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[2013] ZAKZDHC 75
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Absa Bank Limited v Blue Beacon Investments 23 (Pty) Ltd (10927/2012) [2013] ZAKZDHC 75 (17 July 2013)
IN
THE KWAZULU-NATAL HIGH COURT, DURBAN
REPUBLIC
OF SOUTH AFRICA
CASE
NO.10927/2012
In
the matter between:
ABSA
BANK
LIMITED
.....................................................................................
APPLICANT
and
BLUE
BEACON INVESTMENTS 23 (PTY)
LTD
......................................
RESPONDENT
and
WILLOW
PARKS CIVILS
CC
.............................................
INTERVENING
CREDITOR
JUDGMENT
Delivered
on 17 July 2013
MBATHA
J
[1]
The Applicant applied for the liquidation of the Respondent and in
the absence of any opposition to the application a provisional
winding-up order was granted on 18 December 2012 in the usual terms
with a rule
nisi
calling upon the Respondent to show cause why
the provisional order should not be made final. The usual publication
of the order
in a newspaper and the Government Gazette and proper
service on all concerned took place and had there not been the
complication
of the present application by the Intervening
Creditor, the final liquidation order would have been granted as the
papers
otherwise appear to be in order.
[2]
In the application for the liquidation of the Respondent the
Applicant based its application on the fact that it had advanced
monies to the Respondent in terms of two (2) written loan agreements
and as security for the loans caused to be registered in its
favour a
mortgage bond over an immovable property described as Erf 4729
Reservoir Hills, Registration Division FT. Province of
KwaZulu-Natal,
in extent 3,0351 hectares (“the property”) in the total
sum of R17 300 000.00 and the additional amount
of R3 460 000.00. It
was alleged that the Respondent had defaulted on its monthly
repayment obligations and that the last instalments
in respect of the
two loan accounts were paid by the Respondent on 4 October 2010 and 4
November 2011 respectively.
[3]
It was also alleged that in terms of the mortgage bond all amounts
owing in terms of the loan agreements would become due and
payable in
the event of the default by the Respondent and that a certificate by
any manager of the Applicant would be
prima facie
proof of the
extent of the indebtedness by the Respondent to the Applicant. Two
such certificates were attached to the papers indicating
the amounts
owed by the Respondent to the applicant as at 1 August 2012 as being
the sums of R16 117 512.98 and R1 389 542.62 respectively
with
interest accruing on these amounts at 10.5% per annum from 2 August
2012.
[4]
The averment was made that it became apparent to the Applicant that
the Respondent is simply factually unable to pay its debts
entitling
it to the winding-up of the Respondent.
[5]
The Intervening Creditor brought an application to be granted leave
to intervene as a creditor in the application before the
final
liquidation order could be considered and sought leave to serve a
notice in terms of Rule 35(12) and/or 35(14) read with
rule 35(13)
and a direction that it delivers any application for the business
rescue of the Respondent on a date to be determined
should the
application be granted.
[6]
The sub-rules to Rule 35 referred to by the Intervening Creditor
relates to the discovery of documents and the reference to
business
rescue to an application in terms of section 131 of the Companies Act
71 of 2008. (“the Act”). The concept
of a “business
rescue” is something of a novelty and came into operation on 1
May 2011 and is provided for in Chapter
6 of the Act.
[7]
Section 128(1) (b) of the Act
[1]
defines a “business rescue” as “…
proceedings
to facilitate the rehabilitation of a company that is financially
distressed”
and a court is enjoined to grant such an application if in the words
of section 131 (4) (iii) “…
it
is otherwise just and equitable to do so for financial reasons, and
there is a reasonable prospect for rescuing the company…”
[8]
It is apparent from the orders being sought by the Intervening
Creditor that at present, apart from being granted leave to intervene
as a creditor, nothing more is required than an adjournment of the
application itself with leave to it to bring the application
in terms
of section 131 of the Act within a stipulated time period once it has
availed itself of the procedures in Rule 35 to obtain
documents from
the Applicant, the contents of which may then influence its decision
on whether or not to bring such an application
at all. Essentially
this application as presently framed is a request to delay the final
winding-up of the Respondent pending an
application that may not be
forthcoming.
[9]
The papers in this application dealt fully with the intended business
rescue in terms of section 131 of the Act and the effect
that the
omission of the relevant documents sought to be obtained may have on
the intended business rescue. If any useful purpose
will be served by
the adjournment of the matter the application should be granted. To
determine this question I am obliged to consider
the merits of the
business rescue plan as formulated in the affidavits filed by the
Intervening Creditor and that filed on behalf
of the Applicant and
give due regard to the contents of documents that the Intervening
Creditor complains is absent or those that
are said to be misleading.
[10]
There have been several decisions in the High Court dealing with the
provisions of the Act relating to business rescue, but
only recently
did the Supreme Court of Appeal happen to consider these provisions
of the Act in
Oakdene
Square
Properties
(Pty)Ltd v Farm Bothasfontein (Kyalami) (Pty)Ltd
[2]
.
I have had careful regard to
the
nature of a court’s discretion under section 131(4
)
of the Act in paragraphs (18) to (21) of this judgment and the
meaning of
rescuing
the company
in paragraphs (22) to (28) thereof.
[11]
The essence of the case of the Intervening Creditor is that it
disputes the extent of the Respondent’s indebtedness to
the
Applicant and is of the view that by concluding an agreement of lease
of the sectional title units on the property the Respondent
can be
rescued provided that the Applicant’s claim is not to the
extent that it claims it to be. In this regard it is stated
in
paragraph 5 of the affidavit filed on behalf of the Intervening
Creditor:
“
The
nature and extent of the Respondent’s indebtedness to the
Applicant also needs to be verified so as to establish the basis
for
a Business Rescue. If the Applicant’s claim is not the R17
million contended for, then Business Rescue will have more
than a
reasonable prospect of success.”
[12]
The Intervening Creditor also alleges that the loan agreements
concluded between the Applicant and the Respondent were for
the
purchase of the property as well as the subsequent lending of monies
for the development that was to take place on the property.
Accordingly, although the bond was registered as alleged over the
property, the money was being retained by the Applicant and would
only be paid out on progress of work done as authorised by the
Applicant’s assessors. According to Seelan Govender
(“Govender”)
the deponent to the Intervening Creditor’s
affidavit, when the agreement between the Intervening Creditor was
concluded with
the Respondent to complete the work to the sectional
title units he and his quantity surveyors established that the amount
of work
which had been performed on the site amounted only to a value
of between R3 and 4 million. Govender sums up the position as follows
in paragraph 24 of his affidavit:
“
I
have subsequently come to learn that there had been draw-downs on the
development bond roughly to the value of R9 million. The
exact amount
is unknown to me but this is the reason for me asking for a complete
disclosure of the full transaction history of
the loan agreements
which form the subject matter of the Applicant’s liquidation.
As I need to investigate this, a Rule 35(12),
(13) and (14) notice
has been prepared and the leave of the Court is sought to serve that
notice.”
[13]
After the conclusion of the agreement between the Intervening
Creditor and the Respondent, the former completed the project
at the
agreed price of R6 953 253.30. However, the total amount of work done
was in excess of the fixed price contract and in addition
to that
work further work amounting in total to R3 655 320.00 was done.
According to Govender the additional work done was over
and above the
amount fixed in the written contract and constitutes an improvement
lien which the Intervening Creditor has in respect
of the buildings
on the property. Since completing the work, so Govender asserts, the
Intervening Creditor has retained security
at the premises and will
continue to do so in order to maintain its improvement lien over the
property. Govender is also at pains
to explain that the improvement
lien ranks above the Applicant’s secured claim in terms of any
bond over the property.
[14]
Govender probably correctly sums up the position of the Intervening
Creditor in paragraph 33 of his affidavit where he states
as follows:
“
In
effect the Respondent got the Intervening Creditor to fund the
completion of the project. If the funds were being duly
advanced and paid out by the Applicant, then it was being paid out to
the Respondent in circumstances where the Respondent was
not paying
the Intervening Creditor for the actual building work which was being
performed.”
[15]
During 2009 the Intervening Creditor realised that it was not going
to be paid by the Respondent and various means were devised
to recoup
this loss including a plan by Govender to arrange for the taking over
of the shareholding of the Respondent by another
entity by the name
of Willow Park Transport & Projects CC (“PROJECTS”).
All these plans failed but PROJECTS as
the intended shareholder
concluded an agreement firstly with the Respondent and then with the
University of KwaZulu-Natal (“UKZN”)
in terms of which
the units on the property were leased to students. This lease
agreement has run its course but Govender is of
the firm view that
the Respondent “
can be saved by concluding a further lease
agreement with UKZN for student housing”
[16]
What is somewhat perplexing is that Govender did not indicate the
amount that the lease agreement between PROJECTS and UKZN
generated
per month to enable a court to assess whether any business rescue
plan will be workable if implemented. I fully understand
that the
present application is not the actual business rescue plan but in
order to assess the application to delay the final winding
up of the
Respondent a court cannot allow itself to be side tracked by any
proposed scheme that does not have the slightest hope
of ever being
sanctioned.
[17]
In its answering affidavit the Applicant pointed out that Govender is
not only the member of the Intervening Creditor but also
the member
of PROJECTS and that the latter still currently leases the units on
the property to UKZN and in this way generates approximately
R300
000.00 per month. The allegation is made in paragraph 44.3 of the
answering affidavit that Govender has appropriated approximately
R4
million in rental from this unlawful agreement between PROJECTS and
UKZN. The submission is then made that it is reasonable
to infer that
the Intervening Creditor is simply trying to secure a situation where
it can continue taking rent on the property,
to the exclusion of the
Respondent, the liquidators and creditors.
[18]
Govender did not respond to paragraph 44 of the Applicant’s
affidavit by denying the allegation that he is using PROJECTS
to
appropriate the current income that the property is capable of
generating. He refrained from providing any information about
the
money that the proposed business rescue plan would be able to
generate and about the rental agreement with UKZN merely says
“…
I am advised that legal argument will be raised as regards the
tacit relocation of the lease”
, whatever that may mean.
[19]
There is an obvious dispute between the Applicant and the Intervening
Creditor about the extent of the amount due to the Applicant
by the
Respondent in terms of the two (2) loan agreements. The Intervening
Creditor has queried a number of documents put up by
the Applicant
purportedly to show the exact amount it is alleged that is due to it
by the Respondent. Some of the criticism addressed
at the manner in
which these amounts were calculated may well be valid. All I know is
that even at the lowest level the amount
due to the Applicant by the
Respondent runs into the millions and if to it is added the claim by
the Intervening Creditor, any
potential business rescue plan seems an
unlikely prospect. I had to learn from the Applicant’s
answering affidavit that the
rental of the property generates
approximately R300 000.00 per month and that Govender or his
alter
ego
, PROJECTS has been and still is the recipient of these
monthly windfalls. Govender seems to have his own agenda to
delay
the final winding-up of the Respondent and the application to
prolong this diversion ought not to be allowed.
[20]
In view of the disputes, what is urgently required is for a
liquidator to take charge of the situation and deal with the claims
and more urgently with the property.
[21]
It has been suggested by Mr Stokes SC who appeared on behalf of the
Applicant that a final winding up order is no bar to a
business
rescue in terms of the Act
[3]
. I
am not sure if this submission is sound but would like to make it
absolutely clear that I assume for the purpose of this judgment
that
the order that I grant will put an end to the Intervening Creditor’s
intentions to bring such an application. My refusal
to entertain the
application to have the application for the final winding-up order
delayed is based entirely on the fact that
the proposed application
for a business rescue is not
bona
fide
and intended to delay the final winding-up order.
[22]
I therefore make the following orders:
(a)
The application by the Intervening Creditor is dismissed with costs,
including the costs of two (2) counsel.
(b)
The rule nisi granted on 18 December 2012 is confirmed. (A final
liquidation order is granted.)
MBATHA
J
Date
of hearing: 20 June 2013
Date
of Judgment: 17 July 2013
Counsel
for the Applicant: Adv A. Stokes SC
Instructed
by: Johnston & Partners
25 Claribel Road
Morningside
DURBAN
Counsel
for the Interning Creditor: Adv S. Hoar
Instructed
by: STBB Smith Tabata Buchanan Boyes
2 Cronbrook
Crescent
Cranbrook Park
La Lucia
DURBAN
[1]
Companies Act 71 of 2008.
[2]
(609/2012)
[2013] ZASCA 68.
[3]
Companies Act 71 of 2008
.