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[2012] ZAGPPHC 165
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Madodza (Pty) Ltd v Absa Bank Ltd and Others (38906/2012) [2012] ZAGPPHC 165 (15 August 2012)
REPORTABLE
IN
THE NORTH GAUTENG HIGH COURT,
PRETORIA
(REPUBLIC OF SOUTH AFRICA)
CASE
NO: 38906/2012
DATE:
15/08/2012
IN
THE MATTER BETWEEN:
MADODZA
(PTY) LTD (in business
rescue)
............................................
APPLICANT
AND
ABSA
BANK
LIMITED
................................................................................
FIRST
RESPONDENT
UYS
MATYEKA SCHWARTZ
ATTORNEYS
............................................
SECOND
RESPONDENT
THE
SHERIFF:
NELSPRUIT
......................................................................
THIRD
RESPONDENT
RAND
MERCHANT BANK
…....................................................................
FOURTH
RESPONDENT
NEDBANK
LIMITED.
...................................................................................
FIFTH
RESPONDENT
WESBANK
...................................................................................................
SIXTH
RESPONDENT
JUDGMENT
TOLMAY.
J:
[1]
The applicant who is under business rescue, brought an urgent
application to prohibit the Sheriff of Nelspruit from removing
several vehicles from the possession of the applicant, until such
time as the business rescue proceedings have come to an end as
envisaged by sec 132(2) of the Companies Act, No 17 of 2008 (the
Act). These vehicles were financed by the first, fourth, fifth
and
sixth respondents.
[2]
It is common cause between the parties that the applicant failed to
appoint a business rescue practitioner within 5 days after
business
rescue proceedings commenced as required by sec 129(3) of the Act.
[3]
The relief sought is based on sec 133(1) of the Act which reads as
follows:
"133.
(1) During business rescue proceedings, no legal proceedings,
including enforcement action, against the company, or in
relation to
any property belonging to the company, or lawfully in its possession,
may be commenced or proceeded with in any forum,
except -
(a)
With the written consent of a practitioner;
(b)
With the leave of the Court and in accordance with any terms of the
Court considers suitable"
BACKGROUND
[4]
The applicant conducts business as a transport company and requires
the vehicles referred to in the notice of motion to perform
its
business. The business rescue proceedings commenced on 22 November
2011 in terms of sec 129(3) of the Act and the business
rescue
practitioner took control of the company assets and financial affairs
on 20 January 2012. The vehicles are essential to
the applicant's
business and to the success of the business rescue proceedings.
[5]
A business plan was developed in terms of the requirements of the
Act, after a meeting of creditors, the business plan was revised.
The
creditors rejected the revised business plan. The applicant launched
an application in this Court on 25 May 2012 in terms whereof
the
applicant seeks an order setting aside the vote rejecting the
proposed business plan in terms of sec 153(1)(a)(ii) and that
the
revised business plan be adopted, alternatively be referred to the
affecting parties of the applicant to be adopted by them
in terms of
the Act. The first respondent, together with the effected creditors
entered a notice of opposition and the application
is yet to be
adjudicated upon.
[6]
On or about 26 June 2012 the third respondent, on instructions from
the second respondent and armed with warrants for delivery
of goods,
sought to remove the vehicles from the applicant's place of business,
which led to the launching of this application.
[7]
The respondent's case is that the return of the vehicles falls
outside the moratorium envisaged by sec 133 of the Act, final
court
orders for the return of the vehicles having been obtained prior to
the commencement of the business rescue proceedings.
The respondent
contends that the vehicles did not form part of the assets of the
applicant nor was the applicant in lawful possession
of the vehicles
at the time of the commencement of the business rescue. The reason
being that the finance agreements in respect
of the vehicles were
cancelled during 2010 because of the failure of the applicant to pay
the monthly rentals and/or lease payments
in respect of the finance
agreements.
[8]
In the light of the aforesaid, it is common cause that all of the
above mentioned court orders were granted before the applicant
commenced with business rescue proceedings on 22 November 2011. None
of these orders are the subject of appeals or rescission
applications. In terms of the aforementioned court orders the
vehicles must be returned to the finance companies.
[9]
Attempts were made to execute on the aforesaid orders on 22 August
2011. Due to the fact that applicant informed the sheriff
that it was
under business rescue, which was not correct at the time, the Sheriff
of his own volition did not execute.
THE
APPLICANT'S RIGHT TO REMAIN IN POSSESSION OF THE VEHICLES
[10]
The applicants base their right to remain in possession of the
vehicles on the fact that sec 133 prohibits inter alia enforcement
actions during business rescue proceedings.
[11]
It was argued by the applicant that if the purpose of business rescue
proceedings is considered a company should be allowed
to restructure
its affairs in a way to allow it to continue operating1. It is
apparent that the applicant will not be able to proceed
with its
business if the vehicles are to be returned, it follows that the
business rescue proceedings will fail if return of the
vehicles is
ordered.
[12]
The Act does not define "legal proceedings" or "enforcement
action". In Henochsberg2 the following was
said:
"Although
no definition of the terms "legal proceeding" or
"enforcement action" are provided in Chapter
6, it is clear
that the intention of the provision is to cast the net as wide as
possible in order to include any conceivable type
of action against
the company. In Investec Bank Ltd v Bruyns 19449/11 (WCC): 14
November 2011 the Court described the moratorium
granted by sub-s (1)
as a general provision that affords the company protection against
legal action on claims in general.... The
whole purpose of a business
rescue proceeding is to offer the company some breathing space in
order to allow its affairs to be
restructured in such a way as to
allow it to continue operating as a successful concern. One of the
reasons informal creditor workouts
are not always successful in
practice, is due to the fact that creditors cannot be prevented from
taking enforcement proceedings,
including an application for the
winding-up of a company, while the informal workout is in the process
of being negotiated.
It
is to be noted that this provision does not only prohibit legal
proceedings and enforcement action against the company itself,
but
also in relation to specific property belonging to the company, or
property that is lawfully in its possession"
[13]
I was also referred to the position in Australia, Canada and
England3. It is clear from a perusal of the application of similar
proceedings in these countries that the net is indeed cast wide in
order to guarantee the success of saving companies in financial
distress.
[14]
In this regard, in England the following was found in Re Atlantic
System pic4
"5.2
Thus the making of an administration order triggers the liked
prohibition on proceedings being brought or continued against
the
company as the prohibition which exists, and has long existed, when a
winding-up order is made. The owners of property, and
of charges over
property, are disabled
[15]
It would seem that internationally the end result sought to be
achieved by business rescue is to have a business continue as
a going
concern. This may have as a result that the owners of property may be
limited in exercising their proprietary rights5.
It would seem on a
perusal of the Act that, that is also what our Act seeks to
accomplish. As was stated in Oakdene Square6:
"[12]
The general philosophy permeating the business rescue provisions is
the recognition of the value of the business as a
going concern
rather than the juristic person itself. Hence the name "business
rescue" and not "company rescue".
This is in line with
the modern trend in rescue regimes. It attempts to secure and balance
the opposing interests of creditors,
shareholders and employees. It
encapsulates a shift from creditors' interests to a broader range of
interests. The thinking is
that to preserve the business coupled with
the experience and skill of its employees, may, in the end prove to
be a better option
for creditors in securing full recovery from the
debtor. To rescue the business, provision is made to "buy into"
the
procedure without fear of losing such investment in an ailing
company, by securing repayment as a preferential repayment, as part
of this "post-commencing financing". Post-commencement
creditors are thus offered a "super-priority" as an
incentive to assist the company financially. The facility of a
business rescue is now also available to close corporations."
[16]
It was argued by the applicant that in the light of the purpose for
business rescue the respondent should not be allowed to
enforce the
execution of the existing court orders. The argument went further to
say that the effect of sec 133(1) is that legal
proceedings are
automatically stayed. Execution or enforcement actions may not be
initiated, and if already commenced should be
stopped until the
written consent of the business rescue practitioner or the leave of
the court is obtained. This argument seems
to be correct, but the
wording of sec 133 must be considered to determine whether the
applicant can claim a stay of proceedings
in the circumstances of
this case.
[17]
Sec 133 requires that the assets must either be the property or in
the lawful possession of the company. It is common cause
that the
vehicles are not the property of the applicant. In the light of the
fact that the agreements were cancelled and the fact
that applicant
was ordered to return the vehicles, applicant did not prove that it
was in lawful possession of the vehicles. In
my view, the applicant
failed to meet the requirements of sec 133 and therefore cannot
succeed in its application.
[18]
I therefore find that the applicant is not in lawful possession of
the vehicles and therefore applicant is not entitled to
the relief
claimed.
NON
COMPLIANCE WITH SEC 129(3)
[19]
The applicant also contends that the application cannot succeed due
to non-compliance with sec 129(3) of the Act.
[20]
Sec 129(3) of the Act read as follows:
"(3)
Within five business days after a company had adopted and filed a
resolution, as contemplated in subsection (1), or such
longer time as
the Commission, on application by the company, may allow, the company
must -
(a)
publish a notice of the resolution, and its effective date, in the
prescribed manner to every affected person, including with
the notice
a sworn statement of the facts relevant to the grounds on which the
board resolution was founded; and
(b)
appoint a business rescue practitioner who satisfies the requirements
of section 138, and who has consented in writing to accept
the
appointment"(my underlining)
[21]
It is common cause that the applicant failed to appoint a business
rescue practitioner within 5 days after business rescue
proceedings
commenced, as envisaged by sec 129(3).
[22]
Sec 129(5) read as follows:
"(5)
If a company fails to comply with any provision of subsection (3) or
(4) -
(a)
its resolution to begin business rescue proceedings and place the
company under supervision lapses and is a nullity; and
(b)
the company may not file a further resolution contemplated in
subsection (1) for a period of three months after the date on
which
the lapsed resolution was adopted, unless a court, on good cause
shown on an ex parte application, approves the company filing
a
further resolution."
[23]
The applicant argued that business rescue proceedings remain in
effect until a court with competent jurisdiction orders otherwise.
The wording of sec 129(5) is clear, if there is no compliance the
business rescue proceedings is a nullity.
[24]
In the matter of Advanced Technologies and Engineering Company (Pty)
Ltd (In Business Rescue)7, Fabricius J stated as follows:
"The
purpose of s 129(5), is very plain and blunt There can be no argument
that substantial compliance can ever be sufficient
in the given
context. If there is non-compliance with s 129(3) or (4) the relevant
resolution lapses and is a nullity. There is
no other way out, and no
question of any condonation or argument pertaining to "substantial
compliance". The requirements
contained in the relevant
sub-sections were either complied with or they were not In this case
they were not, for the reasons stated
herein above."
[25]
I agree with this interpretation. Consequently this application must
fail for this reason too.
CONCLUSION
[26]
Due to the fact that the applicant did not meet the requirements of
sec 133 pertaining to lawful possession as well as not
complying with
sec 129(3) the application must fail.
COSTS
[27]
The first respondent requested me to order that the business rescue
practitioner pay the costs on an attorney and client scale,
de bonis
properis. I am however of te view that such an order is not
appropriate, as the business rescue proceedings are still
pending and
the court which deal with that will be in a better position to
evaluate the actions of the business rescue practitioner.
[28]
I make the following order:
1.
The application is dismissed.
2.
The applicant is ordered to pay the costs, which will include the
costs of two counsel.
R
G TOLMAY
JUDGE
OF THE HIGH COURT
MADODZA
(PTY) LTD (IN BUSINESS RESCUE) V ABSA BANK LIMITED AND OTHERS
CASE
NO:38906/2012
JUDGE:
TOLMAY
DATE
OF HEARING: 18 JULY 2012
DATE
OF JUDGMENT:15 AUGUST 2012
ATTORNEY
FOR APPLICANT: MORNE COETZEE ATTORNEYS
ADVOCATE
FOR RESPONDENTS: S J J VAN RENSBURG
ATTONREYS
FOR RESONDENT: UYS MATYEKA SCHWARTZ ATTORNEYS
ADVOCATE
FOR RESPONDENT: J P DANIELS (SC) A VENTER