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[2012] ZAGPPHC 328
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Van Staden v Angel Ozone Products CC and Others (54009/11) [2012] ZAGPPHC 328; 2013 (4) SA 630 (GNP) (12 October 2012)
REPORTABLE
IN THE HIGH COURT OF SOUTH AFRICA
(NORTH
GAUTENG HIGH COURT - PRETORIA)
Case
number: 54009/11
DATE:12/10/2012
In
the matter between:
P
T VAN
STADEN
..........................................................................................
Applicant
and
ANGEL
OZONE PRODUCTS CC (in liquidation)
…............................
1st
Respondent
Registration
number: 2002/095564/23
PIETER
BERNADUS VAN ROOYEN
N.O
.............................................
2nd
Respondent
LEONARDSUS
JOHANNES STRYDOM N.O
.......................................
3rd
Respondent
GERDS
MARYKE VAN TONDER
N.O.
….............................................
4th
Respondent
and
MARGARET
MARTHA
PATEL
...............................................................
1st Intervening Party
PETER
MASELELA
..................................................................................
2nd
Intervening Party
MARIA
MABUSELA
…..............................................................................
3rd
Intervening Party
JUDGMENT
LEGODI
J
[1]
The first issue before me is whether the intervening parties,
Margaret Martha Patel, Peter Maselela and Maria Mabusela should
be
allowed to intervene in an application filed by one P T van Staden
(hereinafter referred to as the applicant).
[2]
In the application, the applicant is asking for relief as follows:
“
1.
Placing the First Respondent under supervision and commencing
business recue proceedings as contemplated in section 131(4)(a)
of
the Companies Act of2008 (“the Act”).
2.
Appointing Jean-Pierre Jordaan or such other person as the Honourable
Court sees fit as the business rescue practitioner as contemplated
in
Section 131(5) of the Act;
3.
In the alternative to 2 above; Directing the Companies and
Intellectual Property Commission to appoint Jean-Pierre Jordaan as
the business rescue practitioner as contemplated in Section 131(5) of
the Act;
4.
Further in the alternative to 2 and 3 above: Directing the Companies
and Intellectual Property Commission to appoint such suitably
qualified person as business rescue practitioner
(“the
practitioner”) who satisfies the requirements of section 138 of
the Act;
5.
Costs of the application, only in the event of it being opposed.
6.
Further and/or alternative relief’.
[3]
The second issue is, whether the applicant in the main application is
entitled to bring the application for the rescue of Angel
Ozone
Products as envisaged in Section 131, seen in the light of the final
liquidation order granted against the Close Corporation
before the
commencement of the New Companies Act no. 71 of 2008 (hereinafter
referred to as the Act), and if so whether the applicant
has made a
case for placing Angel Ozone Products cc under supervision and
commencing business rescue proceedings.
[4]
The applicant wanted the application to intervene to be dismissed on
the ground that the intervening parties were not affected
persons as
defined in the Act. Section 131 (3) of the Act provides that each
affected person has a right to participate in the
hearing of an
application to place a company, in this case, (Angel Ozone Products
CC) under supervision and commencing business
rescue proceedings.
[5]
Section 131(1) provides that unless a Company has adopted a
resolution contemplated in section 129, an affected person may apply
to a court at any time for an order placing the company under
supervision and commencing business rescue proceedings.
[6]
In terms of subsection (2 )(b) of section 131, the applicant in terms
of subsection (1) is obliged to notify each affected person
of the
application in the prescribed manner.
[7]
The applicant was the sole member of Angel Ozone Products CC
(hereinafter referred to as the corporation), which corporation
was
placed under final liquidation order granted by Magistrate Pretoria
on the 23 February 2011.
[8]
The application for the liquidation was brought by the applicant. The
application was brought before the commencement of the
Act, which
came into operation on the 1 May 2011, the liquidation having been
launched during March 2010 and the provisional liquidation
order
having been granted on the 15 August 2010.
[9]
The corporation started conducting business in 2007. Its main
business was to develop and market ozone gel to be utilized in
ozone
products for medical health and cosmetic industries. The ozone gel
that was produced was used as healing balm on its own.
[10]
The product provided by the corporation consisted of extra olive oil
that was ozonated over a period to form a unique ozonated
gel. The
corporation approached medical, health and cosmetic industries to
research the possibility of utilizing the gel as a component
in
various products.
[11]
Because of its business market on mass consumption and mass
production, it developed a unique business model and marketing
strategy. To produce the mass production, it needed to introduce a
model whereby interested parties could start their own business
by
renting a mini Ozonated Gel Purifier machine from the corporation.
The machine was to produce ozone gel which was then sold
to the
corporation and the corporation in turn sold the gel at a good market
price.
[12]
The corporation entered into manufacturing contracts with the parties
who had rented the purifying machine from the corporation
and these
parties were referred to as manufacturers. The strategy was meant to
cut down on startup capital and labor.
[13]
In a relatively short period, say about three years, the corporation
managed to contract with about 2500 manufacturers who
rented
approximately 8500 purifier machines.
[14]
However, in 2009, the corporation started to experience cash flow
problems due to a number of factors. For example, the manufacturers
just produced the ozone gels and failed to market them for the
corporation. There was increase percentage of defective products
delivered to the corporation by the manufacturers; and at the same
time, the manufacturers demanded payment from the corporation.
[15]
Because of the cash flow problem the corporation experienced, it
could not manage to pay manufacturers timeously as the time
between
the delivery testing and eventual production of the various products
which could finally be sold by the corporation was
too long. The
manufacturers stopped producing ozone gel due to non-payment.
[16]
At the time liquidation proceedings were instituted, the assets of
the corporation consisted of 9000 purifier machines at the
value of
R18 000 000 and approximately 50 tons of processed ozone gel at an
estimated value of R37 500 000.
[17]
Now, coming back to the issue indentified in paragraph 1 of this
judgment, the intervening parties were manufacturers. They
allege
that the corporation was owing them some money for the produced
ozonated gel that was sold to the corporation. They are
therefore the
creditors of the close corporation and therefore affected persons as
envisaged in the Act.
[18]
In terms of section 128 (1) (a) (i) of the Act, affected person means
a shareholder or creditor of the company. Counsel for
the applicant
sought to suggest that, whilst the intervening parties could have
entered into a manufacturing agreement with the
corporation, it was
in dispute that they were entitled to get anything from the
corporation.
The
contention around this aspect was that they could not be reckoned as
creditors if they had not complied with the terms and conditions
of
the manufacturing agreement. For example, that they may not have
delivered quality ozonated gel.
[19]
Without making a final determination around the issue, I do not think
that the applicant could have succeeded. The contention
was however
abandoned when counsel for the applicant was warned that he runs the
risk of having the matter postponed if the first
issue cannot be
resolved. The intervening parties alleged having entered into
manufacturing contracts with the corporation. They
further alleged
delivery of the ozonated gel to the corporation, non payment by the
corporation and lastly, the applicant in the
application for
liquidation of the corporation in a way is said to have admitted that
the intervening parties were the corporation’s
creditors.
[20]
I now turn to deal with the issue identified in paragraph 3 of this
judgment. As I said earlier in this judgment, the suggestion
was that
the provisions of section 131 were not applicable to the corporation
and therefore the applicant cannot seek to invoke
section 131. I
understood counsel for the intervening parties to be saying
liquidation proceedings should not be confused with
winding up
proceedings. In his view, the liquidation proceedings came to an end
when a final liquidation order was granted on the
23 February 2011.
The effect of the contention is that the applicant cannot seek to
undo what has already been finalized through
judicial process.
[21]
The applicant instituted the present proceedings on the 20 September
2011. The, second to the fifth respondents are cited as
the
corporation’s liquidators. They did not oppose the application.
I want to believe that they decided to abide by the decision
of this
court. In dealing with the issue under discussion, it might be
necessary to refer to the some provisions of the Act relevant
to the
issue. The issue is somewhat relevant to the retrospective issue that
was also raised by counsel on behalf of the intervening
parties.
[22]
Starting with section 131, subsection (3) (a) thereof, provides that
if the application proceedings have already been commenced
by or
against the company at the time an application is made in terms of
subsection
(1),
the application will suspend those liquidation proceedings until the
court has adjudicated upon the application.
[23]
On the other hand, subsection (7) provides that in addition to the
powers of court on an application contemplated in this section,
a
court may make an order contemplated in subsection (4) or (5) if
applicable, at any time during the course of any liquidation
proceedings or proceedings to enforce any security against the
company.
[24]
Subsections (4) and (5) referred to above read as follows:
“
(4)
After considering an application in terms of subsection (1), the
court may-
(a)
make an order placing the company under supervision and commencing
business rescue proceedings, the court is satisfied that-
(i)
the company is financially distressed;
(ii)
the company has failed to pay over any amount in terms of an
obligation under or in terms of a public regulation, or contract,
with respect to employment-related matters;
or
(Hi)
it is otherwise just and equitable to do so for financial reasons,
and there is a reasonable prospect for rescuing the company;
or
(b)
dismissing the application, together with any further necessary and
appropriate order, including an order placing the company
under
liquidation. (5) If the court makes an order in terms of subsection
(4)(a), the court may make a further order appointing
as interim
practitioner a person who satisfies the requirements of section 138,
and who has been nominated by the affected person
who applied in
terms of subsection (1), subject to ratification by the holders of a
majority of the independent creditors' voting
interests at the first
meeting of creditors, as contemplated in section 147.
[25]
The point taken was that, liquidation proceedings had come to an end
when a final liquidation order was granted and that such
proceedings
should not be confused with the winding up proceedings, which come to
an end when the Master approves the liquidation
and distribution
account at it was originally the case in terms section 408 of the
repealed
Companies Act.
[26
]
Whilst a distinction can be made between liquidation and winding up
proceedings for example, the former being legal proceedings
before a
court of law, and the latter being a process that is overseen by the
liquidators and the Master, the winding up proceedings
in my view,
should be seen as a continuation of liquidation proceedings. In other
words,
liquidation proceedings are processes that are concluded once there
is a final liquidation and distribution account which
is confirmed by
the Master. Such a confirmation in terms of
section 408(c)
of the
repealed
Companies Act was
tantamount to a judgment upon which an
execution can take place.
[27]
Put it simply, you do not grant a final liquidation order and execute
on it. You execute on a confirmed liquidation and distribution
account. Winding up proceedings are part and parcel of the
liquidation proceedings.
[28]
Whilst in terms of item 10 (2) of Schedule 5 of the Act, any order of
a court in terms of the previous Act and in force immediately
before
the effective date, continues to have the same force and effect as if
that Act has not been repealed, such an order is however
subject to
any further order as the court may make under the new Act.
(underlining is my own emphasis).
[29]
The liquidation order that was granted on the 11 February 2011 was in
force immediately before the commencement date of the
Act on the 1
May
2011 and continued to be so in force. But that did not mean that such
an order cannot be substituted by any further order in
terms of
section 131 of the Act. Item 10(2) of Schedule 5 makes it very clear
that an order that was made in terms of the old Act
is subject to any
further order that could be made under the new Act. The applicant
seeks an order placing the corporation in liquidation
under
supervision and rescue as envisaged in section 131.
[30]
I share the view expressed in Henochsberg on the
Companies Act 71
of2008
, Volume I page 471, wherein it is suggested that it appears
for more likely that the provisions of
section 131(7)
read with
section 135(4)
contemplate the conversion of a liquidation into
rescue proceedings no matter how far the liquidation and winding up
proceedings
might have progressed.
[31]
One of the objects of the Act is to provide for the efficient and
recovery of financial distressed companies, in a manner that
protects
the rights and interests of all relevant stakeholders, (see section 7
(K). In terms of the repealed Act, the liquidation
proceedings’
major stakeholders are the creditors. Liquidation proceedings are
meant to ensure that no one particular stakeholder
(creditor) gains
an advantage over other creditors.
[32]
Now, if the rescue proceedings are a better option than the
liquidation proceedings, I see no reason why such liquidation
proceedings cannot be converted into supervision and rescue
proceedings irrespective of how far advanced the liquidation or the
winding up proceedings might be.
[33]
The process that has to be followed once conversion has taken place
in my view, is mindful of the fact that minimum disturbance
to the
liquidation proceedings takes place. For example, the following steps
are envisaged:
33.1
In terms of section 131 (5), a court making an order to place the
company under supervision and commencing business rescue
proceedings
may further make an order appointing an interim practitioner who
satisfies the requirements of section 138 and who
has been nominated
by the affected person who applied for
supervision
and rescue order in terms of subsection (1) of section 131.
33.2
Upon appointment of a practitioner under section 131(5), the
appointment has to be ratified by the holders of a majority of
the
independent creditors’ voting interests at the first meeting of
creditors as contemplated in section 147.
33.3
In terms of section 147(1) within 10 business days after being
appointed, the practitioner must convene and preside over a
first
meeting of creditors, at which;
(a)
the practitioner -
(i)
must inform the creditors whether the practitioner believed that
there is a reasonable prospect of rescuing the company; and
(ii)
may receive proof of claims by the creditors, and
(b)
the creditors may determine whether or not a committee of creditors
should be appointed and if so, may appoint the members of
the
committee.
33.4
It is at the first meeting of the creditors that a practitioner’s
appointment in terms of section 131 might be confirmed.
But as soon
as practicable after being appointed, a practitioner must in terms of
section 141(1) investigate the company’s
affairs, business,
property and financial situation and after having done so, consider
whether there is any reasonable prospect
of the company being
rescued.
33.5
In terms of section 141(2) if at any time during rescue proceedings,
the practitioner concludes that -
(a)
there is no reasonable prospect for the company to be rescued, the
practitioner must-
(i)
so inform the court, the Company and aii affected persons in
prescribed manner,
and
(ii)
apply to the court for an order discontinuing the business rescue
proceedings and placing the company into liquidation.
[34]
All of the above, in my view serve to expedite the rescue proceedings
with limited amount of costs and time relating to return
to
liquidation proceedings, should rescue proceedings be found not to be
viable.
[35]
In terms of subsection (6) of section 131, liquidation proceedings
are suspended until the court has (a) adjudicated upon the
application for supervision and rescue or (b) the business rescue
proceedings have ended if the court makes the order applied for
in
terms of section 141(2)(a)(ii). I now turn to deal with another issue
raised on behalf of the intervening parties.
[36]
The issue is whether the Act applies retrospectively seen in the
light of the fact that the final liquidation order was granted
before
the commencement of the Act. In paragraph 25 to 26 of this judgment,
I indicated that winding up proceedings is a continuation
of
liquidation proceedings. The order under liquidation proceedings is
followed by winding up proceedings. A final liquidation
order is
tantamount to allowing winding up proceedings to take place. That is,
a liquidator to be appointed or already appointed
should take charge
and wind up the insolvent estate.
[37]
I understood the suggestion on behalf of the intervening parties to
be that the applicant, as the only member of the corporation
in
liquidation, cannot be allowed to have more rights under the new Act,
than he could have had in terms of the old Act.
[38]
Generally, legislation is not to be interpreted to extinguish
existing rights and obligations. The legislation will affect
only
future matters and not take away existing right as basic to notions
of fairness and justice which are integral to the rule
of law, a
fundamental principle of our Constitution. (See Donald Veldman v The
Director of Public Prosecutions CCT 19/05 par 26).
[39]
I do not think that section 131 of the Act brought about significant
infringement to the rights of the intervening parties
and general
community of the creditors to the corporation. Judging by the object
of the new Act, read together with other provisions
of the Act
relating to rescue proceedings, more or less same purpose is given to
the affected persons and or creditors as it was
under the old Act.
The new Act as I see it, for the purpose of the issue under
discussion, seeks to improve without creating new
rights that were
not there under the old Act or extinguishing rights that were there
under the old Act. For example:
29.1
In terms of section 354(1) of the old Act, the court may at anytime
after the commencement of the winding up, on the application
of any
liquidator, creditor or member and on proof of the satisfaction of
the court that all proceedings in relation to the winding
up ought to
be stayed or set aside, make an order staying or setting aside the
proceedings or for the continuance of any voluntary
winding up on
such terms and conditions as the court may deem fit. In terms of
subsection (2), the court may as to all matters
relating to winding
up, have regard to the wishes of the creditors or members as proved
to it by any sufficient evidence. It is
clear that the court was
given a discretionary power, which discretionary power still seems to
be present under section 131 proceedings.
Secondly, the creditors’
or affected persons’ views as in the new Act, seem to have
played or to be playing important
role in the exercise of the
discretion. Therefore, there is no taking away of the rights that
existed before the commencement of
the new Act.
39.2
Section 427 of the old Act dealt with circumstances under which a
company may be placed under judicial management. Of importance
and
relevance, subsection (3) thereof provided that when an application
for the winding up of a company is made to court under
the Act (old
Act), and it appears to the court that if the company is placed under
judicial management, the grounds for its winding
up may be removed
and that it will become a successful concern and that the granting of
a judicial management order would be just
and equitable, the court
may grant such an order in respect of that company. Clearly, the
proceedings under section 131 of the
new Act can be akeened to the
proceedings under section 427 of the old Act-
39.2.1
In terms of subsection (1) of section 427 of the Old Act, it was
envisaged that when any company by reason of mismanagement
or for any
other cause -
(a)
is unable to pay its debts or is probably unable to meet its
obligations, and
(b)
has not become or is prevented from becoming a successful concern,
and there is a reasonable probability that, if it is placed
under
judicial management, it will be enable to pay its debts or to meet it
obligations and become a successful concern, the court
may, if it
appears just and equitable, grant a judicial management order in
respect of that company.
39.2.2
More or less similar provisions can be found in section 131 of the
new Act. It deals with reasonable prospects of rescuing
the company,
after having found or satisfied that the company is financially
distressed, it has failed to pay over any amount in
terms of an
obligation under or in terms of a public regulation or contract, with
respect to employment-related matters or it is
otherwise just and
equitable to do so for financial reasons and there is a reasonable
prospect of rescuing the company (see subsection
(4) of section 131).
[40]
Based on all of the above, the contention based on the general
principle that legislation is not to be interpreted to extinguish
existing rights and obligations is not applicable in the present case
as section 131 does not take away any such rights.
[41]
Before I conclude on the issue under discussion, one would have
expected the liquidators in the present case to come forward
and tell
the court how far they are with the winding up process. The
provisional liquidation order was granted on 13 April 2010
and final
liquidation order on the 23 February 2011. The suggestion that the
corporation has not been operating since the liquidation
proceedings
in my view does not take the matter any further. The only member of
the corporation, that is, the deponent to the founding
affidavit,
continued to take charge and care of the ozonated gel which according
to him could still be marketed and sold. The purifier
machines could
still be utilized to produce or manufacture the ozonated gel. On the
other hand, the liquidators one of whom was
in court when the matter
was argued filed no affidavit to update the court on the status of
the winding up process. Their silent
suggests that they are prepared
to abide by the decision of this court.
[42]
Having allowed the other parties to intervene, it was agreed that I
can deal with the matter on merits bas^d on the papers
as they stand.
In terms of the Act, and in particular in terms of subsection (4) of
section 131, I need to be satisfied as it is
quoted in paragraph 24
of this judgment. I think it would be just and equitable to grant the
application. Based on what is envisaged
by the applicant as set out
in the founding affidavit, I see no basis to suggest that seeking to
rescue the corporation is not
a reasonable thing to do. In any event,
the practitioner once appointed would report fully on the prospect of
success or otherwise
in rescuing the corporation.
[43]
A certain Jean-Piere Jordaan has been suggested by the applicant as a
suitable person to be appointed as a rescue practitioner
as envisaged
in section 131(5) of the Act. Jean-Piere Jordaan is a practicing
attorney with experience in business rescue. He had
already been
appointed as such in two separate matters. His curriculum vitae is
annexure TV57 to the founding affidavit. I did
not understand the
intervening parties to be challenging Jean-Piere Jordaan’s
ability to deal with rescue matters under section
131. Therefore,
there is no basis to suggest that he does not meet the requirements
as envisaged in section 138 of the Act. The
section deals with
qualifications for appointment as a rescue practitioner. On two
occasions, the Commission issued license to
him as a rescue
practitioner in two different matters referred to earlier in this
judgment. Should such a certification or accreditation
still be
necessary, despite appointment by this court, he can always obtain it
from the Commission.
[44]
Consequently I hereby make an order as follows:
44.1
Angel Ozone Product CC (in liquidation) is hereby placed under
supervision and commencing business rescue proceedings as
contemplated
in
section 131
(4)(a) of the
Companies Act no 71 of
2008
.
44.2
Jean-Pierre Jordaan is hereby appointed as an interim rescue
practitioner as envisaged in section 131(5) of the Act pending
ratification by the creditors of such an appointment at their first
meeting as envisaged in section 147 of the Act.
44.3
The intervening parties are hereby ordered to pay costs of the
application, the one paying the other to be absolved.
M
F LEGODI
JUDGE
OF THE HIGH COURT
Judgment
reserved: 18/09/2012
Judgment
handed down: 12/10/2012
CAWOOD
ATTORNEYS: FRIK PRETORIUS ATTORNEYS
Attorneys
for the applicant Attorneys for the 1st to 3rd Respondents
178
John Street
67
Annie Botha Avenue
Muc
keneuk,
PRETORIA
Riviera,
PRETORIA
00010001
Ref:
W CAWOOD/BROO6 REF: MS/M305/KP
Tel:
012 346 7411
TEL:
012 329 2016