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[2014] ZAGPPHC 120
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Richter v Bloempro CC and Others (69531/2012) [2014] ZAGPPHC 120; 2014 (6) SA 38 (GP) (14 March 2014)
IN THE HIGH COURT
OF SOUTH AFRICA
GAUTENG DIVISION,
PRETORIA)
Case
No: 69531/2012
DATE:
14 MARCH 2014
In the matter
between:
DAWID JACQUES
RICHTER
................................................................
Applicant
And
BLOEMPRO
CC
.........................................................................
First
Respondent
LUKE BERNARD
SAFFY NO
..............................................
Second
Respondent
TSIU VINCENT
MATSEPE NO
..............................................
Third
Respondent
ABSA BANK
LIMITED
.........................................................
Fourth
Respondent
JUDGMENT
BAM J
1. On 17 September
2012 the first respondent, upon an application brought by the fourth
respondent, ABSA, was finally liquidated
in the Bloemfontein High
Court, Free State Division. The basis for the liquidation was that
the first respondent was unable to
pay its debts. The second and
third respondents are the appointed liquidators. A Business Rescue
Application, (“BRA”)
lodged at the same instance was
rejected. The BRA application was brought by the applicant in this
matter in his capacity as member
of the first respondent. On 8 April
2013 leave to appeal the final liquidation order was refused by the
trial court.
2. It is common
cause that the first respondent’s main office was, subsequent
to the final liquidation, moved from the Free
State to within the
jurisdiction of this Court. Although the parties, applicant and
fourth respondent, are ad idem that this court
has jurisdiction in
regards to the matter before court, I will later herein return to
that issue.
3. On 12 February
2013, before the application for leave to appeal the final
liquidation order was dismissed, the applicant, who
described himself
as “employed by the first respondent as general Manager”,
served on the first second and third respondents
a Business Rescue
Application (“BRA”) in terms of the provisions of
Chapter 6 of the
Companies Act, No. 71 of 2008
, in respect of the
first respondent. The BRA was issued by the Registrar of this court.
4. On 18 March 2013
the fourth respondent, ABSA, served on the applicant an application
to intervene and to have the BRA set aside.
On 28 March 2013 the
applicant filed a Notice to Oppose. The said Notice was however
subsequently withdrawn for certain reasons,
according to the
applicant, to which I will refer later. The applicant’s
opposing affidavit was not filed. On 6 May 2013,
in this Court,
whilst the applicant was in default, the fourth respondent was
granted leave to intervene in the aforesaid BRA and
the BRA was
dismissed.
5. The applicant now
applied for the rescission of the default judgment of 6 May 2013 and
an order entitling the applicant to proceed
with the BRA on an
opposed basis. The application is opposed by only the fourth
respondent. It is assumed that the second and third
respondents abide
this court’s decision.
6. The rescission
application was enrolled on the opposed motion roll for the week 24
February 2014. At the inception of the arguments
I requested counsel
for the applicant, Mr de Villiers, and counsel for the fourth
respondent, Mr Badenhorst SC, to address me on;
(a) the issue
whether the applicant has locus standi to lodge this application, and
the BRA, and, (b) whether the BRA can be brought
in view of the
final liquidation order of first respondent. I indicated that
I intended to deal with those two issues in
limine.
7. In regards to the
first point, Mr de Villiers contended that the applicant was an
affected party as envisaged by
section 128(a)
of the
Companies Act,
and
that he was on that basis entitled to lodge the BRA in respect of
the first respondent, it followed that the applicant also has
locus
standi to lodge this application for rescission. It was further
contended by Mr de Villiers that the first respondent’s
business was still continuing and that the applicant was still in the
employment of first respondent and paid a salary.
8. In respect of the
second issue Mr de Villiers submitted that a BRA can be lodged at any
time during liquidation proceedings,
even after a final liquidation
order has been granted.
9. Mr Badenhorst
contended that the applicant was not an affected person in view of
the fact that his employment with the first
respondent was terminated
by the liquidation, and that the applicant therefore has no locus
standi to lodge a BRA in respect of
the first respondent.
10. Pertaining to
the second issue, Mr Badenhorst submitted that the final liquidation
order had the effect that the first respondent,
as legal entity, has
no locus standi anymore in that the final liquidation order brought
an end to its legal existence, as envisaged
by the Insolvency Act. Mr
Badenhorst also referred to the unreported judgment of EJ Janse van
Rensburg N.O. & Others v
Cardio Fitness Properties (Pty) Ltd &
Others, case number 46194/2013, at Par [7].
11. It is of
importance to appreciate what the effect of a provisional and final
liquidation order entails.
(a) Firstly, all the
contracts with employees are suspended in terms of the provisions of
Section 38
of the
Insolvency Act, No. 24 of 1936
. This section reads
as follows:
“38. Effect
of sequestration on contract of service. –(1)The contracts of
service of employees whose employer has
been sequestrated are
suspended with effect from the date of the granting of a
sequestration order.”
Item 9 of Schedule 5
of the new
Companies Act, No.71 of 2008
provides that Chapter 14 of
the old Companies Act of 1973 still applies in regards to the
winding up of companies. Section 339
(Chapter 14) of the Old Act
provides that the insolvency law applies mutatis mutandis to the
winding up of companies unable to
pay its debts.
(b) Secondly, in
terms of the provisions of Section 359 of the Old Act, all legal
proceedings by or against the company become suspended
until the
appointment of a liquidator, and that after the appointment of the
liquidator the liquidator shall be notified in writing
before any
legal proceedings are instituted. Any business of, and dealings by,
or with a company in liquidation, fall under the
control and
jurisdiction of the liquidator(s). No former employee, or director,
may conclude any deals concerning the liquidated
company without
authorization by the liquidator(s).
12. The applicant,
in view of his status as employee of the fist respondent, was an
affected person in accordance with the definition
of affected person
in section 128 of the Companies Act. In terms of
Section 38i
of the
Insolvency Act his
service contract as employee of the first
respondent was suspended when the final liquidation order was made.
However, the question
to be answered in this case is whether the
applicant’s status as an affected person was terminated.
13.
Section 38
provides only for the suspension of an employee’ contract with
the company but not the termination thereof. In practice it
may
happen that the liquidators will be entitled, depending on the
circumstances, to extend any suspended contract. Although an
employee
will have no authorization, without being instructed or mandated by
the liquidator(s), or the Master, to act as an employee
of the
liquidated company the employee’s former status will not
disappear and cannot be terminated ex post facto. On that
basis, in
my view, the applicant remains an affected person as contemplated by
the Companies Act although he was apparently not
re-appointed as
employee by the liquidators.
14. The averment by
the applicant that the first respondent’s business is
continuing, and that he considers himself to be
in the employment of
the first applicant, it is of no avail to him. When the provisional
liquidation order was granted, the applicant
was deprived of any
powers he previously enjoyed as an employee or even as manager of the
liquidated first respondent. See in this
regard Insulations Unlimited
(Pty) Ltd v Adler and Others 1986(4) SA 756 (W) and Secretary for
Customs and Excise v Millman N.O.
1975(3) SA 544 (AD) at 552.
15. The second issue
to be considered is whether it is in law permissible, or possible, to
grant business rescue procedure after
the final liquidation order was
granted. It is therefore of importance to consider what the intention
of the Legislature was with
the wording of Section 131, quoted above,
more specifically the words : “… may apply . . . at any
time for an order
placing the company under supervision and
commencing business rescue proceedings.”
16. In this regard
the provisions of the following sub-sections seem to be relevant:
• Section128(b)
“business rescue” means proceedings to facilitate the
rehabilitation of a company that is financially
distressed by
providing for ----
(i) the temporary
supervision of the company, and of the management of its affairs,
business and property;
(ii) a temporary
moratorium on the rights of claimants against the company or in
respect of property in its possession; and
(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 maximizes the
likelihood of the company continuing in existence, results
in a
better return for the company’s creditors or shareholders than
would result from the immediate liquidation of the company.
(My
underlining.)
• Section
128(f) “financially distressed”, in reference to a
particular company at any particular time, means that
–
(i) It appears to be
reasonably unlikely that the company will be able to pay all of its
debts as they become due and payable within
the immediate ensuing six
months; or
(ii) It appears to
be reasonably likely that the company will become insolvent within
the immediately ensuing six months. (My underlining.)
•Section 132:
“Duration of
business rescue proceedings. – (1)Business rescue proceedings
begin when
(a) . . . .
(b) an affected
person applies to the court for an order placing the company under
supervision in terms of section 131(I);
(c) a court makes an
order placing a company under supervision during the course of
liquidation proceedings, or proceedings to enforce
a security
interest, as contemplated in section 131(7).
(2) Business
proceedings end when—
(a) the court----
(i) sets aside the
resolution or order that began those proceedings; or
(ii) has converted
the proceedings to liquidation proceedings. (My underlining.)
17. From the above
quoted sub-sections it appears, in my view, that Business Rescue
Proceedings and a final liquidation order
are two different
concepts that are incompatable and separate considerations that
cannot co-exist. It also appears that, more
specifically from the
definitions of “business rescue” and “financially
distressed”, sections 128(b) and
128(f) that the Legislature
intended to provide for Business Rescue Proceedings before a final
liquidation order is made.
18. My reasons are
as follows:
(i) The purpose and
incidence of Business Rescue is described in section 128. It starts
with the reference to companies in financial
distress, further
stating that the business rescue contemplated should, if it is not
possible for the business to continue, result
in a better return than
would the immediate liquidation have as effect. The definition of
financially distressed contemplates an
unlikelyhood of the company
paying its debts in future and the future likely insolvency of the
company.
In this case the
court granting the final liquidation order has already decided upon,
and found, that the company was unable to
pay its debts and that it
was indeed insolvent.
(ii) A final
liquidation order has the effect of stripping a company from its
original legal status. The company, in itself, has
no locus standi
anymore. It cannot operate without an order of court, or the Master’s
rulings or decisions of the liquidators.
If it was the intention that
a final liquidation order can be suspended by business rescue
proceedings, it would mean that an interim
order of business rescue
may substitute the final liquidation order. This seems to be
untenable .
(iii) Although
section 132(1)(b) provides that a BRA of a “company” can
be brought “during liquidation proceedings”,
it is in
my view remarkable that the Legislature did not refer to a company
already under liquidation. Although there is no
definition in the
Companies Act of what precisely liquidation proceedings entail, the
section does apparently not include a liquidated
company. In
attempting to determine what the legislature intended, the
Interpretation Rules are clear, one should consider the
plain meaning
of the words used. Whilst the said section refers to liquidation
proceedings, I am of the opinion that the legislature
would have
stated clearly, if that was the intention, that business rescue is
possible even after a final Liquidation order.
For the above
reasons I respectfully differ from the finding in Absa Bank Ltd v
Summer Lodge (Pty) LTD
2013 (5) SA 444(GNP)
where the learned judge
found that liquidation proceedings include the final liquidation
processes after granting of the final
liquidation order.
In this regard the
court relied on the full bench decision of Vermeulen and Another v CC
Bauermeister (Edms) Bpk and Others 1982(4)
SA 159 (T) (approved in
Kalil V Decotex (Pty) Ltd and Another 198(1) SA 943 (A). Although
respecting the said decisions and appreciating
the stare decisis
principle, I am of the respectful view that neither the Full Bench of
the TPD nor the Appellate Division considered
the issue in view of
what the Legislature intended with the enactment of business rescue
proceedings. I am therefore of the opinion
that the dicta in the said
two decisions are not binding on this court insofar as business
rescue proceedings are concerned.
(iv) Section
132(2)(a)(ii) makes provision for the conversion of business rescue
proceedings into liquidation proceedings and
not the other way
around. This section does not empower a court to convert a final
liquidation order into business rescue proceedings.
In my view, if
the legislature intended that business rescue proceedings would still
have been possible after a final liquidation
order has been granted,
one would have expected that provision would have been made for the
conversion of such a final order into
business rescue proceedings.
(v) If it was the
Legislature’s intention that business rescue is possible even
after final liquidation it would mean that
in the event of a business
rescue application granted that all legal consequences of a final
liquidation order will be suspended
and substituted by empowering the
specific company, without any fear of interference by the Master, or
the appointed liquidators
, to dispose of the company’s
property in accordance with the provisions of section 134 of the new
Act. This seems to be
untenable.
(vi) If business
rescue would indeed have been possible after final liquidation,
further problems arising is what should eventually
happen to the
final liquidation order and the appointment of the liquidators. There
seems to be no solution in that regard.
(vii) The Free State
High Court, before the final order was made, considered business
rescue, but rejected the application.
19. In my view it
therefore follows that a BRA is not in law possible after a final
liquidation order has been made, unless that
order is set aside on
appeal.
20. It further
follows, in view of the fact that the liquidation order was made in
the Free State Division of the High Court, that
this court, in any
event, does not have jurisdiction to entertain a BRA before the
liquidation order has not been set aside. The
fact that the applicant
presented the BRA to this court does not mean, in view of this
court’s finding regarding the lack
of jurisdiction, that this
court did have jurisdiction to entertain that application.
21. Accordingly,
although the applicant may be an affected person contemplated in
section 128
of the
Companies Act of 2008
, for the reasons stated
above, the applicant’s application for the relief sought cannot
succeed.
Order
The application is
dismissed with costs, including the costs of senior counsel.
A J BAM
JUDGE OF THE HIGH
COURT
10 March 2014