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[2013] ZAFSHC 215
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Kritzinger and Another v Standard Bank of South Africa (3034/2013) [2013] ZAFSHC 215 (19 September 2013)
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Certain
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FREE STATE HIGH COURT,
BLOEMFONTEIN
REPUBLIC OF SOUTH AFRICA
Case No. : 3034/2013
In the matter between:-
JACOBUS
ELISA KRITZINGER
…......................................................
First
Applicant
IMESCO (PTY) LTD
…........................................................................
Second
Applicant
and
STANDARD BANK OF SOUTH
AFRICA
…..............................................
Respondent
HEARD ON:
31 JULY 2013
JUDGMENT BY:
RAMPAI, AJP
DELIVERED ON:
19 SEPTEMBER 2013
[1] The matter came to court by way of an urgent
application on 29 July 2013 for a rule
nisi
returnable on 31
July 2013. The respondent opposed the application. I granted no
interim order. Instead I determined
formal deadlines and
postponed the matter to 31 July 2013 for argument.
[2] The applicants sought a threefold relief whereby
the respondent was, firstly, interdicted from enforcing certain
guarantees;
secondly, the suspension of certain bank accounts was
uplifted and, thirdly, the respondent was interdicted from
withholding certain
funds deposited into the second applicant’s
bank account.
[3] The background facts were presented to me by way
of three sets of affidavits,
viz
the founding affidavit, the
answering affidavit and the replying affidavit. I made an
ex
tempore
order whereby I dismissed the application with costs.
Subsequently the applicants filed a formal request for reasons.
[4] There were many facts which were largely
undisputed. There were also facts which, although not admitted,
could not be
seriously denied. No harm could conceivably be
done by treating both of the two types as common cause between the
parties.
[5] The first applicant, Mr Jacobus Elisa Kritzinger,
was a business rescue practitioner. He was appointed to rescue
the second
applicant from deteriorating financial distress. He
was appointed in terms of section 129(3) by the company, in other
words
the second applicant, on 28 May 2013 –
vide
annexure
“jek1”.
[6] He was licensed in terms of section 138
Companies
Act 71 of 2008
by the Companies and Intellectual Property Commission
(CIPC) on 10 June 2013 to serve as a business rescue practitioner in
regard
to the rescue proceedings of Imesco (Pty) Ltd, the second
applicant –
vide
annexure “jek5”. He
was subject to probation in terms of
section 162(7).
He was not
disqualified in terms of
section 69(8)
from acting as a director of a
company. He did not have any other relationship with the
company such as would lead a reasonable
and informed third party to
conclude that his integrity, impartiality or objectivity was
compromised by such relationship.
He was not related to anyone
who had a relationship as contemplated in the preceding sentence.
He deposed to the founding
affidavit. I shall refer to him as
the practitioner.
[7] The second applicant was Imesco (Pty) Ltd, a
private company with limited liability and with a principal place of
business in
Welkom. The second applicant has principally
conducted business operations as a provider of mining supplies in the
Goldfields.
It has seemingly been rendering such mining
services since 1965 or so. Mr Graham Sydney Lloyd was the
director of the company.
I shall refer to the second applicant
as the company.
[8] The respondent is the Standard Bank of South
Africa Limited, a registered financial institution and an authorised
financial
and credit services provider. The respondent
conducted business in Welkom, but its head office is in
Johannesburg.
The respondent is simply a commercial bank.
The respondent provided certain financial services to the company for
years.
Henceforth I shall refer to the respondent as the bank.
[9] In this province the agreements relative to the
dispute, between the bank and the company were concluded; the banking
accounts
of the company were held; the guarantees to secure the
repayment of the overdraft facility were given; the sureties signed
the
suretyship agreement and the principal place of business of the
bank is situated. Accordingly the parties were in agreement
that this court was clothed with the necessary jurisdiction to
entertain the matter.
[10] The company had been a customer of the bank for
approximately nine years immediately preceding the institution of
these proceedings.
There were two accounts of the company held
at the respondent. The one was a current account number 4[…].
The
limit of the overdraft facility associated with the current
account was R800 000,00. The company utilised the account
or overdraft facility to provide operating capital necessary to
sustain its core mining operations. The other was a special
account number 4[…]. It was designated as the so-called
salary account. The company utilised the account for
the
exclusive purpose of paying salaries and wages of its employees.
From now on I shall refer to the former as the overdraft
account and the latter as the salary account. The limit of the
overdraft facility was annually revised. The latest
revision
was done during September 2012. Since then the limit was fixed
at R800 000,00.
[11] During May 2012 it became apparent to the
company that it was unlikely that it would be able to pay all of its
debts as and
when they became due and payable within the immediately
ensuing six months. The company was, therefore, financially
distressed
as contemplated in
section 128.
The board of its
directors decided to embark upon a rehabilitative course of remedial
action. To facilitate that process,
the board of directors
resolved that the company voluntarily commence with business rescue
proceedings. The company resolved
on 28 May 2013 to begin the
process of placing itself under the external supervision of the
business rescue practitioner.
[12] The requisite resolution was properly filed as
contemplated by
section 129(2).
Within five days after the
passing of the resolution the company gave notice of the resolution
in the prescribed manner.
The practitioner was then appointed
by the company. Notice of his appointment was given to all the
affected creditors. The
bank was one of them –
vide
annexure “jek6”. The notice in terms of
section
129(2)
together with the supporting affidavit was dispatched to the
bank, among other affected creditors. The effective date on
which the business rescue practitioner of the company commenced was 7
June 2013 – annexure “jek4”.
[13] At the time this application was launched none
of the affected parties, including the bank, had applied to this
court: to have
the resolution whereby the business rescue
practitioner were commenced set aside; to have the appointment of the
business rescue
practitioner set aside; or to have security furnished
by the business rescue practitioner.
[14] The business rescue proceedings which commenced
on 7 June 2013 were still extant at the time this application was
launched
on 26 July 2013 by way of the following facts: The
resolution to begin business rescue proceedings had not been set
aside;
the relative business rescue proceedings had not been
converted into business liquidation proceedings and no notice of
termination
of business rescue proceedings had been filed with the
CLPC.
[15] On 19 June 2013 and within ten days of his
appointment, the practitioner convened and presided over the first
meeting of creditors.
A representative of the bank attended the
meeting. The practitioner informed the creditors that, in his
opinion, there was
a reasonable prospect of rescuing the company.
At that meeting the creditors submitted various claims to the
practitioner.
[16] On the same day, 19 June 2013, the respondent
favourably reviewed the banking facilities granted to and enjoyed by
the second
applicant as would more fully appear from the banking
facility letter – annexure “jek3” to the founding
affidavit.
Subsequent to the meeting the practitioners
approached the bank with the view of procuring post commencement
funding of the business
rescue proceedings. That he did, in
terms of
section 135.
However the bank declined to finance the
business rescue of the company.
[17] On 17 July 2013 the bank informed the
practitioner that it would apply the balance of R280 000,00
standing to the credit
of the company in the salary account in
partial reduction of its overdraft exposure and that it would retain
all debtor funds (past,
present and future) to settle in full its
overdraft exposure – annexure “jek7”.
[18] In response to the decision of the bank to
recall the overdraft, the practitioner addressed a letter (annexure
“jek8”)
to the bank on 18 July 2013. He questioned
the lawfulness of the decision and actions of the bank to suspend the
overdraft
account, to withhold the funds in the salary account and to
apply a set-off during the course of the business rescue proceedings
– annexure “jek8”. He relied on
section 133
in terms of which a company, subject to business rescue proceedings
is generally immuned from legal proceedings.
[19] The bank turned down the practitioner’s
request on 19 July 2013 to reconsider its decision. Instead it
advised
him of its decision to collect the debtors of the company.
Moreover, the bank called upon the practitioner to account to the
bank by 26 July 2013 for the proceeds of the book debts collected
since 7 June 2013 being the effective date on which business
rescue
proceedings commenced and to pay the funds so collected over to the
bank. The bank advised the practitioner (annexure
“jek9”)
on 22 July 2013 that it was entitled to collect the book debts in
favour of the company by virtue of a cession
agreement.
[20] At the close of business on 7 June 2013 the
credit balance of the current account was R730 181,00. The
business
rescue proceedings commenced on that day. The current
account was suspended on 18 July 2013. Between those two dates
the sum of various amounts deposited or transferred into the two
accounts was approximately R2,7 million. On account of the
suspension of the bank accounts and the refusal of the bank to
provide the company with post commencement finance, the practitioner
opened a new banking account in the name of the company. The
new account was held at Investec Bank. Since then the
practitioner has being collecting book debts from the debtors of the
company and depositing them into the new account held at Investec.
The practitioner conceded that he utilised the sum of R395 000,00
thereof which he withdrew from the overdraft account to
provide
operating capital to the company.
[21] Last year on 28 September 2012 the bank and the
company concluded an agreement in respect of an overdraft facility,
among others.
The agreed limit was R800 000,00 –
vide
banking facility letter annexure “jek2”.
[22] This year on 19 June 2013 the bank and the
company concluded another agreement in respect of three facilities.
The limit
of the overdraft facility remained unchanged at R800 000,00
but that of corporate credit cards and that of vehicle and assets
finance were substantially increased –
vide
the banking
facilities letter annexure “jek3”.
[23] Nine
years ago, on 13 December 2004, the company ceded its book debts in
favour of the bank as continuing covering security
for all the
amounts which the bank then or in the future may owe to the bank –
annexure “0.12”, answering affidavit.
[24] Those
then were facts that were largely undisputed. There were a
number of disputed factual allegations. I do not
wish to
catalogue them here. I shall deal with the most important of
them only during my examination of the facts.
[25] The nub
of the matter is whether the company as the financially distressed
customer of the bank has a right to demand from
the bank post
commencement financing of its business rescue proceedings in order to
stay alive.
[26] On
behalf of the applicant, Mr Van Aswegen submitted that the issue had
to be affirmatively determined in favour of the applicants.
Accordingly, counsel urged me to grant the relief as set out in the
notice of motion as modified during the course of argument
–
vide
annexure “jek12”, replying affidavit.
[27] On
behalf of the respondent, Mr Snellenburg, differed and submitted that
the issue had to be negatively determined in favour
of the
respondent. Accordingly counsel urged me to refuse the relief
sought.
[28]
Section 135
of the
Companies Act, 71 of 2008
provides:
“
Post-commencement
finance
·
(1)
…..
·
(2)
During its business rescue proceedings, the company may obtain
financing other than as contemplated is (sic) subsection (1),
and any
such financing:
(a) may be secured to the lender by utilising
any asset of the company to the extent that it is not otherwise
encumbered; and
(b) will be paid in the order of preference set
out in subsection (3)(b).
·
(3)
After payment of the practitioner's remuneration and expenses
referred to in
section 143
, and other claims arising out of the costs
of the business rescue proceedings, all claims contemplated:
(a) in subsection (1) will be treated equally,
but will have preference over;
(i) all claims contemplated in subsection (2),
irrespective of whether or not they are secured; and
(ii) all unsecured claims against the company;
or
(b) in subsection (2) will have preference in
the order in which they were incurred over all unsecured claims
against the company.
·
(4)
If business rescue proceedings are superseded by a liquidation
order, the preference conferred in terms of this section will
remain
in force, except to the extent of any claims arising out of the costs
of liquidation.”
[29]
Section 133
provides:
“
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.”
[30]
Section 134
provides:
“
Protection
of property interests
(1)
…
..
(2)
…
..
(3) If, during a company's business rescue proceedings, the company
wishes to dispose of any property over which another person
has any
security or title interest, the company must:
(a) obtain the prior consent of that other person, unless the
proceeds of the disposal would be sufficient to fully discharge the
indebtedness protected by that person's security or title interest;
and
(b) promptly;
(i) pay to that other person the sale proceeds attributable to that
property up to the amount of the company's indebtedness to
that other
person; or
(ii) provide security for the amount of those proceeds, to the
reasonable satisfaction of that other person.”
[31]
Section 150
provides:
“
Proposal
of business rescue plan
(1) The practitioner, after consulting the creditors, other affected
persons, and the management of the company, must prepare a
business
rescue plan for consideration and possible adoption at a meeting held
in terms of
section 151.
(2) The business rescue plan must contain all the information
reasonably required to facilitate affected persons in deciding
whether
or not to accept or reject the plan, and must be divided into
three Parts, as follows:
(a) Part A:Background, which must include at least:
(i) a complete list of all the material assets of the company, as
well as an indication as to which assets were held as security
by
creditors when the business rescue proceedings began;
(ii) a complete list of the creditors of the company when the
business rescue proceedings began, as well as an indication as to
which creditors would qualify as secured, statutory preferent and
concurrent in terms of the laws of insolvency, and an indication
of
which of the creditors have proved their claims;
(iii) the probable dividend that would be received by creditors, in
their specific classes, if the company were to be placed in
liquidation;
(iv) a complete list of the holders of the company's issued
securities;
(v) a copy of the written agreement concerning the practitioner's
remuneration; and
(vi) a statement whether the business rescue plan includes a proposal
made informally by a creditor of the company.
(b)
Part B
:Proposals, which must include at least:
(i) the nature and duration of any moratorium for which the business
rescue plan makes provision;
(ii) the extent to which the company is to be released from the
payment of its debts, and the extent to which any debt is proposed
to
be converted to equity in the company, or another company;
(iii) the ongoing role of the company, and the treatment of any
existing agreements;
(iv) the property of the company that is to be available to pay
creditors' claims in terms of the business rescue plan;
(v) the order of preference in which the proceeds of property will
be applied to pay creditors if the business rescue plan is
adopted;
(vi) the benefits of adopting the business rescue plan as opposed to
the benefits that would be received by creditors if the company
were
to be placed in liquidation; and
(vii) the effect that the business rescue plan will have on the
holders of each class of the company's issued securities.
(c)
Part C
: Assumptions and conditions, which must include at
least:
(i) a statement of the conditions that must be satisfied, if any, for
the business rescue plan to:
(aa) come into operation; and
(bb) be fully implemented;
(ii) the effect, if any, that the business rescue plan contemplates
on the number of employees, and their terms and conditions
of
employment;
(iii) the circumstances in which the business rescue plan will end;
and
(iv) a projected:
(aa) balance sheet for the company; and
(bb) statement of income and expenses for the ensuing three years,
prepared on the assumption that the proposed business plan is
adopted.
(3) The projected balance sheet and statement required by subsection
(2)(c)(iv):
(a) must include a notice of any material assumptions on which the
projections are based; and
(b) may include alternative projections based on varying assumptions
and contingencies.
(4) A proposed business rescue plan must conclude with a certificate
by the practitioner stating that any:
(a) actual information provided appears to be
accurate, complete, and up to date; and
(b) projections provided are estimates made in
good faith on the basis of factual information and assumptions as set
out in the
statement.
(5) he business rescue plan must be published by the company within
25 business days after the date on which the practitioner was
appointed, or such longer time as may be allowed by:
(a)
the court, on application by the company; or
(b)
the holders of a majority of the creditors' voting interests.”
So much about the applicable provisions of the
statute.
[32] The
parties signed an agreement in Welkom on 28 September 2012. The
agreement consisted of a two page document.
The agreement made
provision for the suspension or withdrawal of facilities. The
three banking facilities granted by the
bank to the company related
to the overdraft, the business cards as well as the financing of
vehicles and assets. Clause
3.1.1.9 thereof provides:
“
Suspension
or withdrawal of facilities:
The overdraft facilities are granted to you at our sole discretion.
If there is a Material Deterioration in your financial
position we
may immediately suspend or withdraw, without notice to you, all or
part of the Limit, or Reduced Limit (if applicable),
and all amounts
owing will immediately become due and payable to us.”
[33] The full
signatures of the respondent of the parties appear nowhere on the
annexed two pages. However, it appears from
the foot of page 2
that the complete agreement was embodied in eleven pages of which 9
were not annexed to the founding affidavit.
I shall shortly
demonstrate that of the unattached 9 pages probably contained the
general terms and conditions for the grant of
(annexure 2) overdraft
facilities. That was the one agreement.
[34] It
became necessary to compare annexure 3 with annexure 2. The
respondent’s representative appended his signature
on page 4
and the second applicant’s representative appended his on page
5, annexure “3”. That five page
primary component
of annexure “3” has 4 paragraphs. The fourth of
them deals with special conditions. The
parties concluded
another agreement (annexure 3) in Welkom this year. A certain
Mr Glenton Greepe, the account executive
signed the relevant banking
facility on 19 June 2013 on behalf of the respondent. Mr J E
Kritzinger signed it on 16 July
2013 on behalf of the second
applicant. The agreement consisted of an eleven page document.
The revision agreement
increased the limits of two of the three
banking facilities. The overdraft facility was the exception
whose limit remained
unchanged. Clause 4.2.1.8 thereof
(annexure 3) was identical to clause 3.1.1.9 annexure “2”.
“
Suspension or withdrawal of facilities:
The overdraft facilities are granted to you at
our sole discretion. If there is a Material Deterioration in your
financial position
we may immediately suspend or withdraw, without
notice to you, all or part of the Limit, or Reduced Limit (if
applicable), and
all amounts owing will immediately become due and
payable to us.”
[35] The rest
of the document, in other words p6 – 11 were merely
initialled. The 6 page secondary component of annexure
“3”
has 14 paragraphs. Its heading which appears on page 6, annexure “3”
reads as follows:
“
Terms and conditions for overdraft
facilities.”
[36] The
parties made provision for the second applicant’s possible
breach of the overdraft agreement in clause 10.
In terms of
sub-clause 10.1 the second applicant’s default will occur if,
among others: the second applicant is in breach
of this overdraft
agreement and fails to remedy such breach within the time period
specified in the respondent’s written
notice of the breach;
there is a material deterioration in the second applicant’s
financial position; or if the second applicant
or any of its sureties
commits an act of insolvency as contractually defined by the parties;
or if the second applicant does or
omits to do anything which may
affect the respondent’s contractual rights or collaterals in
terms of this overdraft agreement.
[37] The
parties further made provision in clause 10 for the respondent’s
possible remedies in the event of the second applicant’s
default. In terms of clause 10.2 overdraft facilities are
repayable on demand if the second applicant is in default.
In
the case of the second applicant’s default, the respondent is
entitled to review the terms and conditions applicable to
the
facilities; or to increase the rate of interest charged in respect of
such facilities; or to call, by way of a written notice
to the second
applicant, for the immediate repayment of all amounts whatsoever
owing to the respondent; or to terminate the facility,
by way of a
written notice to that effect, in the event of the second applicant’s
neglect to repay immediately or on the
specific date all amounts
owning and due to the respondent. Moreover the parties also
expressly agreed that if the respondent
should suffer any loss or
damage as result of any act or omission other than any act or
omission specified in clause 10 the agreed
default clauses and
default procedures would not apply.
So
much about the applicable clauses of the overdraft agreement.
[38] The
requisites of an interdict were definitely laid down in the classic
decision of
Setlogelo v Setlogelo
1914 AD 221.
[39] Now I
proceed to examine the disputed factual allegations, bearing in mind
the undisputed factual averments.
[40] The
thrust of the one submission made by Mr van Aswegen was that the
respondent’s failure to give the second applicant
written
notice in terms of clause 10.2.3 of the secondary component of the
overdraft agreement (annexure 3) was fatal to the respondent’s
case. The clause required the respondent to give the second
applicant notice of termination of the facility.
[41] Mr
Snellenburg countered that the respondent was entitled in terms of
clause 4.2.1.8 of the primary component of annexure 3
to terminate
the overdraft facility without notice to the second applicant.
The clause empowers the respondent to immediately
suspend or to
withdraw the overdraft facility granted to the second applicant
without giving notice to the second applicant.
[42] At a
glance it may seem clause 1.0.2.3 and clause 4.2.1.9 of annexure 3
are in conflict of each other. As I have already
pointed out,
the former is contained in the general terms and conditions. In
general such terms and conditions are standard
to all overdraft
agreements between the respondent and any of its customers.
They were embodied in a separate document which
has been in existence
long before the 2012 overdraft agreement was concluded. In 2013
the general terms and conditions were
simply incorporated into the
current overdraft agreement by reference and attached to it.
Elsewhere in this judgment I previously
described them as the
secondary component of annexure 3 – (
vide
pages 6 -11
thereof). Previously I also described the special terms and
conditions which govern the current overdraft agreement
as the
primary component of annexure 3 – (
vide
pages 1 –
5 thereof).
[43] Upon my
integrated reading of annexure “3”, the significance of
the aforesaid historical origin and structural
composition of
annexure “3” became very clear. There is no
conflict between the aforesaid two clauses.
The mutual and
common intention of the parties cannot be accurately ascertained by
fragmented and selective reliance on one clause
in isolation as the
applicant did. The document has to be considered as a whole.
So holistically considered it becomes
clear and obvious that the
parties intended, by means of the special component to modifying the
general component of annexure “3”
if, in the opinion of
the respondent, the financial position of the second applicant has
materially deteriorated. This is
the one important factor which
strongly militates against the contention of the applicants.
[44] The
second contention raised by the applicants was that second applicant
was immuned in terms of
section 133
from legal proceedings since 7
June 2013 being the date on which the second applicant placed itself
under business rescue proceedings.
By way of such moratorium
the second applicant had the statutory right to have no legal
proceedings commenced against the second
applicant during the cause
of business rescue proceedings without the prior written consent of
the business rescue practitioner.
[45] The
respondent attacked the aforesaid contention of the applicants.
The respondents denied that its suspension of the
banking facilities
it had granted to the second applicant constituted an enforcement
action or an unlawful infringement of the
general moratorium against
commencement of any legal process against the second applicant as
envisaged in
section 133.
[46] The
respondent relied on the fact that the second applicant placed itself
under voluntary business rescue process because it
was financially
distressed. It followed, without saying, that the underlying
cause of such financial distress was the material
deterioration of
the second applicant’s financial position. That
constituted default on the part of the second applicant
which
defaulted boiled down to breach of the material terms of the
overdraft facility – clause 10.1.2. On the strength
of
such material deterioration the respondent was entitled to invoke the
remedial provisions of clause 4.2.1.8 to suspend the facilities
and
to terminate the overdraft agreement in terms of clause 10.2 –
see annexure “3”.
[47] Indeed
the respondent had the unassailable right to terminate the overdraft
facility upon evidence of such material deterioration.
The
moment the company resolved to place itself under voluntary business
rescue, it thereby signalled that material deterioration
in its
financial position had occurred. It was not open to the company
or its business rescue practitioner to argue that
the bank was wrong
in concluding that material deterioration occurred. That was so
because the parties had mutually agreed
that the bank would, in its
free and unfettered discretion, be the sole arbiter as to whether
material deterioration has occurred.
[48] On the
facts, I am not persuaded that the respondent was in breach of its
contractual obligation towards the second applicant.
I also
failed to see how it could be argued that the respondents had
unlawfully violated the statutory provisions of
section 133
or the
overarching objects of chapter 6 of the applicable statute. On
the contrary, the first applicant has already made
himself guilty by
acting in contravention of
section 134(3)
to the financial detriment
of the respondent. To compel the respondent by means of a court
order to continue providing the
second applicant’s with post
commencement finance against its will and contrary to the express
terms and conditions of the
overdraft agreement would exacerbate the
prejudice already suffered by the respondent. In this instance
I could find no contractual,
legal or any equitable ground for making
such a burdensome and invasive order against the respondent.
[49] The book
debts of the company cannot be treated as the property of the company
any longer. This is so because the company
ceded them in favour
of the bank to secure not only the overdraft, but other banking
facilities as well (annexure “0.12”).
Since the
second applicant has ceded its debtor book to the respondent, such
book now constitutes the respondent’s outright
collateral
security. Those facilities clearly exposed the bank to
potentially unfavourable financial risk of default events.
I
view of the cession the practitioner, just like the company, was not
entitled to collect the book debts of the company and without
the
respondent’s consent in terms of
section 134(3)
, to transfer
the money so collected to an unknown banking account held at another
bank for the sole benefit of the company.
That the practitioner
could not lawfully do.
[50] The
respondent has no control over such account. It was
impermissible for the practitioner to dilute the security of
the bank
in that manner. Such diversion of the secured funds was a
direct and flagrant breach of clause 6.3, annexure “0.12).
It expressly provides that the cedent (in other words the second
applicant) will deposit the money in a special banking account
in the
name of the bank (in other words the respondent) over which the bank
will have the sole control. Needless to say the
respondent has
virtually no control over the new account which the practitioner has
since opened in the name of the company at
Investec Bank.
[51]
The law is settled. Where a creditor holds security over a
debtor’s property, in this instance the company’s
debtors, the practitioner cannot dispose or use such encumbered
property without the secured creditor’s consent unless he
first
discharges the debtor’s debts in favour of the creditor –
section 134(3).
In this instance the business rescue
practitioner has done neither. Instead he has drastically
subverted the secured
creditor’s security. The respondent
has called upon the first applicant to account for the debtors
collected since
he took over the rescue operations. The first
applicant has, as on 30 July 2013, failed to respond to the
respondent’s
request emailed on 19 July 2013. His
contention that the debtor book still belonged to the second
applicant, was misplaced.
[52] A
similar argument was unsuccessfully raised in the case of
Francis
Edward Gormley v West City Precinct Properties (Pty) Ltd
[2011] 19075 WCC [18] where Traverso DJP dismissively said:
“From the replying affidavits, it appears that Gormley accepts
that his initial view that the proceeds would accrue to West
City was
wrong and that the full proceeds of the sale would accrue to the Bank
in the business rescue proceedings. The moratorium
on which he
originally relied in terms of
section 133(1)
of the Act provides that
no legal proceedings against the company or in relation to any
property belonging to the company or lawfully
in possession may be
commenced during business rescue proceedings without the consent of
the business rescue practitioner. The
Bank's entitlement to all rents
and revenue is a right which it will enforce against the third
parties who owe rents and revenue.
Such rents and revenue do not
constitute property belonging to West City, nor are such rents and
revenue in its possession nor
will it ever be. The provisions of
section 133(1)
, in my view, have no bearing on the Bank's entitlement
to the rents and revenue, as the collection thereof does not
constitute
enforcement proceedings.”
[53] The
respondent is a secured creditor by virtue of the cession over the
second applicant’s book debts. That much
is not open to
any debate. The second applicant volunteered to place itself
under business rescue proceedings. Such
resolution has certain
adverse impact on its creditworthiness. The voluntary placement
of a company under business rescue
management amounts to a form of
legal disability. The public announcement that the second
applicant reasonably believed that
it would not be financially able
to regularly pay its debt for a period of six immediately ensuing
months simply meant that the
second applicant sought to have its
contractual obligations to pay any debt owing to any of its creditors
on regular monthly basis
deferred. By so doing the second
applicant committed an act of insolvency according to the terms and
conditions of the overdraft
agreement – clause 10.1.3.1.
“
You
must tell us immediately if you, or any surety in terms of this
Overdraft Agreement, are placed under an administration order,
become
insolvent, or have any other form of legal disability. On
application for insolvency any amounts outstanding under
this
Agreement will immediately become due, owing and payable to us.”
vide
clause 14.10.
[54] It
must be obvious therefore, that the respondent has acted in no
unlawful manner but that it merely exercised its contractual
rights
in a perfectly lawful manner in terms of the recognised hierarchy of
creditors. The respondent is still a secured
creditor post
commencement of business rescue proceedings in much the same way as
it was prior to the commencement of such proceedings.
The
commencement of such proceedings did not and could not demote the
respondent from its rightful position as a creditor with
a secured
rank. What is questionable and deplorable in this matter is the
conduct of the business rescue practitioner.
I am persuaded
that the applicants are currently acting contrary to the relevant
statute and the contract.
[55] The
applicant essentially seeks a court order whereby the respondent is
compelled to finance the financially ailing company
so that the
company can pay, at the expense of the respondent, its other
creditors. Moreover, they also seek a court order
whereby the
respondent is prohibited from collecting any book debts, in terms of
the cession agreement, paid by the debtors of
the company. The
bank is entitled to enforce its rights against the debtors.
[56] The
second applicant is in dire financial crisis. Implicitly the
second applicant is commercially insolvent. Yet
the applicants
want to see the respondent compelled to allow them to exhaustively
utilize the overdraft account and increase the
level of the second
applicant’s indebtedness to the respondent whilst, at the same
time, the first applicant is busy diluting
the security given to the
respondent. It is an ironical relief they seek. Certainly
that is not the purpose of the
remedy of business rescue
proceedings. In my view all the components of the relief sought
are untenable –
Oakdene Square Properties (Pty) Ltd &
Others v Farm Bothasfontein (Kyalami) (Pty) Ltd
(609/2012)
[2013] ZASCA 68
27 May 2013.
[57]
The respondent was entitled to suspend or to withdraw the overdraft
facilities which, after all, were granted at its sole and
absolute
discretion. No doubt, I have no jurisdiction in terms of any
provision of the relevant statute to order the respondent
to extend
further credit, against its will, to the financially distressed
company. It appears to me that the application
was brought
about by the applicants’ misconception of the respondent’s
entitlements
ex lege
and
ex contractu
-
Gormley
,
supra
.
Whilst I accept that it is important for the company to survive and
to continue trading, it cannot be licensed to do so
by compromising
the respondent’s security.
[58] It
is not the underlying purpose of the statute to force the commercial
banks to finance companies which are in financial distress
–
Oakdale
,
supra
.
In this matter the first applicant on behalf of the second applicant
applied to the respondent for funding but the application
for post
commencement finance as contemplated in
section 135
was declined.
The lawfulness of that decision cannot be doubted. It was
precisely the practitioner’s unrealistic
request, unsupported
by any business rescue plan, which prompted the respondent on 17 July
2013 to review, as it was entitled to,
its earlier favourable
decision of 19 June 2013 concerning the company. The casual
conduct displayed by the practitioner
in approaching the bank for
post commencement finance, without a business rescue plan approved by
the creditors, was tantamount
to an act of default event not
envisaged in terms of clause 10.1annexure 3. Such breach
entitled the respondent to immediately
terminate the overdraft
facility without notice –
vide
clause 10.3.
[59] As
regards the second leg of the notice of motion, the relief sought was
to have the respondent interdicted and restrained
from enforcing 8
collaterals. The collateral consisted of:
2 x unrestricted suretyship agreements;
1 x restricted suretyship agreement;
3 x ceded insurance policies;
1 x unrestricted cession of book debts; and
1 x unlimited pledge of call deposit.
[60] The
applicants partially abandoned the aforesaid relief to the extent
that it related to the three suretyship –
vide
paragraphs 2.2.1, 2.2.7 and 2.2.8 notice of motion read together with
par 31 of the replying affidavit. They however, persisted
with their
case as regards the rest of the collaterals,
viz
paragraphs
2.2.2, 2.2.3, 2.2.4, 2.2.5 and 2.2.6.
[61]
Those segments of the relief relative to the suretyships furnished by
the thirds,
viz
G S Lloyds and Reatla CC were correctly abandoned. There are
two reasons why the applicants were not entitled to such relief.
Firstly, the general moratorium on legal proceedings in terms of
section 133
is a special measure exclusively designed to protect a
financially distressed company subject to business rescue
proceedings.
The statute does not provide protection to
sureties for the debts of a company but rather to a financially
distressed company subject
to business rescue proceedings which
company itself stood as surety and signed a suretyship agreement for
a third party’s
debt -
Investec
Bank Ltd v Bruyns
2012 (5) SA 430
(WCC) paras [15] and [16] per Rogers AJ.
It
stands to reason, therefore, that such moratorium on legal
proceedings does not avail a surety for the debts of such a company
subject to business rescue proceedings –
vide
subsection (2).
[62]
Secondly, even if a surety of such an ailing company all enjoyed the
protection of the general moratorium, it would not have
been open to
the applicants to challenge, on behalf of such sureties, the steps
taken by the respondent. The applicants would
have had no
standing to do so.
[63] In
Grobler v Oosthuizen
2009 (5) SA 500
(SCA) the court
held that in a case of an outright cession a cedent loses all his
rights by transferring those rights to a cessionary
and that nothing
remains vested in the cedent after such cession –
vide
para [8]. In the case of a cession in
securitatem debiti
however, the court held that, although the cedent pledges the
principal debt to the cessionary, the cedent nonetheless retains
a
“bare dominium” in other words a “reversionary
interest” in the claim against the principal debtor –
vide
paras [15] and [17].
The
parties were
ad idem
,
in casu
,
that the type of cession in the present matter was a cession in
securitatem debiti
and not an outright cession.
[64] As
regards the rest of the second leg of the notice of motion, the
relief with which the applicants persisted revolved around
the
various cessions –
vide
paras 2.2.3, 2.2.4, 2.2.5 and
2.2.6 of the notice of motion. At the heart of the matter was
the cession of the book debts
of the company. I have already
devoted a great deal of time to that particular aspect of the case.
I deem it unnecessary
to labour the point any further. My views
and findings are known by now.
[65]
There is yet another important factor which shows that the contention
of the applicants is misplaced. The parties agreed
that if the
respondent were to suffer any loss or damage occasioned by any
unspecified act or omission attributable to the second
applicant,
then in that event, the default clauses and the default procedures as
set out in clause 10 annexure “3”
would not apply.
The respondent’s contractual obligation to give written notice
of termination of the overdraft agreement
could only be dispensed
with in certain default events that fell beyond the scope of default
events as expressly specified in clause
10.
[66] Among
the collateral which the second applicant specially furnished to the
respondent as security for the repayment of the
facilities granted
was the unrestricted cession of the book debts due to the second
applicant by all its debtors –
vide
clause 3.1 annexure
“3”. In terms of clause 6.2, annexure “0.12”
the second applicant was obliged
to act as the respondent’s
agent in the collection of all money due or to become due to the
second applicant. The second
applicant undertook to immediately
pay over to the respondent all the money it collects from its
debtors. It is common cause
that notwithstanding such a
contractual obligation the first applicant, on behalf of the second
applicant admittedly collected
R395 000 from the second
applicant’s debtors (positive act) but diverted it to a certain
account held at Investec Bank
instead of immediately paying such sums
of money to the respondent (negative act) as he was obliged to do.
[67]
The conduct of the applicant constituted acts and omission prohibited
in terms of clause 10.3, annexure “3” read
with clause
6.3, annexure “0.12”. In view of such flagrant
violation of clause 6.3 of the cession agreement the
respondent
suffered financial loss as contemplated in clause 10.3 of the
overdraft agreement. As result of such suffering
of financial
loss the respondent was well within its contractual rights to
immediate terminate the overdraft agreement without
given prior
written notice in terms of clause 10.2.3 of annexure “3”.
In the light of all this, I find that the
second applicant had no
procedural right
ex contractu
to demand written notice to terminate the agreement.
Accordingly any submission to the contrary was untenable.
[68] I
have also considered the insurance policies and the unlimited
pledge. All those collaterals were, like the book debts,
ceded
to the respondent to secure the banking facilities granted to the
second applicant. All of those various cessions were
given by
the second applicant to respondent for the sole purpose of securing
the repayment of the overdraft and other banking facilities.
It
was common cause that the second applicant has not discharged the
principal debt. There was no business rescue plan approval
by
the creditors. The first applicant had prepared no business
rescue plan at all. Yet Mr Kritzinger, as the business
rescue
practitioner, wanted the respondent as the creditor and me as the
court to believe there were excellent prospects after
six months the
financial distress of the company would be over. He laid no
foundation for his very optimistic belief.
[69] Where,
as in this matter, there was no workable restructuring plan for the
healing and revival of an ailing company Traverso
DJP pessimistically
but correctly remarked:
“It is difficult to understand on what this allegation is
based. Unless there is a bona fide workable restructuring plan
the
moratorium provisions of the business rescue proceedings will lend
themselves to abuse by company insiders seeking to use these
provisions to frustrate creditors' rights and to stave off
liquidation for motives of their own.”
Vide
Gormley
,
supra
, par
[15].
That being the case, the respondent was
entitled to retain all those cession and to apply their proceeds in
reduction of the second
applicant’s total indebtedness.
To that effect the respondent duly notified the company –
vide
annexure 7.
[70] In the
light of the aforegoing, I have come to the conclusion that, in law,
the applicants are not entitled to have the respondent
interdicted
and restrained from enforcing any of the guarantees identified in
paragraphs 2.2.2 to 2.2.6.
[71] As
regards the third leg of the notice of motion, the relief sought was
to have the suspension of the second applicant’s
current
account, relative to the overdraft facility, uplifted alternatively
re-instated for the duration of the second applicant’s
business
rescue proceedings.
[72] I have
thoroughly considered this aspect earlier. The conclusion I
have reached was that the applicants are not entitled
to the relief
as set out in paragraph 2.3. To hold otherwise would undermine
the contractual rights of the respondent.
[73] As
regards the fourth leg of the notice of motion, the relief sought was
to have the suspension of the second applicant’s
salary account
uplifted or reinstated during the course of the second applicant’s
business rescue proceedings.
[74] The
relief sought per 2.2.4 notice of motion was substantially similar to
the one sought as per 2.2.3. Accordingly my
views, findings and
conclusions were also pretty much similar in substance. My
conclusion is, therefore, that the applicants
are not entitled to the
relief prayed for.
[75] As
regards the fifth leg of the notice of motion, the relief sought was
to have the respondent interdicted and restrained from
using any
amount standing to the credit of the second applicant in the salaries
account for the purpose of off-setting the amount
standing to the
debit of the second applicant in the current account.
[76] I have
earlier pointed out how the second applicant was in breach of the
obligatory terms and conditions of the overdraft agreement
–
vide
clause 10.1. Similarly I was also at pains to point
out the respondent’s contractual remedies in the event of the
second
applicant’s default –
vide
clause 10.2
again. I have to stress that the grant of an overdraft facility
to a customer is a matter that resides within
the discretionary
province of a bank. Any amount due and payable to a bank by a
customer on the strength of an overdraft
facility is repayable on
demand. Once a customer is in default of contractual
obligations, a bank has contractual rights
to review the terms and
conditions, and, in its discretion, demand the immediate repayment of
all the amounts owing.
[77] To that
extent a bank, as a secured creditor, is entitled
ex lege
to
apply a set-off.
Section 133(1)
does not, on the facts,
preclude the bank from applying the credit balance in one account to
reduce the debit balance in another
account. The bank has a
common law right to do so. But even if I am wrong, it would be
inequitable, in this instance,
to order the respondent, whose
security has been drastically diminished if not completed eroded by
the applicants, to reverse the
set-off transaction and to release the
affected funds to the very same parties whose collaborative and
subversive conduct has rendered
its security for repayment of the
overdraft facility meaningless. That the law cannot
countermine.
[78] In the
light of the aforegoing I have also come to the final conclusion that
the applicants are also not entitled to the relief
they seek under
paragraph 2.5 of the notice of motion.
[79] Now the
issue of costs. The respondent has been successful in its
opposition of the application. By virtue of that
the respondent
is entitled to the fruit of its success.
[80] The
decisions in
Oakdene Square Properties (Pty) Ltd and Others v
Farm Bothasfontein (Kyalami) (Pty) Ltd and Others
2012 (3) SA
273
(GSJ) and
Southern Palace Investments 265 v Midnight Storm
Investments 386
2012 (2) SA 423
(WCC) provide instructive,
useful and insightful material concerning the principles governing
the concept of business rescue.
[81] In
the circumstances as a whole I am satisfied that the applicants have
not made out a proper case for the grant of the interdictory
relief
they sought, in all its various shades. None of the requisites of the
remedy were established.
[82] These
then were the reasons which impelled me to make the order I made
earlier whereby I dismissed the application with costs.
M. H. RAMPAI, AJP
On behalf of the applicants: Adv. W. van Aswegen
Instructed by:
Van Deventer & Thoabala
BLOEMFONTEIN
On behalf of the respondent: Adv. N.
Snellenburg
Instructed
by:
Honey
Attorneys
BLOEMFONTEIN
/spieterse