
matter, because MRC, MECI, FirstClinic, Viador
and the
second respondent
belong to a group. The effect of exception, in terms of s 226(1 B),
is that the prohibition contained in section
226 shall not prevent a
company in a group from making loans or providing security to other
companies in the group. This is consistent
with s 37 and, which does
not prohibit the transactions.
See Pouroulis 599I-
600I.
[48] In the
circumstances I make an order that the cross suretyship application
should be dismissed with costs, such cost to include
the cost
incidental to the usage of two counsel.
[49] I deliberately
left the issue of the question of costs regarding the main
application to be dealt with at this juncture. The
reason being that
Mr Suttner argued that the application should be dismissed with costs
on a punitive scale as the first respondents
professional ability was
challenged and that there was no reason to seek his dismissal as
such. He referred to a passage from Shakespeare’s
Othello,
namely Act iii Scene iii 155-
161, which
paraphrased equates to:
when you steal my
money you steal nothing , however when you rob me of my good name you
rob me of what makes me poor.
[50] I have given
consideration to this aspect and although I have dismissed the
application for the reasons given, I am not of
the view that the
prayer seeking the removal of the first respondent as BRP was without
merit. If I were to have followed the BH
Brother’s matter I
would
have made such an
order.- see par [16], [17] and [18] above.
In essence I
followed the Kgomo decision and Kariba matter regarding the issues of
the moratorium and the aspect of non-joinder.
[51] Accordingly I
make the following order :-
1. the application
is dismissed with costs. Such costs is to include the costs of two
counsel on behalf of the first and second
respondent and the costs of
two counsel on behalf of the third respondent;
2. the counter
application is dismissed with costs, such cost is to include the
costs of two counsel. The respondents are order
to pay the costs
jointly and severely the one paying the other being absolved.
Appearances:
For the
Applicant: Adv P F Rossouw SC assisted by Adv Minnie
instructed by de
Vries incorporated c/o Riaan Bosch attorneys Pretoria
First and second
Adv J Suttner SC assisted by Adv P Cirone
Respondents:
instructed by
Etienne Naude Attorneys, Pta.
Third respondent:
Adv B Burman assisted by Adv j*) v OlA
instructed by
Terry Mahon attorneys, Sandton.
Date of
Hearing: 13 November 2013.