About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Kwazulu-Natal High Court, Pietermaritzburg
SAFLII
>>
Databases
>>
South Africa: Kwazulu-Natal High Court, Pietermaritzburg
>>
2013
>>
[2013] ZAKZPHC 56
|
|
DH Brothers Industries (Pty) Ltd v Gribnitz NO and Others (3878/2013) [2013] ZAKZPHC 56; 2014 (1) SA 103 (KZP); [2014] 1 All SA 173 (KZP) (21 October 2013)
1
REPORTABLE
IN HIGH COURTOF SOUTH AFRICA
KWAZULU-NATAL DIVISION,PIETERMARITZBURG
CASE NO:3878/2013
In the matter between:
DH BROTHERS INDUSTRIES (PTY) LTD
.......................................
Applicant
and
KARL JOHANNES GRIBNITZ NO
........................................
First
Respondent
DOWMONT SNACKS (PTY) LTD
.....................................
Second
Respondent
THE COMPANIES & INTELLECTUAL
PROPERTY COMMISSION
...................................................
Third
Respondent
___________________________________________________________
JUDGMENT
___________________________________________________________
GORVEN J
Goods and services are the lifeblood of an economy.
Business entities, in providing goods and services,generate this
lifeblood.
Regulatory provisions are geared to assist the lifeblood
to flow as efficiently as possible.Companies are the main business
entities
which provide the goods and services in the South African
economy. The Companies Act 71 of 2008 (the Act) regulates Companies.
It deals with how they come into existence, how they function, how
they can be revived when distressed and how they demise. How
they
are revived is regulated by the provisions in Chapter 6 of the Act
concerning business rescue (business rescue proceedings).
This is a
new feature of South African Company Law. It replaces the failed
system of Judicial Management which was provided for
in the
Companies Act 61 of 1973 (the 1973 Act). Unfortunately, a number of
the business rescue provisions in the Actare less
than clear. Some
of these have surfaced in this application.
A basic history is necessary. A resolution dated 16
November 2012 was filed with the third respondent on 22 November
2012, placing
the second respondent (Dowmont) under business rescue.
At the time, there were two directors of Dowmont. The applicant is a
creditor
of Dowmont arising from sales concludedbetween September
and November 2012totalling R3 420 696.30. No payment
emerged.
The directors stood surety for the due performance of
Dowmont’s obligations to the applicant. In the affidavit by
one of
the directors furnished in support of the resolution, it was
stated that Dowmont was solvent but illiquid. It owed more than R30m
to its creditors and would not be able to pay them as the amounts
became due and payable within the next six months. The current
value
of the assets exceeded the value of the liabilities ‘based on
the director’s valuation’.
The first respondent (Mr Gribnitz) was appointed as
business rescue practitioner on 16 November 2012.It is common cause
that a
business rescue plan (a plan or the plan) was not published
within 25 business days of his appointment as is required under
s 150(5)
of the Act. He sent circular letters by email to
creditors on a number of occasions requesting an extension of time
to publish
a plan. No response was invited or received, either
positive or negative. A plan was eventually published on 25 March
2013. A
meeting was convened for 3 April 2013 to consider it. On
that date, one of the creditors objected to the notice given and the
meeting was accordingly adjourned to 10 April 2013.
Between 3 and 10 April 2013 the applicant launched the
present application under s 130(1)(a) to set aside the
resolution.
At the meeting of 10 April 2013, those present were
advised that this had taken place. Mr Gribnitz stated that he would
adjourn
the meeting so as to table a revised plan which would
increase the dividend payable to concurrent creditors. No formal
vote was
taken for preliminary approval of the plan or to adjourn
the meeting.An amended plan was published by email on 11 April 2013.
On 19 April 2013 the plan (as amended) was voted upon. Therequisite
75% support of those who voted was not achieved.
1
After the vote, an employee of Dowmont, Ms Eveleigh,
indicated that she was making a binding offer in terms of
s 153(1)(b)(ii)
of the Act. It was accepted by the applicant
that the binding offer was for the voting interests of all creditors
who had opposed
the adoption of the plan (the opposing creditors). I
shall assume that this was the case although the transcript of the
meeting
does not make this clear. The offer made was‘at the
liquidation rate or R100 whichever is the highest’. Mr
Gribnitz
purported to accept the offer and advised the meeting that
he would adjourn for five business days and request a value
independently
and expertly determined as to the liquidation dividend
which would accrue to the opposing creditors. He thereafter
appointed
Mr Klein to do so. He also made variations to the plan in
a way that he believed appropriately reflected ‘the results of
the offer’.
2
The adjournedmeeting was heldon 25 April 2013. It was,
to say the least, a stormy meeting.Mr Gribnitz reported on the
valuation
of Mr Klein. The material part of thereport statedthat
‘subject to the informationprovided to us being accurate…no
dividend will become payable to the concurrent creditors’ in
the event of Dowmont being liquidated. Since R100 was higher
than
the likely dividend, Mr Gribnitz then offered R100 to each of the
seven opposing concurrent creditors whose claims totalled
over R12m.
All of them rejected the offer. Mr Gribnitz ruled that Ms Eveleigh
now owned the claims of all the opposing concurrent
creditors.The
revision to the plan made prior to the meeting reflected Ms Eveleigh
as owner of the claims of the opposing creditors.
A vote was then
taken on the basis that Ms Eveleigh had acquired the voting
interests of the opposing creditors. The plan received
support from
98% of those who voted. Mr Gribnitz ruled that the plan had been
approved. Without the votes of the opposing creditors
exercised by
Ms Eveleigh, it is common cause that the plan would not have
received the requisite support. The opposing creditors
were not
allowed to vote.
The founding papers were supplemented after that
meeting. The relief now sought by the applicant is the following:
3
‘
a. That leave be granted to the Applicant
to institute this application in terms of s 133(1)(b) of the
Companies Act, 2008
(Act 71 of 2008)… and to proceed
therewith.
b. That the resolution of the board of directors of the Second
Respondent in terms of
s 129
of the
Companies Act, adopted
on 16
November 2012, placing the Second Respondent under supervision by a
business rescue practitioner, which resolution was filed
with the
Third Respondent on 22 November 2012, be and is hereby set aside in
terms of
s 130(1)(a)(ii)
read with
s 130(5)(a)(i)
alternatively (ii) of the
Companies Act.
>
c.
That the appointment of the First Respondent as a business rescue
practitioner for the Second Respondent be set aside;
(ii) It is declared that the offer purported to have been made by
Trish Wilma Suzanne Eveleigh in terms of
s 153(1)(b)(ii)
of the
Companies Act did
not result in the acquisition by her of the
applicant’s voting interest, and of the voting interests of the
other dissenting
and opposing creditors, which she purported to
exercise in favour of the business rescue plan proposed in respect of
the second
respondent by the first respondent.
(iii) It is declared that the business rescue plan proposed in
respect of the second respondent by the first respondent was not
one
contemplated by Parts A to B of Chapter 6 of the
Companies Act, as
it
unlawfully incorporated a provision that all creditors, including
those who opposed the approval of the plan, must cede a portion
of
their claims to a third party.
(iv) It is declared that the offer which the said Eveleigh purported
to make in terms of
s 153(1)(b)(ii)
was not one which fell
within the ambit of the provision as it purported to be made for the
acquisition of the affected creditors’
claims, as opposed to
the voting interests.
(v) the purported approval by the requisite majority of the creditors
of the Second Respondent, of the business rescue plan proposed
by the
First Respondent, at the meeting of creditors of the Second
Respondent, on 25 April 2013, be and is hereby reviewed
and set
aside.
d. That the business rescue proceedings in respect of the Second
Respondent be converted to liquidation proceedings in terms of
s 132(2)(a)(ii)
of the
Companies Act.
e. That the costs of the application be part of the costs of
administration of the Second Respondent in the said winding up.’
The usual prayers which accompany a provisional
liquidation order relating to service and publication were sought as
was a prayer
directing the relevant Master to appoint a provisional
liquidator forthwith.
The third respondent has not opposed the application. I
will refer to the first and second respondents simply as the
respondents
when dealing with them together. Therespondents oppose
the relief referred to inprayer a. aboveonly on the basisthat the
balance
of the application should be refused. The relief in the rest
of the prayers is opposed by the respondents.
The first aspect of the substantive relief sought is
the setting aside of the resolution. It is sought on the basis of
s 130(1)(a)
read with
s 130(5)(a).
The former entitles an
affected person
4
to bring an application to set aside a resolution. The
latter entitles a court to grant such an application. It is accepted
that
the procedural requirement that the application be launched
before a plan has been adopted was met.
This, and further points in this application, requires
the interpretation of aspects of Chapter 6 of the Act. This Chapter
has
its own definitions section in s 128 concerning terms used
relating to business rescue and compromises. Section 5 of the Act
enjoins courts to interpret and apply the Act in a way which gives
effect to the purposes set out in s 7.
5
It also entitles courts, to the extent appropriate, to
consider foreign company law in interpreting and applying the Act.
6
Section 7, in its turn, lists a wide range of purposes,
including the promotion of compliance with the Bill of Rights as
provided
for in the Constitution.
7
I respectfully agree that the Chapter as a whole
reflects ‘a legislative preference for proceedings aimed at
the restoration
of viable companies rather than their destruction’
8
but only of viable companies, not of all companies
placed under business rescue.
Three grounds are provided in s 130(1)(a) on which
an application can be based to set aside a resolution. The first is
that
there is no reasonable basis for believing that the company is
financially distressed. The second is that there is no reasonable
prospect for rescuing the company. The third is that the company has
failed to satisfy the procedural requirements set out in
s 129.
Each of these grounds is to be evaluated at the time of
considering the application, rather than at the time the resolution
was
taken. This is because the first two grounds are framed in the
present tense andthe third ground is based on procedural
requirements.
The procedural requirements relate mostly toactions to
be taken after the date of the resolutionwithin specified time
periods.
These include filing the resolution,
9
publishing the resolution to affected persons,
10
appointing a business rescue practitioner,
11
filing a notice of such appointment
12
and publishing a copy of the appointment to each
affected person.
13
The application is therefore not based on whether there
was an adequate basis to take the resolution at the time it was
taken.
The resolution to begin voluntary business rescue
proceedings may be taken only if the board of directors has
reasonable grounds
to believe that the company is financially
distressed and that there appears to be a reasonable prospect of
rescuing the company.
14
Both are required in order for the resolution to
comply. Clarity has now been given as to what is meant by the
requirement that
there is a reasonable prospect of rescue in the
similarly worded requirement to that effect for an application to
court brought
in terms of s 131.
15
It
is common cause that Dowmont was, and is, financially distressed. In
the somewhat unusual circumstances of this application,
the business
rescue plan has now been published. The applicant submitted that the
plan does not comply with one envisaged for
business rescue
proceedings for reasons which shall be dealt with later. Apart from
this contention, it was conceded by the applicant
that, if it is
competent to adopt it and it is in fact adopted, the plan would form
the basis for concluding that there is a
reasonable prospect for
rescuing Dowmont.
The court is empowered to grant such an application by
s 130(5)(a), which provides as follows:
‘
(5) When considering an application in
terms of subsection (1)(a) to set aside the company’s
resolution, the court may -
set aside the resolution –
on any grounds set out in subsection (1); or
(ii) if, having regard to all of the evidence, the court considers
that it is otherwise just and equitable to do so…’
There are two bases relied on by the applicant for the
court to set aside the resolution. The first is a failure to satisfy
the
procedural requirements set out in s 129.
16
In this regard, the applicant submits that the
resolution was not taken by the board of directors of Dowmont as
envisaged in this
section. The second basis is that it is just and
equitable to set aside the resolution.
17
For the first point, the applicant refers to the
resolution and accompanying affidavit deposed to by Mr Kelly. The
first such
document is headed ‘Minutes of a Resolution passed
by the Sole Director of Dowmont Snacks (Pty) Limited Registration
Number
2004/019894/07 on 16 November 2012 at New Germany,
KwaZulu-Natal’. Above the resolutions recorded in the
document, it states,
‘Therefore the following resolutions have
been passed by the director’. At the foot of the document is a
place for
two directors to sign the document. There are marks above
both of those places. The affidavit deposed to by Mr Kelly in
support
of the resolution is the second document referred to by the
applicant. In it, he states that he is the financial director and
one of the shareholders of Dowmont. Towards the end of the affidavit
he says, ‘therefore the following resolutions have
been passed
by me as director…’.Hethereafter lists the same two
resolutions; one to place Dowmont in business rescue
proceedings and
one to appoint Mr Gribnitz as business rescue practitioner.
The applicant took the point that only one of the two
directors passed the resolution whereas the Act requires a majority
of directors
to have done so. Mr Gribnitz, who is the only person
who has deposed to an affidavit opposing the application, stated
that both
of the directors had signed the resolution. He did not
claim to have been present when the resolution was signed and
neither
of the directors deposed to an affidavit. The only
admissible evidence as to who passed the resolution is that given by
Mr Kelly
in his affidavit of 16 November 2012 where he positively
stated that the resolutions in question were passed by him. No
mention
is made of any other directors having passed them. It may
be, as was asserted by Mr Gribnitz, that the mark above the second
position for a director to sign is that of the other director. On
the papers as they stand, therefore, this amounts to mere
speculation.
The plain wording of the document in question, however,
styles it as a resolution passed by the sole director and states
that
the resolutions were passed by ‘the director’. This
is also what is affirmed on oath by Mr Kelly. It seems to me,
accordingly, that it has not been established by Dowmont that a
resolution which complies with s 129(1) of the Act was passed.
This brings the matter within the ambit of a failure to satisfy the
procedural requirements of s 129. That is effectively
the end
of the matter and the applicant has accordingly made out a case for
the resolution to be set aside.
I was urged to deal with the further grounds raised by
the applicant for the relief sought. In case I am wrong on the above
point,
it is appropriate to accede to this request. The second
ground for setting aside the resolution relies on the just and
equitable
provision of s 130(5)(a)(ii).It must initially be
determined on what grounds such an application can be brought. In an
application,
the notice of motion and founding affidavit, together
with its annexures, constitute pleadings and evidence which must
justify
the grant of the relief sought.
18
Therefore,
in the founding affidavit, the applicant must set out facts that are
sufficient to disclose the cause of action relied
on and evidence
establishing that cause of action.
19
Section 130(1)(a)gives
toan affected person seeking to approach a court to set aside a
resolutiononly three grounds, or causes
of action, on which to base
the application. In contrast to this, s 130(5)(a)(ii) empowers
a court hearingan application
brought under s 130(1)(a)to set
aside a resolution on those three grounds but, in addition, to do
so‘if, having regard
to all of the evidence, the court
considers that it is otherwise just and equitable to do so’.
On the face of it, the court
is empowered to set aside a resolution
on four grounds but an applicant is only entitled to base an
application on one or more
of three grounds. In other words, an
application cannot be based on this fourth ground because the
application then would not
qualify as one brought in terms of
s 130(1)(a). The court is only entitled to grant relief in
respect of an application
brought in terms of s 130(1)(a).
Thisgives rise to an anomaly. Relief can be granted by
the court on a cause of action which cannot be relied on by an
applicant.
It is no answer to say that, despite the application only
being founded on one of the three grounds in s 130(1)(a), the
court can invoke the just and equitable ground in granting relief.
This would mean that a respondent, brought to court on one of
three
bases and who founds her or his opposition on the pleadings and
adduces no evidence concerning whether it is just and equitable
to
set aside the resolution, runs the risk of an adverse finding
despite not being called upon to meet that cause of action.
Conversely, if the applicant was to deal with the just and equitable
basis in the application, a respondent would ordinarily
be entitled
to have that matter struck out as irrelevant. If the court could
base a finding on the just and equitable ground,
a respondent would
be prejudiced. This cannot be what was envisaged by the legislature.
Despite the need to interpret a statute
using the plain words, the
distinction between s 130(1)(a) and s 130(5)(a) clearly
arises from a drafting error. In
this regard, it was held in
Hatch
v Koopoomal
that:
‘
If, examining results, you find absurdity
or repugnance of a kind, which, from a study of the enactment as a
whole, you conclude
the Legislature never could have intended, then
you are entitled so to interpret the enactment as to remove the
absurdity or repugnance
and give effect to the intention of the
Legislature.’
20
This approach also accords with the dictum of Wallis JA
in the recently decided matter of
Natal Joint
Municipal Pension Fund v EndumeniMunicipality
to
the following effect:
21
‘
A sensible meaning is to be preferred to
one that leads to insensible or unbusinesslike results or undermines
the apparent purpose
of the document.’
The only sensible meaningwhich avoids the absurdity
which would otherwise result is to construe the just and equitable
basis as
an additional groundto the three listed in s 130(1)(a).
22
This can thereforebe relied on as a fourth ground or
cause of actionfor relief in an application brought under that
section.
Before reaching a conclusion on the just and equitable
basis, it is necessary to evaluate all the evidence. It is
accordinglydesirable
to determine whether the plan was adopted and
consider other evidence, including the terms of the plan. I shall
revert to the
just and equitable basis after doing so.
The applicant submitted that the plan has not been
adopted, but rejected. It said so for at least three reasons. First,
the time
within which to publish the plan elapsed and was not
extended. Secondly, at the meeting convened to consider the plan on
10 April
2013, it was not approved on a preliminary or final basis
and neither was a vote taken to direct Mr Gribnitz to adjourn the
meeting
in order to revise the plan for further consideration.
Thirdly, at the meeting of 25 April 2013 at which Mr Gribnitz
announced
that the plan had been adopted, opposing creditors were
not allowed to vote. Their voting interests were incorrectly
regarded
as having been acquired by Ms Eveleigh. The voteenvisaged
in s 152 was thus not taken and the requisite level of support
not achieved. I shall deal with each of these submissions in turn.
The first question is whether the time within which to
publish the plan elapsed without being extended.
23
Section 150(5)(b)
of the Act requires a company to publish a plan within 25 business
days after the date on which the business
rescue practitioner was
appointed or ‘such longer time as may be allowed by…the
holders of a majority of the creditors’
voting interests’.
24
Mr Gribnitz was appointed on 16 November 2012. The plan
was published on 25 March 2013. The 25 day period had long since
elapsed.
It is common cause that Mr Gribnitz sent a number of
emailedrequests to the creditors to extend the 25 day period. It is
also
common cause that these requests neither invited nor elicited
any responses.
The applicant submitted that an extension under
s 150(5)(b) requires a formal vote by creditors to extend the
time period.
This vote must be taken before the 25 day period, or
any extension to the period, elapses. What is required is a meeting
at which
a resolution to extend the time period must be formally
voted on and adopted by a majority of the creditors who voted.
25
A
meeting of creditors can resolve to vote by email but not even this
was done.If there is no such vote within the prescribed
or extended
period, the time limits have not been met and a plan can no longer
be published. The business rescue proceedings
either come to an end
or cannot be taken further.
The respondents, on the other hand, relied on the words
‘may be allowed’. They submitted that this means that no
formal
meeting or vote is necessary. If a request is directed to the
creditors and no adverse response is received, or adverse responses
are received from less than a majority of creditors, this means that
a majority of creditors has allowed the extension. In the
alternative they submitted that the ultimate vote on the plan
tacitly extended the time period because the creditors at the
meetings of 19 and 25 April 2013 were prepared to vote on the plan
and did.A vote to extend the period can be taken after it has
elapsed.
There are two issues to consider, therefore. The first
is the consequence of the allotted time for publication of a plan,
whether
extended or not, elapsing. The second is the manner in which
the period for publishing a plan can be extended.
The Act does not anywhere specify the consequence of a
failure to publish a plan within the allotted time. This seems to me
to
constitute yet another drafting lacuna.Section 132(2)lists
circumstances which bring business rescue proceedings to an end.
26
The failure to timeously publish a plan is not listed.
The respondents submitted that this meant that such a failure did
not preclude
a later publication or vote to extend the allotted
time. It is therefore necessary to establish the effect of such a
failure.
There are a number of pointers which assist in this regard.
Business rescue proceedings place a moratorium on
creditors enforcing their claims against the relevant company. This,
of course,
amounts to a legislative intrusion into a contractual
relationship between parties. It is therefore an incursion into
existing
law territory. It is a well-worn tenet of our law that the
legislature does not intend to alter the existing law more than is
necessary, particularly if it takes away existing rights.
27
There
is a presumption against any forfeiture of rights.
28
Such
a provision or set of provisions must be restrictively
interpreted.
29
In
the context of business rescue the incursion on rights of creditors
has been recognised in the following
dictum
:
‘
There is also the consideration that the
mere institution of business rescue proceedings – however
dubious might be their
prospects of success in a given case –
materially affects the rights of third parties to enforce their
rights against the
subject company.’
30
The intrusionwithin the context of business rescue
proceedings is done for reasons of policy and within tightly set
parameters.
Business rescue proceedings aregeared at providing a
window of opportunity to restore an ailing company to financial
health and
functionality. This is in case the company in question
may be able to continue to contribute to the flow of the lifeblood
of
the economy by way of a plan. In the context of business rescue
proceedings, the Act requires a number of formal steps to be taken.
It is clear that time is of the essence. In
Koen
it was stated to be ‘axiomatic that business
rescue proceedings, by their very nature, must be conducted with the
maximum
possible expedition.’
31
Specific and short time limits are set which must be
adhered to,
inter alia
,
because of the suspension of the common law rights of a party to a
contract. The window of opportunity does not remain open
indefinitely. It follows, therefore, that the legislature willimpose
and retain such a moratorium only where, in addition to
there being
a reasonable prospect of rescuing the company, the provisions
concerning business rescue proceedings are timeously
complied with.
I favour the approach that the failure to publish a
plan within the given or extended period results in the termination
of the
business rescue proceedings. This has the benefit of allowing
creditors to enforce their rights against the company as soon as
the
time elapses. The need for certainty is met and the rights of
creditors in particular are trespassed on to the least possible
extent. Even if the failure to publish a business rescue plan
timeously does not, in and of itself, bring an end to the business
rescue proceedings, three possibilities emerge. First, and perhaps
must likely, the practitioner can file a notice of termination
of
the business rescue proceedings in terms of s 132(2)(b).
Secondly, and affected person would be entitled to bring an
application under s 130(1) on the basis that it would be just
and equitable for the resolution to be set aside. Thirdly,
since one
of the bases listed in s 130(2)(a) for the termination of
business rescue proceedings is the setting aside by
the court of a
resolution or order, an application may perhaps be brought under
that subsection. Any of these can be done as
soon as the 25 day
period elapses without being extended. For the purpose of this
application it is not necessary to make
a positive finding on this
issue. However, what is clear is that thestated need for strict
adherence to time limits and the need
for certainty has as a
necessary corollary that the time to publish a plan cannot be
extended after it has elapsed.
This brings me to the manner in which an extension can
be allowed by creditors under s 150(5)(b).As already mentioned,
business
rescueproceedings contain strict parameters. The business
rescue practitioner is vested with certain rights, powers and
obligations.
Section 145(1)(a) gives each creditor a right to notice
of each court proceeding, decision, meeting or other relevant event
concerning
the business rescue proceedings. Formal meetings of
creditors and other affected persons are provided for and envisaged
for each
step. Section 151(3) makes special provision that the
meeting, which is required to be convened within ten days after
publication
of the plan for its consideration, may be adjourned from
time to time. This provision does not lend credence to a submission
that the legislature envisaged an informal approach to extending the
time period.
There is also no mechanism given in the Act to
determine the views of affected persons other than by a vote at a
meeting. How
would creditors become aware of whether the majority
had allowed an extension? Each step of business rescue proceedings
is geared
to promote certainty as to the status of the proceedings.
Certainty would not be achieved by construing a lack of response to
the practitioner as a positive agreement to adjourn. The views of
affected persons could not be independently established as is
the
case at a meeting. Affected persons would have to rely on the
practitioner as to the outcome of the requestbecause any response
would be directed to him or her alone. This is not subject to
independent verification or challenge. The contents of a phone
call
or face to face communication, for example, would not be verifiable
unless recorded by some mechanism.
In addition, in any formal procedure, persons vested
with a vote may approve, reject or abstain from voting on a
resolution. The
failure to vote for or against a measure is taken to
be an abstention, not a vote in favour. In effect, assuming that the
request
in the email of Mr Gribnitz amounted to a call for a vote,
the respondents are submitting that an abstention amounts to
approval
of the request. In this context the word ‘allow’
must mean to approve of or sanction rather than merely to permit.
32
Positive action is required. I know of no provisions in
legislation, nor was I referred to any, where the word ‘allow’
is interpreted to mean that the persons concerned simply do nothing
in the face of a request.
It is my view, on a conspectus of the structure of
business rescueproceedings, that a meeting must be convened and a
vote taken
in order for it to be said that a majority of creditors
‘allowed’ an extension of time. This was not done. No
extension
was therefore allowed by creditors as envisaged in
s 150(5)(b). This means that the business rescue proceedings
came to
an end after the 25 day period elapsed. If this is not the
case, this application can and should bring them to an end by
setting
aside the resolution on the just and equitable ground.
In case I am wrong in this regard and that the time
within which to publish the business rescue plan was properly
extended by
virtue of the various requests of Mr Gribnitz, it is
appropriate to consider the other two points raised by the
applicant. The
second point of the applicant as to whether the plan
was approved was to the following effect. At the meeting of 10 April
2013,
because no vote was taken to approve the plan on a preliminary
basis and neither was any vote taken to adjourn that meeting, the
business rescue plan was rejected. The point is based on the
provisions of s 152(1) which provides as follows:
‘
(1)
At a meeting convened in terms of section 151, the practitioner must-
(a) introduce the
proposed business plan for consideration by the creditors and, if
applicable, by the shareholders;
(b) inform the
meeting whether the practitioner continues to believe that there is a
reasonable prospect of the company being rescued;
(c) provide an
opportunity for the employees’ representatives to address the
meeting;
(d) invite
discussion, and entertain and conduct a vote, on any motions to-
amend the proposed
plan, in any manner moved and seconded by holders of creditors’
voting interests, and satisfactory to
the practitioner; or
(ii) direct the
practitioner to adjourn the meeting in order to revise the plan for
further consideration; and
(e) call for a vote
for preliminary approval of the proposed plan, as amended if
applicable, unless the meeting has first been adjourned
in accordance
with paragraph (d)(ii).’
It can be seen that a formal vote is envisaged for any
adjournment of the meeting. It can also be seen that, absent an
adjournment
for revision of the plan, the practitioner is obliged to
call for a vote for preliminary approval of the plan. Mr Gribnitz did
neither. He simply announced that, because the applicant had launched
this application, the meeting would be adjourned. Once again,
I do
not consider it to be sufficient to say that because creditors did
not propose a motion in opposition to his statement to
this effect,
an adjournment was acceded to. That being so, s 152(3)(a)
provides that, if a proposed business rescue plan is
not approved on
a preliminary basis, the plan is rejected and may be considered
further only in terms of s 153. The provisions
of s 153
were not invoked at the meeting on 10 April 2013 and, accordingly,
the proposed business rescue plan was rejected.
The third and final submission of the applicant must
now be considered on the basis, once again, that I may be wrong in
my conclusions
so far. This was to the effect that the plan was not
approved at the meeting of 25 April 2013 because the vote
required
by s 152 did not take place. It will be recalled that
sufficient supportfor the preliminary approval of the plan was not
obtained at the meeting of 19 April 2013. Ms Eveleigh then made a
‘binding offer’ as envisaged in s 153(1)(b)(ii).
Mr
Gribnitz, after purporting to accept the offer, adjourned the
meeting until 25 April 2013 as was required by s 153(4).
The
applicant submitted that the binding offer required acceptance.
Because all the opposing creditors rejected the offer, it
submitted
that no voting interests were acquired by Ms Eveleigh arising from
the binding offer. The respondents submitted that
Ms Eveleigh,by
making the ‘binding offer’, thereby acquired the voting
interests of the opposing creditors.
Section 153 applies where a plan has been rejected. It
contains a set of provisions whereby the business rescue proceedings
may
be kept alive despite the rejection. These are as follows. The
business rescue practitioner is entitled to seek a vote of approval
to amend the plan. Alternatively, he or she may approach the court
to set aside the result of the vote on the grounds that the
vote was
inappropriate. If the practitioner does neither, an affected person
may take either of those steps. In addition to that,
an affected
person may act in terms of s 153(1)(b)(ii)
33
which provides as follows:
‘
[A]ny
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.’
34
The respondents rely on this section. Boiled down to
essentials, they submit that themaking of the ‘binding offer’
brings about the acquisition of the voting interest of the creditor
to whom it is made. In other words, once an offer is made,
it is
binding on both the offeror and the offeree. The offeree cannot
reject it.What is more, the voting interests are acquired
by the
offeror by the mere making of the offer. The purchase price at which
the voting interests are to be acquired can be determined
and paid
later without in any way detracting from the immediate acquisition
of the voting interests. An opposing creditorhas
sufficient recourse
in asking the court to ‘review, re-appraise and re-value a
determination by an independent expert made
in terms of subsection
(1)(b)(ii)’ as provided for in s 153(6). The respondent
submitted that the reason for this
is that an opposing creditor
will, in any event, receive what it would receive if the company was
declared insolvent. If the
plan is not adopted, the company is
likely to be declared insolvent so the creditor gets what is due. It
can no longer frustrate
the adoption of the plan and does not have
to participate any further in the business rescue proceedings. It
was submitted that
this approach accords with the intention of the
legislature which is that business rescue proceedings should succeed
even in
the face of opposition.
The respondents find support for thissubmission in the
case of
African Banking Corporation of
Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd &
others.
35
In
that matter Kathree-Setiloane J held that what is envisaged by the
words ‘binding offer’ is the following:
‘
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…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.’
36
Kariba
sets out how this
mechanism works as follows. The binding offer ‘is’ a set
of statutory rights and obligations. These
are not contractual in
nature. An offer becomes binding on the opposing creditor ‘the
moment it is made’.
37
The effect is that an opposing creditor’s
‘claim…will be reduced to what he or she might receive
if the company
were to be liquidated’.
38
It
sets in motion aprocedure to ‘enforce a revised business
rescue plan’ which must be accomplished within five days.
39
‘
The
determination of the value of the voting interest, by an independent
expert, will only be effected after adoption of the revised
business
plan’ and need not be done within the five day period.
40
Once
the determination of value is made, either party can approach the
court to review, re-appraise and re-value.
41
The
practitioner cannot ‘proceed with the
implementation
of the adopted business rescue plan prior to finalising
the payment of the binding offer’.
42
‘
The
implementation of the business rescue plan is conditional upon the
offeror meeting its payment obligations’ and, if
the offeror
fails to make payment, the adopted plan cannot be implemented by the
practitioner.
43
An offeree is ‘divested of his or her voting
interest on approval or the adoption’ of a plan but ‘will
not lose
his or her right to enforce any debt owed by the
company…until payment for the purchase of the voting interest
is made
by the offeror’.
44
A
distinction must therefore be drawn between ‘adoption’
of a plan and its‘implementation’.
45
This distinction appears in the provisions of s 154(2)
which says that if a plan has ‘been approved and implemented’,
a creditor is not entitled to enforce any debt owed by the company
prior to the beginning of the business rescue process except
as
allowed for in the plan.Because the creditor is not divested of the
right to enforce a debt until implementation, s 154(2)
does not
preclude an unpaid creditor from enforcing the debt, including by
way of liquidating the company, if payment is not
made.
46
In answer to a concern that the opposing creditor may
be prejudiced by having no say concerning thecoming into effect of
the set
of statutory rights and obligations,
Kariba
held:
‘
The offeree is…adequately protected
since it cannot receive less than it would receive if the company was
to be liquidated.’
47
I am regrettably unable to agree with this
interpretation. Many of the building blocks in this edifice rest on
unstable foundations.
I will mention a few in passing but will deal
in detail later with the crucial aspect of the interpretation to be
given to ‘binding
offer’. First, on a purely grammatical
level, a ‘binding offer’ cannot, itself, be ‘a set
of statutory
rights and obligations’. It may give rise to
them, but this is not what is said. Secondly, I do not understand
how, if
the opposing creditor is divested of the voting interests
‘on approval or the adoption’ of a plan, the votes can
be exercised by the offeror to approve the plan. If this cannot be
done, the plan will not be approved (unless the opposing creditor
changes its mind which is not something that needs to be considered
here). This means that, on the
Kariba
approach, the voting interests must pass prior to
adoption of the plan. (As I mentioned above, this is the submission
of the respondents
in the present matter). Thirdly, whilst the use
of both ‘adopted’ and ‘implemented’ in
s 154(2)
lends superficial attraction to the conclusion drawn
in
Kariba
, it cannot
mean that a plan can be adopted without being implemented as was
held. This is because s 140(d)(ii) imposes a
duty on the
practitioner to ‘implement any business rescue plan that has
been adopted…’. She or he is an officer
of the court
during the business rescue proceedings which includes implementing
an adopted plan.
48
The Act nowhere talks of the implementation of the plan
being conditional on payment even if the practitioner was not
obliged
to implement it. It is silent on the issue of payment which,
in a non-credit transaction, means that the rights pass on payment
and not before. Finally, although not germane to the present matter,
the section does not equate a creditor’s claim with
its voting
interests. The section refers only to voting interests.
Turning to the finding in
Kariba
that ‘[t]he
“binding offer” is a set of statutory rights and
obligations’, there are a number of factors
which, in my view,
militate against it. In the first place, it flies in the face of the
language actually used in the section.There
is no reference to a set
of rights and obligations. Only the word ‘offer’ is
used. ‘Offer’ is qualified
by the word ‘binding’
but that does not mean that it amounts to, or gives rise to, a set
of statutory rights and
obligations. If this was what the
legislature envisaged, it could, and presumably would, have said so
in so many words. If it
had wanted to create rights and obligations
in itself, it is unlikely in the extreme that it would have used
only the word ‘offer’.
It could and would have
introduced a deeming provision of acceptance on the part of the
offeree or have stated that the offer,
once made, gave rise to
binding obligations between the parties.
Instead, the legislature used the word ‘offer’.
The dictionary meaning is ‘an expression of readiness to do or
give if desired’, ‘an amount offered’, ‘a
proposal’,or ‘a bid’.
49
It
emanates from one party only. Section 153(1)(b)(ii) is
consistent with this approach. The only actor mentioned is the
offeror. The only action described is to ‘make a binding
offer’ not to create a set of statutory rights and
obligations.
More importantly, it has a specific, settled, legal
meaning as the legislature must be presumed have known.
50
In order to give rise to obligations on the part of
both parties, an offer requires acceptance.The plain meaning falls
well short
of the binding offer creating any obligations on the part
of the opposing creditor. It is also important that the offer is ‘to
purchase’. This, likewise, relates to an established legal
concept. It is aimed at concluding a contract of purchase and
sale.
It is not aimed at creating statutory rights and obligations. The
words ‘offer’ and ‘purchase’
when used
together must mean that a contract is envisaged and, for such a
contract to be concluded, there must be an acceptance
or agreement.
It is nowhere provided that no such acceptance is necessary and
that, without it, a contract of purchase and sale
has come into
existence.
Of course, it must be considered why the legislature
used the qualifying word ‘binding’ and what it means.
The word
‘binding’ qualifies the word ‘offer’
and nothing else. It does notrefer to the opposing creditor, as the
offeree. Once again, if this was what the legislature envisaged, the
provision could have said that the affected person could
make ‘an
offer, which is binding on the opposing creditor’. As was said
by Dr Loubser,
‘
the word “binding”
seems to imply that the offer, once made, cannot be retracted or
changed, although it is far from
clear why this should be the
case.’
51
I
agree with both sentiments.Normally an offer may be retracted prior
to acceptance or rejection. Thisresultwould have been better
achieved if ‘irrevocable’ or ‘non-retractable’
had been used to qualify ‘offer’ rather than
‘binding’.
Although it is not semantically accurate, is an extremely inelegant
use of language and is a further example
of poor drafting,the words
‘binding offer’ can only mean that the offeror may not
retract the offer until it is accepted
or rejected.
I come to this conclusion partly because there are good
reasonswhy such an offer should not be capable of being withdrawn.
The
purpose of this provision is to give an affected person a third
way of attempting to have a plan approved in the face of initial
rejection. Section 153(4) requires the practitioner to adjourn the
meeting for no more than five business days and that the provisions
of s 152 and s 153 apply afresh at the adjourned
meeting.
52
An
offer under this section thus necessitates an adjournment of the
meeting. It is thus consistent with the time bound nature
ofbusiness
rescueproceedings that an offeror should not be able to make an
offer, whichhas the effect of extending the moratorium
brought about
by business rescue proceedings,without being obliged to keep open
the offer until acceptance or rejection.
If this were not so a cynical affected person,who for
whatever reason wanted to keep the business rescue proceedings
alive, could
make a series of offers and withdraw them prior to each
adjourned date of the meeting. This would result in unlimited
extensions
each time a plan is rejected because the provisions of
s 153, in terms of which a binding offer can be made, apply to
adjourned
meetings.
53
In other words, a new binding offer could be made at
each consecutive meeting which does not garner the requisite support
for
the plan.A further factor which supports this approach is that
an outside expertwill generally be requiredto fix a price. If the
offer could be retracted, thiswould incur wasted expenditure in
obtaining the determination of the price with no adverse consequence
to the mercurial offeror.
It seems that
Kariba
failed to heedthe
warning,recently reiterated in
Endumeni,
against making words
mean what a court thinks that they should mean, to the following
effect:
‘
Whatever the nature of the document,
consideration must be given to the language used in the light of the
ordinary rules of grammar
and syntax…Judges must be alert to,
and guard against, the temptation to substitute what they regard as
reasonable, sensible
or businesslike for the words actually used. To
do so in regard to a statute or statutory instrument is to cross the
divide between
interpretation and legislation… The “inevitable
point of departure is the language of the provision itself”,
read in context and having regard to the purpose of the provision and
the background to the preparation and production of the document.’
54
I have dealt with the language of s 153(1)(b)(ii).
The second factor militating against the interpretation of ‘binding
offer’ in
Kariba
is
that it runs counter tocertain provisions of the Act. The first of
these is s 145(2)(a). This provides that each creditor
has ‘the
right to vote to amend, approve or reject a proposed business rescue
plan, in the manner contemplated in section
152’. The
compulsory loss of the right to vote was aptly described by the
applicant in argument as amounting to expropriation.
Such a
compulsory loss would need to be made clear if it were envisaged.
55
Apart from general principles to this effect, the
legislature chose to confer this unqualified right in the very
context of voting
for or against the adoption of a plan. If such a
clearly formulated right was to be qualified or taken away, it would
have to
be done in equally clear terms.
As we have seen, the provisions of s 152 apply
afresh at the adjourned meeting. This means that, on the
Kariba
approach, s 145(2)(a) or s 153(4)(b) or both would need to
be suitably qualified to exclude a vote at the adjourned
meeting by
a creditor to whom a binding offer has been made. This has not been
done. An opposing creditor to whom a binding offer
has been made
remains entitled by s 145(2)(a) to vote. This necessarily
implies that where this right is not qualified or
taken away, an
opposing creditor cannot be deprived of the right to vote against
his or her will. This has as a necessary corollary
that the offer
cannot give rise to obligations on the part of the opposing creditor
which result in the compulsory loss of its
voting interests. The
binding offer must thus be construed as an offer which can be
accepted or rejected by the opposing creditor.
Another provision of the Act which militates against
the approach in
Kariba
and
that of the respondents is the following. As adverted to above, if a
plan is rejected at a meeting, both the practitioner
and affected
persons are given mechanisms to attempt to keep it alive.
56
One mechanism common to them is the right to approach
the court to set aside the adverse vote on the grounds that it was
inappropriate.
Despite rejection, they may also seek a vote of
approval to amend the plan. In contrast, opposing creditors are not
given the
right to approach the court to set aside an approving vote
or the acquisition of their voting interests. It seems highly
unlikely
that the legislature would deprive them of their right to
vote without their acquiescence withoutat least giving them the
right
to challenge the adoption of a plan secured as a result of
that deprivation.
The provisions ofs 145(2)(b)accord to a creditor a
right to ‘present an offer to acquire the interests of any or
all
of the other creditors in the manner contemplated in section
153’if a business rescue plan is rejected. This right is
accorded
in virtually identical terms to trades unions and employees
in s 144(3)(g)(ii), and holders of the company’s
securities
in s 146(e)(ii). It is not clear why these
subsections are included since, they are, as affected persons,each
and all given
that right by s 153(1)(b)(ii) itself. Can these
subsections assist in construing the provisions of the latter
subsection?
It may be thought that the answer lies in the
differences between these subsections and s 153(1)(b)(ii).
First,these subsections accord a right to ‘present’
rather than to ‘make’ an offer. These words can be used
interchangeably without any significant difference.Secondly,the word
‘binding’ is not used to qualify the word
‘offer’.Thirdly, the offer is to ‘acquire’
not ‘purchase’. This is a general term of which
‘purchase’ is one manner of acquisition but it does not
appear to be material. Fourthly, it is the ‘interests’
not ‘voting interests’ which are the subject matter of
the offer. The word ‘interests’ is not defined
in
contradistinction to the words ‘voting interest’ but,
again, no significance appears to attach to it. Fifthly,
the offeree
is stated to be ‘any or all’ of the creditors rather
than ‘one or more persons who opposed adoption’
of the
plan. This at first blush appears to be significant. But, on careful
analysis, it is a distinction without difference.
Only creditors’
votes have reference. This is made clear in the subsections by their
wording. In s 153(1)(b)(ii),
the use of the words ‘voting
interests’ refers back to the definition in s 128(1)(j)
which, in turn, refers
to s 145(4) to (6), the section dealing
with the value to be attached to creditors’ votes.
In addition, all of the subsections refer, in terms, to
exercising the given right ‘in the manner contemplated in
section
153’ and must therefore be seen as being consistent
with it. I cannot find anything of significance in these subsections
which may assist in construing s 153(1)(b)(ii). This despite
the
dictum
in
Executive Council, Western Cape v Minister of
Provincial Affairs and Constitutional Development & another;
Executive Council,
KwaZulu-Natal v President of the Republic of
South Africa & others
to the following
effect:
57
‘
It is an accepted principle of
interpretation that where two subsections deal with the same
subject-matter these are usually read
together. This rule of
construction is applicable in constitutional interpretation. It is
consistent with a purposive interpretation
of the Constitution.’
The legislature may have thought it necessary to accord
these rights separately to all affected persons in case
s 153(1)(b)(ii)
was not thought to construe rightsitself. In my
view, however, these subsections are superfluous. Their inclusion is
a further
example of poor drafting of this part of the Act. If they
are at all significant, that significance can only lie in the fact
that
‘offer’ is not qualified by ‘binding’
but I set no store by this factor. I regard these provisions as
neutral
in construing s 153(1)(b)(ii).
The final provision I will deal with which militates
against
Kariba
is s 153(6) which reads as follows:
‘
A holder of a voting interest, or a person
acquiring that interest in terms of a binding offer, may apply to a
court to review,
re-appraise and re-value a determination by an
independent expert in terms of subsection (1)(b)(ii).’
On the approach in
Kariba
, the value of the
voting interests is determined only after adoption of a plan. On
adoption of a plan, the offeree is divested
of those voting
interests. At this stage, the offeree is no longer ‘the holder
of a voting interest’. On the approach
of the respondents in
the present matter, the divestiture takes place on the making of the
binding offer and the same situation
results. In other words, at the
time the determination of value takes, place, opposing creditors no
longer hold voting interests.
This means that s 153(6) cannot
apply to an offeree and the attempt in this section to do so is
redundant. This cannot be
the case. The transfer of the voting
interests can only pass after the value has been finally determined,
at the very earliest.
If it passes on determination by the
independent expert, the same situation obtains and the court cannot
be approached. The earliest
it may pass, therefore, is after final
determination by a court. But how is it known whether a party is
going to challenge the
determination of the independent expert?
Section 153(6) does not specify a time within which the court
must be approached,
nor does it provide that, if the court is not
approached within a certain period of time, the voting interests pass
to the offeror.
The most probable conclusion to draw is that the voting
interests pass only on payment of the purchase price as is the case
at
common law where there is no stipulation to the contrary.
58
If they pass at any time before payment has been made
and are exercised to approve a plan, a situation not envisaged in
business
rescue proceedings would emerge. That is, the plan would
have been adopted and must therefore be implemented. The payment
would
not have been made and the offeror would therefore have
utilised voting interests to which she or he was not entitled. Would
that nullify the adoption of the plan which was voted for on the
basis that transfer of the voting interests had passed? Surely
not.
Once a plan is approved there is no mechanism for setting it aside.
The only reasonable interpretation is that, before the
voting
interests pass to the offeror, payment must have taken place.
Kariba
, invoking a purposive
approach, concludes that the purpose of s 153(1)(b)(ii) is ‘to
enforce a revised business rescue
plan’.
59
But
the purposes in s 7 do not support an interpretation leading to
the acceptance of business rescue plans at all costs.
If that were
so, the 75% majority vote would not be stipulated. Section 7(k),
on which K
ariba
relies,
says that one purpose is to ‘provide for the efficient rescue
and recovery of financially distressed companies,
in a manner that
balances the rights and interests of all stakeholders’.
Although ‘stakeholders’ is nowhere
defined in the Act,
creditors must surelyfall within its ambit. The business rescue
mechanism recognises throughout that they,
too, contribute to the
lifeblood of the economy. It is important that business rescue must
be done in a manner which balances
the rights and interests of
stakeholders, including creditors. If the rights of creditors were
to be ridden over roughshod, this
would undoubtedly detract from
other overarching purposes of the Act, such as promoting the
development of the South African
economy,
60
promoting investment in the South African markets,
61
creating optimum conditions for the investment of
capital in enterprises
62
and providing a predictable and effective environment
for the efficient regulation of companies,
63
to mention only a few. It was said in
Oakdene,
obiter
, that the intention of creditors to
oppose a plan was something that could not be ignored in principle:
‘
As I see it, the applicant for business
rescue is bound to establish reasonable grounds for the prospect of
rescuing the company.
If the majority creditors declare that they
will oppose any business rescue scheme based on those grounds, I see
no reason why
that proclaimed opposition should be ignored. Unless,
of course, that attitude can be said to be unreasonable or
mala
fide
.’
64
Kariba
is also incorrect
saying as regards a binding offer that ‘[t]the offeree is,
therefore, adequately protected since it cannot
receive less than it
would receive if the company was to be liquidated.’
65
The
purchase price under s 153(1)(b)(ii) must be independently and
expertly valued based on ‘a fair and reasonable
estimate of
the return to that person…if the company were to be
liquidated’. The first point is that what is aimed
at is,
perforce and consciously, an estimate. It is not, and could never
be, a calculation of an assured amount for the simple
reason that
this is only possible with a finalised liquidation and distribution
account after liquidation. The second point is
that, for a number of
reasons, the estimate might well not be capable of being arrived at
with any degree of accuracy. It may,
for example, be impossible to
establish if any impeachable dispositions have taken place. Section
77 holds a director personally
liable to the company in certain
circumstances. It cannot be predicted whether either of these might
find application and, if
so, the extent of the liability and
likelihood of success in litigation let alone the dividend which
might be realised on execution
of any judgment. There are also other
factors such as estimates of the value of assets. These estimates
may not be realised on
insolvency. All of these factors, and
probably others as well, affect the ability of an expert to arrive
at a sufficiently accurate
determination.
In the light of this, the determination, whether by the
expert or the court, may be thought by the opposing creditor to be
insufficiently
accurate to warrant acceptance of the offer. In such
a case, it is cold comfort to say that a creditor may approach the
court
to review, re-appraise and re-value the determination. The
court is unlikely to be in any better position and, in any event,
the creditor may still have valid grounds to believe the
determination to be inadequate. The opposing creditor might
reasonably
take the view that, in those circumstances, insolvency is
a preferable option to adoption of the plan.If the practitioner or
any affected person regards this view as unreasonable and the
opposing creditor votes against the plan, resulting in its being
rejected, they have recourse to the court toset aside the vote on
the basis that it was inappropriate.
It appears that this provision does not give the court
the power to approve the plan although, for the purposes of this
judgment,
it is not necessary to resolve this issue. Dr Loubser
explains that, in English law, if creditors vote against a plan
proposed
by the administrator:
‘
[T]he court may order that his appointment
will cease from a specified date, thereby effectively terminating the
administration,
or make any order it regards as appropriate. The
power of the court to make any other appropriate order could be
interpreted to
mean that the court could approve those proposals
despite their rejection by the creditors.’
66
Different commentators differ on whether
the court can, in fact, impose a plan as part of such an ‘appropriate
order’.
67
In
the USA the courts can ‘cram down’ a plan on dissenting
creditors within the context of Chapter 11 of the Bankruptcy
Reform
Act 1978, more commonly known as the Bankruptcy Code.
68
Dr Loubser explains the position in German law to be the
following:
‘
A majority of creditors both in value and
in number of creditors voting in each group must vote in favour of a
plan to constitute
approval. Rejection by the majority in every group
will result in termination of the proceedings….
However, if the majority of the groups have voted in favour of the
plan, a group without the required majority will be deemed to
have
consented to the plan on condition that the creditors in this group
will probably not be placed in a worse financial position
by the
insolvency plan than they would be without this plan and they are
given reasonable participation in any further advantages
flowing from
the plan….
This provision is derived from the American cram-down rules and
intended to prevent abusive or arbitrary obstruction of the plan
by
creditors. It is thus generally referred to as the rule against
obstruction.
’
69
In the Act, s 153(7) does not even accord to the
court the power to make an ‘appropriate order’. The
court can
therefore not cram down a plan. It is limited to setting
aside the rejecting vote. The Act is silent on what takes place
thereafter.The
cram down provision in the Act is contained in
s 152(4) which makes a plan binding on the company, all
creditors and all
holders of the company’s securities whether
or not they were present at the meeting which adopted the plan or
voted for
it. Creditors need not even have proved claims. This means
that an adopted plan is crammed down on absent parties and on that
percentage of creditors (which must be less than 25%) who voted
against it. In the Act, the rule against obstruction is catered
for
in the ability of the court to set aside a vote rejecting the plan.
As can be seen, this finds some echoes in German law.As
indicated,
however, I do not deem it necessary to decide this matter. Section
153(7) does provide the mechanism to prevent abusive
or arbitrary
obstruction of the plan by creditors.
Even if the determination is acceptable, acreditor may
nevertheless wish to vote against the proposed plan if it believes
that
it does not carry prospects for rehabilitation. It may also
make that decision if, as in the present case, the plan involves a
compulsory cession of over 75% of its claim. I shall later show that
this means that it relinquishes the right to recoverthis
proportion
even fromsureties. Such a situation certainly does not support the
dictum in
Kariba
. Under insolvency, a creditor would be
entitled to sue sureties and the determination can take no account
of this.
For all of the above reasons, it is my view that the
‘binding offer’ of s 153(1)(b)(ii) is an offer
which cannot
be withdrawn by the offeror. It is open to acceptance
or rejection by the opposing creditors to whom it is made. If
accepted,
it gives rise to an agreement of purchase and sale. It is
a sale for cash because ‘[i]n the absence of an express term
as to the sale being for cash or on credit there is a presumption
that it is for cash’.
70
The
acceptance or rejection need only take place once the value has been
finally determined. The independent expert is therefore
obliged to
reach a determination by the date of the adjourned meeting. The
voting interests are transferred on payment of the
determined sum.
71
Once this has taken place, the voting interests are
settled and the vote on the plan can take place. If adopted, the
plan can
and must be implemented by the practitioner. Once it has
been substantially implemented, the practitioner must file a notice
to that effect and the business rescue proceedings come to an end.
72
If it is not approved, it is rejected and, if s 153
is not invoked, the business rescue proceedings come to an end.
73
There is an additional difficulty for the respondents
in the present matter. Mr Klein categorically stated that he had not
independently
valued the assets and liabilities of Dowmont but had
taken these values from others. The determination, accordingly, does
not
pass muster as complying with the provisions of s 153(1)(b)(ii).
The offer made by Ms Eveleigh to the opposing creditors was
thus not
even an offer as envisaged in that section. In the event, even on
this basis, it cannot be concluded that Ms Eveleigh
acquired the
voting interests of the opposing creditors.
I was urged to consider what is acquired by virtue of
an accepted binding offer. The plan, amended in the light of Ms
Eveleigh’s
offer, reflects her as the owner of the applicant’s
claim of just over R3.4m. Her tender of R100 is reflected as
purchasing
her 12.25% of that sum, which is what would be paid as a
dividend on the plan.
Kariba
ventures into this thorny
territoryin equating voting interests with claims, as has been seen.
In doing so,
Kariba
interprets the section in such a way that
neither the word ‘offer’ nor the words ‘voting
interests’ mean
what they say. Interesting though that debate
may be, it is, once more, not necessary to deal with it in this
application and
I shall leave it for another court on an occasion
where it is germane to the outcome of the matter.
This all means that, since the binding offer of Ms
Eveleigh was rejected, she did not acquire the voting interests of
the opposing
creditors. She should not have been allowed to vote
with the voting interests of the opposing creditors at the meeting
of 25
April 2013. The vote on that occasion was not a vote of
creditors as envisaged in s 152 because the opposing creditors
were
excluded. This means that the proposed business rescue plan was
not adopted. No further steps were taken at that meeting to invoke
the provisions of s 153. The plan was therefore rejected in
terms of s 152(3)(a). It was agreed that, if this was the
finding, the business rescue proceedings came to an end no later
than 25 April 2013 in terms of s 132(2)(c)(i). This, in
turn,
means that they cannot be converted to liquidation proceedings. A
provisional winding up order should be granted rather
than a
conversion order if a case is made out for the liquidation of
Dowmont.
The final aspect to consider is whether or not, if I am
wrong in all of the above, it is just and equitable to set aside the
resolution
under s 130(5)(a)(ii) in all the circumstances of
the matter. Assuming that the applicant remains a creditor, the plan
provides
that the applicant would receive 12.25% of the face value
of its claim as a dividend. It would cede 75.75% of the claim to the
Kleintjie Share Trust. That Trust would in turn subscribe for 1 000
ordinary shares of Dowmont against payment of R4.5m,
which would be
used to pay the dividend to creditors. It would also convert the
ceded claims against Dowmont to ordinary shares
in the company which
would result in the Trust holding the total share capital of
R25 796 411.00. In this regard, the
applicant submitted
that the business rescue plan is not one envisaged under the Act
because, in essence, it provides for a compulsory
cession of 75.75%
of the applicant’s claim which leaves the applicant unable to
claim that portion even against the directors
who have provided
deeds of suretyship.
This submission depends, to an extent, on whether the
plan deprives the applicant and other creditors from proceeding
against
sureties. The common law provides that the cession of a
guaranteed claim carries with it the right on the part of the
cessionary
to enforce the claim against both principal debtor and
surety.
74
The
cedent loses that right because it has perforce ceded its claim
against the principal debtor and suretyship is an accessory
obligation. Unlike in s 155(9) of the Act, which provides that
a scheme of arrangement or compromise under that section
does not
affect the liability of any person who is a surety of the company,
there is no similar provision under business rescue.
75
Under
the 1973 Act it was held that a specific provision in an arrangement
allowing for a loss of recourse against a surety as
a result of a
compulsory cession of a claim was not precluded.
76
This approach was, with respect correctly, doubtedin an
obiter dictum
of
Botha JA where he said, ‘[I]t is a far cry from that to hold
that a creditor who has voted against the acceptance of
an offer of
arrangement is bound to abide by a clause in it providing for the
termination of his right to proceed against a surety,
for,
ex
hypothesi
, he has in fact not contracted out
of the protection afforded to him in terms of s 311(3).’
77
The straightforward result of the plan in the present
matter is that, since the claims of creditors are ceded and there is
no
provision retaining the right of the cessionary to enforce the
deeds of suretyship, creditors cannot sue sureties if the plan is
adopted. The applicants submitted that, because all creditors are
bound by an adopted plan, whether they voted for it or not,
the
legislature would have included a similar provision to that in
s 155(9) if it had envisaged that compulsory cessions
of claims
could form part of a plan.
78
They
submitted that this means that no such provision is competent. This
general approach to interpretation is lent further credence
by the
provisions of s 154. This provides as follows:
‘
(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 a 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.’
It can be seen, therefore, that a plan may only provide
that a creditor ‘who has acceded to the discharge of the whole
or
part of a debt’ may be deprived of the right to enforce its
claim. Since s 152(4) makes an adopted plan binding on
non-consenting creditors and s 154(2) allows enforcement of
pre-business rescue debts only to the extent allowed for in a
plan,
any provision in a plan which goes beyond a voluntary discharge of a
whole or part of a debt is not competent. The present
plan goes well
beyond that. It provides that all creditors are deprived of a part
of their claim if the plan is approved, regardless
of whether or not
they voted in favour of it. Not only that, but they are deprived of
even the right to attempt to recover that
part of their debt from
sureties. In this regard, I refer again to the presumption against
any legislative deprivation of rights.
79
It
must follow as night follows day that a plan which deprives
non-acceding creditors of the right to enforce a claim against
a
surety does not pass muster on the basis of this clause. The
compulsory cession, and certainly one without the cedent retaining
the right to proceed against sureties, can therefore not be part of
a plan.
In addition, the effect of the plan is that, since the
claims are to be converted to shares, the sureties escape liability
for
75.75% of the ceded claims. In effect, the directors, as
sureties, are themajor beneficiaries of the plan. Their personal
liability
to the applicant will be reduced by R2.57m or more if the
plan is adopted, not to mention other creditors who hold their
suretyships.This
means that no-one can pursue this percentage of
these claims against the sureties. This is a further offensive
provision of the
plan to be weighed in considering the just and
equitable leg of the enquiry.
It is clear to me that, in the light of all the
evidence and the factors set out above, it would be just and
equitable to set
aside the resolution pursuant to the provisions of
s 130(5)(a)(ii).
There remain two matters to consider. The first is the
question whether a provisional liquidation order should be granted.
The
second is the matter of costs. Since the resolution is to be set
aside, it is quite clear that Dowmont is hopelessly insolvent.
It is
unable to pay its debts. It has, since the inception of the business
rescue proceedings, accumulated further debt. There
is no
conceivable reason not to grant a provisional liquidation order. The
formalities concerning service and security have been
complied with.
As regards costs, these were initially sought from the
first and second respondents. During argument, the applicant very
properly
conceded that no case is made out on the papers for Mr
Gribnitz to personally pay costs. He acted in a representative
capacity
and appears to have held the bona fide belief that he was
acting in accordance with the provisions of the Act. Whilst certain
criticisms of his conduct appear to have some validity, the
situation falls short of one where he would be required to pay costs
in his personal capacity. I agree with this submission. The
appropriate order as to costs, since Dowmont is to be placed under
provisional liquidation, is that the costs of the application form
part of the costs in the liquidation.
In the event, I grant the following order:
a. Leave is granted to the applicant to institute this
application in terms of
s 133(1)(b)
of the
Companies Act 71 of
2008
.
b. The resolution purported to have been made by the
board of directors of the second respondent in terms of
s 129
of
the
Companies Act, adopted
on 16 November 2012, placing the second
respondent under supervision by a business rescue practitioner, which
resolution was filed
with the third respondent on 22 November 2012,
is set aside in terms of
s 130(1)(a)
read with
s 130(5)(a)
of the
Companies Act.
c
. The second respondent is placed in provisional
liquidation in the hands of the Master of the High Court,
Pietermaritzburg.
d. A
Rule Nisi
is issued calling upon all
interested parties to show cause, if any, to the above Honourable
Court on 27 November 2013,
at 09h30 or as soon thereafter
as the matter may be heard, why the second respondent should not be
finally wound up.
e. A copy of this order shall be served on the Master of
the High Court, Pietermaritzburgforthwith.
f. A copy of this order shall be published, on or before
6 November 2013, once in The Witness newspaper and once in
the
Government Gazette.
g. The Master of the High Court, Pietermaritzburg, is
directed to appoint a provisional liquidator for the second
respondent forthwith.
h. The costs of the application shallform part of the
costs of administration of the second respondent in the winding up.
DATE OF HEARING: 26September 2013
DATE OF JUDGMENT: 21 October 2013
FOR THE APPLICANT: PJ Olsen SC and RM van Rooyen
instructed by VENNS ATTORNEYS.
FOR THE FIRST AND
SECOND RESPONDENTS: AM Annandale SC instructed by
NICHOLAS & HAINSWORTH ATTORNEYS.
1
Section
152(2)(a)
requires this percentage.
2
This
is envisaged in
s 153(4)(a).
3
Certain
of the relief initially sought was not persisted in at the hearing
of the application.
4
Defined
in
s 128(1)(a)
as a shareholder, creditor and registered trade
union which represents employees of a company. Those individual
employees not
so represented, or their representatives, are also
defined as affected persons.
5
Section
5(1).
6
">
6
Section
5(2).
A succinct and useful summary of the approach to
interpretation is contained in
Nedbank Ltd v Bestvest 153 (Pty)
Ltd; Essa & another v Bestvest 153 (Pty) Ltd & others
2012 (5) SA 497
(WCC) paras 18-26.
7
Section
7(a).
The other purposes are to:
‘
(b) promote the development
of the South African economy by-
(i) encouraging
entrepreneurship and enterprise efficiency;
(ii) creating
flexibility and simplicity in the formation and maintenance of
companies; and
(iii) encouraging
transparency and high standards of corporate governance as
appropriate, given the significant role of enterprises
within the
social and economic life of the nation;
(c) promote
innovation and investment in the South African markets;
(d) reaffirm the
concept of the company as a means of achieving economic and social
benefits;
(e) continue to
provide for the creation and use of companies, in a manner that
enhances the economic welfare of South Africa
as a partner within
the global economy;
(f) promote the
development of companies within all sectors of the economy, and
encourage active participation in economic organisation,
management
and productivity;
(g) create optimum
conditions for the aggregation of capital for productive purposes,
and for the investment of that capital in
enterprises and the
spreading of economic risk;
(h) provide for the
formation, operation and accountability of non-profit companies in a
manner designed to promote, support and
enhance the capacity of such
companies to perform their functions;
(i) balance the
rights and obligations of shareholders and directors within
companies;
(j) encourage the
efficient and responsible management of companies;
(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; and
(l) provide a
predictable and effective environment for the efficient regulation
of companies.’
8
Per
Rogers AJ in
Cape Point Vineyards (Pty Ltd v Pinnacle Point Group
Ltd & another (Advantage Projects Managers (Pty) Ltd
Intervening)
2011 (5) SA 600
(WCC) at 603E-F.
9
Section
129(2)(b).
10
">
10
Section
129(3)(a)
gives five business days after adoption and filing of the
resolution.
11
Section
129(3)(b)
gives the same time limit and requires this person to
satisfy the requirements of
s 138
and to have consented in
writing to the appointment.
12
Section
129(4)(a)
- this must be done within two business days after making
the appointment.
13
Section
129(4)(b)
- this must be done within five business days after filing
the notice of appointment.
14
Section
129(1).
15
">
15
Oakdene
Square Properties (Pty) Ltd & others v Farm Bothasfontein
(Kyalami) (Pty) Ltd & others
2013 (4) SA 539
(SCA) held, at
para 29, that a ‘reasonable prospect’ is less than a
‘reasonable probability’ but more
than a ‘mere
speculative suggestion’. It must be ‘a prospect based on
reasonable grounds’.
16
Section
130(5)(a)(i).
17
">
17
Section
130(5)(a)(ii).
18
">
18
Member
of the Executive Council for Education in Gauteng Province &
others v Governing Body of the Rivonia Primary School
& others
[2013] ZACC 34
para 93;
Absa Bank Ltd v Kernsig 17 (Pty) Ltd
2011
(4) SA 492
(SCA) para 23;
Louw and Others v Nel
2011 (2) SA
172
(SCA) para 17.
19
MEC
for Education, supra,
para 93;
Skjelbreds Rederi A/S and
Others v Hartless (Pty) Ltd
1982 (2) SA 739
(W).
20
1936
AD 190
at 209.
21
2012
(4) SA 593
(SCA) para 18.
22
I
might mention that I have found no corresponding provisions in the
United Kingdom, Australian, German or United States of America
(USA)
company law which might assist in construing this section.
23
Section
150(5)(a)
allows a court to allow an extended time period on
application. The court was not approached in the present matter and
this section
accordingly finds no application.
24
A
‘voting interest’ is defined in
s 128(1)(j)
as ‘an
interest as recognised, appraised and valued in terms of
section
145(4)
to (6)’. The provisions of
s 145(4)
read as
follows:
‘
In respect of any decision
contemplated in this Chapter that requires the support of the
holders of creditors’ voting interests
-
a secured or unsecured creditor has a voting interest
equal to the value of the amount owed to that creditor by the
company;
and
a concurrent creditor who would be subordinated in a
liquidation has a voting interest, as independently and expertly
appraised
and valued at the request of the practitioner, equal to
the amount, if any, that the creditor could reasonably expect to
receive
in such a liquidation of the company.’
Section 145(5)
sets out the procedure for
determining whether a creditor is an independent one and notifying
creditors of the determined value
of their voting interest.
Section
145(6)
allows for a challenge by creditors concerning either of
those determinations. Neither of these sections is germane to this
matter
so they will not be set out in full.
25
This
is pursuant to
s 147(3)
which requires a simple majority of the
independent creditors’ voting interests voted at all meetings
other than one contemplated
in
s 151
(ie. the meeting to
consider a plan).
26
The
full section reads as follows:
‘
(2) Business rescue
proceedings end when –
the court –
sets aside the resolution or order that began those
proceedings; or
(ii) has converted the proceedings to liquidation
proceedings;
the practitioner has filed with the Commission a
notice of the termination of business rescue proceedings; or
a business rescue plan has been –
proposed and rejected in terms of
Part D
of this
Chapter, and no affected person has acted to extend the proceedings
in any manner contemplated in
section 153
; or
(ii) adopted in terms of
Part D
of this Chapter, and
the practitioner has subsequently filed a notice of substantial
implementation of that plan.’
27
Dig
(1.3.25);
Voet
(1.3.24);
Van der Linden
(1.1.6 (3) &
(5);
Principal Immigration Officer v Bhula
1931 AD 323
at
333&334;
Rose’s Car Hire (Pty) Ltd v Grant
1948 (2)
SA 466
(A) at 471-472;
Casely NO v Minister of Defence
1973
(1) SA 630
(A) at 640A-B. In
Van Heerden &others NNO v Queens
Hotel (Pvt) Ltd & others
1973 (2) SA 14
(RA) at 23D-F Beadle
CJ,
obiter
, said that, for the purpose of the presumption,
existing law includes both common and statute law and neither enjoys
pre-eminence.
28
Millman
NO v Twiggs & another
[1995] ZASCA 62
;
1995 (3) SA 674
(A) at 679B-C.
29
Casely
op cit 640A.
30
Koen
& another v Wedgewood Village Golf and Country Estate (Pty) Ltd
& others
2012 (2) SA 378
(WCC) para 10.
31
Ibid.
32
These
are alternative uses of the word given in
The Shorter Oxford
English Dictionary
3 ed (1973).
33
The
formulation of this provision has been subjected to scathing
critique in theDoctoral Thesis of A Loubser:
Some Comparative
Aspects of Corporate Rescue in South African Company Law
, LLD
Thesis, University of South Africa, February 2010 at 138 where she
says:
‘
The word “binding”
seems to imply that the offer, once made, cannot be retracted or
changed, although it is far from
clear why this should be the case.
An explanatory memorandum or report by the drafters to explain the
reason behind this condition
would, once again, have been of
invaluable help.
Then follows an even more curious condition: the
payment offered to purchase the voting interests must be equal to
the independently
and expertly determined, fair and reasonable
estimate of what the holder of the voting interests would receive if
the company
were to be liquidated. The task of obtaining this
valuation is specifically given to the practitioner. The valuation
is subject
to review, reappraisal and revaluation by the court on
application by the holder of the voting interest or the person
acquiring
it.
This provision can best be described as alarming. The
question needs to be asked why the offeror is not allowed to offer
more
than the liquidation value of the voting interest to make the
offer more attractive to the offeree. The liquidation value of a
concurrent creditor’s claim, for example, would be close to
nil and a share in a company unable to pay its debts would
definitely be worthless on liquidation. Such a creditor or
shareholder would almost certainly rather attempt to have an amended
plan prepared than virtually donating his votes to another person,
since there would be no advantage for him in such a transaction.
This inexplicable condition now raises the fear that the words
“binding offer” referred to above do not apply to
the
offeror only, but in fact also bind the offeree to the offer. The
right of the offeree to apply to court for a review of
the valuation
would be explained by this interpretation, as he would otherwise
simply refuse the offer. It is to be hoped that
this is not the
intended result of the provision, since the possibilities for abuse
and exploitation are endless, but it is almost
impossible to say
with any certainty what this provision is supposed to
achieve.’(References omitted).
Dr Loubser goes on to suggest that the clause be
amended to read: ‘any affected person, or combination of
affected persons,
may offer to purchase the voting interests of one
or more creditors orthe shares of one or more shareholders who
opposed adoption
of thebusiness rescue plan.’ Even though I do
not share all of her criticisms or interpretations, this seems to me
to be
an appropriate suggestion.
34
I
have found no equivalent for this provision in USA, English,
Australian or German law relating to similar mechanisms for company
rescue.
35
[2013]
ZAGPPHC 258 (29 August 2013).
36
At
para 29.
37
At
para 36.
38
At
para 31.
39
At
paras 29 & 30.
40
At
para 30.
41
At
para 31.This is done under
s 153(6).
42
">
42
At
para 33.My emphasis.
43
At
para 34.
44
At
para 34.
45
At
para 34.
46
At
para 34.
47
At
para 32. This is done under
s 153(6).
48
">
48
Section
140(3)(a).
49
Robert
E Allen (ed)
The Concise Oxford Dictionary of Current English
8
ed (1990) at 823.
50
Ex
parte Minister of Justice: In re Rex v Bolon
1941 AD 345
at
359-360 where it was made clear that the principle applies only to
well settled and well recognised interpretations of language.
This
clearly applies to the word ‘offer’. See also
Fundstrust
(Pty) Ltd (in Liquidation) v Van Deventer
1997 (1) SA 710
(A) at
732A-B where this approach was endorsed and restated.
51
See
footnote 33.
52
Section
153(4)
reads as follows:
‘
If an affected person makes
an offer contemplated in sub-section 1(b)(ii), 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 resumption of the meeting, without
further notice, at which the provisions of
section 152
and this
section will apply afresh.’
Section 152(3)(a)
provides that if a plan ‘is not
approved on a preliminary basis, as contemplated in subsection (2),
the plan is rejected,
and may be considered further only in terms of
section 153
’.
53
In
the equivalent, or roughly equivalent, procedures in the foreign
company law I have been able to access, all of them have short,
carefully defined time limits within which the process must be
completed.
54
See
footnote 21 para 18 (references omitted).
55
I
have explained why this is so in para 26 above.
56
Section
153(1)(a)
and (b).
57
">
57
2000
(1) SA 661 (CC) para 52.
58
In
Gandhi v SMP Properties (Pty) Ltd
1983 (1) SA 1154
(D) at
1157G-H Broome J said ‘in the absence of some clear
stipulation to the contrary, payment and transfer take place
pari
passu
…’.
59
Para
29.
60
Section
7(b).
61
">
61
Section
7(c).
62
">
62
Section
7(g).
63
Section
7(l).
64
">
64
Footnote
15 para 38.
65
Para
32.
66
See
footnote 33 at 212.
67
See
footnote 343 to p 212 of Loubser.
68
What
is meant by this has been elegantly summarised in Daniel R. Wong:
Chapter 11 Bankruptcy and Cramdowns: Adopting
a Contract Rate Approach
, Northwestern
University Law Review Vol. 106, No. 4 (2012) 1927 at 1932 as
follows:
‘
Under
Chapter 11, a debtor-in-possession 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 under the
terms of the
repayment plan. In many instances, however, reorganizations will not
proceed so smoothly due to creditors’
refusal to assent to the
repayment plan. Congress, in drafting the Bankruptcy Code,
anticipated this issue and created §
1129(b) to allow
nonconsensual confirmation of a repayment plan. If the requirements
of § 1129(b) are met, the court can
confirm the plan despite
creditors’ objections; essentially, the repayment plan is
“crammed down” upon the
nonassenting
creditors.’(References omitted).
69
Footnote
33, 321.
70
Per
Corbett JA in
Lendalease Finance (Pty) Ltd v Corporacion De
Mercadeo Agricola & others
1976 (4) SA 464
(A) at 490E-F.
71
The
obligations are reciprocal, in other words, ‘performance, or
tender of performance, by the other’. Per AJ Kerr
The Law
of Sale and Lease
3 ed at 222 referring to
Ese Financial
Services (Pty) Ltd v Cramer
1973 (2) SA 850
(C) at 808H-809A.
72
Section
132(2)(c)(ii).
73
Section
132(2)(c)(i).
74
Pizani
& another v First Consolidated Holdings
1979 (1) SA 69
(A)
at 77H-78A. This matter considered whether the cession of the
principal debt carried with it the rights against a surety.
75
Section
155(1) provides that s 155 applies to all companies, including
those which are distressed unless they are engaged
in business
rescue proceedings.
76
Ex
parte Voysey Bond Property Investments Ltd
1978 (2) SA 134
(D)
at 138A-B.
77
In
Incorporated General Insurances Ltd v Cement Distributors (South
Africa) (Pty) Ltd
1990 (1) SA 132
(A) at 136J-137A.The
provisions of s 311(3) of the 1973 Act accord with those of
s 155(9) of the Act.
78
Section
444H of the Australian Corporations Act 2001 provides:
‘
A deed
of company arrangement releases the company
from a debt only in so far as:
(a) the deed
provides
for the release; and
(b) the creditor concerned is
bound by the deed.’
Section 444J provides, ‘Section 444H
does not affect a creditor's rights
under a guarantee or indemnity.’ A deed
of company arrangement
in the Australian Corporations Act is akin to a plan under the Act.
79
See
para 26 hereof and the authorities referred to.