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2024
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[2024] ZANCHC 62
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Schwartz v Tornado Boerdery and Algemene Handelaars CC and Others (854/2022) [2024] ZANCHC 62 (12 July 2024)
IN
THE HIGH COURT OF SOUTH AFRICA
NORTHERN
CAPE DIVISION, KIMBERLEY
Case
No: 854/2022
Reportable:
YES/NO
Circulate
to Judges:
YES/NO
Circulate
to Magistrates:
YES/NO
Circulate
to Regional Magistrates:
YES/NO
In
the matter between:
MIRVAN
REYMOND DUDLEY SCHWARTZ
Applicant
and
TORNADO
BOERDERY & ALGEMENE
HANDELAARS
CC
(Registration
number: 2006/080705/23)
1
st
Respondent
THE
COMPANIES AND INTELLECTUAL
PROPERTY
COMMISSION
2
nd
Respondent
THE
STANDARD BANK OF SOUTH AFRICA LTD
Affected Party
Coram: Lever J
JUDGMENT
Lever
J
1.
This is an application to place the first respondent under
supervision for the purpose of business rescue.
The Affected Party
(Standard Bank), as the applicant, brought an application for the
liquidation of the first respondent under
case number 131/2022 in
this court. Subsequent to the launch of the liquidation application
the applicant brought this application
for the business rescue of the
first respondent.
2.
The business rescue application and the liquidation application were
set down before me as separate matters
on the same day. Indeed, they
were argued as separate matters on the same day. Given the nature of
the relief sought in both matters,
it is logical that I deal with the
business rescue application first, as in the circumstances, the
outcome of the business rescue
application will determine the outcome
of the liquidation.
3.
The process
of business rescue proceedings is dealt with
inter
alia
by
section 131 of the Companies Act
[1]
(the Act). For present purposes, the relevant portion of the said
section reads as follows:
“
131(1)
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.
(2)
An applicant in terms of subsection (1) must –
(a)
serve a copy of the application on the company and the Commission;
and
(b)
notify each affected person of the application in the prescribed
manner.
(3)
Each affected person has a right to participate in the hearing of an
application in
terms of this section.
(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, if 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
(iii)
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.
…”
4.
The definition of an ‘affected party’ is set
out in section 128 of the Act. For
present purposes, the relevant
portion of section 128 reads as follows:
“
128(1)
In this chapter –
(a)
‘affected person’, in relation to a company means
–
(i)
a shareholder or creditor of the company; …”
5.
The applicant accepts that the first respondent owes the Standard
Bank amounts under various loans and
mortgage bonds in an amount in
the order of ten million Rand plus interest. The applicant therefore
accepts that the Standard Bank
is an affected party and by virtue of
that fact has
locus standi
to oppose the application for
placing the first respondent under supervision and commencing the
business rescue process. Accordingly,
I will refer to the Standard
Bank as the affected party or the Bank as context dictates.
6.
The Bank for its part accepts that the applicant is the sole member
of the first respondent and on that
basis the applicant is also an
‘affected party’ with
locus standi
to launch the
present proceedings. The applicant has also raised a further ground
upon which he claims to be an affected party.
Applicant claims by
virtue of a loan account with the first respondent, he is a creditor
of the first respondent and thus also
an ‘affected party’.
This is disputed by the Bank. However, as the Bank accepts the first
ground upon which the applicant
claims to be an ‘affected
party’ there is no need for me to determine if the applicant is
also a creditor of the first
respondent.
7.
For the purposes of the present application, it is also necessary to
briefly consider the aims of business
rescue as set out in section
128 of the Act.
8.
The definition of business rescue reads as follows:
“
128(1)(b)
‘business rescue’ means proceedings to facilitate the
rehabilitation of a company
that is financially distressed by
providing for –
(i)
the temporary supervision of a company, and the management of its
affairs, business and property;
(ii)
a temporary moratorium on the rights of claimants against
the company
or in respect of the property in its possession; and
(iii)
the development and implementation, if approved, of a plan to rescue
the company by restructuring it affairs, business, property, debt and
other liabilities, and equity in a manner that maximises
the
likelihood of the company continuing in existence on a solvent basis
or, if it is not possible for the company to so continue
in
existence, results in a better return for the company’s
creditors or shareholders than would result from the immediate
liquidation of the company; …”
9.
It is also instructive to look at the definition set out in
subsection 128(1)(h), which reads as follows:
“
128(1)(h)
‘rescuing the company’ means achieving the goals set out
in paragraph (b); …”
10. It is evident from
subsection 128(1)(b)(iii) that there are two goals envisaged by the
Act. Firstly, to rearrange the company’s
affairs so that the
company can continue its existence on a solvent basis. The second
goal is to reorganise the company’s
affairs so that the
creditors of the company and/or its shareholders achieve a better
return than would result from the immediate
liquidation of the
relevant company.
11. The applicant in the
present case relies solely on the first goal outlined above. In fact,
Mr Olivier who appeared on behalf
of the applicant at the hearing of
this matter conceded that if applicant does not establish a
reasonable basis for rescue and
its continued existence as a solvent
entity, then it should be placed under provisional liquidation.
12. In the circumstances,
the question to be decided by this court is what is required to be
established to determine whether the
applicant can reasonably be said
to be a candidate to have its affairs reorganised so that it might
continue its existence as a
solvent entity and whether the applicant
in this case has achieved that goal.
13. As can be seen from
section 131, the relevant portion of which is quoted above there are
three requirements in this type of
application for supervision with a
view to business rescue. The first requirement is that an affected
person or party must be the
applicant. As can be seen from what is
set out above, this requirement has been fulfilled in the present
case. The second requirement
is any one of the alternatives set out
in subsection 131(4)(a) Roman (i) to (iii). In the present case it is
common cause that
the first respondent is financially distressed, as
contemplated in subsection 131(4)(a)(i). Accordingly, this
requirement has been
met in the present case. Finally, the third
requirement, as set out in subsection 131(4)(a), is that this court
must be satisfied
that “… there is a reasonable prospect
of rescuing the company; …”
14. In the present case
it is this third requirement where the dispute arises between the
applicant and the affected party (the
Bank). The applicant maintains
that there is a reasonable prospect of rescuing the first respondent.
The affected party for various
reasons denies this. Accordingly, this
court must consider and decide what would constitute a reasonable
prospect of rescuing the
first respondent. Then this court must
consider whether applicant has indeed established that there is a
reasonable prospect of
rescuing the first respondent on the case made
out in its founding papers in this matter.
15.
In writing
for the unanimous Bench of the Supreme Court of Appeal (SCA), Brand
JA, in the matter of OAKDENE SQUARE PROPERTIES v
FARM BOTHASFONTEIN
(KAYALAMI)
[2]
considered the
meaning of the phrase ‘reasonable prospect’ of achieving
one of the goals of ‘business rescue’
in the context
referred to above. In particular, the following paragraph sets the
framework for what is required in establishing
a reasonable prospect
of achieving one of the goals of ‘business rescue’:
“
[29]
This leads me to the next debate which revolved around the meaning of
‘a reasonable prospect’. As a
starting point, it is
generally accepted that it is a lesser requirement than the
‘reasonable probability’ which was
the yardstick for
placing a company under judicial management in terms of s 427(1) of
the
1973
Companies Act
.
On the other hand, I believe it requires more than a mere prima facie
case or an arguable possibility. Of even greater significance,
I
think is that it must be a reasonable prospect – with the
emphasis on ‘reasonable’ – which means that
it must
be a prospect based on reasonable grounds. A mere speculative
suggestion is not enough. Moreover, because it is the applicant
who
seeks to satisfy the court of the prospect, it must establish these
reasonable grounds in accordance with the rules of motion
proceedings
which, generally speaking, require that it must do so in its founding
papers.”
[3]
(references
omitted)
16.
The SCA in
the OAKDENE case, quote with approval the approach of Van der Merwe J
in the PROPSPEC INVESTMENT’S case
[4]
.
This is to the effect that the applicant for business rescue must
place before the court a factual foundation that there indeed
exists
a reasonable prospect that one of the goals of business rescue can be
achieved.
17. The SCA in the
OAKDENE case then quote with approval the
dicta
at paragraph
15 of the PROPSPEC case, which is vital to the reasoning of the SCA
in the OAKDENE case, the said paragraph in the
PROPSPEC case reads as
follows:
“
In
my judgment it is not appropriate to attempt to set out general
minimum particulars of what would constitute a reasonable prospect
in
this regard. It also seems to me to require as a minimum, concrete
and ascertainable details of the likely costs of rendering
the
company able to commence or resume its business, and the likely
availability of the necessary cash resource in order to enable
the
company to meet its day – to – day expenditure, or
concrete factual details of the source, nature and extent of
the
resources that are likely to be available to the company, as well as
the basis and terms on which such resources will be available,
is
tantamount to requiring proof of a probability, and unjustifiably
limits the availability of business rescue proceedings.”
[5]
18.
The
authorities that required a great deal of detail to establish a
‘reasonable prospect’ of achieving one of the goals
of
business rescue have been overruled in the Oakdene case.
[6]
19. To summarise the
requirements needed to establish a reasonable prospect of achieving
one of the goals of business rescue, it
is required that:
19.1.
Something more than a
prima facie
case but less than a case
established on the probabilities is required;
19.2.
It must be based on reasonable grounds;
19.3.
There must at least be a coherent factual
foundation laid for
establishing the above reasonable grounds that takes it out of the
realm of speculation and/or wishful thinking;
19.4.
At the stage of an application for supervision
pending the business
rescue a detailed rescue plan is not required;
19.5.
The rules of motion proceedings apply;
and
19.6.
It is not desirable or practical to set
out a minimum threshold to
establish ‘reasonable prospects’ as different types of
businesses and context relating to
each case may make this difficult
to achieve.
20. Turning to the facts
of the present case. The applicant is the sole interest holder in the
first respondent. The first respondent
owns certain land in the
proximity of the Orange River in the area of Keimos. The land
comprises different portions of certain
farms. The land has water
rights connected to each parcel of land. Certain areas of certain of
the portions of the relevant farmland
are cultivated either under
grapes or under lucerne.
21. The applicant on
behalf of the first respondent prepared certain cash flow projections
which were dealt with in and are annexed
to the founding affidavit.
These cash flow projections were based on a certain area specified in
hectares being cultivated under
grapes or had grapes recently planted
on them but whose crop would not produce optimum yields for some
time.
22. At the time of filing
the founding affidavit herein, the applicant indicated and undertook
that out of the then current harvest
a substantial amount would be
paid to the affected party (the Bank).
23. The affected party
(the Bank) opposed the application for supervision and business
rescue on various grounds. Initially it sought
to file a fourth set
of affidavits, but later withdrew this application. Initially it also
sought to raise a technical argument
that the applicant had not
served the application on all the affected parties in the prescribed
manner. This technical argument
was not seriously pursued at the
hearing hereof and nothing further needs to be said about it as it
appears that all the affected
parties did indeed receive notice of
this application.
24. The substance of the
Banks opposition to the supervision order and subsequent business
rescue proceedings is essentially that
the applicant had not
established that there is a reasonable prospect that the first
respondent will be in a position to achieve
the relevant goal of
business rescue being that the first respondent will be able to
continue its existence as a financially solvent
entity after the
business rescue process.
25. The main issues
raised by the Bank to support its argument were twofold. Firstly, the
applicant had included in the area cultivated
under grapes an area of
some ten hectares that were not cultivated under grapes but were in
fact cultivated under lucerne. This
according to the Bank rendered
the applicant’s projections of the first respondent’s
cash flow to be inaccurate and
overoptimistic. Secondly, that the
applicant had undertaken to pay a substantial amount to the Bank from
the then current harvest
which did not materialise.
26. The Bank raised the
issue of including ten hectares that were in fact cultivated under
lucerne in the applicant’s projections
as being cultivated
under grapes in such a way that called for more than a bare denial.
In fact, the applicant in his replying
affidavit simply ignores this
contention. In the circumstances, this amounts to a bare denial on
the part of the applicant.
27. In reply to a
different part of the Bank’s answering affidavit the applicant
does set out the hectares alleged to be cultivated
under grapes and
the dates when such grape vines were planted. However, given the
inconsistencies in other places where the hectares
cultivated under
grapes were recorded, the applicant ought at a minimum in these
particular circumstances to have reconciled the
hectares cultivated
under grapes together with the hectares cultivated under lucerne with
other sources that did emerge from the
papers or provide other
sources to corroborate the area cultivated under grapes. The
applicant did not do so and simply contented
himself with ignoring
the problems and inconsistencies raised by the Bank in this regard.
28. All of this is
reinforced by the applicant’s failure to deliver on its
undertaking to make a substantial payment to the
Bank from the
proceeds of its then current harvest. It is instructive to look at
the precise terms in which the said undertaking
was in fact made and
later repudiated by the applicant.
29. Paragraph 47 of the
applicant’s founding affidavit reads as follows:
“
Out
of the crops currently harvested a substantial payment would be made
to the Standard Bank, but provision would also have to
be made for
expenses for the new season. By the time this application comes
before Court, it will be evident and then easy to report
on the
amount available to be paid to Standard Bank, which I respectfully
submit would be substantial.”
30. The Bank in its
answering affidavit denied that any payment, substantial or
otherwise, would be coming from the first respondent.
31. In response to the
Banks lack of faith in both the applicant and the first respondent
set out above, the first respondent replied
as follows:
“
The
1
st
respondent is not in a position to pay the bank which
is the reason for this application. All income had to be reinvested
into
farming activities. I again refer to the projected cashflow for
2023 which is very conservative due to the current market situation.”
32. In my view this is an
inappropriate and even flippant response to failing to fulfil an
undertaking given under oath in this
application. What was called for
was a serious and considered response that explained to this court
and the affected party concerned
why such undertaking could not be
fulfilled.
33. The absence of such
explanation reinforces the affected party’s position that the
applicant has misrepresented ten hectares
of his land which is
cultivated under lucerne as being cultivated under grapes. In the
context of the present application the misrepresentation
has serious
consequences as the first respondent’s main business and the
part of its business that generates the most income
is the
cultivation and drying of grapes to produce raisins. The Bank asserts
that raisins produce a higher income than lucerne.
This assertion has
not been challenged by the applicant.
34. The applicant annexes
to his replying affidavit an affidavit from a senior business rescue
practitioner who expresses the view
that the applicant is a candidate
for business rescue. There are at least two things wrong with this
approach. Firstly, this affidavit
ought to have been included in the
founding papers to give the affected party a fair opportunity to deal
with the views expressed
by the said business rescue practitioner. As
set out above, the ordinary rules of motion proceedings apply to this
type of application.
Secondly, the business rescue practitioner does
not deal with what information he was provided with to reach that
conclusion. In
the circumstances, I can have no regard to this
affidavit nor can I attach any evidential weight thereto.
35. In all of the
circumstances of this case the applicant has not established a
reasonable basis to show that the first respondent
can be saved by
business rescue proceedings. In particular the applicant has not set
up a coherent factual foundation to make the
assertion that the
applicant can be saved by business rescue proceedings.
36. On the issue of
costs, there is no reason why costs should not follow the result.
37. In these
circumstances, the application stands to be dismissed with costs.
Order:
1.
The application is dismissed
2.
The applicant is to pay the costs of this application.
Lawrence
Lever
Judge
Northern
Cape Division, Kimberley
Representation:
For
The Applicants:
Adv
D Olivier
Instructed
by:
Van
De Waal & Vennote
For
The Respondents:
Adv
J Els
Instructed
by:
Roux
Welgemoed & Du Plooy
Date
of Hearing:
27
January 2023
Date
of Judgment:
12
July 2024
[1]
Act 71 0f 2008.
[2]
2013 (4) SA 539 (SCA)
[3]
Oakdene Case., above., para [29] at page 551H to 552A.
[4]
Propspec Investments (Pty) Ltd v Pacific Coast Investments 97 Ltd &
Another
2013 (1) SA 542
(FB) at para 11 thereof.
[5]
Oakdene case citing Propspec at p 552E – G.
[6]
Oakdene case., above at 552B – C.