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[2014] ZAGPPHC 688
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Copper Sunset Trading 220 (Pty) Ltd v Spar Group Limited and Another (365/2014) [2014] ZAGPPHC 688; 2014 (6) SA 214 (LP) (9 May 2014)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
(Functioning
as
LIMPOPO DIVISION,
POLOKWANE)
CASE NO: 365/2014
DATE: 9 MAY 2014
REPORTABLE
OF INTEREST TO OTHER
JUDGES
In the matter
between:
COPPER SUNSET
TRADING 220 (PTY)
LTD
.............................................................................
Applicant
t/a Build It
Lephalale (under business rescue)
and
SPAR GROUP
LIMITED
.....................................................................................................
First
Respondent
(Registration
Number: 1967/01572/07)
NORMANDIEN FARMS
(PTY)
LTD
.............................................................................
Second
Respondent
(Registration
Number: 2006/011224/07)
MAKGOBA J.
[1] This matter came
before me on urgent basis on the 30 April 2014. Upon hearing argument
by Counsel for the parties I made an
order in the following terms and
indicated that my reasons for judgment would follow in due course:
1. That the result
of the votes by the First and Second Respondents in rejecting the
revised business rescue plan at the meeting
of Creditors held on 4
March 2014 is set aside on the ground that it was inappropriate.
2. That the revised
business rescue plan attached as Annexure “H” to the
Applicant’s Founding Affidavit is declared
to be properly
adopted on condition that the Applicant and/or the Business Rescue
Practitioner obtain the post commencement finance
to the tune of R2
million (TWO MILLION RAND) within 30 Court days from date of this
order.
3. In the event of
the Applicant and/or the Business Rescue Practitioner’s failure
to acquire the aforesaid post commencement
finance the Business
Rescue Practitioner shall file a notice of the termination of the
business rescue proceedings as envisaged
in
Section 153(5)
of the
Companies Act No 71 of 2008
.
4. The costs of this
application are reserved with the proviso that the judge seized with
this matter shall be the judge to hear
the argument on the issue of
costs should the need arise.
[2] What follows is
my judgment setting forth the reasons for the order which was handed
down.
[3] The applicant
company, which is under business rescue and which is represented in
these proceedings by its appointed business
rescue practitioner, Mr.
Benno Jacques de Klerk applied on urgent basis for the following
relief:
3.1 that the result
of the votes by the first and second respondents in rejecting the
revised business rescue plan at the meeting
of Creditors held on 4
March 2014 be set aside on the grounds that it was inappropriate,
3.2 that the revised
business rescue plan attached as Annexure “H” to the
founding affidavit be declared to be properly
adopted,
3.3 that the first
and second respondents be ordered to pay the costs of the application
on attorney and client scale, jointly and
severally.
[4] The application
is brought in terms of Section 153(1)(a)(ii) of the Companies Act No
71 of 2008 ("the Act”) which
provides as follows:
“
153.
Failure to adopt business rescue
plan
(1)(a) If a
business rescue plan has been rejected as contemplated in Section
152(3)(a) or (c)(ii) (bb) the practitioner may -
(i) seek a vote
of approval from the holders of voting interests to prepare and
publish a revised plan or
(ii)
advise the meeting that the Company will apply to
a
Court to set aside
the result of the vote by the holders of voting interests or
shareholders, as the case may be, on the grounds
that it was in
appropriate
(b)
......................."
[5] For purposes of
the present application Section 153(1)(a)(ii) must be read with
Section 153(7) which provides as follows:
“
(7)
On an application contemplated in subsection (i)(a)(ii) or
(1)(b)(i)(bb), a Court may order that the vote on
a
business rescue plan
be set aside if the Court is satisfied that it is reasonable and just
to do so, having regard to -
(a) The interests
represented by the person or persons who voted against the proposed
business rescue plan,
(b) The
provision, if any, made in the proposed business rescue plan with
respect to the interests of that person or those persons,
and
(c) A fair and
reasonable estimate of the return to that person, or those persons,
if the company were to be liquidated”
[6] In essence
Section 153 contemplates broadly that where the requisite votes
approving a plan are not achieved, the appointed
business rescue
practitioner or failing him, one of the category of persons described
in the Act as affected persons may, on fulfillment
of certain
conditions, invite the meeting to approve the preparation and
publishing of a revised plan or apply to the Court to
have the result
of the vote of “voting interests” (class of creditors) or
shareholders set aside as inappropriate.
[7] It is
appropriate to mention that if no person takes any action
contemplated above, the business rescue practitioner must promptly
file a notice of the termination of the business rescue proceedings
in accordance with Section 153(5) of the Act. In the present
matter
the business rescue practitioner (“Mr de Klerk”) elected
to go to Court under Section 153(1)(a)(ii).
[8] The Applicant
trades under the “Build It" brand as a retailer in
hardware, building materials and related products
and has been
trading as such in Lephalale, Limpopo Province since 2006. The
Applicant employs 52 people and has two directors who
are the only
shareholders in the company. The Applicant benefited from the
economic spin off especially brought about by the large
scale
construction of the Medupi Power Plant under construction at
Lephalale.
Applicant alleges
that its turnover grew from R27 million on 28 February 2009 to some
R46 million on 28 February 2013 but due to
large scale strikes at the
Medupi Power Plant sales dropped dramatically. Notwithstanding the
strikes the Applicant managed to
generate sales of some R37 million
for the financial year ending on 28 February 2014.
[9] The “Build
It” brand is owned by the Spar Group (First Respondent). The
Applicant is a member of the Build It -
Guild of South Africa.
Members of the Guild, such as the applicant, trade under the “Build
-It” brand and derive benefits
of the combined buying power of
such membership in regard to the purchase of products from suppliers.
Arising from the applicant’s
membership of the Guild, and the
payment by Spar Group to suppliers on behalf of the applicant, the
applicant became indebted to
the Spar Group (First Respondent) but
was unable to meet its payment obligations.
[10] The First
Respondent is owed about R7.6 million making it the largest creditor
of the applicant. The applicant’s indebtedness
to the First
Respondent in the aforesaid amount is almost equivalent to the total
assets of the applicant, and represents over
50% of the applicant’s
total liabilities.
The applicant is
indebted to the Second Respondent in the sum of R412 756-04, There
are other creditors owed by the applicant.
Although they are
not part of the present Court proceedings, some of them took part in
the voting at the creditor’s meeting
held on 4 March 2014 and
voted in favour of the adoption of the revised business rescue plan.
[11] The First
Respondent instituted Court proceedings against the applicant to
perfect its security under the notarial bonds registered
over the
applicant’s movable assets. The Second Respondent had also
instituted action against the applicant claiming the
amount owed to
it. The applicant has given notice to oppose and to defend both Court
proceedings/ actions. In all the two instances
Mr. de Klerk acts as
an attorney of record for the applicant.
[12] While the
perfection application was pending, Mr. Rodney Sanders (“Sanders”)
of Rens Business Consulting approached
Spar Group to garner its
support for a possible turnaround strategy for the applicant and to
this end several meetings between
Sanders and representatives of Spar
Group took place.
The applicant
alleges that the Spar Group representatives seemed to be impressed by
the proposed turnaround strategy put forward
by Sanders. Spar Group
denies that a firm plan was proposed by Sanders and that the
discussions were in general terms and exploratory
in nature.
[13] Sanders, de
Klerk and applicant contend that an agreement was reached between
Sanders and Spar Group that Spar Group would
support the alleged
turnaround plan while Spar Group denies that any such agreement was
reached.
It is unnecessary
for the Court to delve in detail into the issue of whether an
agreement on the terms of a turnaround plan was
reached, as the Court
need not make any finding on this issue.
[14] While the
negotiations between Sanders and Spar Group regarding a turnaround
plan were still in progress, the applicant’s
directors resolved
to place the applicant into business rescue. A resolution in terms of
Section 129 of the Act was adopted on
26 November 2013.
[15] The business
rescue proceedings then commenced and pursuant thereto:
15.1 Mr. de Klerk
was appointed as a business rescue practitioner on 11 December 2013.
15.2 the first
creditors meeting was held on 19 December 2013.
15.3 The proposed
first business rescue plan was published on 23 January 2014.
15.4 the proposed
first business rescue plan was rejected at the second creditors
meeting of the 4 February 2014,
15.5 the revised
business rescue plan was then published on 18 February 2014.
15.6 the third
creditors meeting was held on 4 March 2014 at which the revised
business rescue plan was introduced but was rejected,
the First and
Second Respondents voting against the adoption thereof.
[16] Following the
rejection of the revised business rescue plan the present application
was launched. The application is opposed
by the First and Second
Respondents.
[17] As stated
earlier in this judgment this application was brought to Court on
urgent basis. In making out a case for urgency
Counsel for the
Applicant submitted, correctly in my view, that the real urgency lies
In the fact that the Applicant does not have
the luxury of time on
its side : every day that passes in anticipation for the plan to be
approved, it becomes more difficult for
the applicant to turn itself
around.
[18]
In Koen v.
Wedgewood Village Golf Estate
2012 (2) SA 378(WCC)
the
following was said at 381 G-H :
“
it
is axiomatic that business rescue proceedings, by their very nature,
must be conducted with the maximum possibie expedition.
In most cases
a failure to expeditiously implement rescue measures when a company
is in financial distress will lessen or entirely
negate the prospects
of effective rescue.
Legislative
recognition of this axiom is reflected in the tight time lines given
in terms of the Act for the implementation of the
business rescue
procedures if an order placing a company under supervision for that
purpose is granted. There is also the consideration
that the mere
institution of business rescue proceedings however dubious might be
their prospects of success in
a
given case materially
affects the rights of third parties to ensure their rights against
the subject company
......."
[19] At the
commencement of the hearing of this matter both the First and Second
Respondents rightly conceded that the matter is
urgent.
[20]
The respondents raised two points
in
limine:
20.1 Firstly, that a
jurisdictional requirement for the launching of the present
application is that the practitioner must have
advised the meeting at
which the revised business plan was introduced and considered, that
the applicant would apply to Court to
set aside the result of the
vote at such meeting on the grounds that it was inappropriate. Unless
the practitioner advised the
meeting to this effect, the practitioner
was obliged in terms of Section 153(5) to promptly file a notice of
termination of the
business rescue proceedings. That De Klerk as a
business rescue practitioner, did not act in accordance with Section
153(1 )(a)(ii)
at the meeting of creditors held on 4 March 2014, and
accordingly the present application fails to be dismissed on this
basis alone.
20.2 Secondly, that
De Klerk acted for the applicant in litigation with Spar Group (First
Respondent) and Second Respondent prior
to the commencement of
business rescue proceedings. This precluded De Klerk from accepting
appointment as the business rescue practitioner
having regard to the
provisions of Section 138 (1)(e) of the Act.
[21]
I proceed to deal with the points
in
limine
raised
by the Respondents.
The deponent to the
First Respondent’s answering affidavit, Sean Bradshaw, in
regard to the failure of Mr. de Klerk as the
business practitioner to
have advised the meeting held on 4 March 2014 that the applicant
would apply to Court as contemplated
in Section 153(1)(a)(ii),
referred to the confirmatory affidavit of Mr. Julian Jones.
Mr. Julian Jones is
the attorney who attended the said meeting on behalf of the First
Respondent. The confirmatory affidavit of
Mr. Jones merely confirms
the allegation by Mr. Bradshaw that the practitioner failed to advise
the meeting that an application
would be made to Court.
Mr. Jones, an
attorney who was present at the meeting does not divulge any facts
but merely confirms the deponent’s terse
allegation.
It is common cause
that the deponent, Mr. Bradshaw was not present at the meeting.
Therefore no weight can be attached to the evidence
in both
affidavits.
[22] The Second
Respondent’s answering affidavit does not take the matter any
further. The deponent of the affidavit confirms
that the First and
Second Respondents voted against the plan and merely put a bare
denial that Mr.de Klerk advised the meeting
that he was going to make
an application to Court.
Mr. de Klerk’s
detailed explanation as to what took place at the meeting is
acceptable, in particular that he duly advised
the meeting that he
would make an application to Court within five days from date of the
rejection of the revised business plan.
[23] Section 138(1
)(e) of the Act provides as follows:
“
1
.
Any person may be
appointed as the business rescue practitioner of a company only if
the person
-
(a)
------------------
(b)
...................
(c)
...................
(d)
-------------------
(e) does not have
any other relationship with the company such as would lead a
reasonable and informed third party to conclude that
the integrity,
impartiality or objectivity of that person is compromised by that
relationship’’
[24] Nowhere in
their answering affidavits do the First and Second Respondents allege
or show the factual basis on which it can
be said that Mr. de Klerk’s
integrity, impartiality or objectivity was compromised by the mere
fact that he acted as attorney
of record for the applicant prior to
the commencement of the business rescue proceedings.
In any event the
respondents never raised any objection to Mr. de Klerk’s
appointment at any of the three creditors meeting
already held. They
have acquiesced to his position as the duly appointed business rescue
practitioner.
[25]
I do not find any merit in the points
in
limine
raised
by the respondents. The two points
in
limine
are
accordingly dismissed.
[26] On the merits
of this case the issue to be determined is whether the Applicant has
made out a proper case that the Respondent’s
vote was
inappropriate within the meaning of Section 153(1)(a)(ii) read with
Section 153(7) of the Act.
[27]
in the case of
DH
Brothers Industries (Pty) Ltd v Gribinitz NO and
Others
2014 (1) SA 103
at
108 E - 109A
para
[10] Gorven J said the following about Chapter 6 of the Act, dealing
with Business Rescue:
“
I
respectfully agree
that the Chapter as a whole reflects a legislative preference for
proceedings aimed at the restoration of viable
companies rather than
their destruction, but only of viable companies, not of all companies
placed under business rescue"
[28] Section 7(k) of
the Act reads that one of the purposes of the Act is to “provide
for the efficient rescue and recovery
of financially distressed
companies, in a manner that balances the rights and interests of all
relevant stakeholders.”
The shareholders,
creditors and employees and/or registered trade unions representing
employees are stakeholders in terms of the
Act.
[29] The aim of
business rescue is to save a business, rather than destroy it.
Business rescue is preferred to liquidation.
See
:
Southern Palace
investments 265(Ptv) Ltd v. Midnight Storm Investments 386 Ltd
2012(2) SA 423 (WCC)
In
Koen v.
Wedgewood Village Golf & Country Estate
,
supra at par 14 it was said:
“
it
is clear that the legislature has recognised that liquidation of
companies more frequently that not occasions significant collateral
damage, both economically and socially, with attendant destruction of
wealth and livelihoods.
It is obvious
that it is in the public interest that the incidents of such adverse
socioeconomic consequences should be avoided
where reasonably
possible.
Business rescue
is intended to serve that public interest by providing a remedy
directed at avoiding the deietirious consequences
of liquidation in
cases in which there is a reasonabie prospect of saivaging the
business of a company in financial distress, or
securing a better
return to creditors than would probably be achieved in an immediate
liquidation’’
[30] The purpose of
the business plan need not be to save the company from liquidation
and thus return the business to solvency.
If the goal is just to
ensure a better return for creditors than would be achieved in
liquidation, such goal is a valid goal in
terms of the Act.
In the present case
it is common cause that in the event of liquidation of the Applicant
oniy the First Respondent, as a secured
creditor will get a dividend
of R0,45 in a Rand and the rest of the concurrent creditors totaling
about R8 million will get no
dividend at all.
The question then
arises as to whether a business rescue plan is not an option worth
trying.
[31]
In
Oakdene
Square Properties v. Farm Bothasfontein (Kayalami)2013 (4) SA 539
(SCA)
it
was held that the applicant for business rescue is bound to establish
reasonable grounds for the prospect of rescuing the company.
If the
majority creditors declare that they will oppose any business rescue
scheme based on those grounds, there is no reason why
the proclaimed
opposition should be ignored. Unless, of course, the attitude can be
said to be unreasonable or mala fide.
[32] Creditors
should participate in good faith and objectively consider the merits
and demerits of a proposed business plan.
(Unreported
decision by Kollapen J
in
Employees of Solar
Spectrum
Trading
83 (Pty) Ltd v. Afgri Operations Ltd 6418/2011 8 May 2012
(GNP) at par 37).
[33] The Applicant
contends that due to the fact that the business plan has not as yet
been adopted, it is impossible for Applicant
to at this stage obtain
post commencement finance in terms of Section 135 of the Act.
Creditors and potential suppliers are not
prepared to provide stock
on account or provide credit under these circumstances. In the
absence of sufficient stock Applicant
is not generating the required
cash flow to pay back its creditors.
If the First
Respondent is successful in perfecting its notarial bond, it will for
all practical purposes be the only creditor that
will derive any
benefit from a liquidation.
[34] The business
rescuer and his consultant, Mr. Sanders are both of the view that the
Applicant can be turned around if post commencement
finance to the
tune of R2 million can be found.
One of the directors
of the Applicant, Mr.Fourie has made an undertaking to raise a loan
of R2 million against security in the form
of a mortgage bond over
his farm. His undertaking is set out in an affidavit which forms part
of the papers in this case.
[35] Counsel for the
Applicant made a submission that if post commencement finance is
generated the business rescue plan will be
viable. He further
submitted that this Court can grant an order subject thereto that the
business rescue will terminate if post
commencement finance is not
procured within one month. The proposition sounds reasonable.
[36] Not only the
interests of the creditors should be considered in this case. Upon
liquidation the Applicant’s 52 employees
will lose their jobs
and it is common cause that it is safe to presume that most of the
employees maintain extended families. In
the light of the high
unemployment rate, their salaries are probably their only source of
livelihood.
It is worth it to
embark upon the business rescue plan than resort to a more
devastating process of liquidation of the company.
[37] The attitude to
the First Respondent in gunning for liquidation is self serving and,
with respect, unreasonable regard being
had to the fact that it is
the only creditor to probably gain at most R0,45 dividend. Suffice it
to state that the Second Respondent's
vote against the adoption of
the business plan is irrational.
It voted against the
business plan notwithstanding the fact that in the absence of such a
plan it will receive no dividend in liquidation.
[38] Consequently 1
make a finding that the conduct of the First and Second Respondents
in rejecting the revised business rescue
plan at the meeting of
creditors held on 4 March 2014 was inappropriate.
[39] These are
accordingly the reasons why I granted the order on 30 April 2014.
E.M.MAKGOBA
JUDGE OF THE HIGH
COURT
HEARD
ON : 30 APRIL 2014
APPEARANCES
:
For the Applicants:
Adv. H.J.DeWet
Instructed by: Davel
De Klerk Kgatla Inc
For 1
st
Respondent: Adv P.T. Rood SC
Instructed by:
Cliffe Dekker Hofmeyr Inc
c/o Naude & Britz
For 2
nd
Respondent: Adv C Hattingh
Instructed by:
Vinnocombe & Associates