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[2014] ZAFSHC 46
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Absa Bank Limited v Caine N.O. and Another, In Re; Absa Bank Limited v Caine N.O. and Another (3813/2013, 3915/2013) [2014] ZAFSHC 46 (2 April 2014)
IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No.: 3813/2013
In
the matter between:
ABSA
BANK
LIMITED
.............................................................................................
Applicant
and
JOHN
FREDERICK KNEALE CAINE
N.O
...................................................
1
st
Respondent
CRIR
PROPERTIES
(CC)
...............................................................................
2
nd
Respondent
Registration
Number: 1999/061501/23
(Under
business rescue supervision)
Case
No.: 3915/2013
In
the matter between:
ABSA
BANK
LIMITED
................................................................................................
Applicant
and
JOHN
FREDERICK KNEALE CAINE
N.O
.....................................................
1
st
Respondent
RCIR
VALUATIONS (PTY)
LTD
.....................................................................
2
nd
Respondent
Registration
Number: 2002/021728/07
(Under
business rescue supervision)
HEARD
ON:
6 FEBRUARY 2014
JUDGMENT
BY:
DAFFUE, J
DELIVERED
ON:
2 April 2014
INTRODUCTION
[1]
The dispute to be adjudicated in two interrelated applications, being
applications 3813/2013 and 3915/2013, turns around the
business
rescue proceedings of a close corporation and a private company
respectively and a major creditor’s claim that their
business
rescue is void, alternatively terminated and that the two entities
should be provisionally wound-up.
THE
PARTIES
[2]
Absa Bank Ltd (“the bank”) is the applicant in both
applications. John Frederick Kneale Caine (“the
practitioner”), the appointed business rescue practitioner, is
cited in his representative capacity as first respondent in
both
applications. CRIR Properties CC (“Properties”) is
the second respondent in the first application and RCIR
Valuations
(Pty) Ltd (“Valuations”) is the second respondent in the
other application. From time to time I shall
refer to
Properties and Valuations as “the two entities”. The bank
is represented by Adv Heymans and the two entities
by Adv Hack.
THE
RELIEF SOUGHT
[3]
The following relief is sought by the bank in both applications:
“
1.
An order declaring the business rescue of the second respondent void,
alternatively that the business rescue is terminated.
2.
That the estate of the second respondent be placed under provisional
liquidation in the hands of the Master of the High Court…”
together with further standard orders.
[4]
The applications are opposed by the two entities and they are
supported in their opposition by the practitioner. At the hearing
of
the application the two entities and the practitioner brought formal
applications for postponement of the liquidation applications
to 10
April 2014. The applications were dated 6 February 2014, the
date of the hearing, and served on the bank’s attorneys
at
08h00 that morning. I considered the applications and arguments on
behalf of the parties whereupon I dismissed the applications.
I shall
briefly refer to certain aspects that were raised in the founding
affidavit in support of the applications for postponement
infra.
[5]
The issues to be considered at this stage are the following:
(a) whether the
business rescue is void, alternatively terminated;
(b) whether the
conditional applications of the two entities in terms of ss 131(7) of
the Companies Act, 71 of 2008, (“the
ACT”) should be
granted;
(c)
whether the bank has made out a case for provisional winding-up
orders against one of or both the two entities.
[6]
I intend to deal with both applications in one judgment although
separate orders will be made eventually. Insofar as certain
material
factual differences exist, these will be dealt with in the factual
background provided in the next paragraphs and also
considered in my
evaluation of the facts and the law thereafter.
FACTUAL
MATRIX
The
salient facts are set out in chronological order in the subsequent
paragraphs.
[7]
The members of Properties are Bernard William Davis and his wife Dawn
Anne Davis. They are married in community of property
and bound
themselves as sureties and co-principal debtors for the obligations
of Properties to the bank. They are also the
directors of
Valuations. Properties also bound itself as surety and
co-principal debtor for the obligations of Valuations
in favour of
the bank.
[8]
On 31 October 2011 resolutions were passed by Properties and
Valuations in terms of s 129(3)(b) of the Act in terms whereof
it was
resolved that these entities be placed under business rescue with
immediate effect.
[9]
The notice of the beginning of business rescue proceedings were filed
with the Companies and Intellectual Property Commission
(CIPC) on 8
November 2011 and on 17 November 2011 a notice of appointment of one
Carllo Andreas Gagiano (“Gagiano”)
as business rescue
practitioner was filed with CIPC.
[10]
The appointment of Gagiano was not done within the stipulated five
business day period provided for in s 129 of the Act. In
any event
Gagiano failed dismally in discharging his duties and he was
eventually removed as business rescue practitioner under
case number
4653/2012 by order of court dated 24 January 2013. During this period
of business rescue Gagiano failed to
(i) convene a first
meeting of creditors in terms of s 147 of the Act which had to be
done within ten business days after being
appointed;
(ii) prepare and
publish a business rescue plan in terms of s 150 of the Act which had
to be done within twenty five business days
after being appointed;
(iii) convene a
meeting in terms of s 151 of the Act to determine the future of the
two entities;
(iv)
file a report in terms of s 132(3)(a) of the Act, or to apply for an
extension of the three month period within which the business
rescue
had to be finalised.
[11]
On 6 February 2013 the practitioner was appointed by the entities as
the new business rescue practitioner and a copy of the
notice of
appointment was filed with the CIPC on 8 February 2013.
[12]
The practitioner also failed to comply with the time periods set out
in the Act, particularly pertaining to the convening of
a first
meeting of creditors within ten business days after being appointed
and the preparation and publishing of a business rescue
plan within
twenty five business days after being appointed. A draft
business rescue plan was forwarded to applicant in the
Properties
matter on 18 April 2013. A meeting was convened by the
practitioner, but a major creditor, First National Bank
(“FNB”),
objected to short notice being given whereupon a meeting was convened
for 3 May 2013. Although it was
regarded as a first meeting of
creditors the bank and FNB made it clear that they would not support
the draft plan. Meanwhile
the practitioner continued to dispose
of immovable properties of Properties without proper authority.
A draft plan for Valuations
was e-mailed to the bank on 19 April
2013. It was clear from the plan that Valuations was not
conducting any business at
the time and was wholly dependent on the
sale of Properties’ immovable properties. At a creditors’
meeting of
3 May 2013 the bank made it clear that it would not
support the plan in the form submitted.
[13]
Hereafter much communication by e-mail followed. It is evident
that the bank insisted on a formal procedure in compliance
with the
prescripts of the Act. However a serious and major dispute
arose as the practitioner held the view (which is still
the case)
that the bank could not use the proceeds of covering mortgage bonds
over Properties’ immovable properties to settle
Valuations’
debts, despite the fact that Properties is a surety and co-principal
debtor for the debts of Valuations and that
the bank is secured by
virtue of its covering bonds. This bone of contention remained
one, even during argument before me.
It must be emphasised that it
was never in dispute that Properties bound itself as such.
[14]
On 1 July 2013 meetings were held to put the published business
rescue plans to the vote in both the Properties and Valuations
matters. This took place months after the twenty five day
period referred to in ss 150(5) has lapsed whilst no extension
was
sought by the practitioner or the two entities and/or granted by
either the court or the holders of a majority of the creditors’
voting interests. The bank and FNB voted against the plan in
the Properties matter and the bank voted against the plan in
the
Valuations matter. There is a dispute as to what transpired on
the meetings, e.g. whether the Properties’ meeting
was closed
hereafter and/or whether any other business was transacted at the
meeting. This aspect will be dealt with in the
evaluation of
the evidence. Contrary to the rejection of the business rescue
plan in the Properties’ matter, the business
rescue plan put
forward by the practitioner in the Valuations’ matter was
adopted by the majority of creditors with a voting
interest despite
the bank’s dissenting vote. The very next day the
practitioner reacted in an e-mail suggesting that
“
section
153 allows the claim of Absa, being the only dissenting vote, to be
purchased by way of a binding offer for an amount of
R25 064.”
This is not only a false statement, but was
rejected by the bank.
[15]
Hereafter the practitioner reported that the plan for Valuations was
drafted on the mistaken belief that the business rescue
plan for
Properties would be supported by the bank which turned out not to be
the case. Therefore the practitioner indicated that
he intended to
amend the business rescue plan for Valuations which plan had already
been adopted. It was conveyed that the
bank’s claim was
to be purchased by the BDL Trust, of which Mr and Mrs Davis are the
trustees, for the amount of R2 901.00
which amount was in fact
paid into a term loan account in the books of the bank. The
bank never agreed to any purchase and
the payment was not made with
its consent. In fact, it was the bank’s viewpoint that
the practitioner could not unilaterally
amend the approved plan and
to allow for purchase of voting rights contrary to the provisions of
ss 153(1). It is clear that
the adopted plan could not be
implemented without the financial support of and the assets of
Properties. The bank insisted
that the practitioner follow the
route of ss 141(2) to have the business rescue proceedings
discontinued, but he did not adhere.
[16]
On 13 July 2013 the practitioner circulated an email to all affected
persons indicating that the members of Properties intended
exercising
their rights of purchasing the voting interest of the bank and FNB
and that the business rescue plan would be revised
to reflect the
offer. According to the practitioner this was done in
accordance with his decision to adjourn the meeting
to allow affected
persons to consider steps in terms of ss 153(1) as reflected in the
minutes of the meeting of 1 July 2013. The
bank’s case is that
the minutes are a total fabrication on the part of the practitioner
as this issue was never discussed.
[17]
Pertaining to Properties it is the bank’s viewpoint that the
practitioner was bound by the provisions of s 153(5) of
the Act to
file a notice of termination of the business rescue proceedings based
on the rejection by the bank and FNB of the proposed
business rescue
plan and no further steps being taken in terms of ss 153(1) at the
meeting. It is in the first instance the
bank’s
contention that the business rescue is in any event null and void for
non-compliance with procedural aspects, alternatively
that it has
terminated and that a provisional winding-up order be issued against
Properties. Pertaining to Valuations it
is the bank’s
view that the practitioner should have acted in terms of ss 141(2) as
there was no reasonable prospect that
Valuations could be saved, to
seek an order that the business rescue proceedings be discontinued
and a further order for Valuations’
winding-up. Instead
he unilaterally attempted to amend the approved business plan and to
allow a third party to acquire the
bank’s claim in an unlawful
manner. Valuations and the practitioner are of the view that the bank
does not have a claim anymore
and therefore does not have
locus
standi
in the proceedings against
Valuations.
RELEVANT
LEGISLATION AND AUTHORITIES
[18]
These two applications will be adjudicated, keeping in mind that the
legislature earnestly tried to avoid the problems experienced
with
judicial management provided for in the Companies Act 61 of 1973. I
also accept that the Act must be interpreted and applied
in a manner
that gives effect to all those purposes set out in s 7 of the Act,
one being relevant in this case, to wit to provide
for the efficient
rescue and recovery of financially distressed companies in a manner
that balances the rights and interests of
relevant stakeholders.
See s 5 read with s 7(k) of the Act.
[19]
“
Business rescue” is defined in
s 128(b) of the Act to mean
“
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) the 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 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.”
[20]
S 129 of the Act provides for the procedure to be followed if a
company resolves to begin with business rescue proceedings.
It reads
as follows.
“
129.
Company resolution to begin business rescue proceedings.
(1) Subject to
subsection (2) (a), the board of a company may resolve that the
company voluntarily begin business rescue proceedings
and place the
company under supervision, if the board has reasonable grounds to
believe that—
(a) the company is
financially distressed; and
(b) there appears to
be a reasonable prospect of rescuing the company.
(2)
A resolution contemplated in subsection (1)—
(a) may not be
adopted if liquidation proceedings have been initiated by or against
the company; and
(b) has no force or
effect until it has been filed.
(3) Within five
business days after a company has adopted and filed a resolution, as
contemplated in subsection (1), or such longer
time as the
Commission, on application by the company, may allow, the company
must—
(a) publish a notice
of the resolution, and its effective date, in the prescribed manner
to every affected person, including with
the notice a sworn statement
of the facts relevant to the grounds on which the board resolution
was founded; and
(b) appoint a
business rescue practitioner who satisfies the requirements of
section 138, and who has consented in writing to accept
the
appointment.
(4) After
appointing a practitioner as required by subsection (3) (b), a
company must—
(a) file a notice of
the appointment of a practitioner within two business days after
making the appointment; and
(b) publish a copy
of the notice of appointment to each affected person within five
business days after the notice was filed.
(5) If a company
fails to comply with any provision of subsection (3) or (4)—
(a) its resolution
to begin business rescue proceedings and place the company under
supervision lapses and is a nullity; and
(b) the company may
not file a further resolution contemplated in subsection (1) for a
period of three months after the date on
which the lapsed resolution
was adopted, unless a court, on good cause shown on an ex parte
application, approves the company filing
a further resolution.
(6) A company that
has adopted a resolution contemplated in this section may not adopt a
resolution to begin liquidation proceedings,
unless the resolution
has lapsed in terms of subsection (5), or until the business rescue
proceedings have ended as determined
in accordance with section 132
(2).
(7)
If the board of a company has reasonable grounds to believe that the
company is financially distressed, but the board has not
adopted a
resolution contemplated in this section, the board must deliver a
written notice to each affected person, setting out
the criteria
referred to in section 128 (1) ( f ) that are applicable to the
company, and its reasons for not adopting a resolution
contemplated
in this section.”
[21]
It is apparent from s 129 that a company resolving to begin with
business rescue proceedings is statutory obliged to comply
with
certain strict time limits pertaining to the publishing of the notice
of the resolution and the appointment of the business
rescue
practitioner. S 129(5) clearly indicates that should a company
fail to comply with any of the provisions of ss (3)
or (4), its
resolution to begin business rescue proceedings and place the company
under supervision lapses and is a nullity.
[22]
In
Advanced Technologies and
Engineering Company (Pty) Ltd (in Business Rescue) v Aeronautique
et
Technologies Embarquees Sas and Others
(GNP) Case No 72522/2011, judgment delivered on 6 June 2012,
Fabricius J was asked to consider an application for the extension
of
the time limits stated in ss 129(3) and (4) after these had expired.
It related to the appointment of a business rescue
practitioner who
did not have a licence to practise at the stage when she was
appointed. He found at para [25] that the sub-sections
“
must
be judged on its own wording in the light of the actual request for
such extension”
and
“
(W)ere
it otherwise, the time periods contained in s 129(3) and 129(4) would
become meaningless and their purpose would be subverted.”
He
concluded as follows at para [27]:
“
It
is clear from the relevant sections contained in Chapter 6 that a
substantial degree of urgency is envisaged once a company has
decided
to adopt the relevant resolution beginning business rescue
proceedings. The purpose of section 129(5) is very plain
and
blunt. There can be no argument that substantial compliance can
ever be sufficient in the given context. If there
is
non-compliance with s 129(3) or (4) the relevant resolution lapses
and is a nullity. There is no other way out and no
question of
any condonation or argument pertaining to “substantial
compliance”. The requirements contained in
the relevant
sub-sections were either complied with or they were not. In
this case they were not for the reasons stated herein
above.”
[23]
S 130 deals with objections to company resolutions and reads as
follows:
“
130.
Objections to company resolution.
(1) Subject to
subsection (2), at any time after the adoption of a resolution in
terms of section 129, until the adoption of a
business rescue plan in
terms of section 152, an affected person may apply to a court for an
order—
(a) setting aside
the resolution, on the grounds that—
(i) there is no
reasonable basis for believing that the company is financially
distressed;
(ii) there is no
reasonable prospect for rescuing the company; or
(iii) the company
has failed to satisfy the procedural requirements set out in section
129;
(b) setting aside
the appointment of the practitioner, on the grounds that the
practitioner—
(i) does not satisfy
the requirements of section 138;
(ii) is not
independent of the company or its management; or
(iii) lacks the
necessary skills, having regard to the company’s circumstances;
or
(c) requiring the
practitioner to provide security in an amount and on terms and
conditions that the court considers necessary to
secure the interests
of the company and any affected persons.
(2) An affected
person who, as a director of a company, voted in favour of a
resolution contemplated in section 129 may not apply
to a court in
terms of—
(a) subsection (1)
(a) to set aside that resolution; or
(b) subsection (1)
(b) to set aside the appointment of the practitioner appointed by the
company,
unless that person
satisfies the court that the person, in supporting the resolution,
acted in good faith on the basis of information
that has subsequently
been found to be false or misleading.
(3)
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) Each affected
person has a right to participate in the hearing of an application in
terms of this section.
(5) When considering
an application in terms of subsection (1) (a) to set aside the
company’s resolution, the court may—
(a) set aside the
resolution—
(i) on any grounds
set out in subsection (1); or
(ii) if, having
regard to all of the evidence, the court considers that it is
otherwise just and equitable to do so;
(b) afford the
practitioner sufficient time to form an opinion whether or not—
(i) the company
appears to be financially distressed; or
(ii) there is a
reasonable prospect of rescuing the company,
and after receiving
a report from the practitioner, may set aside the company’s
resolution if the court concludes that the
company is not financially
distressed, or there is no reasonable prospect of rescuing the
company; and
(c) if it makes an
order under paragraph (a) or (b) setting aside the company’s
resolution, may make any further necessary
and appropriate order,
including—
(i) an order placing
the company under liquidation; or
(ii) if the court
has found that there were no reasonable grounds for believing that
the company would be unlikely to pay all of
its debts as they became
due and payable, an order of costs against any director who voted in
favour of the resolution to commence
business rescue proceedings,
unless the court is satisfied that the director acted in good faith
and on the basis of information
that the director was entitled to
rely upon in terms of section 76 (4) and (5).
(6) If, after
considering an application in terms of subsection (1) (b), the court
makes an order setting aside the appointment
of a practitioner—
(a) the court must
appoint an alternate practitioner who satisfies the requirements of
section 138, recommended by, or acceptable
to, the holders of a
majority of the independent creditors’ voting interests who
were represented in the hearing before the
court; and
(b)
the provisions of subsection (5) (b), if relevant, apply to the
practitioner appointed in terms of paragraph (a).”
[24]
What is apparent from s 130 is that an affected person may at any
time between adoption of the resolution in terms of s 129
and
adoption of the business rescue plan in terms of s 152 apply to the
court for setting aside the resolution taken by the company
as well
as the appointment of the business rescue practitioner on the grounds
set out in ss (1)(a) and (1)(b) respectively.
It appears from
ss (5) that the court may set aside the company’s resolution on
any of the grounds set out in ss (1) or,
having regard to all the
evidence, if the court considers that it is otherwise just and
equitable to do so. The court may,
when setting aside a
company’s resolution, make any further necessary and
appropriate order, including winding-up the company.
[25]
There appears to be an anomaly if ss 129(5)(a), which provides for an
immediate lapsing and a nullity of the resolution in
the event of
non-compliance, and s 130(5) which provides for the setting aside of
the company’s resolution in certain circumstances
are
considered. Surely, there is no reason to provide a court with
a discretion to set aside a resolution which had automatically
lapsed
or which is a nullity. This is just one of several anomalies found in
the Act and I refer in this regard to the discussion
in
Henochsberg
on the
Companies Act 71 of 2008
, Vol 1,
p 450-461. Fabricius J did not at all consider the effect of
ss
130(5)
read with
ss 130(1)(a)(iii)
in
Advanced
Technologies
supra
as he preferred to rely on the plain and unambiguous wording of
ss
129(3)
and (4).
[26]
A further anomaly is that
ss 130(1)(a)
provides an affected person
seeking to approach the court to set aside a resolution only three
grounds on which to base the application,
but in contrast,
ss 130
(5)(a) empowers the court hearing an application to set aside the
resolution not only on one of those three grounds, but to rely
on an
additional ground, to wit if it is considered just and equitable.
Clearly,
ex facie
ss
130(1)(a)
an applicant is not entitled to base his application on the
just and equitable ground, but contrary thereto, the court may invoke
this ground to set aside the resolution. This might be a
drafting error. In my view an applicant should be entitled
to
rely on the just and equitable principle as an additional ground to
the three grounds listed in
ss 130(1)(a).
The legislature
should make an appropriate amendment to avoid uncertainty.
[27]
A court may order business rescue proceedings to begin and in this
regard s 131 of the Act reads as follows:
“
131.
Court order to begin business rescue proceedings.
(1) Unless a company
has adopted a resolution contemplated in section 129, an affected
person may apply to a court at any time for
an order placing the
company under supervision and commencing business rescue proceedings.
(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.
(3) Each affected
person has a right to participate in the hearing of an application in
terms of this section.
(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.
(5) If the court
makes an order in terms of subsection (4) (a), the court may make a
further order appointing as interim practitioner
a person who
satisfies the requirements of section 138, and who has been nominated
by the affected person who applied in terms
of subsection (1),
subject to ratification by the holders of a majority of the
independent creditors’ voting interests at
the first meeting of
creditors, as contemplated in section 147.
(6) If liquidation
proceedings have already been commenced by or against the company at
the time an application is made in terms
of subsection (1), the
application will suspend those liquidation proceedings until—
(a) the court has
adjudicated upon the application; or
(b) the business
rescue proceedings end, if the court makes the order applied for.
(7) In addition to
the powers of a court on an application contemplated in this section,
a court may make an order contemplated
in subsection (4), or (5) if
applicable, at any time during the course of any liquidation
proceedings or proceedings to enforce
any security against the
company.
(8) A company that
has been placed under supervision in terms of this section—
(a) may not adopt a
resolution placing itself in liquidation until the business rescue
proceedings have ended as determined in accordance
with section 132
(2); and
(b)
must notify each affected person of the order within five business
days after the date of the order.”
[28]
Ss 131(7) authorises a court, at any time during liquidation
proceedings, to make an order placing the company under supervision
and commencing business rescue proceedings and to appoint an
interim
business rescue practitioner.
This is what the two entities have in mind with the backing of the
practitioner in the event
of the court finding that their business
rescue is void or has terminated. The relief sought in terms of
the conditional
applications is firstly, to be placed under business
rescue and secondly, for the appointment of the practitioner as their
business
rescue practitioner.
[29]
The idea with the introduction of business rescue proceedings is
surely to facilitate the rehabilitation of a financially distressed
company within a relatively short space of time as it cannot be in
the interest of affected persons to drag out the procedure over
a
year or even several years. Therefore s 132 of the Act makes
specific provision for the duration of business rescue proceedings
as
follows:
“
132.
Duration of business rescue proceedings.
(1)
Business rescue proceedings begin when—
(a) the company—
(i) files a
resolution to place itself under supervision in terms of section 129
(3); or
(ii) applies to the
court for consent to file a resolution in terms of section 129 (5)
(b);
(b) an affected
person applies to the court for an order placing the company under
supervision in terms of section 131 (1); or
(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 rescue 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;
(b) the practitioner
has filed with the Commission a notice of the termination of business
rescue proceedings; or
(c) a business
rescue plan has been—
(i) proposed and
rejected in terms of Part D of this Chapter, and no affected person
has acted to extend the proceedings in any
manner contemplated in
section 153; or
(ii) adopted in
terms of Part D of this Chapter, and the practitioner has
subsequently filed a notice of substantial implementation
of that
plan.
(3) If a company’s
business rescue proceedings have not ended within three months after
the start of those proceedings, or
such longer time as the court, on
application by the practitioner, may allow, the practitioner must—
(a) prepare a report
on the progress of the business rescue proceedings, and update it at
the end of each subsequent month until
the end of those proceedings;
and
(b) deliver the
report and each update in the prescribed manner to each affected
person, and to the—
(i) court, if the
proceedings have been the subject of a court order; or
(ii)
Commission, in any other case.”
[30]
In
DH
Brothers
Industries (Pty) Ltd v Gribnitz NO and Others
2014
(1) SA 103
(KZP)
Gorven J emphasised that
the Act nowhere specifies the consequences of a failure to publish a
business rescue plan within the allotted
time and he regarded this as
a drafting lacuna. S 132(2) lists circumstances which bring
business rescue proceedings to an
end, but the failure to timeously
publish a plan is not listed. The respondents in that matter
submitted that this meant
that a failure did not preclude a latter
publication or vote to extend the allotted time. The learned
judge referred to the
fact that business rescue proceedings place a
moratorium on creditors enforcing their claims which is a legislative
intrusion into
a contractual relationship between parties and finally
concluded that the failure to publish the business rescue plan within
the
given or extended period, results in the termination of the
business rescue proceedings. Such an approach has the benefit
of allowing creditors to enforce their rights against the company as
soon as the time lapses. He concluded as follows at
para [28] p
116C:
“
However,
what is clear is that the stated need for strict adherence to time
limits and the need for certainty have as a necessary
corollary that
the time to publish a plan cannot be extended after it has elapsed.”
[31]
Gorven J continued and found in para [32] of his judgment in
DH
Brothers Industries
as
follows:
“
It
is my view, on a conspectus of the structure of business
rescue proceedings, that a meeting must be convened and a vote
taken in order for it to be said that a majority of creditors
'allowed' an extension of time. This was not done. No extension was
therefore allowed by creditors as envisaged in s 150(5)
(b)
.
This means that the business rescue proceedings came to an end after
the 25-day period elapsed. If this is not the case, this
application
can and should bring them to an end by setting aside the resolution
on the just-and-equitable ground.”
[32]
Insofar as the alleged enforcement of a surety by a company in favour
of a third person may not be undertaken against a company
except with
the leave of the court, it is apposite to quote s 133 dealing with
the general moratorium on legal proceedings against
a company. The
section reads as follows:
“
133.
General moratorium on legal proceedings against company.
(1) During business
rescue proceedings, no legal proceeding, including enforcement
action, against the company, or in relation to
any property belonging
to the company, or lawfully in its possession, may be commenced or
proceeded with in any forum, except—
(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
powers of a trustee; or
(f) proceedings by a
regulatory authority in the execution of its duties after written
notification to the business rescue practitioner.
(2) During business
rescue proceedings, a guarantee or surety by a company in favour of
any other person may not be enforced by
any person against the
company except with leave of the court and in accordance with any
terms the court considers just and equitable
in the circumstances.
(3)
If any right to commence proceedings or otherwise assert a claim
against a company is subject to a time limit, the measurement
of that
time must be suspended during the company’s business rescue
proceedings”
[33]
A number of arguments have been raised in respect of the
consideration of the business rescue plans put forward
in
casu
and the approval or rejection of
these plans and consequently I deem it apposite to quote s 152 and s
153 dealing with the consideration
of the business rescue plan and
failure to adopt the business rescue plan respectively:
“
152.
Consideration of business rescue plan.
(1) At a meeting
convened in terms of section 151, the practitioner must—
(a) introduce the
proposed business plan for consideration by the creditors and, if
applicable, by the shareholders;
(b) inform the
meeting whether the practitioner continues to believe that there is a
reasonable prospect of the company being rescued;
(c) provide an
opportunity for the employees’ representatives to address the
meeting;
(d) invite
discussion, and entertain and conduct a vote, on any motions to—
(i) amend the
proposed plan, in any manner moved and seconded by holders of
creditors’ voting interests, and satisfactory
to the
practitioner; or
(ii) direct the
practitioner to adjourn the meeting in order to revise the plan for
further consideration; and
(e) call for a vote
for preliminary approval of the proposed plan, as amended if
applicable, unless the meeting has first been adjourned
in accordance
with paragraph (d) (ii).
(2) In a vote called
in terms of subsection (1) (e), the proposed business rescue plan
will be approved on a preliminary basis if—
(a) it was supported
by the holders of more than 75% of the creditors’ voting
interests that were voted; and
(b) the votes in
support of the proposed plan included at least 50% of the independent
creditors’ voting interests, if any,
that were voted.
(3)
If a proposed business rescue plan—
(a) is not approved
on a preliminary basis, as contemplated in subsection (2), the plan
is rejected, and may be considered further
only in terms of section
153;
(b) does not alter
the rights of the holders of any class of the company’s
securities, approval of that plan on a preliminary
basis in terms of
subsection (2) constitutes also the final adoption of that plan,
subject to satisfaction of any conditions on
which that plan is
contingent; or
(c) does alter the
rights of any class of holders of the company’s securities—
(i) the practitioner
must immediately hold a meeting of holders of the class, or classes
of securities who rights would be altered
by the plan, and call for a
vote by them to approve the adoption of the proposed business rescue
plan; and
(ii) if, in a vote
contemplated in subparagraph (i), a majority of the voting rights
that were exercised—
(aa) support
adoption of the plan, it will have been finally adopted, subject only
to satisfaction of any conditions on which it
is contingent; or
(bb) oppose adoption
of the plan, the plan is rejected, and may be considered further only
in terms of section 153.
(4) A business
rescue plan that has been adopted is binding on the company, and on
each of the creditors of the company and every
holder of the
company’s securities, whether or not such a person—
(a) was present at
the meeting;
(b) voted in favour
of adoption of the plan; or
(c) in the case of
creditors, had proven their claims against the company.
(5) The company,
under the direction of the practitioner, must take all necessary
steps to—
(a) attempt to
satisfy any conditions on which the business rescue plan is
contingent; and
(b) implement the
plan as adopted.
(6) To the extent
necessary to implement an adopted business rescue plan—
(a) the practitioner
may, in accordance with that plan, determine the consideration for,
and issue, any authorised securities of
the company, despite section
38 or 40 to the contrary; and
(b) if the business
rescue plan was approved by the shareholders of the company, as
contemplated in subsection (3) (c), the practitioner
may amend the
company’s Memorandum of Incorporation to authorise, and
determine the preferences, rights, limitations and
other terms of,
any securities that are not otherwise authorised, but are
contemplated to be issued in terms of the business rescue
plan,
despite any provision of section 16, 36 or 37 to the contrary.
(7) Except to the
extent that an approved business rescue plan provides otherwise, a
pre-emptive right of any shareholder of the
company, as contemplated
in section 39, does not apply with respect to an issue of shares by
the company in terms of the business
rescue plan.
(8)
When the business rescue plan has been substantially implemented, the
practitioner must file a notice of the substantial implementation
of
the business rescue plan.
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
inappropriate.
(b) If the
practitioner does not take any action contemplated in paragraph (a)—
(i) any affected
person present at the meeting may—
(aa) call for a vote
of approval from the holders of voting interests requiring the
practitioner to prepare and publish a revised
plan; or
(bb) apply to the
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 inappropriate; or
(ii) any affected
person, or combination of affected persons, may make a binding offer
to purchase the voting interests of one or
more persons who opposed
adoption of the business rescue plan, at a value independently and
expertly determined, on the request
of the practitioner, to be a fair
and reasonable estimate of the return to that person, or those
persons, if the company were to
be liquidated.
(2) If the
practitioner, acting in terms of subsection (1) (a) (ii), or an
affected person, acting in terms of subsection (1) (b)
(i) (bb),
informs the meeting that an application will be made to the court as
contemplated in those provisions, the practitioner
must adjourn the
meeting—
(a) for five
business days, unless the contemplated application is made to the
court during that time; or
(b) until the court
has disposed of the contemplated application.
(3) If, on the
request of the practitioner in terms of subsection (1) (a) (i), or a
call by an affected person in terms of subsection
(1) (b) (i) (aa),
the meeting directs the practitioner to prepare and publish a revised
business rescue plan—
(a) the practitioner
must—
(i) conclude the
meeting after that vote; and
(ii) prepare and
publish a new or revised business rescue plan within 10 business
days; and
(b) the provisions
of this Part apply afresh to the publishing and consideration of that
new or revised plan.
(4) If an affected
person makes an offer contemplated in subsection (1) (b) (ii), the
practitioner must—
(a) adjourn the
meeting for no more than five business days, as necessary to afford
the practitioner an opportunity to make any
necessary revisions to
the business rescue plan to appropriately reflect the results of the
offer; and
(b) set a date for
resumption of the meeting, without further notice, at which the
provisions of section 152 and this section will
apply afresh.
(5) If no person
takes any action contemplated in subsection (1), the practitioner
must promptly file a notice of the termination
of the business rescue
proceedings.
(6) A holder of a
voting interest, or a person acquiring that interest in terms of a
binding offer, may apply to a court to review,
re-appraise and
re-value a determination by an independent expert in terms of
subsection (1) (b) (ii).
(7) On an
application contemplated in subsection (1) (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.”
[34]
It is of particular importance to note that ss 153(1) read with ss
152(3)(a) or (c) deals with the rejection of a business
rescue plan
only and the consequences set out in ss 153(1)(a) apply only in the
case of rejection of the plan and not the adoption
thereof.
[35]
It is also emphasised at this stage that in the event of the
rejection of a business plan and the practitioner failing to take
any
action contemplated in ss 153(1)(a), any affected person or
combinations of affected persons may make a binding offer to purchase
the voting interest of one or more persons who opposed adoption of
the business rescue plan at a value independently and expertly
determined on the request of the practitioner to be a fair and
reasonable estimate of the return of that person or those persons
if
the company were to be liquidated.
[36]
If no person takes any action contemplated in ss 153(1) the business
rescue practitioner must promptly file a notice of termination
of the
business rescue proceedings as is apparent from the provisions of ss
153(5). It is uncertain whether the business
rescue proceedings
lapse automatically if the practitioner fails to take the required
action, but it has to be considered whether
an affected person has
locus standi
to
approach the court in such case to obtain a declaratory order that
the proceedings have terminated. Although the Act is
silent in
this respect logic dictates that a court may grant appropriate relief
if approached by an affected person in circumstances
where the
business rescue practitioner fails to comply with his statutory
duties. If there is no further hope that the business
rescue may
succeed, affected persons should be allowed as soon as reasonably
possible to pursue their common law and/or contractual
rights against
the company.
[37]
Gorven J in
DH Brothers Industries
,
supra
,
also considered the judgment in
African
Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers
(Pty) Ltd and Others
2013 (6) SA
471
(GNP) pertaining to “binding offers” envisaged in
section 153(1)(b)(ii) of the Act. I respectfully agree with
his
criticism of the judgment in
Kariba
Furniture
loc
cit
for the reasons advanced by him.
I also accept the correctness of Dr A. Loubser’s formulation in
her doctoral thesis:
Some Comparative
Aspects of Corporate Rescue in South African Company Law
,
LLD Thesis, University of South Africa, February 2010 at 138,
referred to with approval by Gorven J, where she says:
“
The
word ‘binding’ means to imply that the offer, once made
cannot be retracted or changed, although it is far from
clear why
this should be the case. An explanatory memorandum or report by
the drafters to explain the reason behind the condition
would, once
again, have been of invaluable help.”
She
then discussed the curious condition pertaining to payment offered to
purchase the voting interests and continued as follows:
“
This
inexplicable condition now raises the fear that the words ‘binding
offer’ referred to above do not apply to the
offeror only, but
in fact also bind the offeree to the offer. The right of the
offeree to apply to court for a review of
the valuation would be
explained by this interpretation, as he would otherwise simply refuse
the offer. It is to be hoped
that this is not the intended
result of the provision, since the possibilities for abuse and
exploitation are endless, but it is
almost impossible to say with any
certainty what this provision is supposed to achieve.”
In
my view the reference to “binding offer” should be
regarded as an offer binding on the offeror and not the offeree
who
should be entitled to either accept or reject the offer at his will.
However it is apparent that there is uncertainty
and therefore the
legislature is urged to consider the issue afresh and make the
necessary amendments.
In casu
the
practitioner believed that a valid binding offer, which also bound
the bank, was made. However it is not necessary to
discuss the
issue further as the offer relied upon was made after the business
rescue plan had been adopted and the provisions
of ss 153(1) did not
even come into play.
[38]
It is necessary to return to what is meant by “financially
distressed”
in ss 128(1)(f) of the
Act. This is the case if
“
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
immediately ensuing six months or it appears to be reasonable likely
that the company will become insolvent within the immediately
ensuing
six months.”
In casu
it
is common cause that the two entities were indeed financially
distressed at the time the initial applications were brought.
[39]
Business rescue proceedings are much better suited to provide
solutions for financially distressed companies as was the situation
with judicial management under the Companies Act 61 of 1973.
One of the prerequisites in ss 427(1)(b) of that Act was a reasonable
probability that if the company is placed under judicial management
it would be enabled to pay its debts or meet its obligations
and
become successful. Judicial management suffered a slow death in the
light of such strict requirement and
dicta
such as the following in
Millman NO v
Swartland Huis Meubileerders Bpk
1972 (1) SA 741
(C) at 745A:
“…
even
though it might be more advantageous to dispose of the business of
the company as one under judicial management rather than
one in
liquidation, this is not a factor that should influence the Court to
grant an order of judicial management in respect of
a company which
will in all probability never be able to discharge more than a
percentage of its liabilities.”
[40]
Business rescue proceedings are much more flexible and financially
distressed company friendly than judicial management.
The
potential business rescue plan provided for in ss 128(1)(b)(iii) has
two objects in mind, the primary object being to
facilitate the
continued existence of the company in a state of solvency and
secondly and in the alternative, in the event that
the primary
objective cannot be achieved or appears not to be viable, to
facilitate a better return for the creditors or shareholders
of the
company than would result from immediate liquidation.
Consequently the Supreme Court of Appeal found in
Oakdene
Square Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami)
(Pty) Ltd and Others
2013 (4) SA
539
(SCA) at para [26] as follows:
“
It
follows, as I see it, that the achievement of any one of the two
goals referred to in section 128(1)(b) would qualify as "business
rescue" in terms of section 131(4).”
As
further stated by the Supreme Court of Appeal in para [27]:
“…
business
rescue proceedings are not limited to the return of the company to
solvency…”
[41]
In
Oakdene Square Properties
,
supra
, the
court remarked as follows in para [33]:
“
My
problem with the proposal that the business rescue practitioner,
rather than the liquidator, should sell the property as a whole,
is
that it offers no more than an alternative, informal kind of
winding-up of the company, ouside the liquidation provisions of
the
1973 Companies Act which had, incidentally, been preserved, for the
time being, by item 9 of sch 5 of the 2008 Act. I
do not
believe, however, that this could have been the intention of creating
business rescue as an institution…….
A
fortiori
, I do not believe that
business rescue was intended to achieve a winding-up of a company to
avoid the consequences of liquidation
proceedings, which is what the
appellants apparently seek to achieve.”
[42]
Insofar as major creditors may be opposed to any business rescue plan
put on the table by the business rescue practitioner,
it is apposite
to quote the following
dicta
contained in paras [37] and [38] of
Oakdene
Square Properties
,
supra
:
“
[37]
In these circumstances I do not believe Nedbank and Imperial can be
branded unreasonable in their declared intent to oppose
any business
plan in line with either of the two options proposed by the
appellants. The court a quo regarded this declared intent
by the two
major creditors – and the holders of 60% of the shareholding in
the company – as one of the reasons why
business rescue was
doomed to fail (see paragraph [47]). In argument before us the court
a quo was criticised for doing so. Authority
for this criticism was
sought in the following statement from
Nedbank
Ltd v Bestvest
153 (Pty) Ltd;
Essa
v Bestvest
153 (Pty) Ltd
2012 (5) SA
497
(WCC) [also reported at
[2012] 4 All SA 103
(WCC) – Ed] at
paragraph [55]:
‘
In
the answering affidavit both [the major creditors] make it clear that
they are not in favour of any BRP plan, and that they will
vote
against it at any meeting to be convened by the business rescue
practitioner in terms of ss 132(2)(c) and 152 of the Act.
They
accordingly urged the court not to sanction an exercise in futility,
and to rather make an order of winding-up. Such an approach
appears,
at first blush, to be a stratagem to advance the argument for
winding-up: one would have expected a responsible creditor
to be open
to any proposal that may ultimately redound to its benefit. Such an
approach certainly does not accord with the overall
purpose of BRP
which, as I have demonstrated above, are aimed at saving rather than
destroying a business, and in which consultation
and
consensus-seeking would be the point of departure.’
[38]
If the statement is intended to convey that the declared intent to
oppose by the majority creditors should in principle be
ignored in
considering business rescue, I do not agree. As I see it, 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, I see no reason why that proclaimed
opposition should be ignored. Unless, of course, that attitude can
be
said to be unreasonable or mala fide. By virtue of section
132(2)(c)(i) read with section 152 of the Act, rejection of the
proposed rescue plan by the majority of creditors will normally sound
the death knell of the proceedings. It is true that such rejection
can be revisited by the Court in terms of section 153. But that, of
course, will take time and attract further costs. Moreover,
the Court
is unlikely to interfere with the creditors' decision unless their
attitude was unreasonable. In these circumstances
I do not believe
that the court a quo can be criticised for having regard to the
declared intent of the major creditors to oppose
any business rescue
plan along the lines suggested by the appellants.”
[43]
One of the declared 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 relevant
stakeholders. See s 7(k).
[44]
In
Commissioner, South African
Revenue Service v Beginsel NO and Others
2013
(1) SA 307
(WCC)
the Commissioner
challenged the validity of a decision taken at a meeting of creditors
to adopt a business plan and sought a conversion
of the business
rescue into winding-up proceedings. The court found that the
implementation of the business plan was far
advanced, there was
already planning for the sale of some of the respondent’s
operations and the business rescue plan was
supported by 87% of the
value of creditors present at the meeting of creditors whilst only
SARS took an opposite view. Consequently
the court found that
nothing would be achieved if the business rescue proceedings would be
converted into liquidation, bearing
in mind the extra costs to be
incurred. The court was also satisfied that the continuation of
the business rescue proceedings
would result in a better return for
the company’s creditors as a whole than would result from the
reintroduction of the liquidation
process.
In
casu
matters are much more intricate.
There has been non-compliance with the Act in several respects and it
cannot avail the two entities
and the practitioner to argue that all
these should be disregarded and business rescue be allowed to
proceed. In
Beginsel NO
the implementation of the business rescue plan was far advanced, but
in casu
it
cannot be implemented.
[45]
Neither Mr Heymans, nor Mr Hack referred to any case law dealing
specifically with the issue of costs in business rescue,
sequestration and liquidation applications. In terms of
s 97(3)
of the
Insolvency Act, 24 of 1936
, the costs of opposition in
sequestration proceedings are not included in the costs of
sequestration, unless the court directs
that they be included.
Such orders have been granted in the past on the sole ground that the
debtor’s opposition was
bona fide
and reasonable. See
Hugo, NO v
Lipkie
1961 (3) SA 66
(O) at 73A
and the further case law referred to by
Mars:
The Law of Insolvency in South Africa
,
9
th
ed, para 5.40 at 150. However it appears as if such costs
should as a general rule be refused unless special circumstances
exist and the debtor had real and substantial grounds for opposing,
or because his opposition assisted the court in coming to a
decision. See
Slabbert, Verster
& Malherbe (Vrede) (Edms) Bpk v Bothma
1975 (1) SA 232
(O) at 236A and
Lotzof
v Raubenheimer
1959 (1) SA 90
(O)
at 94G.
[46]
Section 97(3)
of the
Insolvency Act applies
to a winding-up by virtue
of s 342(1) of the Companies Act, 61 of 1973. Notwithstanding
the 2008 Companies Act, Chapter 14
of the 1973 Act is still
applicable in certain instances. In the case of insolvent
companies the costs of an unsuccessful
opposition to a winding-up
application form part of the costs of liquidation only if the court
so orders
(s 97(3)
of the
Insolvency Act). To
conclude, the
effect of
s 97(2)(c)
and (3) of the
Insolvency Act, read
with s
342(1) of the 1973 Companies Act is that the costs incurred by the
applicant for the winding-up order are automatically
“the taxed
costs of liquidation” (unless the court otherwise orders) and
the costs of unsuccessful opposition to the
grant of the order are
costs in the liquidation only if the court so directs. Contrary to an
earlier approach that the court should
so direct only if the
opposition was
bona fide
and reasonable - see for example
Premier
Industries Ltd v African Dried Fruit Co (1950) Ltd and Others
1953 (3) SA 510
(C) at 513 – 514 - more recent authorities are
to the effect that the court should so direct only where special
circumstances
exist. See
Prudential
Shippers SA Ltd v Tempest Clothing Co (Pty) Ltd and Others
1976 (2) SA 856
(W) at 868. See also
Absa
Bank Ltd v Rhebokskloof (Pty) Ltd and Others
1993 (4) SA 436
(C) at 450 – 451 where the court refused so to
direct where it was satisfied that at no relevant time had there been
any
reasonable prospect of the opposition proving successful.
EVALUATION
OF THE FACTS, THE SUBMISSIONS OF COUNSEL AND THE AUTHORITIES
[47]
I am a proponent of supervision and business rescue proceedings and
am a firm believer that if the spirit and purpose of the
Act is given
effect to success will be achieved and the proceedings will not
become redundant as was the case with judicial management
under the
1973 Companies Act. If a purposive approach to interpretation
of the Act is undertaken as one should do, there
can be little doubt
that companies, being vehicles to obtain economic and social
well-being, should rather be rescued if at all
possible, than
“killed” in a winding-up process. However all
stakeholders will have to participate
bona
fide
all the time and within the
prescripts of the law.
[48]
I have already indicated,
supra
,
certain of my viewpoints pertaining to some of the sections of the
Act and do not intend to repeat same here. I am satisfied
that
the manner in which the business rescue practitioner has conducted
proceedings cannot be approved. Although the present
practitioner cannot be blamed for the initial delay of more than a
year, he himself is responsible for a further delay of several
months. The business rescue process was initiated on 31 October
2011, nearly two and a half years ago. I take cognisance
that
these applications were already filed at the end of September 2013.
This was most definitely not the idea of the legislature
that
creditors could be held ransom and be prevented from exercising their
normal contractual rights for such an extraordinary
period of time.
[49]
I need to mention briefly why I decided to dismiss the applications
for postponement even though it might be possible to settle
all those
debts which the practitioner regards as the two entities’ debts
upon receipt of the purchase price of the farm
property of
Properties. The practitioner was not entitled to sell the
immovable property. He did not act in accordance
with an
approved business plan, or in the ordinary course of business of
Properties. Its business is investment in immovable
property
and thus that of a property holding company. It does not trade
in or speculate with immovable property and this
was admitted in the
answering affidavit. The seller was not authorised to sell, and
the same applies to the purchaser
ex
facie
the papers. The purchaser
is cited as the Eldorado Trust. There is no indication who
signed the deed of sale on behalf
of the trustees of the trust and/or
whether this person was duly authorised by the trustees who have to
act together. Mr
Hack confirmed that the bank’s position
will remain the same if postponements were to be granted and the
transaction was
allowed to proceed. The effect hereof,
according to the practitioner’s unequivocal viewpoint, is that
the bank is not
a creditor of Valuations anymore and consequently it
has nothing to gain or to forfeit. Thus, based on the
practitioner’s
approach, if business rescue is allowed to
proceed, it would be highly prejudicial to the bank who has shown
that the practitioner’s
submissions are based on an improper
understanding of the law.
[50]
Further problems were faced by the two entities, backed by the
practitioner, who not only deposed to the founding affidavits
in the
postponement applications and the ss 131(7) applications, but also
deposed to confirmatory affidavits in the main applications.
Clearly, he not only has the interests of Mr and Mrs Davis in
particular at heart, but he is particularly subjective in his
approach
to the saga. In considering the applications for
postponement I took cognisance of the time wasted so far, the various
time
limits ignored by the practitioner and his predecessor, the fact
that the business rescue proceedings should have been finalised
a
long time ago and the stance of the bank that the business rescue is
void, alternatively terminated. Mr Hack was more concerned
to
keep Valuations “alive” insofar as it would become
entitled to valuable shares by the end of the year. There
is no
concrete and admissible evidence before me hereof and Mr Heymans
correctly referred thereto as “a pie in the sky”.
[51]
Mr Hack strenuously argued that the matter should be adjudicated in
accordance with the principles laid down in
Plascon
Evans
and in so doing the
application should be dismissed. He relied on what he called
three foreseeable disputes, to wit (a) the
bank’s reliance on
deeds of suretyship whilst the relevant mortgage bonds and deeds of
suretyship were not attached to the
papers – an aspect which
was dealt with by Mr Davis is his answering affidavit on the basis
that he could not admit or deny
the existence thereof; (b) the
outcome of the meetings of 1 July and precisely what was discussed
and resolved and (c) the applicability
of the time periods and the
practitioner’s proceeding with the sale of immovable
properties. I do not agree with these submissions.
The
practitioner never doubted and in fact accepted at all relevant times
that the bank was the holder of covering bonds and that
deeds of
suretyship as stated on behalf of the bank existed. The dispute
turned around the practical and legal effect thereof
which is a
matter of law and not fact. The practitioner’s version in
respect of the second issue is untenable and I
am not prepared to
accept it as correct. Even if I am wrong in this regard this is
not the end of the matter for the reasons
set out herein. I have
already dealt with the time periods and also refer to what is stated
infra.
The
practitioner cannot be heard to say, as he and Mr Hack do, that time
doesn’t matter and that since his appointment time
periods
could effectively be disregarded.
[52]
It is also apparent from the papers that the practitioner has in mind
the liquidation of the respondents, not in terms of the
provisions of
Chapter 14 of the 1973 Act, but in his own time and in accordance
with his own processes and procedures. He
is utilising an
informal kind of winding-up in the words of Brand JA in
Oakdene
Square Properties
which
should not be tolerated. I am also concerned with the
extravagant fees which he has charged up until May last year already,
which is in excess of R147 000.00. I do not know what his
fees are up and until the time these applications were filed,
but I
have reason to believe that he is of the view that he is owed much
more. If one considers the statutory fees to which
a liquidator
would be entitled
in casu
,
it would be less than already claimed and being paid to the
practitioner.
[53]
The bank voted against the adoption of the business rescue plan in
the case of Properties and there is no reason why its opposition
could be ignored or frowned upon. It cannot be branded
unreasonable as it was entitled to vote against the adoption of the
plan. Fact is that the plan was rejected. The whole
process that followed in terms whereof its voting rights were to
be
purchased, is flawed and totally contrary to the provisions of ss
153(1)(a). Fact is that no documents in this regard
have been
filed with the court, or even disclosed during the voluminous e-mail
correspondence between the parties that were attached
to the papers.
There is not only two different versions before me, but even on
Property’s version, which appears to
be untenable and false but
which I accept for the moment, no proper offer was made for any
voting rights and nothing was accepted.
I refer to the passages
in the judgment of Gorven J in
DH
Brothers Industries
quoted
with approval
supra.
The
practitioner should have acted in terms of ss 153(5) and filed a
notice of termination of the business rescue, but failed to
do so.
This should have happened in July 2013 already.
[54]
The business rescue plan of Valuations was approved by creditors, but
in that matter, the practitioner decided
mero
motu
that the plan had in fact not been
approved on the basis that the plan in respect of the one entity
could not be approved whilst
the plan in respect of the other was
rejected. No such condition surfaced at any stage during any
meeting. He took
the view that this approved plan was in fact
not approved, alternatively could be amended by him unilaterally.
This is an
untenable situation and makes a mockery of the
meeting of creditors and their decisions. In the process the
practitioner
unilaterally prepared a revised plan based on the bank’s
claim being “purchased” by BDL Trust of Mr and Mrs Davis
for the ridiculous amount of R2 901 by unlawfully utilising ss
153(1) procedure. This happened without the bank’s
consent or input. This sub-section does not apply when a
business rescue plan has been adopted as
in
casu.
Even if anything else is
disregarded for the moment, this extremely controversial issue is
sufficient to conclude that it is just
and equitable that the
business rescue of Valuations be terminated.
[55]
I have taken cognisance of the fact that the farm property of
Properties might be sold, bearing in mind the written offer received
after filing of the affidavits and just prior to the application
being argued, at a purchase price which would probably be sufficient
to cover all debts of both entities. This might be so and if it
is indeed the case, it may eventually lead to a discharge
of the rule
nisi
that
I intend to make, but cannot stand in the way of the orders I intend
to issue. Fact is that the practitioner had no
right to sell
the farm. It is admitted in the answering affidavit of
Properties, confirmed under oath by the practitioner,
that Properties
was not trading in property but was a property holding company. The
selling of its immovable assets is therefore
not part of its ordinary
business.
[56]
Although there is cogent authority for the viewpoint that the
business rescue proceedings of both entities have lapsed or became
a
nullity due to non-compliance with procedural requirements set out in
s 129 and/or s 150, I am of the view that
in
casu
the better approach would be to
issue a declaratory order based on the non-compliance with several
other requirements. In
doing so I shall have regard to the just
and equitable ground stated in s 130(5). A serious waste of
time occurred during
the time that Gagiano acted as business rescue
practitioner. The two entities must be blamed for doing nothing
until end
of December 2012. Thereafter the practitioner was
appointed, but he also dragged his feet, but certainly not to the
extent
of Gagiano. The first meetings of creditors were held
late as was the case with the presentation of the business plans.
It took nearly five months instead of twenty five business days. The
practitioner should have utilised ss 141(2) and applied for
discontinuance of the business rescue when it became clear that the
adopted plan of Valuations could not be implemented, but he
decided
to proceed on a wrong path. Pertaining to Properties the only
way out under the circumstances was to immediately
file a notice of
termination of business rescue in terms ss 153(5), but he failed to
act accordingly. Gorven J is of the
view that if the time limit
of twenty five days is not adhered to, provided no extension was
granted, the business rescue proceedings
come to an end automatically
for the reasons advanced. This appears to be an attractive
viewpoint. No application for
extension was sought at any stage
in casu
.
On a conspectus of the Act, chapter 6 in particular, and the
extraordinary delays that occurred herein together with the conduct
of the practitioner I am of the view that the business rescue
proceedings should be declared to have terminated.
[57]
The practitioner has not complied with his duties as could have been
expected of a reasonable business rescue practitioner.
He acted
without any regard to time periods and even at the stage of hearing
of the application supported the view of the two entities
that all
time periods had become immaterial upon his appointment. He has
no idea of the meaning of enforcement action or
the rights to be
enforced by a third party during business rescue referred to in s
133. The bank never intended to enforce
its rights; it merely
insisted that its rights as surety be acknowledged, which the
practitioner was not prepared to do.
The practitioner carried
on with the sale of property belonging to Property in business rescue
without an approved plan and contrary
to the provisions of the Act.
It is time for winding-up and the appointment of a liquidator who
will take charge and liquidate
strictly in terms of the applicable
legislation, being chapter 14 of the 1973 Companies Act. Some
faint argument was raised
that no case had been made out that the two
entities are factually insolvent or not in a position to pay their
debts as they fall
due and thus commercially insolvent. This is
an untenable argument in light of the history of events and the fact
that the
bank is still struggling to obtain payment of what is due
and payable to it. Valuations is dependent on the finances of
Properties
and its adopted business rescue plan could not be
implemented when Properties’ plan was rejected. Mr Davis
admitted
in paragraphs 171 and 172 of his answering affidavit, again
confirmed by the practitioner, that if business rescue is allowed to
proceed, all affected parties will receive a just and equitable
dividend, but in case of winding-up, the benefits will not be close
to what they would have received under business rescue. This is
a clear acknowledgment of insolvency.
[58]
The costs of 24 October 2013 and 28 November 2013 which stood over
for later adjudication should be considered. Mr Heymans
conceded that the bank is not entitled to the costs of 24 October
2013 and I shall not make any order in that regard, but the costs
of
28 November 2013 should be costs in the application. No counter
arguments were raised in this respect. In light
of the
authorities quoted
supra
the
costs of opposition of the application should not be allowed to be
costs in the liquidation. The opposition was not reasonable
and
bona fide,
but
in any event, at no relevant time was there any reasonable prospect
of the opposition proving successful. No special circumstances
exist to warrant an order that the costs of opposition be included in
the costs of liquidation. Mr Heymans submitted that
the
practitioner should be ordered to pay the costs of the application.
I do not believe that such order is justified, even
bearing in mind
what I mentioned in the previous paragraph and elsewhere.
Business rescue procedure is still relatively new
and the Act is not
as clear and straightforward as one might have expected. Mr
Hack agreed that the costs of the condonation
applications wherein
the two entities sought condonation for the late filing of the
answering affidavits be paid on an unopposed
basis.
[59]
I conclude therefore that a proper case has been made out for the
relief sought in both notices of motion adjusted as indicated
in my
orders.
[60]
The following orders are made:
Application
3813/2013
(the application concerning
CRIR Properties CC):
1.
It is declared
that the business rescue proceedings of second respondent have
terminated.
2.
The estate of
second respondent is placed under provisional liquidation in the
hands of the Master of the High Court.
3.
A rule
nisi
is issued calling upon all interested parties to furnish reasons, if
any, to this court on Thursday 8 May 2014 why a final winding-up
order should not be issued against second respondent.
4.
That this
order be served on the registered address of second respondent.
5.
A copy of the
order must be served on
(i)
any registered
trade union that, as far as the sheriff can reasonably ascertain,
represents any of the employees of second respondent;
(ii)
the second
respondent’s employees, if any, by affixing a copy of the order
to any notice board to which the employees have
access inside second
respondent’s premises, alternatively by affixing a copy thereof
to the front gate, where applicable,
failing which the front door of
the premises from which the second respondent conducts any business.
6.
That this
order should be served upon the South African Revenue Services.
7.
That this
order be published without any delay in the Volksblad and Government
Gazette.
8.
The costs of
this application, including the costs of 28 November 2013, but
excluding the costs of opposition of this application,
shall be costs
in the liquidation and second respondent is ordered to pay the costs
of the condonation application on an unopposed
basis,
Application
3915/2013
(the
RCIR Valuations (Pty) Ltd application):
1.
It is declared that
the business rescue proceedings of second respondent have terminated.
2.
The estate of
second respondent is placed under provisional liquidation in the
hands of the Master of the High Court.
3.
A rule
nisi
is issued calling upon all interested parties to furnish reasons, if
any, to this court on Thursday 8 May 2014 why a final winding-up
order should not be issued against second respondent.
4.
That this
order be served on the registered address of second respondent.
5.
A copy of the
order must be served on
(i)
any registered
trade union that, as far as the sheriff can reasonably ascertain,
represents any of the employees of second respondent;
(ii)
the second
respondent’s employees, if any, by affixing a copy of the order
to any notice board to which the employees have
access inside second
respondent’s premises, alternatively by affixing a copy thereof
to the front gate, where applicable,
failing which the front door of
the premises from which the second respondent conducts any business.
6.
That this
order should be served upon the South African Revenue Services.
7.
That this
order be published without any delay in the Volksblad and Government
Gazette.
8.
The costs of
this application, including the costs of 28 November 2013, but
excluding the costs of opposition of this application,
shall be costs
in the liquidation and second respondent is ordered to pay the costs
of the condonation application on an unopposed
basis.
J.
P. DAFFUE, J
On
behalf of applicant: Adv P.J. Heymans
Instructed
by:
EG
Cooper Majiedt Inc
BLOEMFONTEIN
On
behalf of second respondent: Adv B. Hack
Instructed
by:
Hugo
& Bruwer Attorneys
BLOEMFONTEIN