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2024
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[2024] ZAFSHC 275
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Firstrand Bank Limited and Another v Azrapart (Pty) Ltd and Another (4437/2024) [2024] ZAFSHC 275 (3 September 2024)
IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Reportable:
YES/NO
Of
Interest to other Judges:
YES/NO
Circulate
to Magistrates: YES/NO
Case
number: 4437/2024
In
the matter between:
FIRSTRAND
BANK LIMITED
1
st
Applicant
[Acting
through its Rand Merchant Bank Division]
[Registration
Number: 1929/001225/06]
INVESTEC
BANK LIMITED
2
nd
Applicant
[Registration
Number: 1969/004763/06]
and
AZRAPART
(PTY) LTD
1
st
Respondent
[Registration
Number: 2011/002042/07]
THE
COMPANIES AND INTELLECTUAL PROPERTY
COMMISSION
2
nd
Respondent
CORAM:
VAN ZYL, J
HEARD
ON:
21
AUGUST 2024
DELIVERED
ON:
3
SEPTEMBER 2024
[1]
This matter served before me as an urgent application to place the
first respondent into business rescue in
terms of section 131 of the
Companies Act, 71 of 2008 (“the Act”).
[2]
The application is being opposed by the first respondent.
[3]
Mr Antonie SC, assisted by Ms Cooke and Mr Snyman, are appearing on
behalf of the applicants. Mr Cilliers
SC, assisted by Mr Sive,
is appearing on behalf of the first respondent.
[4]
At the commencement of the hearing, both parties provided me with
their respective heads of argument. Their
trouble in this regard is
appreciated.
[5]
For the sake of efficacy, I requested counsel to address me on the
points
in limine
, as well as on the merits of the application,
which they duly did.
[6]
In view of the findings I am to make in this judgment, I do not
intend to give an exposition of all the facts.
Ad
urgency/Supplementary affidavits of the first respondent:
[7]
The issue of urgency is being vehemently opposed by the first
respondent.
[8]
One of the main grounds of urgency raised by the applicants in
support of their contention that the applicants
will not be able to
obtain substantial redress at a hearing in due course, is that should
the appointment of the joint business
rescuers be delayed, it gives
rise to the risk that the Property Manager may terminate its
Services. The background to the
appointment and the alleged
importance of the appointment of the Property Manager, are set out in
the founding affidavit. I deem
it apposite to quote quite extensively
from the papers in this regard:
“
56.2
At the beginning of 2024, a new, independent asset and property
manager, namely Flanagan and
Gerard Frontiers Proprietary Limited
(“
F&G
”) and Luvon Investments Proprietary
Limited (“
Luvon
”) (acting jointly) (“
Property
Manager
”), was appointed to
inter alia
take over the
management and development function in respect of the Fourways Mall,
including the preparation and implementation
of strategies and
project programmes to restructure and maximize the performance of the
Fourways Mall. The aforesaid forms
part of the overall
property, development and asset management services rendered by the
Project Manager in respect of the Fourways
Mall (“
Services
”).
The Property Manager commenced rendering the Services in or about
February 2024 and continues to render these Services.
56.3
The Property Manager is able to terminate its services at any time.
The reason is
that there is currently no long term agreement in place
with the Property Manager. The property management agreement in
terms
of which the Property Manager was appointed (“
Property
Management Agreement
”) required certain deliverables,
including the provision of a bank guarantee for an upside fee which
would become payable
if certain performance milestones were to be
achieved by the Property Manager.
56.4
The Property Manager has agreed to continue rendering the Services,
however, the Property
Manager has made it clear to the applicants
that it requires the deliverables in terms of the Property Management
Agreement to
be met on an urgent basis. The risk of the
Property Manager ceasing to provide the Services, and the negative
impact this
would have on the performance of the Fourways Mall, is
one of the main reasons for the urgent appointment of a business
rescue
practitioner who is able to take steps to finalise and put in
place the medium to long term appointment of the Property Manager
to
render the Services.
56.5
An executive committee (“
Exco
”) was
established on or about 29 January 2024.
…
.
56.5.4
The powers and responsibilities of the Exco and consequently the
decisions to be taken at the Exco meetings, include the
approval of
inter alia
the annual budget, leasing (conclusion, amendment
and renewal of leases), operational expenditure, capital expenditure
and administration.
56.5.5.
Save in the event of default or failure to attend and Exco meeting
that has not been cancelled, the quorum for an EXCO meeting
shall be
an F&G representative and all three representatives of the
applicants and the Co-Owners, unless otherwise agreed to
by all three
representatives.
57.
The Property Manager, under the supervision of the Exco has been
providing the
Services (which have included implementing repairs,
maintenance and capital expenditure projects in respect of the
Fourways Mall)
since its appointment in February 2024. The
Property Manager has had, and continues to have, a positive impact on
the management
and performance of the Fourways Mall. By way of
a few examples…
58.
The continued presence and Services of the Property Manager are
essential to
the successful restructuring of the Fourways Mall.”
[9]
The applicants then conclude at paragraph 108.5 of the founding
affidavit as follows in respect of this aspect:
“
108.5
Paragraphs 56.3 and 56.4 above explain the urgency of the application
arising from the ability of the Property
Manager to terminate its
Services at any time, and therefore the urgent need for the appointed
business rescue practitioners to
secure the medium to long term
appointment of the Property Manager.”
[10]
In response to the aforesaid, the first respondent alleges as follows
in the answering affidavit:
“
68.
The reliance on a possible loss of the Property Manager, F&G, as
a ground for
urgency, is no more than a deceiving ruse. In this
regard:
68.1
As appears from annexure page 3 of the interim agreement with F&G
annexure “AA1”, at page
3 thereof under the heading
‘
Right to Participate in FWM
’, it has been
proposed to F&G that, subject to the conclusion of written
agreements, it will have the right to purchase
a total of 15% of
Fourways Shopping Centre…
68.2
It is proposed that the price for the 15% will be geared so as to
create substantial financial benefit to
F&G. It will thus
be entitled to acquire this 15% at a profound discount to its market
value, making it very unlikely
that F&G would simply walk away.
This proposal was set out in various drafts of the final agreement to
be concluded with
F&G, which drafts were presented to me for
consideration. That final agreement with F&G has not been
conclude.
68.3
In any event, as appears from the interim management agreement “AA1”,
under the heading ‘
Services Contract
’ and the
provision relating to ‘
Early Termination
’, the
interim agreement does not afford F&G the right to unilaterally
terminate the interim agreement on notice.
F&G would thus
expose itself to a substantial claim for damages if it repudiates the
management by simply walking away.
68.4
After this application was instituted, F&G, with the consent of
applicants and their input, issued a
notice to tenants on 12 August
2024 which confirmed in express and unambiguous terms that they would
continue to provide management
services to the Fourways Mall, i.e.
business as usual. I attach a copy of the notice as “AA3”.
Thus, not
only does this assertion
not
justify urgency, but it
casts doubt on the applicants’ credibility as they knowingly
advanced a false assertion to fabricate
a basis for urgency.
This alone warrants the application being struck off the roll with
costs on a punitive scale.
68.5
It is, accordingly, not possible for F&G to terminate the interim
management agreement as alleged, and
very unlikely that it will do
so.”
[11]
The first respondent thereupon makes assertions in the answering
affidavit why F&G’s departure a consequence
that in any
event can be remedied in the ordinary course.
[12]
The applicants deal with the issue pertaining to the Property Manager
in their replying affidavit by stating the following:
“
40.
The first respondent contends that there is a binding interim
agreement with the Property
Manager, F&G. In this regard,
it relies upon annexure “AA1”, styled “
Heads of
Agreement
” (Record p. 865).
41.
On any interpretation of “AA1”, it constitutes an
agreement to agree.
In this regard I refer specifically to the
following:
…
41.5
Subsequent to the conclusion of “AA1”, the Property
Management Agreement was concluded with the
Property Manager (i.e.
the Services Contract). Attached, marked “RA9”, is
a copy of the Property Management Agreement
and addendum thereto.
This agreement, however, has lapsed due to non-fulfilment of certain
suspensive conditions in respect
thereof (including the provision of
the bank guarantee referred to in paragraph 17).
42.
Currently, there is no Property Management Agreement in place and it
goes without
saying that the Property Manager is extremely
uncomfortable with the current position. In fact, the Property
Manager informed
me of its concerns regarding the current position
and that it is not prepared to continue rendering the Services if the
conclusion
of a formal contract and the deliverables in terms thereof
are delayed.”
[13]
The applicants obtained an affidavit from one Mr Holley late
afternoon of the day before the hearing of the application.
With the consent of the first respondent, the said affidavit was
received into evidence. From the affidavit it appears that
Mr
Holley is the director of F&G. In paragraph 4 of the
affidavit he states as follows:
“
I
confirm that there is no formal agreement in place in respect of the
Services and that the Property Manager is extremely uncomfortable
with the current position. The Property Manager has also
informed the applicants of its concerns regarding the current
position
and that it is not prepared to continue rendering the
Services if the conclusion of a formal agreement and the deliverables
in
terms thereof are delayed.”
[14]
At the commencement of Mr Cilliers` argument he sought leave on
behalf of the first respondent to introduce two further
affidavits
into evidence.
[15]
The first further affidavit titled “
First Respondent`s
Further Affidavit”
(“the first further affidavit”)
,
has attached to it a document, dated 20 August 2024, issued by
Accelerate Property Fund Limited, the co-owner, with the first
respondent, of Fourways Mall, and titled “
CONCLUSION OF
PROPERTY, DEVELOPMENT AND ASSET MANAGEMENT AGREEMENT AND POTENTIAL
DISPOSAL OF MINORITY INTEREST IN FOURWAYS MALL”
. I deem it
necessary to quote the first two paragraphs of the said document:
“
1.
INTRODUCTION
1.1
Shareholders are referred to the
announcement released on the Stock Exchange News Service ("
SENS
)
on 18 December 2023, in which
shareholders were advised that the Company and Azrapart Proprietary
Limited (“
Azrapart
”),
co-owners of Fourways Mall (“
the
Mall
” or “
FWM
”)
had entered into a heads of agreement in relation to the appointment
of Flanagan and Gerard Frontiers Propriety Limited
(“
F&G
”)
as the asset and property manager for the Mall.
1.2
Shareholders are hereby advised that
the Company, Azrapart, F&G, Fourways Precinct Proprietary Limited
(“
Fourways Precinct
”),
Fourways Mall Managing Agent Proprietary Limited (“
FMMA
”)
and Luvon Investments Proprietary Limited (“
Luvon
”)
have now entered
into a Property, Development and Asset Management Services Agreement
(“
the Agreement
”),
in terms of which F&G and Luvon (collectively the “
Property
Manager
”)
have
been jointly appointed
by the
current property manager (namely Fourways Precinct, who will be
replaced by FMMA), as the property and asset manager, and
by the
Company and Azrapart (“
Co-owners
”),
as the development manager, for the properties and letting
enterprises that make up the Mall (“
Properties
and Letting Enterprises
”).”
(My emphasis)
[16]
The second further affidavit titled “
First Respondent`s
Second Further Affidavit”
(“the second further
affidavit”) has attached to it a signed agreement, dated 20
August 2024, concluded between the
first respondent, Redcore
Hospitality Holdings Limited (“Redcore”) and Eriologix
Proprietary Limited, the sole shareholder
of the first respondent.
For present purposes the contents of the said affidavit and the terms
of the signed agreement speak for
themselves.
[17]
After some deliberations between counsel and their respective
attorneys and amongst counsel themselves, Mr Antonie indicated
that
the applicants do not object to the second further affidavit being
received into evidence, but object to the first further
affidavit to
be so received. The objection was based thereon that the status of
the document attached thereto is unknown and that
it constitutes
hearsay evidence.
[18]
I indicated that I would accept both further affidavits into
evidence.
[19]
Both the documents attached to the respective affidavits only came to
hand on the day of the hearing of the application;
in fact, I
gathered that it only came to hand during the time when the hearing
of the application had already commenced.
[20]
With regard to the document attached to the first further affidavit,
I am of the view that the court cannot merely turn
a blind eye
thereto. I do realise that it constitutes hearsay evidence, but I
consider it in the interest of justice that the parties
be granted a
proper opportunity to grapple with the issue set out in the said
document, should they deem it fit to do so. Whilst
I deliberately
refrain and steer away from interpreting the said document at this
stage of the proceedings, it seems evident that
the contents of the
document may cast a different light on the allegations made in the
portions of the affidavits I quoted earlier.
It, therefore, may have
a crucial impact on the application as it stands and should therefore
be addressed properly.
[21]
With regard to the contents of the second further affidavit and the
agreement attached thereto, it is evident from the
totality of the
application papers that the first respondent`s version with regard to
an impending cash injection which the first
respondent is allegedly
to receive soon by means of a transaction with Redcore, goes to the
heart of the first respondent`s opposition
to both the urgency and
the merits of the application. In the circumstances where the
application in any event stands to be postponed,
I deem it in the
interest of justice that the parties also be granted an opportunity
to supplement their papers in respect of the
aforesaid agreement and
any further developments in respect of the Redcore transaction,
should they deem it fit to do so.
Notice
to “
affected
persons”
:
[22]
Section 131(2)(b) and 131(3) of the Act determines as follows:
“
(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.”
[23]
Mr Cilliers referred to the judgment of
Lutchman NO v African
Global Holdings
2022 (4) SA 529
(SCA) where the Court of
Appeal, with reference to
Taboo Trading 232 (Pty) Ltd v Pro
Wreck Scrap Metal CC; Joubert v Pro Wreck Scrap Metal CC
2013
(6) 141 (KZP) at para 11.3, held at paras [38] and [39] as follows:
“
[38]
Each affected person — a shareholder or creditor of the company
in liquidation, any registered trade union representing
employees of
that company or each of the individual employees — is entitled
to oppose or support the business rescue application.
That
necessarily follows from the right afforded to each of them in terms
of s 131(3) to participate in the hearing of the business
rescue
application. Each should have been notified of the business rescue
application in terms of s 131(1)
(b)
in
the prescribed manner.
[39]
The service and notification requirements set out in
s 131(2)
of the
Companies Act
are
not merely procedural steps
. According
to
Taboo
, '
(t)hey are substantive requirements,
compliance with which is an integral part of making an application
for an order in terms of
s 131(1)
of the
Companies Act'. Strict
compliance with those requirements is required because business
rescue proceedings can easily be abused.” (My emphasis)
[24]
Mr Cilliers referred to the “
Compliance Affidavit”
and its attachments filed by the applicants and submitted that it is
not evident from the said affidavit and attachments that section
131(2)(b) of the Act has been duly complied with. A list of alleged
creditors is attached to the Compliance Affidavit as annexure
“NS5”,
but the list does not reflect the e-mail addresses of the respective
creditors. Attached thereto are three e-mails,
at p. 1118 –
1120 of the record, which allegedly reflect the e-mails sent to the
respective creditors in three groups. However,
as correctly pointed
out by Mr Cilliers, those three e-mails only reflect e-mail addresses
and not the names of the relevant creditors,
some of which e-mail
addresses are furthermore hardly legible.
[25]
Surely it is not for the court to decipher which e-mail addresses are
attached to which creditors. Because of the manner
in which it is
currently before court, it cannot be determined whether all the
creditors have been duly notified and therefore
constitutes
non-compliance with section 131(2)(b) of the Act. It has to be
done in a manner by means of which the court itself
can determine
whether all creditors have indeed been duly notified.
[26]
The application cannot be considered without due compliance with
section 131(2)(b) of the Act. This necessitates that
the application
needs to be postponed in order for the applicant to comply with the
provisions of the said section and to place
proper proof thereof
before court. In the circumstances a copy of the order to be granted
in this judgment is also to be served
upon the creditors, since they
are entitled to know when the application will again serve before
court. The order I am referring
to is the order which will be
containing the dates which I will make in due course, as explained at
paragraph [28],
infra.
Costs:
[27]
In my view the wasted costs of 21 August 2024 occasioned by the
postponement are to stand over for later adjudication.
The court who
will be determining the urgency and merits of the application after
the filing of the supplementary affidavits, would
be in a better
position to determine same.
Practical
considerations in determining dates:
[28]
Because of the nature and voluminous extent of this application, I
accept that the parties would prefer not to change
counsel in this
matter merely due to the postponement thereof and the possible
unavailability of present counsel on certain dates.
I consequently
intend making an order by means of which the parties can determine
the relevant dates by agreement between them,
in conjunction with my
clerk, after judgment has been handed down in this matter, I will
thereafter make an order in terms of the
agreement between the
parties. Should the parties not be able to reach an agreement, I will
determine the dates and make an order
accordingly. For the sake
of clarity, I record that this matter is not to be considered to be
part-heard before me, although
it may be re-allocated to me in the
discretion of the Judge President in the normal course of things.
Order:
[29]
The following order is made:
1.
The application is postponed to a date to be agreed upon between the
parties.
2.
Leave is granted to the first respondent to file a supplementary
affidavit, if any, in respect of:
2.1
The first and second further affidavits filed on 21 August 2024;
and/or
2.2
Further developments, if any, pertaining to the Redcore transaction.
The
said affidavit is to be filed on a date to be agreed upon between the
parties.
3.
Leave is granted to the applicants to file a supplementary affidavit,
if any, subsequent to the filing
of the first respondent`s aforesaid
supplementary affidavit, in respect of:
3.1
The first respondent`s first and second further affidavits filed on
21 August 2024; and/or
3.2
The first respondent`s supplementary affidavit to be filed in terms
of paragraph 2,
supra;
and/or
3.3
Compliance with
section 131(2)(b)
of the
Companies Act, 71 of 2008
.
The
said affidavit is to be filed on a date to be agreed upon between the
parties.
4.
Supplementary heads of argument are to be filed on dates to be agreed
upon between the parties.
5.
Should the parties not be able to agree on the aforesaid dates, same
will be determined by the court.
6.
The wasted costs of 21 August 2024 occasioned by the postponement of
the application, stand over for
later adjudication.
C.
VAN ZYL, J
On
behalf of Applicants:
Adv M
Antonie SC
Assisted
by:
Adv A
Cooke
Further
assisted by:
Adv C
Snyman
Instructed
by:
Edward
Nathan Sonnenbergs Inc.
C/o
PH Attorneys
BLOEMFONTEIN
E-mail:
goertel@ensafrica.com
lfield@ensafrica.com
On
behalf of First Respondent:
Adv
PG Cilliers SC
Assisted
by:
Adv D
Sive
Instructed
by:
Fluxmans
Inc.
C/o
EG Cooper Majiedt Inc.
BLOEMFONTEIN
E-mail:
cstrime@fluxmans.com
jshafir@fluxmans.com
litigation7@egc.co.za