African Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd and Others (GNP) [2013] ZAGPPHC 259; [2013] 4 All SA 432 (GNP); 2013 (6) SA 471 (GNP) (29 August 2013)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: North Gauteng High Court, Pretoria
SAFLII
>>
Databases
>>
South Africa: North Gauteng High Court, Pretoria
>>
2013
>>
[2013] ZAGPPHC 259
|

|

African Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd and Others (GNP) [2013] ZAGPPHC 259; [2013] 4 All SA 432 (GNP); 2013 (6) SA 471 (GNP) (29 August 2013)

Links to summary

REPORTABLE
NORTH GAUTENG HIGH COURT, PRETORIA
CASE NO: 20947/12
DATE:29/08/2013
In the matter between:
AFRICAN BANKING CORPORATION
OF BOTSWANA
LTD
............................................................................
Applicant
and
KARIBA FURNITURE
MANUFACTURERS
........................
First
Respondent
(PTY) LTD
(In Business Rescue)
JORDAAN, JEAN PIERRE
N.O.
.........................................
Second
Respondent
NCHITE,
BALDWIN
...................................................................
Third
Respondent
NCHITE, BIRGITTA
SVENSSON
.........................................
Fourth
Respondent
COMPANIES AND INTELLECTUAL PROPERTY
COMMISSION, REPUBLIC OF SOUTH
AFRICA
.................
Fifth
Respondent
MINISTER OF TRADE AND
INDUSTRY
…...........................
Sixth
Respondent
J U D G M E N T
KATHREE-SETILOANE, J
:
[1] In this application, African
Banking Corporation of Botswana Limited (the Bank) seeks relief
pertaining to the business rescue
proceedings of the first
respondent, Kariba Furniture Manufactures (Pty) Ltd (the company) and
a business rescue plan, which was
adopted during the course of those
business rescue proceedings (the Plan).
[2] The business rescue
proceedings were undertaken and the Plan ostensibly adopted in terms
of the provisions of Chapter 6 of the
Companies Act, 71 of 2008 (‘the
Act’), subsequent to a binding offer to purchase the voting
interests of the Bank in
terms of s 153(1)
(b)
(ii)
of the Act. Accordingly, the primary issue for determination relates
to the interpretation of the term ‘binding offer’
in s
153(1)
(b)
(ii)
of the Act.
[3] The second respondent is
Jean Pierre Jordaan (Jordaan), the business rescue practitioner of
the company. The third and fourth
respondents are Baldwin Nchite
(Baldwin Nchite) and Birgitta SvenssoN Nchite (Birgitta Nchite), the
directors and sole shareholders
of the company. The Bank and the
Nchite’s are ‘affected persons’ as defined in the
Act, in the business rescue
of the company. Jordaan, on behalf of the
company, and the Nchite’s oppose the relief sought by the Bank
in this application.
The fifth and sixth respondents are the
Companies and Intellectual Property Commission (the CIPC) and the
Minister of Trade and
Industry of the Republic of South Africa,
respectively. Although no relief is sought against them, the CIPC
opposes the application
only in respect of the declaratory relief
sought in relation to the constitutionality of s 153(1)
(b)
(ii)
of the Act.
Leave to sue in terms of s 133 of the Act
[4] Before dealing with the principal issues in dispute, I must first
consider the in limine
objection to the application pertaining
to the necessity for the Bank to have obtained leave to institute
these proceedings. Section
133(1) of the Act places a general
moratorium on legal proceedings against a company under business
rescue, subject to certain
limitations. Section 133(1) provides as
follows:
‘
During business rescue
proceedings, no legal proceedings, 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-
with the written consent of the
practitioner;
with the leave of the court and
in accordance with any terms the court considers suitable;
. . . .’
[5] Jordaan and the Nchite’s submit that leave of the court to
commence legal proceedings, including enforcement action against
a
company in business rescue under s 133(1)
(b)
of the Act, may
only be sought before a business rescue plan is adopted. This
contention, in my view, is unsustainable on the plain
meaning of the
section. On the ordinary wording of the section, the moratorium
envisaged by s 133 of the Act is in place for the
duration of
‘business rescue proceedings’. Although the term
‘business rescue proceedings’ is not defined
in s 128 of
the Act, the term ‘business rescue’ is defined. Section
128(1)
(b)
of the Act defines ‘business rescue’ as,
inter alia
‘proceedings to facilitate the rehabilitation
of a company that is financially distressed by providing for. . . the
development
and implementation, if approved, of a plan to rescue the
company. . . .’ The business rescue proceedings, therefore,
clearly
extend beyond the adoption of a business rescue plan. In
addition, s 132(2) of the Act expressly lists the circumstances in
which
business rescue proceedings come to an end. Section
132(2)
(c)
(ii) provides that once a business rescue plan has
been adopted in terms of the Act, and the business rescue
practitioner has filed
a notice of substantial implementation of the
business rescue plan, business rescue proceedings will come to an
end. For as long
as the moratorium is in place, s 133(1)
(b)
of
the Act permits a court to grant leave to a person to institute legal
proceedings.
[6] Thus, s 133(1) allows the institution of proceedings against the
company in business rescue with leave of the court, both before
and
after the adoption of a business rescue plan. Leave to institute
legal proceedings has, in this regard, been sought by the
Bank in
prayer one of part B of its notice of motion. On the ordinary wording
of s 133 of the Act, the moratorium is in place for
the duration of
‘business rescue proceedings’. Therefore, if ‘business
rescue proceedings’ extend only
up to the date on which the
business rescue plan is adopted, s 133 would be inapplicable, the
moratorium would not be in place,
and no leave to sue would be
required.
[7] However, and to the extent that s 133 is applicable to the
business rescue proceedings in this matter, I consider that the

facts demonstrate that this is a proper case in which the court
should exercise its discretion in favour of granting the Bank leave

to institute these proceedings, since the Bank seeks, in particular,
to challenge the conduct of the business rescue practitioner
and
affected parties during the course of the business rescue
proceedings, as well as the constitutional validity of s
153(1)
(b)
(ii) of the Act. In the circumstances, I am of the
view that there is no merit in the preliminary objection raised on
behalf of
the first to fourth respondents that the Bank has been
non-suited by operation of s 133 of the Act. I accordingly grant the
Bank
leave to commence and proceed with the application against the
respondents in terms of s 133(1)
(b)
of the Act.
Background
[8] The issues in dispute play out against a factual matrix which is
largely common cause. During October 2006 the Bank instituted
an
action in this court against the company and the Nchite’s. The
cause of action against the company was based on monies
lent and
advanced by the Bank to the company under a credit facility
agreement. The claims against the Nchite’s were based
on deeds
of surety signed by them in favour of the Bank. The Bank’s
claims against the company were secured by a general
notarial bond
executed by the company in favour of the Bank.
[9] By agreement between the parties to the litigation, the action
was removed from the High Court and referred to arbitration.
On 7
February 2011 the arbitrator handed down an award in which he found
in favour of the Bank. The arbitrator ordered that the
company and
the Nchite’s (the defendants), were jointly and severally
liable to the Bank for payment of the sum of BWP (Botswana
Pula)
5 610 125,38 together with interest at the rate of 13 per
cent annum compounded monthly in arrears from 1 July
2004 to date of
payment, save in the case of Birgitta Nchite, whose liability was
limited to the Botswana Pula equivalent of R1.5
million. The
defendants appealed the award to a panel of three arbitrators. On 23
January 2012, the appeal tribunal handed down
an appeal award, which
confirmed the initial award in favour of the Bank save in respect of
Birgitta Nchite, whose liability to
the Bank, the appeal tribunal
found, had been discharged.
[10] Thus, as matters currently stand, and at the date of the
commencement of the business rescue proceedings, the company and

Baldwin Nchite are jointly and severally liable to the Bank, in the
sum of BWP 5 610 125,38 together with interest at
the rate
of 13 per cent per annum compounded monthly in arrears from 1 July
2004 to date of payment. The total liability owing
under the award
inclusive of interest, as at 31 January 2012, was an amount of BWP
14 966 809,20. During March 2012 the
defendants delivered
an application in which they sought to have the awards set aside
under s 33(1)
(b)
of the Arbitration Act 42 of 1965 (the
Arbitration Act). The
application is opposed by the Bank. The review
application challenging the awards of the arbitrator and the appeal
tribunal does
not suspend the validity of the awards.
1
In the circumstances, the Bank remains a creditor of the company in
the sum of BWP 14 966 809,20 as at 31 January 2012,
and
Baldwin Nchite is liable with the company for this full amount under
the deed of surety signed by him.
[11] On 31 January 2012, subsequent to the handing down of the
appeal award, but before the defendants delivered the review
application,
the Board of the company resolved voluntarily to begin
business rescue proceedings and place the company under supervision,
in
terms of s 129(3) of the Act (the Resolution). Jordaan was
appointed as the business rescue practitioner on 6 February 2012. The

first statutory meeting of creditors of the company was held on 17
February 2012 (the First Meeting of creditors), with the purpose
of
affording the creditors an opportunity to prove their claims against
the company. Jordaan accepted the Bank’s claim against
the
company on a provisional basis pending the outcome of the application
to court to set aside the arbitration awards.
[12] There were various communications, before and after the First
Meeting of creditors, between the Bank’s attorney of record,
Mr
A Moosajee of Norton Rose Fulbright South Africa (Moosajee) and
Jordaan in which Moosajee raised queries and concerns. Moosajee
was
keen to ensure that the right papers were before Jordaan in order to
prove the Bank’s claim, and that the full extent
of the claim,
including interest, was proved. He also requested of Jordaan a copy
of the company’s last set of audited financial
statements and,
if such was more than six months old, the company’s latest
management accounts from the date of the last
audit to the end of
January 2012. These were necessary for the purpose of advising the
Bank of its rights, particularly its rights
under s 130 of the Act,
which allows for the setting aside of a company’s resolution to
commence business rescue proceedings
in certain circumstances.
Jordaan’s response to such requests varied, including a
response that such statements and accounts
would be incorporated in
the proposed business rescue plan (the proposed Plan).
[13] On 21 March 2012, Jordaan distributed the proposed Plan to the
affected parties, the stated purpose of which was
‘to revive
the business’
. The proposed Plan contemplated in the main
that the business will be revived by compromising certain creditors’
claims.
In particular, the proposed Plan contemplated that the Bank
will be paid 21 cents in the Rand over a period of 100 months.
[14] On 23 March 2012, in anticipation of the second statutory
meeting of creditors (the Second Meeting of creditors), Moosajee
sent
Jordaan an email in which he requested Jordaan to address a list of
queries at such meeting pertaining to the proposed Plan
and certain
shortcomings in the Plan. The Second Meeting of creditors was duly
held, within ten days after the proposed Plan had
been published, on
26 March 2012. At this meeting Jordaan invited discussion on the
proposed Plan and called for motions, to amend
the proposed Plan, or
to direct him to adjourn the meeting in order to revise the Plan for
further consideration in terms of s
152(1)
(d)
(i) and (ii) of
the Act. Since there were no motions as contemplated in s
152(1)
(d)
(i) of the Act, Jordaan called for a vote of the
creditors for the preliminary approval of the proposed Plan, in terms
of which
he had indicated that the voting interests were in
accordance with the percentages reflected in the proposed Plan, which
afforded
the Bank approximately 63 per cent, the North West
Development Corporation (the NWDC) one per cent and the shareholders
(the Nchite’s,
as creditors) 32 per cent. These were the only
creditors present at the meeting.
[15] The Bank and the NWDC voted against the proposed Plan and the
shareholders (the Nchite’s) voted in favour of it. Mr
Cawood
(Cawood), the Nchites’ attorney of record, then informed the
meeting that the shareholders wished to make a binding
offer for the
Bank’s voting interest in terms of s 153(1)
(b)
(ii) of
the Act, and Jordaan called a short adjournment of the meeting.
Jordaan treated the offer as being immediately and ipso
facto
binding on the Bank, ostensibly on the basis of s 153(1)
(b)
(ii)
of the Act. In other words, Jordaan treated the offer as having been
accepted by the Bank. In keeping with his view that the
offer had
immediately and ipso facto
been accepted and became binding
upon the Bank, after the adjournment Jordaan amended the voting
interest to reflect the Bank as
holding zero per cent and the
shareholders as holding 95 per cent of the voting interests of the
creditors. Jordaan stated that
the amendments would also need to
reflect that the payment schedule, attached to the proposed Plan, had
to be removed and, if not
removed, it would mean that the Bank would
be paid both in terms of the binding offer, and in terms of the Plan.
No further amendments
were made to the proposed Plan.
[16] Jordaan called for a vote of the ‘creditors’ −
now excluding the Bank, but exercising the voting interest
that the
Bank had previously exercised − on the proposed Plan. The
representatives of the Bank attempted to prevent a vote
on the
proposed Plan by the (reconstituted) ‘creditors’, but
failed. Given the attitude of Jordaan that a binding offer
in terms
of s 153(1)
(b)
(ii) of the Act had the effect of dispossessing
the Bank of its rights as creditor, and that the Bank could therefore
no longer
exercise a vote as a creditor, the Bank took the view that
its continued involvement in the meeting was pointless, and its
representatives
left the meeting before the vote of the reconstituted
creditors was taken.
[17] The remaining ‘creditors’
− in effect, the Nchite’s − approved the adoption
of the Plan and it
was ‘preliminarily approved’ in terms
of s 152(2) of the Act. Subsequently, the Nchite’s also voted
in favour
of the adoption of the Plan, in terms of s 152(3) of the
Act, the effect of which was that it was ‘finally adopted’,

and Jordaan had indicated that he will implement it.
Relief sought
[18] The Bank, no doubt, is
adamant that its position in relation to the ‘binding offer’
remains unsettled. It contends
that it is in a materially different
position to that which it was prior to the commencement of the
business rescue proceedings
or the adoption of the Plan. The Bank
contends that it has ipso facto
been divested of its
claim against the company, as well as its secured assets in that
claim in the form of a notarial bond over
the company’s
assets
2
,
and that it is instead left with the cold comfort of an offer −
as yet uncertain and its terms undisclosed, with no idea
of its value
or the repayment period or the proportions in which it is recoverable
from either of the Nchite’s – of
money to be paid to it
in the future. In addition, the Bank points out that although it had
previously enjoyed a real and material
interest in the business
rescue proceedings of the company and, as a consequence, any
liquidation proceedings that might ensue,
it no longer has that
interest. Hence, the nub of the Bank’s contention is that it is
materially worse off than it was previously,
and it, accordingly,
seeks declaratory relief in the following terms:
an order that the ‘binding offer’ made on behalf of the
Nchite’s to purchase the voting interest of the Bank,
in terms
of s 153(1)
(b)
(ii) of the Act, is not binding on the Bank
since s 153(1)
(b)
(ii)
c
ontemplates an offer that
is binding on the ‘offeror’ only (in this instance the
Nchite’s), and the offeree
Bank is free to accept or reject
the offer, and the Bank did not accept the offer. Alternatively,
and in the event of it being held that the offer made by the
Nchite’s is binding on the Bank, the Bank seeks an order that

s 153(1)
(b)
(ii) of the Act is unconstitutional and invalid;
an order setting aside the approval of the Plan which took place at
the Second Meeting of creditors, including the creditors’
vote
for the adoption and preliminary approval of the proposed Plan and
the shareholders’ vote for the adoption and final
approval of
the Plan;
an order in terms of s 130(1)
(a)
of the Act setting aside the
Resolution in terms of which the Board of the company resolved to
voluntarily begin business rescue
proceedings and place the company
under supervision, alternatively, and in the event that the court
does not set aside the Resolution,
the Bank seeks an order, in terms
of s 130(1)
(b)
read with s 139 of the Act, setting aside the
appointment of Jordaan, as the business rescue practitioner, in the
business rescue
proceedings of the company;
alternatively, and in the event of the court declining to grant any
of the relief sough above, an order declaring that neither
the
adoption of the Plan nor the binding offer made by the Nchite’s,
in terms of s 153(1)
(b)
(ii) of the Act, to purchase the
voting interests of the Bank, affect the rights of the Bank to
recover monies from Baldwin Nchite
under the deed of surety,
executed by the company in favour of the Bank, for any indebtedness
owed by the company to the Bank.
The binding offer in terms of s 153(1)
(b)
(ii)
of the Act
[19] The concept of a ‘binding offer’, as contemplated in
s 153(1)
(b)
(ii) of the Act, is novel to South African company
law. It provides, amongst others, shareholders and creditors of a
company in
business rescue, as well as holders of the company’s
securities, with the opportunity to purchase the voting interests of

persons who oppose the adoption of a business rescue plan. The
concept of a ‘binding offer’, contemplated in s
153(1)
(b)
(ii) of the Act, amounts to what has been described
as a ‘last-gasp’ attempt to have a business rescue plan
approved.
For present purposes, the relevant portions of s 153(1) of
the Act are 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)
a 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)
. . . .’
[20] The two aspects that arise for consideration from a reading of s
153(1)
(b)
(ii) of the Act are − the legislative meaning
of the words ‘binding offer’ − and the remuneration
payable.
The Bank contends that s 153(1)
(b)
(ii) contemplates
an offer that is unconditional and certain as to all the material
elements thereof, and that this accords with
the general principle
that an offer must contain definite terms of performance and be
unequivocal, positive and unambiguous. Accordingly,
the Bank submits
that no proper offer under s 153(1)
(b)
(ii) was made by the
Nchite’s since the offer was not unconditional and it was
uncertain as to all its material terms, because
at the Second
Meeting of creditors, when the offer was made on behalf of the
shareholders for the Bank’s voting interests
in terms of s
153(1)
(b)
(ii) of the Act, Jordaan stated that he would
circulate the binding offer to the parties. However, the Bank
maintains that, at that
stage, it was not provided with a written
offer, and the terms of the offer were not recorded. The Bank
accordingly contends that
it did not know what the terms of the
offer were, the amount that it would be paid, whether or not there
were any conditions
attaching to the offer, or what the consequences,
if any, were for the Bank’s claims against Baldwin Nchite under
the suretyship.
[21] In particular, the Bank points out that, immediately after the
offer was made, a debate followed regarding how payment would
be made
in terms of the binding offer, and whether payment would be made in
instalments or as a lump-sum. In addition, after making
the offer,
Cawood indicated that a paragraph should be inserted in the Plan
which stated that ‘[t]he amount that will be
received by [the
Bank] in terms of the binding offer constitutes full and final
settlement of their claim’. Accordingly,
the Bank argues that
there was no clarity given regarding whether this was intended to
mean that the offer would extinguish all
of the Bank’s claims,
including those which it has against Baldwin Nchite in his personal
capacity under the surety. On this
basis, the Bank submits that no
proper offer was made under s 153(1)
(b)
(ii) of the Act, and
the alleged ‘offer’ ostensibly made is not binding on the
Bank.
The meaning of the term ‘binding offer’
[22] Section 153(1)
(b)
(ii) of the Act makes reference to a
‘binding offer’, but does not define what this term
means. The Bank contends that
the ‘binding offer’
envisaged in s 153(1)
(b)
(ii) of the Act, is an offer that is
binding on the offeror only (in the nature of an option) and that the
offeree is free to accept
or reject it. The respondents, however,
contend that the ‘binding offer’ contemplated in s
153(1)
(b)
(ii) is binding on both the offeror and the offeree,
such that the offeree is deemed to have accepted the offer once made,
and it
is of no consequence that the Bank did not accept the ‘binding
offer’ made by the Nchite’s.
[23] The statutory context of s 153(1)
(b)
(ii) of the Act is
important in construing the meaning of the term ‘binding
offer’. Section 5 of the Act, in this regard,
affords direction
on how the provisions of the Act are to be interpreted. It provides:
‘
(1) This Act must be
interpreted and applied in a manner that gives effect to the purpose
set out in section 7.
(2) To the extent appropriate, a
court interpreting or applying this Act may consider foreign law.
(3) . . . .’
The purposes or objectives of the Act are set out in s 7. Section
7
(k)
, in particular, pertains to business rescue proceedings.
It provides:
‘
The purposes of this Act
are to –
. . .
(k)
Provide
for the efficient rescue and recovery of financially distressed
companies in a manner that balances the rights and interests
of all
relevant stakeholders
3
.’
The detailed provisions in the
Act relating to business rescue must, therefore, be purposively
interpreted to give effect to the
objective in s 7
(k)
of the Act. In line with this objective, and as an alternative to the
liquidation or winding up of a company, the Act in chapter
6
introduces a business rescue system which is aimed at facilitating
and rehabilitating a company that is in financial distress.
Section
128(1)
(b)
of the Act defines a ‘business rescue’ as:
‘
[P]roceedings
to facilitate the rehabilitation of a company that is financially
distressed by providing for:
the temporary supervision of
the company, and of the management of its affairs, business and
property;
a temporary moratorium on the
right of claimants against the company or in respect of property in
its possession; and
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.’
[24] The approval of the business
rescue plan, which must be prepared and implemented by the business
rescue practitioner is thus
the eventual goal of the business rescue
process. The practitioner is required, for this purpose, to prepare
the business rescue
plan, for consideration and possible adoption at
a meeting to be held in terms of s 51 of the Act, after consultation
with the
creditors, other affected persons as defined in s 128(1)
(a)
of the Act
4
,
and management of the company
5
.
Section 151 of the Act provides for a meeting of creditors, and any
other holders of voting interests, to be convened and presided
over
by the practitioner, within ten days after publishing a business
rescue plan, for the purpose of considering the business
rescue plan.
The business rescue plan must, in meeting the requirements of s 150
of the Act, contain all the information reasonably
required to
facilitate the affected persons in deciding whether or not to accept
or reject the plan
6
.
[25] Section 152 of the Act
provides for the process that must be followed before a proposed
business rescue plan is preliminarily
or finally adopted. If the plan
is not approved on a preliminary basis, it is regarded as having been
rejected, and may thereafter
only be considered in terms of s 153 of
the Act
7
.
Where the proposed business rescue plan alters the rights of holders
of any class of the company’s securities, the practitioner
must
immediately convene a meeting of the holders of the class or classes
of securities, and call for a vote by them to approve
the adoption of
the plan. If the majority of the voting rights exercised by the
holders of the company’s securities support
adoption of the
plan, it will be treated as having been finally adopted, subject only
to the satisfaction of any conditions on
which it is contingent
8
.
If, however, the holders of the company’s securities oppose
adoption of the plan, the plan is treated as rejected and may
only be
considered further in terms of s 153 of the Act
9
.
[26] Section 153 prescribes the process to be followed by the
business rescue practitioner or affected persons as defined in s

128(1)
(a)
of the Act, in circumstances where the proposed
business rescue plan has been rejected as contemplated in s 152(3)
(a)
or
(c)
(ii)
(bb)
of the Act. If a business rescue plan is
rejected the business rescue practitioner may:
Seek a vote of approval from the
holders of voting interests to prepare and publish a revised plan;
or
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
10
.
If the business rescue practitioner fails to take the steps set out
above, then an affected person present at the meeting may:
call for a vote of approval from the holders of voting interests
requiring the practitioner to prepare and publish a revised
plan; or
apply to court to set aside the
result of the vote by holders of voting interests or shareholders,
as the case may be, on the
grounds that it was inappropriate; or
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
11
.
[27] In terms of s 153(4) of the Act, if an affected person makes a
binding offer contemplated in s 153(1)
(b)
(ii) of the Act, the
practitioner must:
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
set a date for the resumption of the meeting, without further
notice, at which the provisions of s 152 (relating to the
consideration
of a business rescue plan) and s 153 (relating to the
steps that may be taken when there has been a failure to adopt a
business
rescue plan) will apply afresh.
Section 153(4) makes it clear that once the offer is made, the
practitioner must adjourn the meeting for five days in order to
make
any necessary revisions or amendments to the business rescue plan to
appropriately reflect the results of the binding offer.
Having
effected such amendments to the business rescue plan, the
practitioner must then set a date for the resumption of the meeting

of creditors, in terms of s 151 of the Act, for the purpose of
considering the plan afresh in terms of s 152 and 153 of the Act.

Sections 152 and 153 relating to the publication and consideration of
the revised plan will apply as with the original business
rescue
plan. The revised or amended business rescue plan will be considered
afresh by the remaining creditors and shareholders,
and they must
then vote in support of, or against the adoption of the plan in terms
of s 152 of the Act. Where the majority of
the voting rights
exercised support the adoption of the plan, it will have been finally
adopted, subject only to the satisfaction
of any conditions on which
it is contingent. The company, under the direction of the
practitioner, is required in terms of s 152(5)
of the Act to take all
necessary steps to attempt to satisfy any conditions on which the
business rescue plan is contingent; and
implement the plan as
adopted.
[28] In terms of s 152(4) of the
Act, a business rescue plan that has been
adopted is binding on the
company, on each creditor and on every holder of securities of the
company, whether or not that person
was present at the meeting, voted
in favour of adoption of the plan or, in the case of creditors, had
proven their claims against
the company. This phenomenon is known as
‘cramdown’, and it has its origin in chapter 11 of the US
Bankruptcy Code,
Bankruptcy Reform Act 1978
12
.
One of the most notable features of chapter 11 of the US Bankruptcy
Reform Act, is its focus on the reorganising of companies
that are in
financial distress. Under chapter 11, a debtor-in-possession
13
must file a repayment plan with the bankruptcy court and solicit
creditors for acceptance and confirmation. If the court accepts
and
confirms the plan, the debtor will continue to operate and pay its
debts in term of the repayment plan. However, where creditors
refuse
to assent, the Bankruptcy Code provides for the court to confirm the
repayment plan despite creditors’ objections,
provided that the
requirements of s 1129
(b)
of the Code are met, essentially permitting the repayment plan to be
‘crammed down’ upon the dissenting creditors
14
.
‘Cramdowm’ is therefore indispensable to the successful
implementation of a business rescue plan because it effectively
binds
dissenting creditors of the company and every holder of the company’s
securities, whether or not that person was present
at the meeting
convened to approve the adoption of the plan, voted in favour of the
adoption of the plan or had proven his or her
claims against the
company. Since ‘cramdown’, is a ‘process by which
creditors are forced to accept a re-organisation
or a business rescue
plan, even against their wishes’,
15
it has the incidental effect of discouraging creditors from resisting
or holding out for better treatment, and it enables a business
rescue
or re-organisation to proceed despite the objections of one or more
disgruntled creditors.
16
[29] Returning then to the interpretation of s 153(1)
(b)
(ii)
of the Act, the word ‘binding’, as it appears before the
word ‘offer’, characterises the nature of
the offer which
the legislature envisaged under s 153(1)
(b)
(ii) of the Act.
Whilst ordinarily an offer is made freely and voluntarily and may be
withdrawn at any time before acceptance, s
153(1)
(b)
(ii)
describes the offer, contemplated in the section, as ‘binding’
because once it is made it creates a
vinculum juris
or legal
obligation on the part of the offeror and may not be withdrawn. The
‘binding offer’ envisaged in s 153(1)
(b)
(ii) of
the Act is, therefore, not an ‘option’ or ‘agreement’
in the contractual sense of the term, but
is rather a set of
statutory rights and obligations, from which neither party may
resile. Thus, the binding offer envisaged in
s 153(1)
(b)
(ii)
of the Act will be binding on both the offeror and the offeree once
made, predominantly to ensure compliance with the procedure
to revive
a business rescue, and enforce a revised business rescue plan within
the framework of s 153(4) of the Act. As alluded
to, s 153(4)
prescribes a swift and efficient procedure to be accomplished within
five days, the purpose of which is to revive
the business rescue
procedure after rejection of the business rescue plan, by allowing
the purchase of a voting interest of one
of more persons, who opposed
the adoption of the business rescue plan. Manifestly, the core
objective of the binding offer is to
enable the adoption of the
business rescue plan at the resumed meeting, to be called by the
practitioner, in terms of s 153(4)
(b)
of the Act.
[30] The determination of the value of the voting interest, by an
independent expert, will only be effected after adoption of the

revised business plan on the request of the practitioner, and as
prescribed in s 153(1)
(b)
(ii) of the Act. The Act does not
require the determination of the value by the independent expert,
and payment of the purchase
price of the offer to be made in the five
day period contemplated in s 153(4)
(a)
of the Act. That period
is reserved purely to afford the practitioner the opportunity to make
any necessary revisions or amendments
to the business rescue plan, to
appropriately reflect the results of the offer, and to set a date for
a resumed meeting, at which
the revised plan will be considered
afresh in terms of s 152 of the Act. The resumed meeting must,
however, be held within five
business days of the date of adjourning
the meeting, in terms of s 153(4)
(a)
of the Act, for purposes
of making any necessary revisions to the business rescue plan.
[31] If an affected person votes against a business rescue plan, he
or she runs the risk of relinquishing his or her voting interest
by
virtue of the binding offer procedure, in terms of which his or her
claim (or shareholder’s interest) will be reduced
to what he or
she might receive if the company were to be liquidated. As soon as
the claim has been independently and expertly
valued, as contemplated
in s 153(1)
(b)
(ii) of the Act, the parties must decide whether
the value is accepted or not. If the parties are not in agreement
with the value
as independently and expertly determined, either the
holder of the voting interest or the person acquiring the interest in
terms
of the binding offer, may apply to court, in terms of s 153(6)
of the Act, to re-view, re-appraise, and re-value the determination

by the independent expert in terms of s 153(1)
(b)
(ii) of the
Act. The Act offers this remedy to both the offeree and the offeror
under s 153(1)
(b)
(ii) thereof.
[32] The Bank contends that no valid offer was made by the Nchite’s,
in terms of s 153(1)
(b)
(ii) of the Act, because the offer was
uncertain as to its material terms, and was not accepted by the Bank.
I do not agree. As
indicated, the binding offer contemplated in s
153(1)
(b)
(ii) of the Act is not a contract or agreement in the
nature of an ‘option’ as contended for by the Bank. It is
rather
a set of statutory rights and obligations. Once the binding
offer is made, it creates a
vinculum juris
(a legal
obligation) on the part of the offeror, from which he or she may not
withdraw. Simply put, the binding offer contemplated
in s
153(1)
(b)
(ii) of the Act is to place any creditor, voting
against the adoption of a business rescue plan, in the same or
similar position
that the creditor would be if the company concerned
was to be liquidated. The nature of the binding offer, and its legal
effect,
is evident from the prescript in s 153(1)
(b)
(ii) of
the Act, which requires the value of the offer to purchase the voting
interest to be determined by an independent expert,
on 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.
The offeree is, therefore, adequately protected since it cannot
receive less than it would receive if the
company was to be
liquidated.
[33] The binding offer is, therefore, clearly dependant on either
the parties acceptance of the value independently and expertly

determined, or an order of court as to the value of the offer, which
will only become payable after such determination. Significantly,
the
practitioner would, in any event, not be able to proceed with the
implementation of the adopted business rescue plan prior
to
finalising the payment of the binding offer. Accordingly, should the
offeror default in making payment, as determined by an
independent
expert alternatively a court, then the business rescue plan cannot be
implemented, as contemplated in s 154 of the
Act, at which stage a
creditor will lose the right to enforce any debt owed by the company
immediately before the beginning of
the business rescue process.
Section 154 provides:
‘
(1) A business rescue
plan may provide that, if it is implemented in accordance with its
terms and conditions, a creditor who has
acceded to the discharge of
the whole or part of the debt owing to that creditor will lose the
right to enforce the relevant debt
or part of it.
(2) If a business rescue plan
has been approved and implemented in accordance with this Chapter, a
creditor is not entitled to enforce
any debt owed by the company
immediately before the beginning of the business rescue process,
except to the extent provided for
in the business rescue plan.’
[34] Implementation of the business rescue plan is conditional upon
the offeror meeting its payment obligations as determined by
an
independent expert, alternatively a court. It is important to bear in
mind the dichotomy between the terms ‘adopt or approve’

and the term ‘implement’ as used in chapter 6 of the Act
in relation to a business rescue plan. Significantly, the
‘adoption’
of a business rescue plan must be distinguished from its
‘implementation’. Although an offeree
is divested of his
or her voting interest on approval or the adoption of a business
rescue plan in terms of s 152 of the Act, the
offeree will not lose
his or her right to enforce any debt owed by the company immediately
before the beginning of the business
rescue process, until payment
for the purchase of the voting interest is made by the offeror.
Thus, should the business rescue
plan not be ‘implemented’
because of non-payment by the offeror, then s 154(2) would become
inapplicable and there
would be no bar to the offeree, in this case
the Bank, proceeding in any manner which it deems fit in order to
vindicate its rights
including the institution of liquidation
proceedings against the company.
[35] Accordingly, it is clear from s 153(1)
(b)
(ii) of the Act
that whenever an affected person rejects a business rescue plan, s
153(1)
(b)
(ii) will operate to allow another affected person to
make a binding offer to acquire the voting interest of the dissenting
voter.
The Bank, however, contends that this proposition is
fallacious as it presupposes only one offeror, or potential offeror,
and only
one offeree or potential offeree, and that as soon as it is
recognised that there may be one or more affected persons who may
potentially
make an offer, the potential arises for more than one
offer to be made, and for it to be immediately binding − not
only on
the offeree, but also on all other potential offerors. I
consider the Bank’s contentions to be without foundation and
completely
unsustainable for the following reasons. First, s
153(1)
(b)
(ii) of the Act permits only one binding offer to be
made. This much is clear from the words ‘any affected person or
a combination
of affected persons may make a binding offer’
used in the section. These words denote a singular offer by either a
single
affected person or a combination of affected persons.
Accordingly, the potential does not arise for more than one binding
offer
to be made, which is binding on more than one offeror. The
construct of s 153(1)
(b)
(ii) does, however, permit an affected
person or a combination of affected persons to make a binding offer
to purchase the voting
interests of one or more persons who opposed
the adoption of the business rescue plan.
[36] In the circumstances, on a proper interpretation of s
153(1)
(b)
(ii) of the Act, the ‘binding offer’ is
binding on both the offeror and offeree once made. Accordingly, the
binding
offer made by the Nchite’s to purchase the voting
interests of the Bank is binding upon it. The Bank’s failure or
refusal
to accept the binding offer is of no consequence as the offer
became binding upon it − the moment it was made.
The constitutional challenge
[37] Having found that the offer contemplated in s153(1)
(b)
(ii)
of the Act is binding on both the Nchite’s as well as the Bank,
I proceed to consider the constitutional challenge to
the section as
advanced by the Bank. The Bank contends that the interpretation of s
153(1)
(b)
(ii) of the Act advanced by the respondents, and now
accepted by the court, violates the Bank’s constitutional
rights to property,
access to court and equality as provided for in s
25, s 34 and s 9 of the Constitution, respectively. I deal with each
of these
challenges in turn below.
Right to property
[38] Section 25(1) of the Constitution provides that ‘no one
may be deprived of property except in terms of a law of general

application, and no law may permit arbitrary deprivation of
property’. The Bank contends that the effect of the respondents

reliance on s 153(1)
(b)
(ii) of the Act, in order to justify
the final adoption of the Plan which occurred without the consent of
the Bank, is firstly
that the Bank was deprived of its right to
exercise its creditor’s voting right at the Second Meeting of
creditors, prior
to the Bank having received any value for its voting
interest, and secondly that the Bank is deprived of all the rights
which it
has to claim payment of amounts owed to it by the company
(presently or on insolvency), including the rights which it has in
the
security over the assets of the company under the general
notarial bond executed by the company in favour of the Bank. This
deprivation,
it contends, occurs by virtue of s154 of the Act.
[39] The Bank submits that both the right to exercise a vote at a
statutory meeting in business rescue proceedings, and the right
to
receive payment from a debtor, constitute property rights, and that
the deprivation of these rights is arbitrary. The term ‘deprived’

or ‘deprivation’ is a broad term that encompassed any
interference with the use, enjoyment or exploitation of private

property, as against the person having title or right to or in the
property concerned.
17
The critical test for the deprivation of property under s 25(1) of
the Constitution is whether it is ‘arbitrary’. The

Constitutional Court in
FNB
v
CSARS
18
held that a deprivation of property is arbitrary, as contemplated in
s 25 of the Constitution, when the ‘law’ referred
to in s
25 (1) does not provide sufficient reason for the particular
deprivation in question or is procedurally unfair. Sufficient
reason
is to be established by evaluating the relationship between the means
employed, namely the deprivation in question and the
ends sought to
be achieved, namely the purpose of the law in question. In addition,
regards must be had to the relationship between
the purpose of the
deprivation and the nature of the property, as well as the extent of
the deprivation in respect of such property.
Generally speaking, when
the deprivation in question embraced all the incidents of ownership,
the purpose of the deprivation will
have to be more compelling than
when the deprivation embraces only some incidents of ownership and
those incidents only partially.
19
[40] Section 7
(k)
of the Act specifically states 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’.
Thus,
the ‘end sought to be achieved’ by the business
rescue regime in chapter 6 of the Act is the efficient rescue or
rehabilitation
of a company that is financially distressed and in
doing so, the interests of all stakeholders are to be taken into
account. The
Bank contends that although this is a legitimate and
important legislative purpose, there is no basis to suggest that
rescue and
rehabilitation is always preferable to liquidation. It
contends that whether it is preferable in any particular case will
depend
on the facts, and this determination requires a weighing up of
competing interests.
[41] Implicit in the scheme of business rescue, is that if a
business rescue is unsuccessful, business rescue proceedings may
be
terminated and the company may then be placed under liquidation. This
must be contrasted with the means used by s 153 to achieve
the
objective of business rescue. The Bank, however, argues that if the
respondents’ interpretation is correct, s 153(1)
(b)
(ii)
will give rise to a total deprivation of the ‘affected
person’s’ voting interests, and by operation of s
154 it
will deprive the ‘affected person’ of any claims which it
has against the company − the extent and value
of which may
well be substantial.
[42] The Bank contends that given the relative importance of bringing
about the rescue and recovery of financially distressed companies
(a
process which will often have an uncertain outcome), the complete
deprivation of the property right is grossly out of proportion
to the
purpose sought to be achieved, and the deprivation is therefore
arbitrary and inconsistent with the purpose of the business
rescue −
to preserve a company where there is a reasonable prospect of
rescuing it in order to realise better outcomes for
creditors and
shareholders, and generally to take account of all relevant
interests. The Bank accordingly claims that it has been
deprived of
all rights which it had to claim payment from the company, including
the right which it has in real security over the
assets of the
company under a general notarial bond. I point out, in this regard,
that no allegation is made on the papers that
the general notarial
bond has been perfected. The Bank is, therefore, not the holder of
real security but only of personal security.
Upon insolvency, the
general notarial bond is considered a preferent claim, and it ranks
after all the other preferent creditors.
[43] Importantly, it must also be recognised that the ‘property’
referred to by the Bank is not property in the conventional
sense of
the word, such as corporeal moveable property or immovable property.
It is rather ‘property’ in the form of
a claim for
payment which the Bank has against the company, and the right to
exercise a vote at a statutory meeting convened for
the purpose of
voting on the adoption of a business rescue plan. In order to seek
the protection afforded by s 25 of the Constitution,
the right of a
creditor to claim payment from a debtor, and the right to exercise a
vote at a statutory meeting, convened for the
purpose of voting on
the adoption of a business rescue plan, must constitute ‘property’
within the meaning of s 25
of the Constitution.
[44] Although s 25 of the
Constitution does not define the term ‘property’, it does
not limit its scope to land.
20
The Constitutional Court has cautioned that assigning a comprehensive
definition to the term ‘property’ was neither
possible
nor wise, and declined to do so.
21
In determining whether the rights of a credit provider, under a
credit agreement, ‘to recover money paid or goods delivered’

constituted ‘property’ within the meaning of s 25 of the
Constitution, Van der Westhuizen J stated as follows in
National
Credit Regulator v Opperman
22
:
‘
This
court has not specifically found that personal rights emanating from
contract, delict, or enrichment are indeed
property
under s 25.
Our
constitutional jurisprudence accepts that deprivation of ownership of
corporeal property constitutes deprivation for purposes
of s 25.
Without discussing the specific point, this court has also accepted a
trademark to be property albeit incorporeal, deserving
protection
under s 25. Intellectual property even though incorporeal, is of
course different to an enrichment claim. The right
to claim
restitution on the basis of enrichment is a personal right. It can
only be enforced against a specific party or parties,
in this case
the consumer who received the money. It is not a real right in
property like, for example, ownership or a usufruct,
enforceable
against all. . . .
[62] In
Law
Society of South Africa and Others v Minister for Transport and
Another
23
,
this court was faced with a right which is not universally
enforceable, but sourced in the law of obligations. The court
assumed,
without finding, that a claim for loss of earning capacity
or spousal support is property.
[63] In
the circumstances of this case, the recognition of the right to
restitution of money paid, based on unjustified enrichment,
as
property under s 25(1) is logical and realistic. It would be in
accordance with developments in other jurisdictions where personal

rights have been recognised as constitutional property. Intangible
property has become important in modern-day society and
property
should not be so narrowly interpreted at to diminish the worth of the
protection given by s 25. In
Law
Society of South Africa v Minister for Transport
this court stated that “the definition of property for purposes
of constitutional protection should not be too wide to make

legislative regulation impracticable and not too narrow to render the
protection of property of little worth”.’
[45] Returning then to the
question of whether the rights contended for by the Bank, in the case
before us, constitute property
within the meaning of s 25 of the
Constitution, I am inclined to find that although not real rights
enforceable against all, a
claim for payment and the right to
exercise a vote at a statutory meeting convened for the purpose of
voting on a business rescue
plan, in terms of s 153(1)
(b)
(ii)
of the Act, constitute ‘property’ within the meaning of s
25(1) of the Constitution, as they would be enforceable
against
specific parties.
24
Although, as yet, not
expressly recognised as such by our courts, debts and claims sounding
in money have been recognised as ‘constitutional
property’
in most jurisdictions, including by the European Court of Human
Rights in
A & B
Company v Federal Republic of Germany
25
,
where it was held that a debt is property where the applicant can
prove the claim. It bears mentioning, in this regard, that the

corollary to the purchase or take-over of a voting interest of a
creditor who opposes the adoption of the business rescue plan,
in
terms of s 153(1)
(b)
(ii)
of the Act, is compensation in the amount that the offeree would have
received upon liquidation of the company. The failure
of the offeror
to compensate the offeree for the purchase or take-over of the voting
interest as envisaged in s 153(1)
(b)
(ii)
of the Act would, therefore, entitle the offeree to enforce the debt
owing by the company immediately before the beginning
of the business
rescue process.
[46] Returning to the question of the constitutionality of the
impugned provision, s 153(1)
(b)
(ii) of the Act contemplates
that the offeree, in this case the Bank, would be compensated an
amount (independently and expertly
determined) which it would have
received upon the liquidation of the company. This naturally must
take into account the ranking
of the creditor, more specifically
whether it is a secured, preferent or concurrent creditor, or a
combination of creditors. Therefore,
a party whose claim is taken
over by a binding offer, contemplated in s 153(1)
(b)
(ii) of
the Act, would be in no worse a situation than had the company been
liquidated. In fact, in most circumstances such a person
would be in
a better situation than those creditors who go through the business
rescue proceedings, only to find that the company
cannot be
rehabilitated and is then liquidated, at which point the dividend
payable to creditors is substantially less. For these
reasons, I am
of the view that there is no disproportion between the means adopted
in s 153(1)
(b)
(ii) of the Act and the end which it seeks to
achieve, namely that a viable company is afforded the opportunity to
proceed with
business rescue proceedings, and not be stifled by
recalcitrant creditors. Section 153(1)
(b)
(ii) of the Act
serves a compelling and legitimate governmental purpose, and the
deprivation of the voting interest in the company
accompanied by
compensation, which is expertly and independently determined, is not
arbitrary. Consequently, the Bank’s
constitutional challenge
to s 153(1)
(b)
(ii) of the Act, in terms of s 25 of the
Constitution, must fail.
Right to access to court
[47] Section 34 of the
Constitution grants every person the right of access to the courts.
This right has been held to be ‘foundational
to the stability
of an orderly society’ as it ‘ensures peaceful, regulated
and institutionalised mechanisms to resolve
disputes, without
resorting to self-help’. Thus, ‘very powerful
considerations are required for its limitation to be
reasonable and
justifiable’ under s 36 of the Constitution
26
.
[48] The Act makes no provision
for the review of the decision to take-over the voting interest of a
creditor who opposes the adoption
of a business rescue plan, in terms
of s 153(1)
(b)
(ii)
thereof. The Act does, however, in s 153(6) provide the holder or
acquirer of a voting interest with the right to apply to
a court to
review, re-appraise and re-value a determination by an independent
expert. The Bank submits that s 153 of the Act is
unconstitutional,
as it gives effect to the right of access to court only to challenge
the valuation and determination of an independent
expert, and not the
deprivation itself, thus denying the offeree recourse to the courts
in respect of the take-over of his or her
voting rights in terms of s
153(1)
(b)
(ii)
of the Act.
[49] Although it is arguable that s 153 of the Act constitutes a
limitation to the Bank’s right to access to court, as provided

for in s 34 of the Constitution, because it makes no provision for
the review of the decision to take over the voting interest
of an
offeree, I consider the limitation to be reasonable and justifiable
in terms of s 36 of the Constitution. A core purpose
of the Act in
relation to the business rescue regime, as provided for in chapter 6,
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. In
line with this objective,
the purpose of the ‘binding offer’ in s 153(1)
(b)
(ii)
of the Act is to ensure that business rescue proceedings are not
stifled by recalcitrant creditors who wish to resist the business

rescue process or hold out for better treatment. It, therefore,
enables the business rescue to proceed despite the objections of
one
or more disgruntled creditors.
[50] The ‘binding offer’ becomes binding, once made,
predominantly to ensure compliance with the swift procedure, to
be
accomplished within 5 days, to revive the business rescue process,
and enforce a revised rescue plan within the framework of
s 153(4) of
the Act. In this context, a right to review the decision of an
affected person to take-over the voting interests of
a person
opposing the business rescue plan, would tie up the business rescue
proceedings, and the adoption of the business rescue
plan, in a
protracted and lengthy court battle which will serve to undermine the
core purpose of business rescue, which 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
shareholders.
[51] It is precisely for this reason that there is a conscious
attempt by the legislature, in chapter 6 of the Act, to keep the
role
of the court in business rescue proceedings to a minimum. Not only
does this assist in making the business rescue process

cost-effective, but it also allows for the swift and efficient rescue
of the company within a period of three months from the start
of the
proceedings. Notably, s 132(3) of the Act contemplates that the
business rescue process should end within three months subject
to an
extension of time authorized by a court. If a company’s
business rescue proceedings have not ended within three months
of the
start of the proceedings, or such longer time as the court, on
application by the practitioner, may allow, the practitioner
must
prepare a report on the progress of the business rescue proceedings,
and update the court at the end of each subsequent month
until the
end of the proceedings. Hence, the legislative approach to the
duration of business rescue proceedings is that it must
be swift,
efficient and cost-effective.
[52] As alluded to above, the purchase or take-over of the voting
interest is coupled with the payment of compensation, determined
by
an independent expert alternatively a court, in the amount that the
offeree would have received if the company went into liquidation.
The
denial or deprivation of the voting interest does not lie in its
buy-out or take-over, but rather in the failure of the offeror
to
provide fair and reasonable compensation for the buy-out or take-over
of that interest. It is precisely for this reason that
the Act
provides a two-fold safeguard − the first in s 153(6), which
enables the holder of the voting interest (or the person
acquiring
the voting interest) to apply to court to review, re-appraise and
re-value a determination by an independent expert in
terms of s
153(1)
(b)
(ii) of the Act, and the second in s 154(2) of the
Act – in terms of which a creditor is barred from enforcing any
debt owed
by the company, immediately before the beginning of the
business rescue process, once the business rescue plan is approved
and
implemented. Section 154(2) implicitly contemplates that if the
offeror defaults on the obligation to pay for the voting interest,

then the revised business plan as adopted or approved, in terms of s
152 of the Act, cannot be implemented, and s 154(2) will have
no
application. What this, in essence, means is that the offeree may
take any steps it deems necessary to enforce its claim against
the
company, including the institution of liquidation proceeding.
[53] ‘Business rescue’ as defined in s 128(1)
(b)
of the Act, is intended to facilitate the rehabilitation of a company
that is financially distressed by providing, amongst others
things,
for a temporary moratorium on the rights of claimants against the
company. The moratorium, however, only becomes permanent
once the
plan is approved and implemented – the offeree having received
payment for the take-over of its voting interest
in the amount that
the offeree would have received if the company was liquidated –
and the offeree’s claim for any
debt owed by the company,
immediately before the beginning of the business rescue process,
becomes unenforceable, except to the
extent provided for in the
business rescue plan. Obviously, however, if no payment is received,
the adopted plan cannot be implemented,
and the moratorium is lifted
leaving the creditor with an entitlement to enforce its claim against
the company. In the circumstances,
it cannot be said that the Bank’s
right to access to court, in terms of s 34 of the Constitution, is
violated by operation
of the binding offer made by the Nchite’s
under s 153(1)
(b)
(ii) of the Act. Accordingly, I find that s
153(1)
(b)
(ii) of the Act does not violate s 34 of the
Constitution.
Right to equality
[54] The Bank contends that
because the effect of s 153(1)
(b)
(ii)
of the Act is that the interests of one affected person are preferred
over those of another, it violates the Bank’s
rights to
equality before the law and equal protection and benefit of the law
as provided for in s 9(1) of the Constitution. The
crux of its
argument is that it is deprived of its rights against the company;
that the shareholders’ voting interests are
preferred to its
interests; and that there is no discernible justification for this
differentiation.
[55] Having regard to the test,
as articulated by the Constitutional Court, in
Harksen
v Lane
27
,
the court must first consider whether s 153(1)
(b)
(ii)
of the Act differentiates between people or categories of people. If
so, it must proceed to consider whether the differentiation
bears a
rational connection to a legitimate government purpose. If it does
not then there is a violation of s 9(1) of the Constitution.
Turning
then to the first question, I am of the view that s 153(1)
(b)
(ii)
of the Act does not differentiate between people or categories of
people. Any affected person or a combination of affected
persons, as
defined in s 128(1)
(a)
of the Act, may make a binding offer to purchase the voting interests
of one or more persons that opposed the adoption of the business

rescue. ‘Affected person’ as defined in s 128(1)
(a)
of the Act includes creditors, shareholders, and employees of a
company and, by virtue of s 146
(e)
(ii)
of the Act, holders of the company’s securities. Although s
153(1)
(b)
(ii)
of the Act may appear to have the effect of preferring or providing
an advantage to the one party over the other, that party
is not
disadvantaged by the purchase of its voting interest because the
take-over or purchase of its voting interests occurs against
payment
of the amount it would have received, had the company been liquidated
at that point in time. Thus, no affected person is
preferred over
another. Accordingly, s 153(1)
(b)
(ii)
of the Act is not unconstitutional as it does not differentiate
between people, and categories of people, in violation of s
9(1) of
the Constitution.
Impeachment of the business rescue proceedings
[56] The Bank seeks, in prayer three of the notice of motion, an
order setting aside the approval of the proposed Plan in the business

rescue proceedings of the company, which occurred at the Second
Meeting of creditors, including setting aside the creditors’

vote for the adoption and preliminary approval of the proposed Plan,
and the shareholders vote for the adoption and final approval
of the
proposed Plan. The respondents contend that it is impermissible for
the Bank to seek to review the adoption of the Plan,
as the Act does
not provide it with a remedy to do so.
[57] However, before dealing with this question, I wish to examine
the Bank’s principal complaint relating to its challenge
to the
Plan. The Bank’s primary complaint is that, by virtue of the
payment proposal in the Plan, the Bank will be paid 21
cents in the
Rand over a period of 100 months, and the Plan would leave the Bank
considerably worse off than it would be upon the
liquidation of the
company because, on liquidation, the proceeds of a forced sale of the
rescued assets would have been paid to
the Bank relatively speedily
after the sale. The Bank maintains, in this regard, that on the basis
of the payment proposal in the
Plan, not only must the Bank wait more
than eight years, but there is also no provision for any guarantee to
secure these future
payments.
[58] I consider this contention to be manifestly unfounded as the
Bank wholly misconstrues the nature of the amended Plan, and
seeks to
rely on the un-amended one, instead. It is apparent from the minutes
of the Second Meeting of creditors, held on 26 March
2012, that after
the Nchite’s made the binding offer to purchase the Bank’s
voting interests in terms of s 153(1)
(b)
(ii) of the Act the
payment proposal, that the Bank would receive 21 cents in the Rand
over a period of 100 months, was amended
by Jordaan to reflect that:
the voting interest of the Bank (ABCD) was amended to zero per cent;
the voting interests of the shareholders
(the Nchite’s) was
amended to 95 per cent; the Bank was removed from the proposed
repayment plan; and ‘the amount receivable
in terms of the
binding offer would serve as settlement of the claim against the
company’. It was this ‘revised’
Plan that was
considered afresh and ultimately adopted by the Nchite’s, in
terms of s 152 of the Act, at the resumed meeting
of creditors held
in terms of s 153(4) of the Act. Hence, ‘the original Plan’
which proposed that the Bank will get
paid 21 cents in the Rand over
a period of 100 months was replaced with the revised Plan, which was
finally adopted by the Nchite’s.
[59] Returning to the question of whether it is permissible for the
Bank to challenge the adoption of the Plan, it is clear from
a
reading of chapter 6 of the Act that it does not provide a remedy to
an affected person to challenge the approval and adoption
of a
proposed business rescue plan, regardless of whether such approval
and adoption is preliminary or final. The adoption of a
business
rescue plan, in terms of s 152 of the Act, is pivotal to the business
rescue process. Once adopted, the practitioner is
required to manage
and conduct the affairs of the company in accordance with the plan.
The practitioner is responsible for the
implementation of the
business rescue plan, and this task is not left to some other
authority. Nor, for that matter, is there any
need for court approval
of the business rescue plan. Accordingly, once adopted or approved in
terms of s 152 of the Act, a business
rescue plan forms the
foundation of the business rescue proceedings, to which all the
affected persons are bound. It is binding
on the company, on each
creditor and on every holder of securities of the company whether or
not that person was present at the
meeting, voted in favour of
adoption of the plan or in the case of creditors, had proven their
claims against the company. What
occurs is a process of ‘cramdown’
– in terms of which creditors are forced to accept a business
rescue plan,
even against their wishes – thus enabling the
business rescue to proceed despite objections by disgruntled
creditors. It
is with this object in mind that the legislature saw
fit not to provide a disgruntled party with a judicial remedy to seek
to set
aside the adoption of a business rescue plan. It is, therefore
not open to any ‘affected person’ after the plan has
been
adopted, to seek to set it aside. Nor is it permissible for an
‘affected person’ to seek to set aside the proceedings
of
the second meeting of creditors, in terms of which a business plan is
adopted. Accordingly, the relief sought by the Bank,
in prayer three
of the notice of motion, to set aside the business rescue plan which
was adopted by the Nchite’s at the resumed
meeting of
creditors, is incompetent and falls to be dismissed.
[60] The Bank seeks in prayer four of the notice of motion an order
setting aside the Resolution of the company commencing business

rescue proceedings, in terms of s 129 of the Act. Alternatively, and
in the event that the court does not set aside the resolution,
the
Bank seeks an order setting aside the appointment of Jordaan as the
practitioner in the business rescue proceedings of the
company, in
terms of section 130(1)
(b)
(ii) read with s 139 of the Act.
[61] Section 130 of the Act makes provision for the grounds on which
a resolution commencing business rescue proceedings in terms
of s 129
of the Act, and the appointment of the business rescue practitioner
may be set aside by a court. It provides:
‘
(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 –
setting aside the resolution,
on the grounds that –
there is no reasonable basis
for believing that the company is financially distressed;
there is no reasonable prospect
for rescuing the company;
the company has failed to
satisfy the procedural requirements set out in section 129;
setting aside the appointment
of the practitioner, on the grounds that the practitioner –
does not satisfy the
requirements of section 138;
is not independent of the
company or its management; or
lacks the necessary skills,
having regard to the company’s circumstances; or
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.
. . . .’
Section 130 of the Act must be read together with s 139 which
provides as follows:
‘
Removal and replacement
of a practitioner -
A practitioner may be removed
only-
by a court order in terms of
section 130; or
as provided for in this
section.
Upon request of an affected
person, or on its own motion, the court may remove a practitioner
from office on any of the following
grounds:
Incompetence or failure to
perform the duties of a business rescue practitioner of the
particular company;
failure to exercise the proper
degree of care in the performance of the practitioner’s
functions;
engaging in illegal acts or
conduct;
if the practitioner no longer
satisfies the requirements set out in section 138(1);
conflict of interest or lack of
independence; or
the practitioner is
incapacitated and unable to perform the functions of that office,
and is unlikely to regain that capacity
within a reasonable time.
. . . .’
[62] In terms of s 130 of the
Act, any time after the adoption of a board resolution commencing the
proceedings until a business
rescue plan is adopted, an affected
person may apply to court for an order to set aside the resolution or
to set aside the appointment
of the business rescue practitioner.
However, after the adoption of the business rescue plan, an affected
person is not entitled
to apply to court for an order setting aside
the board resolution commencing business rescue proceedings or an
order setting aside
the appointment of the practitioner. The Plan was
adopted by the Nchite’s on 26 March 2012. It is accordingly
impermissible
for the Bank, in these proceedings, to seek an order
setting aside the Resolution and the appointment of the practitioner
after
the adoption of the Plan.
[63] The Bank was entitled to
invoke the provisions of s 130 of the Act prior to the adoption of
the Plan at the (resumed) meeting
of the creditors to consider the
Plan afresh in terms of s 152 of the Act. However, when pressed by
the court to provide a reason
for not invoking the provisions of s
130 of the Act to set aside the business rescue proceedings, prior to
the adoption of the
Plan, the Bank’s response was that it
considered it unnecessary to invoke the provisions of s 130 of the
Act to set aside
the business rescue proceedings, because the Bank
had made an election to use its creditor’s muscle at the Second
Meeting
of creditors. That election, of course, was made upon advice
received and, in my view − at its own peril – as the Bank

had to have been alive to the provisions of s 153(1)
(b)
(ii)
of the Act, and its implications.
[64] Soon after the First
Meeting of creditors, the Bank’s attorneys had launched an
attack on the veracity of the proceedings
through lengthy
correspondence directed at Jordaan, in which they threatened to
launch an application in terms of s 130 read with
s 139 of the Act,
but the Bank simply never did so. It does not, in my view, befit the
Bank, belatedly, to seek to obtain relief
under s 130 of the Act,
when it had every opportunity to do so prior to the adoption of the
Plan. That the Bank had access to the
Plan ten days prior to the
Second Meeting of creditors cannot simply be ignored.
28
Hence, the contention that the Bank was unable to assert its rights
properly, during the period from the resolution to commence
business
rescue proceedings to the adoption of the Plan, is profoundly
unfounded. Accordingly, the relief sought by the Bank in
prayers four
and five of the notice of motion is not competent and falls to be
dismissed.
Declarator relating to sureties
[65] In terms of the arbitration awards and his suretyship, Baldwin
Nchite is liable jointly and severally with the company for
the
payment of the company’s indebtedness to the Bank. Under the
arbitration appeal award, Birgitta Nchite’s liability
to the
Bank under her suretyship was discharged. The company and the
Nchite’s have launched an application in terms of which
they
seek to have the arbitration awards set aside. If they succeed in
doing so, the full extent of the Bank’s claim as formulated
in
its original particulars of claim will revive, and the Bank’s
claim against the Nchite’s will be based on their
respective
suretyships.
[66] In terms of the suretyships, the Nchite’s are sureties and
co-principal debtors for the payments of all sums of money
owing by
the company to the Bank. The suretyships specifically provide that
the Bank’s claim against the Nchite’s will
not, in any
way, be affected by any compromise of the Bank’s claim against
the principal debtor (the company), whether this
is caused by
‘insolvency, judicial management or liquidation, as the case
may be’.
[67] The Bank maintains that the fact that the company was placed
under business rescue cannot deprive it of its right to pursue
the
sureties under the suretyships. Jordaan and the Nchite’s, no
doubt, have expressed the contrary view. At the Second Meeting
of
creditors, the Nchites’ attorney indicated that the binding
offer made by his client was in full and final settlement
of the
Bank’s claim. Jordaan confirmed this at the meeting. In his
answering affidavit, Baldwin Nchite states that the Bank’s

claim ‘in terms of the sureties stands to be decided upon the
agreements themselves, as well as the status of the business
rescue
proceedings at the time such actions are instituted’. The Bank,
accordingly, seeks a declaratory order to the effect
that the
adoption of a business rescue plan, in respect of a company placed
under business rescue, will not affect the rights which
a creditor
has under suretyships executed in favour of the creditor, for the
payment of amounts owed by the company placed under
business rescue.
[68] There is no express provision contained in chapter 6 of the Act
which provides that the adoption of a business rescue plan
will
deprive creditors of the company in the business rescue, of their
rights as against sureties for the debts of the company
in business
rescue. The effect of such a provision, in my view, would be drastic
as it would deprive a creditor of its rights as
against a third party
(surety) simply by virtue of the adoption of a business rescue plan
for the debtor. If the legislature intended
that the adoption of a
business rescue plan would have such a far reaching consequence, the
legislature would have expressly provided
for this consequence.
[69] There is, furthermore, no basis to suggest that such a provision
could be read into the business rescue regime.
29
As already explained, the express purpose of business rescue is to
‘provide for the efficient rescue and recovery of financially

distressed companies, in a manner that balances the right and
interests of all relevant stakeholders’. The emphasis of the

business rescue regime is therefore on the company in financial
distress, and the relevant stakeholders. There need be no connection

between a surety and either the company in financial distress or the
stakeholders and, whether or not a creditor is entitled to
pursue a
surety will, in the ordinary course, have no bearing on the prospects
of rescuing a company.
[70] I am, therefore, of the view that the interests of sureties do
not fall within the scope of the objective of the business
rescue
regime. This is clear from the provisions of s 133(1) of the Act,
which provides that during the course of business rescue
proceedings
no legal proceedings, including enforcement action against the
company, or in relation to any property belonging to
it or in its
possession, may be commenced or proceeded with, except under certain
circumstances. Section 133(2) provides that during
business rescue
proceedings, a surety by a company in favour of any other person may
not be enforced by any person against the
company, except with the
leave of the court. In
Investec Bank Ltd v Andre Bruyns,
the
question for determination was whether s 133(2) of the Act should be
interpreted as providing that during business rescue proceedings,
a
suretyship given by A in favour of B for the indebtedness of the
company may not be enforced by B against A without the court’s

leave. Rogers AJ (as he then was) held that the section explicitly
referred to the stay of a suretyship undertaken by the company,
and
not to a suretyship undertaken by a third person for the indebtedness
of the company. He also held that the statutory moratorium
in s
133(1) on claims against the company under business rescue was a
defence purely personal to the principal debtor, namely the
company,
and could not be raised by the surety.
30
It follows that the statutory moratorium in s 133 of the Act does not
have the effect of suspending the indebtedness of any surety
to the
company placed under business rescue.
[71] Thus, the moratorium provided for in section 133 is directed
exclusively at protecting the interests of the company in business

rescue. By parity of reasoning, if the legislation does not suspend
the indebtedness of a surety pending the outcome of the business

rescue proceedings, it is difficult to see how it could deprive
entirely a creditor of its rights against a surety. In the
circumstances,
it is clear that the adoption of the Plan will not
affect the Bank’s claim against Baldwin Nchite as surety for
the debts
of the company.
[72] The Bank is, accordingly, entitled to the declaratory relief
which it seeks in prayer six of the notice of motion putting
an end
to this dispute. However, at the hearing of the matter, the first to
fourth respondents conceded the relief sought by the
Bank in prayer
six of the notice of motion. They thus urged me not to grant the
relief sought by the Bank in this regard, because
there was no longer
a dispute to be resolved. Whilst this may be the case, I cannot
ignore the fact that the relief sought in prayer
six of the notice of
motion was strenuously opposed until the hearing of argument in this
matter. For this reason, I consider the
Bank to be entitled to the
relief which it seeks in prayer six of the notice of motion.
[73] In the result, I make the following order:
The Applicant is granted leave, in terms of
s 133
of the
Companies
Act 71 of 2008
, to commence and proceed with the application against
the First Respondent.
The relief sought by the Applicant in prayers two to five of the
notice of motion is dismissed with costs including the costs

consequent upon the employment of two counsel.
It is declared that neither the adoption of the business rescue plan
in respect of the First Respondent, under chapter 6 of the
Companies
Act 71 of 2008
, nor the binding offer made on 26 March 2012 at the
second meeting of creditors by the Third and Fourth Respondents, in
terms
of
s 153(1)
(b)
(ii) of the
Companies Act 71 of 2008
, to
purchase the voting interest of the Applicant affect the rights,
which the Applicant has to recover monies from the Third
Respondent
under the deed of surety, executed by the First Respondent, in
favour of the Applicant for any indebtedness owed by
the First
Respondent to the Applicant.
_____________________________
F KATHREE-SETILOANE
JUDGE OF THE NORTH AND
SOUTH GAUTENG HIGH COURTS
PRETORIA
APPEARANCES
APPLICANT: B E Leech SC (with him A W T Rowan)
Instructed by Norton Rose Fulbright South Africa
FIRST AND SECOND
RESPONDENTS: C E Puckrin SC (with him M A Badenhorst SC)
Instructed by Jordaan Attorneys
THIRD AND FOURTH
RESPONDENTS: L K van der Merwe
Instructed by Cawood Attorneys
FIFTH RESPONDENT: C E Puckrin SC (with J Janse van Rensburg)
Instructed by the State Attorney, Pretoria
Date of Hearing: 3 and 4 June 2013
Date of Judgment: 29 August 2013
1
Section 33(3)
of the
Arbitration Act provides
that the court reviewing an arbitration award may stay enforcement
of the award pending its own decision. This indicates that,
except
when the court so holds, the arbitration award does not suspend the
validity of the award.
2
The notarial bond has not been perfected.
3
s 7
(k)
of the Act.
4
s 128(1)
(a)
defines ‘affected person’, in relation to a company to
mean:
‘
(i) a
shareholder or creditor of the company;
(ii) any
registered trade union representing employees of the company; and
(iii) if any of the employees of the company are not
registered by a registered trade union, each of those employees and
their
respective representatives’.
5
s 150(1) of the Act.
6
s 150(2) of the Act.
7
s 152(1)
(a)
of the Act.
8
s 152(3)
(c)
(i) and (ii)
(aa)
of the Act.
9
s 152(3)
(c)
(ii)
(bb)
of the Act.
10
s 153(1)
(a)
(i) and (ii) of the Act.
11
s 153(1)
(b)
(ii) of the Act.
12
11 USC 1978.
13
In the USA, existing management is left largely in place. This
approach is referred to as ‘debtor- in- possession’
ie
the existing management remains in control of the company and its
assets during the business rescue process.
14
Daniel R Wong ‘Chapter 11 Bankruptcy and Cramdowns: Adopting a
Contract Rate Approach’
North Western University Law Review
106: 1927 (2012) at 1932.
15
Farouk H I Cassim, Maleka F Cassim, R Cassim, R Jooste, J Shev, J
Yeats
Contemporary Company Law,
2
nd
Edition, at
907, footnote 209.
16
Cassim et al at 907.
17
First National Bank of SA Ltd t/a Wesbank
v Commissioner, South African Revenue Service and another; First
National Bank of SA
Ltd t/a Wesbank v Minister of Finance
[2002] ZACC 5
;
2002 (4) SA 768
(CC) para 57 where the Constitutional Court
explained the distinction between ‘deprivation’ and
‘expropriation’.
18
FNB v CSARS
para
100.
19
FNB v CSARS
para 100.
20
s 25(4)(b) provides:
‘
For
purposes of this section−
. . . .
property is not limited to
land.’
21
FNB v CSARS
para
51;
National Credit Regulator v
Opperman
2013 (2) SA 1
(CC) para 60.
22
National Credit Regulator v Opperman
paras
61-63.
23
Law Society of South Africa and others v
Minister for Transport and another
2011 (1) SA 400
(CC) para 84.
24
AJ van der Walt
Constitutional Property Law
3
rd
Edition, 2011, at 151, footnote 249.
25
A & B Company v Federal Republic of Germany
[1978] 14 DR
146 (ECHR].
26
Lesapo v North West Agricultural Bank and another
1999 (12)
BCLR 1420
(CC) para 22.
27
Harksen v Lane
[1997] ZACC 12
;
1998 (1) SA 300
(CC) para 42.
28
In terms of s 151 of the Act, the second meeting
of creditors to consider the plan must be held within ten days after
the publication
of the plan by the business rescue practitioner.
29
Investec Bank Ltd v Andre Bruyns
(2011) JDR 1563 (WCC).
30
Investec Bank v Andre Bruyns
paras
14 -19.