SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document
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IN THE HIGH COURT OF SOUTH AFRICA
WESTERN CAPE DIVISION, CAPE TOWN
Case Number: 23112/2023
REPORTABLE
In the matter between:
ARTHUR LIMBOURIS
First Applicant
KAREN JANSEN VAN RENSBURG
Second Applicant
STEPHAN BRYAN UPPINK
Third Applicant
OLIVER MARTIN DAWBER
Fourth Applicant
and
JACQUES DU TOIT N.O.
(in his capacity as the Business Rescue
Practitioner of Cambridge Services (Pty) Ltd)
First Respondent
JACQUES DU TOIT Second Respondent
CAMBRIDGE SERVICES (PTY) LTD
(Registration Number: 2006/000073/07)
(in business rescue)
Third Respondent
ALL AFFECTED PERSONS OF CAMBRIDGE
SERVICES (PTY) LTD (IN BUSINESS RESCUE)
Fourth Respondent
GARY JOHN SHAYNE
(Identity Number: 7[…])
Fifth Respondent
COMMISSIONER FOR IN TELLECTUAL PROPERTY AND
COMPANIES
Sixth Respondent
Heard: 14 August 2024
Judgment: 16 August 2024
JUDGMENT
Handed down by email to the parties’ legal representatives on 16 August 2024
_________________________________________________________________
KANTOR, AJ:
1. The applicants seek the following core relief:
1.1. Leave in terms of section 133 of the Companies Act 71 of 2008 (“the
Act”) to launch this application and certain action proceedings envisaged
therein (“the Proposed Action”).
1.2. An interim interdict against the f irst respondent, the business rescue
practitioner of the third respondent (“the Company”), from filing a certificate of
substantial compliance in respect of the Company pending determination of
the Proposed Action.
2. The following issues (amongst others) emerge in this application, some of
which are novel legal issues:
2.1. Whether the applicants require leave in term s of section 133 of the Act
to launch this application and /or the Proposed Action. The applicants contend
that they do while the first to third respondents (“ the respondents”) contend
that they do not.
2.2. If the answer to the first sentence above is in the af firmative, whether
such leave should be granted.
2.3. Whether the relief to be sought in the Proposed Action in respect of the
business rescue proceedings relevant to this matter is competent in law.
2.4. This is one of the aspects which informs whether or not a prima facie
case is established for the purposes of the interim interdict. This is, in my
view, the core issue in the application . It involves various legal sub -issues,
including:
2.4.1. Whether the relief soug ht to set aside the business rescue plan
relevant to this matter (“the BR Plan”) is competent in terms of the Act.
2.4.2. Whether common law remedies which may otherwise have been
employable to set aside the BR Plan are excluded by the Act.
2.4.3. Whether this even incl udes a situation in which a business
rescue plan was induced to be concluded by fraud.
2.4.4. The obligations of a business rescue practitioner in regard to
investigations leading to a BR Plan and the projections and
representations set out therein.
2.4.5. The meaning o f ‘substantial implementation ’ of a business
rescue plan in the Act.
2.4.6. Whether there has there been substantial implementation of the
BR Plan.
2.4.7. Whether the failure of a BR Plan on a commercial or intended
basis plays a role in the question as to whether there has been
substantial implementation thereof.
Background
3. This application has its origin in a dispute about the BR Plan which was
adopted by the creditors of the Company which was known at the time as
Coast2Coast Capital (Pty) Ltd (now Cambridge Services (Pty) Ltd). The Company
was placed under supervision in business rescue in terms of a resolution adopted by
its sole director, the fifth respondent, which was filed with the Commission for
Intellectual Property and Companies (‘ CIPC’) in November 2019. The first
respondent was appointed as the Company’s sole business rescue practitioner (‘the
BR Practitioner’). He published the BR Plan on 5 March 2020. The BR Plan was
adopted on 13 March 2020. The Company remains under supervision in business
rescue to date, almost five years later.
4. The main relief which the applicants, all creditors of the Company at the time
of the adoption of the BR Plan, seek in this application is twofold:
4.1. The applicants seek l eave in terms of s 133(1) of the Act to institute
this application and to institute the Proposed Action in which the setting aside
of the BR Plan and its adoption will be claimed.
4.2. The applicants seek an interdict restraining the first respondent from
filing a notice of substantial implementation in terms of s 132(2)(c)(ii) of the
Act, pending final determination of the Proposed Action.
5. In the Proposed Action the applicants intend to seek the s etting aside of the
BR Plan. The other relief therein is not relevant to the determination of this
application. I was informed by Mr Hartzenburg, who appeared with Mr Randall for the
respondents, that the relief in respect of the application for leave in terms of section
133 applies only in respect of the BR Plan. This is dealt with further below.
6. By agreement between the applicants, on the one hand, and the respondents,
on the other , o n 22 May 2024 t he applicants were granted leave to amend their
notice of motion. At the same time, a Rule Nisi was issued by agreement between
the same parties, calling upon all interested and affected persons to show cause on
14 August 2024, why an order in the following terms should not be granted:
‘2.1 That the Applicants be granted leave to institute this application and
the action proceedings substantially in accordance with the draft particulars of
claim, being annexure "AL 40" to the founding affidavit in this application (“ the
action”);
2.2 That the Applicants be required to institute the action within one month
of the granting of the relief under paragraph 2.1 above;
2.3 That the First Respondent be interdicted from filing a notice of
substantial compliance in terms of section 132(2)(c)(ii) of t he Companies Act,
71 of 2008, pending the final determination of the action; and
2.4 That the costs of this application be reserved as costs in the action.’
7. The order granted by agreement on 22 May 2024 catered for the problem that
service of the application on the affected persons in this matter (cited collectively as
the fourth respondent) had not yet taken place as applicants did not have their
details for the purpose of service. The applicants and the respondents are to be
commended and appreciated for the ir co-operation in agreeing to the rule nisi which
included that the BR Practitioner would provide the service details of the fourth
respondent affected persons.
8. An affidavit of compliance was delivered in respect of the service on fourth
respondent which appeared to establish that sufficient service had taken place. The
service of the rule nisi upon interested and affected persons, where such parties do
not oppose the application, gives rise to the inference that such parties consent to
the relief sought by the applicants (Ex Parte Gold 1956 (2) SA 642 (T) at 649EF; Ex
Parte Millsite Investment Co (Pty) Ltd 1965 (2) SA 582 (T) at 584FH).
9. All of t he respondents, other than the (first to third) r espondents, have not
participated in this application and do not oppose the relief sought by the applicants.
None of the affected parties have opposed the application. Nor have any of them to
date sought to intervene in their own names or participate in this application , save
that one, Nigel John Chapman (“Chapman”), has delivered an affidavit in which he
records that “I unequivocally support” the application, citing concerns similar to those
raised by the applicants . Chapman was a creditor of the Company in the staggering
amount of R106 331 575 prior to the conversion thereof into equity in the Company
in terms of the BR Plan . He is recorded as a cr editor in this amount on page 12 of
the BR Plan . He and the applicants make up over 70% of what appear to be the
independent creditors referred to in the BR Plan, the other liabilities being “Loans
from group companies” in the amount of R1 607 520 395.
10. The determination of the substantive relief was accordingly ready for hearing
on the return day of 14 August 2024.
11. On 12 August 2024 the applicants delivered what was termed ‘replying heads
of argument’ in which they noted that it was held in Oakbay Investments (Pty) Ltd v
Tegeta Exploration and Resources (Pty) Ltd (83344/14) [2015] ZAKZPHC 21 (20
March 2015) (at paragraphs 8 to 13 ) that no leave is necessary in terms of s
133(1)(b) of the Act to institute removal proceedings against a business rescue
practitioner in terms of s ection 139 of the Act and that the “… reasoning in the
judgment, with respect, appears to be based upon a proper interpretation of both ss
133(1)(b) and 139 of the Act. It is therefore accepted that no leave is required by the
applicants to commence proceedings for the removal of the first respondent as
business rescue practitioner of Cambridge Services.” I agree with this conclusion. I
was also informed by Mr Hartzenburg that the applicants do not persist in this
application with the relief in respect of the repayment of the BR Practitioner’s fees.
12. Flowing from this, the applicants recorded in their ‘replying heads of
argument’ that the relief sought by them will be limited to the following:
‘1. That leave be granted to the appl icants in terms of s 133(1)(b) of the
Companies Act, 2008 (Act 71 of 2008) (‘the Act’) to:
1.1 institute this application;
1.2 commence an action in which the applicants claim an order
setting aside the business rescue plan dated 5 March 2020 in respect
of the Company, Cambridge Services (Pty) Ltd (‘ Cambridge Services’)
and its adoption on 13 March 2020.
2. That leave be granted to the applicants in terms of Rules 4(2) and 5(2)
to serve the applicants’ combined summons for the purposes of institut ing the
aforesaid action by electronic mail on all affected persons of Cambridge
Services at the email addresses furnished by the first respondent’s attorneys
to the applicants’ attorneys.
3. That the said action be instituted within one calendar month fro m the
date of this order, failing which the leave granted to the applicants to
commence such action in paragraph [1.2] shall lapse.
4. That pending final determination of the said action referred to in
paragraph [1.2] above, the first respondent shall be interdicted and restrained
from filing a notice of substantial implementation of the business rescue plan
approved and adopted by the creditors of Cambridge Services on 13 March
2020 in terms of s 132(2)(c)(ii) of the Act.
5. That the costs of this appli cation shall be reserved for decision in the
said action.’
The issues
13. The two remaining central substantive issues are whether:
13.1. the applicants should be granted leave to institute this application and
the Proposed Action in respect of the setting aside of the BR Plan’
13.2. the first respondent should be interdicted from filing a notice of
substantial implementation of the BR Plan in terms of s 132(2)(c)(ii) of the Act,
pending the final determination of the Proposed Action.
Facts
14. The applicants were all members of Musgrave Agencies CC (‘ Musgrave’)
which held the South African distribution rights for a number of upmarket retail
brands, including Jeep. Musgrave was based in Durban. The focus of its business
was the supply of clothing on a wholesale basis to retailers.
15. The Company was conceived as a private equity investment company
involved in the acquisition of b usinesses. The driving force behind it was the fifth
respondent, who is a chartered accountant.
16. The applicants disposed of their interests in Musgrave and in due course
became creditors of the Company. On 30 April 2019, the applicants took judgment
against the Company and the fi fth respondent for payment to them of the combined
amount of R82 468 013,64.
17. A feature of this matter is the vast sums of money which have at various times
been involved (which I perceive to be referred to with some element of
desensitisation on the part of the respondents as to their staggering extent):
17.1. Over R230 million in respect of loans from the Company to its
directors on very favourable terms, including fifth respondent in the amount of
R68 726 725 which bore interest at the SARS rate of interest for employees
and which falls due on 30 June 2034, and which was expected to be
recoverable on the basis that the BR Plan was approved . Although the figures
have not been provided, with the debt having been incurred between 2012
and 2017, the interest thereon (the SARS interest rate is currently 11.75%)
would have result in the overall debt having approximately doubled.
17.2. R377 670 452 in respect of the liability of the Company to third parties,
including the applicants and Chapman.
18. On 20 June 2019, the fifth respondent and the Company instituted
proceedings to set aside the judgment referred to above ( “the Rescission
Application”).The applicants filed answering affidavits in the rescission applicatio n
on 4 July 2019. No replying affidavits were ever delivered, and the matter has not
been pursued since 2019. Subsequent events as detailed in the founding affidavit
illustrate that the rescission application has been abandoned.
19. The applicants’ claims against the Company were admitted in the business
rescue proceedings as appears from the BR Plan, as was Chapman’s.
20. The Company was placed under supervision in business rescue at a time
when the fifth respondent was its sole director.
21. The BR Plan was published and circulated on 5 March 2020. The plan was to
be considered by affected persons at a meeting on 13 March 2020. The BR Plan
was adopted on 13 March 2020.
22. On the morning of 13 March 2020, the first respondent communicated certain
aspects to the applicants by email (which the applicants allege were undertakings
given by the first respondent to them) which included the following in paragraph 2
(the first respondent contends that the email was a proposal which was not accepted
by applicants):
“1b I wish to confirm that as Business Rescue Practitioner and based upon
the above assumption the debt to equity conversion in C2C Capital (Pty) Ltd
with regard to yourselves will be ring fenced whereby the debt to equity is not
effective with immediate ef fect which debt to equity conversion will only take
place in future as and when litigation has been finalised meaning that your
principal debt in C2C Capital will stay in place and only upon conversion in
future the principal debt will be cancelled waived or forfeited. The shares
allocated to your debt will be held in trust on your behalf until such time as the
debt to equity is effected, if any.”
23. The applicants allege that the undertakings were not incorporated into the BR
Plan. The applicants contend that the BR Practitioner breached that undertaking and
that this constitutes a form of serious misconduct on his part. There is a dispute in
this respect, but I do not consider it necessary for it to be resolved for the purposes
of this application. For the sa ke of completeness, t he respondents contend as
follows:
23.1. Factually, the applicants’ contentions do not accord with the terms of
the email itself and it has been fully explained by the BR Practitioner.
23.2. On 13 March 2020 , at the meeting of creditors , the BR Practitioner
proposed to the third applicant that in respect of the litigation which the
applicants had brought against Bounty Brands, those claims could be
safeguarded.
23.3. Thereafter, the applicants voted against the adoption of the BR Plan.
The BR Practitioner then sent an email to the applicants in which he proposed
that they change their vote in favour of the adoption of the BR Plan. This is in
the email relied on by the applicants referred to above. That proposal was that
the applicants could proc eed with the litigation against other parties and that
their claims would be preserved for those purposes , if they changed their vote
in respect of the BR Plan.
23.4. The applicants did not respond to that email and did not change their
votes, thereby not accepting the proposal.
23.5. There was nothing untoward in his proposal as the BR Practitioner was
seeking to ensure that the moratorium in respect of legal proceedings be
maintained but that the applicants would be free to pursue other parties
should they so wish.
23.6. Upon perusal of the document itself , the proposal which was made by
the BR Practitioner was dependent upon the applicants changing their vote
both in respect of the Company and Coast2Coast Holdings (Pty) Ltd. In
particular, the following was stated:
“I would appreciate you in changing the vote in regard to C2C Capital
(Pty) Ltd and C2C Holdings (Pty) Ltd based on the above -mentioned
undertakings and confirmations which will also then as stated above be
applicable to Holdings.”
23.7. The letter concludes with : “I look forward to hearing from you as a
matter of urgency.”
23.8. It is apparent that the alleged undertaking was not an undertaking at
all, but instead a proposal, which was not accepted by the applicants. There is
no basis on which it can be argued that th e proposal should have been
incorporated in the BR Plan.
24. As I have said, however, I do not consider it necessary to determined this
dispute for the purposes of this application and I therefore decline to do so.
25. The BR Plan contained statements which included the following:
25.1. The assets of the Company included a loan by the Company to the fifth
respondent in the amount of R68 726 725 which bore interest at the SARS
rate of interest for employees and fell due on 30 June 2034, and which was
expected to be recoverable on the basis that the BR Plan was approved.
25.2. Forecast earnings of the Company would be as per annexures 12 to 14
to the BR Plan, read with paragraphs 14.15 to 14.18 thereof.
25.3. More particularly:
25.3.1. The Company was forecast to earn net after tax profits in the
first year, that is in the 2020 year, to December 2020, of R11 374 518.
25.3.2. In the second year, that is 2021, the Company was projected to
earn a total income of roughly R42 million.
25.3.3. In the third year, that is 2022, the Company was projected to
generate a profit of just under R60 million (R58 981 958) with a cash
balance of R22 million, and in this year the first dividends were
expected to be paid to investors (shareholders).
26. The aforesaid projections were ma terial to the viability of the proposed BR
Plan for the purpose of the claims of creditors (including the applicants) which were
to be converted into a minority shareholding in the Company.
27. The BR Plan included the following two provisions:
27.1. The creditors of the Company would capitalise their debt in the
Company in exchange for 49% of the shares in the Company.
27.2. Should creditors approve the BR Plan, payment under the plan by way
of the capitalisation of their loans will be in settlement of the ir claims against
“… the Company, group company/entity, shareholders and directors and the
directors shall be released from any personal sureties entered into up to the
date of the filing of the notice of substantial implementation.”
28. The unaudited annual financial statements (‘ AFS’) of the Company for the
years 2019 to 2021, signed by fifth respondent, which were available to the
applicants when the application was instituted, showed the following with regard to
the profits and losses generated by the Company during the years 2019 to 2021:
2019 (loss) R414 924 000
2020 (loss) R 27 887 000
2021(loss) R 230 000
29. The first respondent has made certain allegations in the answering affidavit
qualifying some of the figures in the AFS, but these qualifications do not show that
the Company reached the projected levels of performance as set out in the BR Plan.
30. The first respondent provided the 2023 AFS of the Company (which co ntain
the comparative figures for 2022) in the respondents’ answering affidavit. In terms
thereof, the net profit for the Company for the years 2022 and 2023 were as follows:
2022 R3 302 000
2023 R9 001 000
31. The income shown in the Company’s AFS includes substantial interest which
accrues on the debt owing by the fifth respondent to the Company (except for the
2020 year) . I t is not evident that such interest has actually been paid by the fifth
respondent to the Company. The contrary appears from the fact that the debt owing
by the fifth respondent is recorded in the Company’s 2023 annual financial
statements in the amount of R87 978 000, having increased from R80 621 000 in
2022.
32. The consequence of the aforego ing is that a ny trading profit which may have
been achieved after the adoption of the BR Plan is, in the circumstances and context
of the matter, is negligible.
33. The applicants’ claims against the Company were converted into shares
during October 2020.
34. During the period from about 2012 to 2018, the Company made loans to the
fifth respondent and also to Gregory von Holdt (“ Von Holdt”) and Johan Botha
(“Botha”). In the case of Botha this was a company controlled by him called Rocket
Capital. The amounts in volved were extraordinarily large which, at face value, were
unusually favourable to the borrowers (including that they were unsecured and were
repayable in the distant future). These amounts are:
34.1. The fifth respondent: R87 978 000
34.2. Von Holdt: R97 199 210
34.3. Botha (Rocket Capital) R67 254 619
35. The applicants, in execution of the judgment which they secured against the
Company under Case N umber 5865/2019 (for an amount totalling R82 468 013,64),
caused the claims of the Company against Von Holdt and Botha (Rocket Capital) to
be attached. On or about 27 August 2019, in terms of two agreements of cession,
the applicants took cession from the Compa ny of its claims against Von Holdt and
Rocket Capital. On the basis of such cessions, the applicants instituted an action
against Von Holdt and Botha, as well as Rocket Capital. That action remains
pending.
36. Enquiries from the Financial Sector Conduct Auth ority (‘FSCA’) have revealed
that the Company does not hold any licences which would entitle it to provide
financial advisory services.
The first main issue: the relief sought in terms of section 133 of the Act
37. Section 133(1) of the Act provides inter alia as follows:
“During business rescue proceedings , no legal proceeding, 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 the practitioner;
(b) with the leave of the court and in accordance with any terms the
court considers suitable; …”
38. The applicants have proceeded on the basis that such leave is necessary.
The respondents submit that it is not required.
39. Section 133(1)(b) does not in terms prescribe any specific criteria for
determining whether leave should in any specific case be granted to an applicant to
commence proceedings again st a company in business rescue. In Arendse and
Others v Van der Merwe and Another NNO 2016 (6) SA 400 (GJ) , it was held as
follows at paragraph 11:
“Section 133(1)(b) does not specify the criteria or procedural requirements
that must be met in order to obtain the leave of the court. Ex facie the
provision, the court would appear to enjoy a wide and unfettered discretion to
make an order on “… any terms the court considers suitable ”. That being the
position, it is implicit that the court’s discretion must be dictated by the
interests of justice . It is also implicit that the discretion must be exercised
judicially, having regard to the purpose and objects of s 133(1)(b), read in the
context of the Act as a whole. Considerations of fairness and convenience
are fundamentally important.”
40. In paragraph 14 of Arendse, it was held that the moratorium on legal
proceedings is central to the business rescue process since it provides ‘breathing
space’ to enable the company to restructure its affairs (see also Chetty t/a
Nationwide Electrical v Hart and Ano NNO 2015 (6) SA 424 (SCA) at paragraph 29
and Booysen v Jonkheer Boerewynmakery (Pty) Ltd (in Business Rescue) 2017 (4)
SA 51 (WCC) at paragraph 41) . This allows the BR Practitioner, in conjunction with
the creditors and other affected parties , to formulate a business rescue plan
designed to achieve the purpose of the process without the distraction of having to
deal with legal proceedings. It was also held as follows at paragraph 15:
“But the moratorium is not an absolute bar to legal proceedi ngs being
instituted or continued against a company under business rescue. It is
intended to be of a temporary nature only and cannot be utilised to indefinitely
delay satisfaction of the claims of creditors; or result in the extinguishment of
the claims of creditors …”
41. The broad ‘interests of justice’ test postulated in Arendse does not require that
the Court in proceedings of this kind finally determine the merits of the proposed
cause of action to be pursued by the applicant. N or does it require the pre sentation
of conclusive or comprehensive evidence in support of the proposed cause of action.
I am of the view that at most w hat s ection 133(1)(b) requires is that the applicant
presents a prima facie case. The interpretation and application of s ection 133(1)(b)
also require that recognition be given to the applicants’ right of access to court
entrenched in s ection 34 of the Constitution (Booysen v Jonkheer Boerewynmakery
(Pty) Ltd (in Business Rescue) 2017 (4) SA 51 (WCC) at paragraph 41).
42. Only the setting aside of the BR Plan in the Proposed Action is relevant to this
aspect of the application. The respondents submit that this application and the
Proposed Action do not involve an enforcement action against the Company, nor is it
in relation to any property belonging to the company, or lawfully in its possession, as
specified in section 133(1). With that submission there can be no quibble.
43. The respondents contend that it is apparent from the wording of section
133(1) that the moratorium against legal proceedings against a company in business
rescue relates to an enforcement action or actions in respect of property in the
company’s possession.
44. That is, however, in my view, too simplistic. The pertinent question is whether,
despite not falling within either of the instances specified in section 133(1) , the relief
to be sought in the Proposed Action for the setting aside of the BR Plan
is nonetheless still covered by the section 133 moratorium.
45. I think that there is a flaw in the respondents’ contention in that it identifies the
two specific instances mentioned in the provision but does not afford any or sufficient
recognition to the wording of more general import which precedes and follows them:
“During b usiness rescue proceedings , no legal proceeding, including [the two
specified instances] may be commenced or proceeded with in any forum, except …”
46. The interpretation of the provision and where the leave of the Court is
required has been considered in a number of decisions, not all of which are
consistent. I think that in order to assess whether leave is required in terms of
section 133:
46.1. Regard must be had to the overall purpose, structure and ambit of the
section 133 moratorium in the context of the business rescue construct
introduced by the Act.
46.2. Once that is done, then to identify whether or not the action and the
relief sought in the proceedi ngs in question (i.e., in this instance, the relief to
set aside the BR Plan in the Proposed Action and this application itself ) fall
within the ambit of that moratorium.
47. As pointed out in paragraph 14 of Arendse, the moratorium on legal
proceedings is central to the business rescue process since it provides ‘breathing
space’ to enable the company to restructure its affairs. This allows the BR
Practitioner, in conjunction with the creditors and other affected partie s, to formulate
a business rescue plan designed to achieve the purpose of the process without the
distraction of having to deal with legal proceedings. This was described as follows by
this court in Land and Agricultural Development Bank of South Africa v Lazercore
Eight(Pty) Ltd and Others [2024] 3 All SA 273 (WCC) at paragraph 39.1:
“The obvious purpose of placing a corporate entity under business rescue is
to provide it with 'breathing space' so that its financial affairs may be assessed
and restructured in a way which will allow it to return to financial viability. The
moratorium on legal proceedings against an entity under business rescue
constitutes a vital part of that 'breathing space' and allows for a 'period of
respite' for the necessary restruct uring and rehabilitation to take place in
terms of a rescue plan which the business rescue practitioner must formulate
in conjunction with creditors and other affected parties, such as shareholders
and employees.”
48. Three observations occur to me to flow from this:
48.1. If business rescue or a business rescue plan is invalid and falls to be
set aside, it would be an exercise in contradiction to regard it to require
breathing space. On the contrary, to extend the metaphor, it would be more
appropriate to take the patient off oxygen (or life support).
48.2. In relation to, and in support of, the respondents’ argument that leave is
not necessary, the relief sought in this application does not affect that
breathing space because it does not involve a claim in respect of the assets
or affairs of the Company and has no effect on its substratum.
48.3. In relation to and in support of the applicants’ argument that leave be
given (if required), the facts of this matter illustrate that the C ompany and the
BR Practitioner have had, at risk of vast understatement, more than sufficient
breathing space.
49. The r espondents cited examples of relief against the Company or BR
Practitioner not requiring leave:
49.1. The setting aside of a resolution placing a company into business
rescue: In Resource Washing (Pty) Ltd v Zululand Coal Reclaimers (Pty) Ltd
and Others (10862/14) [2015] ZAKZPHC 21 (20 March 2015) it was held as
follows at paragraph 13:
“This application challenges the business rescue pr oceedings on the
substantive ground that such proceedings have come to an end.
Furthermore, s130(5) and by way of another example, s132(2)(a)(i)
permit applications to court to set aside a company’s resolution to
begin business rescue proceedings without rendering the sections
subject to the leave of the court being granted in terms of s133. Nor is
there any rider in s133 qualifying applications brought under those
sections.”
49.2. In Oakbay, it was held at paragraph 13 that no leave was required from
a court in order to seek the removal of a business rescue practitioner.
49.3. As another example, were a party to seek the liquidation of a company
under business rescue in terms of the provisions applicable to bus iness
rescue, the leave of the Court is not required. In this regard it was held as
follows in Cordeiro Holdings CC and Others v Market Demand Trading 254
(Pty) Ltd and Others (2016/24747) [2016] ZAGPJHC 284 (6 September 2016)
at paragraphs 12 and 13:
“[12] The applicants (now minus Spar) want the setting aside of the
resolutions, and with them out of the way, a winding up of the two
companies, alternatively, Choonilall ought to be ordered to give
security, if the business rescue of Rich Rewards is to continue.
[13] They also sought leave to sue in terms of section 133(1)(b) which
provides that a court’s leave is needed to sue a company in business
rescue. In the hearing it was argued they did not need that by virtue of
the provisions of section 130(5)(c) which expressly refers to a
conversion to winding up proceedings. However they had not cited
section 130(5)(c) in the notice of motion. I am of the view that they
need not invoke section 133(1)(b) to seek the relief sought, because
section 130(5)(c) read together with section 133 implies that section
133 does not apply to the setting aside of a resolution or the
conversion into liquidation proceedings. Moreover, the omission of an
express allusion, in the notice of motion, to section 130(5) (c) as the
provisions in terms of which the winding up is sought, in the context of
the relief sought as a whole, is of no moment because it is obvious to
the informed reader that section 130(5)(c) is envisaged.”
50. In my view, the common thread in these authorities is that the relief sought in
which it was held that leave in terms of section 133 was not required is that the relief
related to the business rescue itself or aspects thereof as opposed to aspects of the
ordinary affairs, business or assets of the company in question. This feeds into the
underlying purpose of the moratorium which is to provide ‘breathing space ’ to a
company in business rescue. On the other hand, an invalid business rescue plan, for
example, should not be provided breathing space and, on the contrary, should rather
be set aside.
51. Therein, I think, the guiding principle ought to lie to determine on which side of
the line a particular case falls: If the proceedings involving the company relate to the
business rescue itself or aspects thereof, then leave is not required (these may be
referred to as aspects relating to the business rescue itself) . If the proceedings
relates to the ordinary affairs, assets or business of the Company itself, leave is
required (these may be referred to as aspects relating to the affairs of the Company
itself).
52. In a decision of this court, Booysen v Jonkheer Boerewynmakery (Pty) Ltd (in
Business Rescue) 2017 (4) SA 51 (WCC), it was held as follows:
52.1. At paragraph 24: “Inasmuch as the proceedings in this matter concern
a claim by the applicant for payment of a sum of money (which formed part of
a claim which was admitted and included in the rescue plan), it is common
cause that they constitute an “ enforcement action” within the meaning of the
provision under discussion. As such, on the face of it these proceedings
required either the written consent of the practitioner or the leave of this court
before they could be “commenced” or “proceeded” with.”
This is uncontroversial, I mention it as a further illustration of what clearly falls
within the proper ambit of the moratorium provided for under section 133 of
the Act.
52.2. At paragraph 29: “In the various conflicting judgments on the issue
divergent views have been expressed … as to whether or not proceedings
pertaining to the implementation of a rescue plan are covered by the terms of
s 133 and also require eithe r the prior consent of the practitioner or the leave
of the court, or not. The divergent judgments are broadly split between the
South Gauteng and Kw azulu-Natal divisions on the one hand, and the North
Gauteng division on the other.”
52.3. At paragraph 3: “… in Moodley v On Digital Media (Pty) Ltd and Ors
[2014 (6) SA 279 (GJ)], a minority shareholder of a company in business
rescue sought leave from the South Gauteng division to proceed with an
application interdicting the company from imp lementing certain transactions
which it was claimed were contrary to the business rescue plan which had
been adopted. The court held that proceedings pertaining to the
development, adoption and implementation of a business rescue plan, and its
interpretation, did not fall within the ambit of s 133 and the consent of the
business rescue practitioner or the leave of the court was thus not required for
such proceedings.”
I believe that t his ties up and is compatible with the considerations which I
have mentio ned above to be used to inform the guiding principle in this
regard.
53. However in paragraph 34 the Court in Booysen held: “Applicant’s counsel
urged me to accept the reasoning and decision in Moodley but, after due
consideration I am, with respect, not persuaded that its ratio can withstand scrutiny
and for the reasons that follow hereinafter I do not believe that it was correctly
decided. But it has subsequently been endorsed [ Resource Washing (Pty) Ltd v
Zululand Coal Reclaimers (Pty) Ltd and Ors [2015] ZAKZPHC 21 ] or followed
[Hlumisa Investment Holdings (RF) Ltd and Ano v Van der Merwe NO and
Ors [2015] ZAGPHC 1055 at paragraph 17] in a number of decisions.
53.1. And in para graph 57: “As far as the decision in Moodley is concerned,
the ratio appears at para [10] of the judgment. It is stated therein that
inasmuch as it is the business rescue practitioner who must develop and
implement the business plan (once it is adopted), and it is the company which
must take all necessary attempts to satisfy any conditions on which the plan is
contingent and which must thereafter implement the plan under the direction
of the business rescue practitioner, any legal proceedings which seek to give
effect to such plan (ie to implement it) will be legal proceedings which must be
instituted against both the business rescue practitioner and the company, and
are thus not legal proceedings against the company within the meaning of s
133(1). To my mind and with all due deference, the distinction which is sought
to be made is an artificial one. Any plan which is adopted and which needs to
be implemented by a company in business rescue, is a plan which belongs to
that company and the business rescue practitioner merely seeks to give effect
thereto as the manager in charge of the company. To this end, the business
rescue practitioner steps into the shoes of the board of the company and its
management during the period when it is temporarily under supervision for the
purposes of business rescue. But, any proceedings taken in relation to such
plan ie to set it aside or to enforce its implementation, are proceedings taken
against the company, which is represented by the busin ess rescue
practitioner and, to my mind, there is no justification in seeking to distinguish
such proceedings or to hold that they are not the kind of proceedings covered
by the provisions in question.” [underlining added]
54. Booysen, especially the underlined portions in paragraph 57, therefore
appears to be direct authority to the effect that leave would be required in this matter.
Mr Muller, who appeared with Mr van Reenen for the respondents, submitted that
this aspect of the deci sion in Booysen was obiter because that matter concerned a
claim for payment by a creditor for commissions earned prior to the company in that
matter having been placed in business rescue, which is an ‘enforcement action’
specified in section 133(1) and therefore did not concern a question beyond the two
instances specified in s ection 133(1). I agree with Mr Muller . Booysen is thus not
binding in this respect and I am in a position to conclude as I have postulated above
in regard to a guiding principle, which I hereby do.
55. What is relevant for the purposes of the leave in terms of section 133 is the
setting aside of the BR Plan . In my view this falls on the side of the line of aspects
relating to the business rescue itself referred to above. In my view, therefore, it does
not require the leave of the court in terms of section 133.
56. If I am wrong in this respect, and that leave is required, I believe that in this
matter that question would depend largely and effectively on whether a prima facie
case is made out for the setting aside of the BR Plan . T herefore, in the
circumstances of the findings below, I consider that , were leave in terms of section
133 to be required (which I think it is not), it should and ought to be granted.
The second issue : t he interdict sought against filing a certificate of
substantial compliance with the business plan
(a) Requirements for an interim interdict
57. It is trite that the requirements for an interim interdict are:
57.1. A prima facie right (established but open to some doubt).
57.2. A well-grounded apprehension of irreparable harm if the interim relief is
not granted and the ultimate relief is eventually granted.
57.3. A balance of convenience in favour of granting the interim relief.
57.4. The absence of any other satisfactory remedy.
58. In addition, the Court has an overriding discretion to refuse to grant an interim
interdict.
(b) Whether the interim relief is final in effect
59. Respondents contend that the Proposed Action and appeals may take years
to conclude, keeping the Company in a state of limbo which would exist for years
which is a final effect.
60. The respondents contend that the interdict sought is final in effect because it
will probably maintain the business rescue in place for a matter of years.
61. The business rescue will simply continue and will either come to an end or not
at some point. In my view, there is no final effect.
62. Mr Muller stressed that from now the litigation to final appeal could take four
or five years. I asked Mr Muller whether this need be considered in context : while
this time factor raised by the respondents may be so, it is to be considered in the
light of the fact that the BR Plan has been in existence for over four years already
with no substantial commercial success and, on the contrary, in my view, has been a
failure. I also raised with him that the Proposed Action could be referred to a Judge
in terms of Rule 37(8) to promote the effective conclusion of the matter and with a
view to procuring a date for hearing as close as possible to within a year. Mr Muller
appeared to acknowledge these factors.
63. This time factor inducing finality to the interdict sought raised by the
respondents therefore seems to me to not have any merit in the circumstances and,
in my view, is not a final effect.
64. Mr Muller referred to two cases establishing the principle of finality in effect as
argued by him (Fourie v Uys 1957 2 SA 125 (C) and Capetex Engineering Work
(Pty) Ltd v SAB Lions (Pty) Ltd 1968 (2) SA 528 (C) ). That principle is trite. The se
cases concern good examples which illustrate this principle of final effect , involving
in Fourie an interdict against ploughing certain land, and in Capetex a final decision
as to whether there is a lien . In my view those examples are in contradistinction to
what prevails in the instant matter and illustrate that the interdict sought therein is not
final in effect.
65. I am therefore of the view that the test to be applied in this matter is that for an
interim interdict which, in respect of the right to be protected, is that of a prima facie
right.
(c) Prima facie right
66. The Applicants’ alleged prima facie right is in respect of the relief sought in the
action for the setting aside of the BR Plan. The main question in this matter is
whether a prima facie case is made out for that relief.
67. The corollary (or flip-side) of this is that, if an applicant’s main case or claim is
hopeless, an interim interdict pending the determination of that case will not be
granted. On of t he r espondents’ main argument is that the relief proposed by the
applicants for the setting aside of the BR Plan to be sought in the Proposed Action is
not good in law. Put another way, as this turns on a point of law, that it is excipiable.
In this regard th e respondents , in my view, correctly, rely on Trinity Asset
Management (Pty) Limited v Grindstone Investments 132 (Pty) Limited 2017 (12)
BCLR 1562 (CC); 2018 (1) SA 94 (CC) in which it was held as follows at paragraph
91:
“A good analogy is when an appli cant at risk of harm seeks an interim
interdict. When the facts are unclear, the interdicting court must weigh
prospects, probabilities and harm. But when the respondent, who is sought to
be interdicted, has a killer law point, it is just and sensible for the court to
decide that point there and then . The court is in effect ruling that, whatever
the apprehension of harm and the factual rights and wrongs of the parties’
dispute, an interdict can never be granted because the applicant can never
found an entitlement to it.”
(d) Prescription
68. The relief to set aside the BR Plan sought by the Applicants in the Proposed
Action relates to events which occurred concerning the adoption of the BR Plan,
which occurred on 13 March 2020. This application was launched in December
2023. The respondents note that the events which are relied upon to found the relief
sought occurred more than three years before this application was launched (and
therefore when it was served).
69. The respondents submit that t he relief sought in the Proposed Action, to the
extent to which it is competent, relates to claims which have prescribed prior to this
application being launched and , it therefore follows, prior to the Proposed Action,
which is yet to be instituted, more so in respect of the claims based on the allegation
that the BR Plan was induced by fraud.
70. The problem I perceive with these submissions is that what prescribes in
terms of the Prescription Act 68 of 1969 is a “debt” and what is sought to be claimed
in the Proposed Action (in particular, the setting aside of the BR Plan) is , it appears
to me, not a debt.
71. In my view, therefore, the respondents’ case as to prescription fails insofar as
the interim interdict is concerned.
(e) The purpose of business rescue
72. In terms of section 128(1)(b)(iii) of the Act , the primary purpose of business
rescue is to enable the business rescue practitioner to prepare and implement a
plan:
“… to rescue the company by restructuring its 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’.
73. The following summary of the nature, purpose and intended duration of
business rescue is provided in Henochsberg on the Companies Act:1
1 Certain portions of quotations and extensive references to authorities have been omitted.
““Business rescue” is defined as proceedings to facilitate the rehabilitation of
a company that is financially distressed by providing for: (1) the temporary
supervision of the company, and of the management of its affairs, business
and property; (2) a temp orary moratorium on the rights of claimants against
the company or in respect of property in its possession … and it is temporary
and not intended to be a long-term debt management plan: … or to extinguish
the debts of a secured creditor: the development a nd implementation (if
approved) of a plan to rescue the company by restructuring its affairs,
business, property, debt, and equity in a manner that maximises the likelihood
of the company continuing in existence on a solvent basis or, if that is not
possible … a plan that would achieve a better return for the company’s
creditors than the payment they would have received if the company had
simply been liquidated immediately. Although the purpose of business rescue
proceedings is stated as being “proceedings to facilitate the rehabilitation of a
company”, no definition of the term “rehabilitation” is provided in the Act. The
term would appear to intimate the recovery of the company to complete
solvency (this is reinforced by the use of the words “continuing in existence on
a solvent basis” in para (b) (iii), as was the case under the now repealed
corporate rescue mechanism of judicial management (contained in the then
Chapter XV of the Companies Act 1973). However, in terms of the definition it
is clear that if the ultimate rescue of the company is not possible then an
outcome that ensures a higher return for creditors than they would have
received under liquidation, is also acceptable because if the dividend sought
to be achieved in terms of the business res cue plan is realised, the applicant
would then be “rescued” as envisaged by s 128 (1) (b) (iii) and (h) as the
dividend is better than that which would have been achieved in the case of a
liquidation: … .”
“The Act also envisages a short term approach to t he financial position of the
company and that the business rescue should be a speedy process: … .
There must be a measure of certainty in the commercial world and creditors
cannot be left in a state of flux for an indefinite period : Francis Edward
Gormley v West City Precinct Properties (Pty) Ltd 19076/11 (WCC): 18 April
2012 para 11. Where an extraordinary amount of time is taken with the
business rescue, it should not be at the expense of the rights of creditors and
the balancing of the rights, to retur n the company to solvency or to facilitate a
better return for creditors and shareholders on the one hand, and the rights of
creditors on the other hand, should always be paramount in the ambit of
fairness: South African Bank of Athens Ltd v Zennies Fresh Fruit CC and a
related matter [2018] 2 All SA 276 (WCC), 2018 (3) SA 278 (WCC) para 38.
“It is axiomatic that business rescue proceedings, by their very nature, must
be conducted with the maximum possible expedition. In most cases a failure
to expeditiously implement rescue measures when a company is in financial
distress will lessen or entirely negate the prospect of effective rescue.
Legislative recognition of this axiom is reflected in the tight timelines given in
terms of the Act for the implementatio n of business rescue procedures if an
order placing a company under supervision for that purpose is granted. There
is also the consideration that the mere institution of business rescue
proceedings – however dubious might be their prospects of success in a
given case materially affects the rights of third parties to enforce their rights
against the subject company”: … .” [emphasis supplied]
74. From this passage and the authorities relied upon therein, the following
principles can be extracted:
74.1. The purpose of business rescue is to rescue a company or, if that is
not possible, achieve a better return for creditors and shareholders than would
be the case in liquidation.
74.2. The interests of creditors, amongst other factors, is important in
business rescue.
74.3. Business rescue should be concluded expeditiously and should not
result in creditors being left in a state of uncertainty for a long or indefinite
period of time.
(f) Whether there has been substantial implementation of the BR Plan
75. Section 152(8) of the Act provides as follows:
“When the business rescue plan has been substantially implemented, the
practitioner must file a notice of the substantial implementation of the
business rescue plan.”
76. The following is stated in Henochsberg in this regard:
“No definition of the term “substantially implemented” has been included
under Chapter 6. However, it is submitted that the plan will have been
substantially implemented once the business rescue practitioner has taken all
necessary steps to satisfy the conditions on which the business rescue plan is
contingent, and has completed all his obligations in terms of the provisions of
both Chapter 6 and the approved business rescue plan . According to
Arqomanzi Proprietary Limited v Vantage Goldfields (Pty) Limited and Others
[2019] JOL 46430 (MM) para 106 this does not mean that everything that was
set out to be implemented was indeed implemented (unaffected by Arqomanzi
(Pty) Ltd v Vantage Goldfields (Pty) Ltd and Others [2021] JOL 50546 (MM);
Vantage Goldfields SA (Pty) Ltd and Others v Arqomanzi (Pty) Ltd [2022] JOL
56902 (SCA), 2023 (4) SA 568 (SCA)). The threshold the Act provides is
substantial implementation, which necessarily implies that although the plan
has been substantially implemented some steps may still need to be
implemented. However, in Meatworld Factory CC v ET Trading House (Pty)
Ltd and Another [2019] JOL 45224 (GJ) para 14.8 the requirement of
substantial implementation was interpreted to mean that the business rescue
plan as approved must ha ve been finally executed. This wide interpretation
may not be correct because after compliance with conditions and compliance
by the business rescue practitioner with his/her obligations in terms of the
business rescue plan, he/she is functus officio and has no role to play in the
execution and/or enforcement of the plan. ‘In determining whether the plan
has been substantially implemented, the court should adopt a sensible
interpretation of the documents placed before it, without attempting to analyse
the plan in such detail that the scrutiny under which it is placed results in the
plan having no practical effect and the aims (in s 7 (b) (i) and s 7 (k) are best
achieved by affording a practitioner the necessary time and breathing space
to return a distres sed business to an even keel. This is certainly not
suggestive of an open -ended opportunity to turn affairs around. On the other
hand, a premature end to business rescue, more often than not, could plunge
a business into insolvency rather than achieving an efficient rescue’: Airports
Company South Africa Ltd v Spain NO and Others [2020] JOL 48363 (KZD),
2021 (1) SA 97 (KZD) paras 30–31 and see s 133 sv Subsection (1) (b) for an
application for a court order to compel the business rescue practitioner to ac t
to terminate the business rescue as contemplated in s 132 (2) (c) (ii).”
(emphasis supplied)
77. In my view , the legal position relevant to the instant matter includes the
following:
77.1. The purpose of business rescue is to restore the solvency of a
company or achieve a better return for creditors than in liquidation.
77.2. Substantial implementation occurs when effect has been given to the
business rescue plan while the Company and its affairs are under the control
of the BR Practitioner. By that I understand that wha t has been contained in
the plan has been substantially implemented. I do not understand it to be the
business rescue practitioner putting the plan in place and not being involved
at all in the process of its successful implementation.
78. I think that t he position in the above sub -paragraph would resolve the
apparent tension in the cases between su bstantial implementation requiring that the
plan as approved must have been finally executed , on the one hand, and , on the
other, that the plan simply be set up to proceed.
79. One further aspect bears mentioning:
79.1. SARS is owed over R20 million by the Company. With interest, it may
be that this figure is possibly somewhere between R30 million and R40
million, although no figures have been provided.
79.2. On the responde nts’ own version, until this has been resolved, the
business rescue cannot be concluded, by which I understand them to mean
that until then the business rescue has not been ‘substantially implemented’. I
raised this with Mr Muller and he appeared to agree.
79.3. On 26 June 2023 the BR Practitioner recorded as follows: “I can
confirm that I am currently engaging with SARS in regard to a compromise on
the outstanding amounts ... Once I have finalised compromise with SARS, it
will pave the way for further investment into the company.”
79.4. Further emails were sent in this regard by the BR Practitioner in March
2024, months after this application had been launched . The answering
affidavit was signed on 27 March 2024 and the situation with SARS had still
not changed.
79.5. In my view, therefore, the business rescue plan has therefore not been
substantially implemented some four years after it was adopted. I believe that
this was not a conclusion which was contested with any vigour by Mr Muller.
79.6. On 12 August 2024, two days before t he hearing of the application, the
respondents delivered an application to file a further affidavit, seeking to raise
two issues, one of which was that SARS had communicated on 7 June 2024
that it could not now consider a compromise because of a possible f uture
liquidation. This was more than two months ago. No explanation was provided
for why the application for leave to file the further affidavit was not launched
earlier. The applicants did not object and I allowed the affidavit. Be that as it
may, I cons ider the affidavit in this respect not to be of any assistance to the
respondents and, on the contrary, to be something of an own goal amounting
to a further perpetuation of the failure to resolve this R30 to R40 million
problem which has undermined the b usiness rescue for over four years. Yet,
the respondents, with no regard for the complete lack of progress on this front
for over four years, now contend that th is application is somehow the only
aspect preventing the resolution of this issue. I asked Mr M uller whether the
Company needed business rescue from its business rescue and he had no
response besides to appear to recognise the irony and incongruity.
80. The respondents contend that the BR Plan has been substantially
implemented, save for the SARS issue. They refer to clause 24 of the BR Plan which
refers to three conditions for substantial implementation. In my view these conditions
are required for substantial implementation, but are not sufficient for it. They are less
in content, for example, than the numerous steps contained in clause 14 of the BR
Plan. This approach of the respondents also disregards the actual affairs of the
Company which are to be managed by the BR Practitioner through the ‘breathing
space’ to a point where the Company and the comm ercial plan for it in the BR Plan
are set on an ‘even keel’ . A s stated in Henochsberg quoted above, ‘ to return a
distressed business to an even keel’.
81. In my view, a position in which the BR Plan has been substantially
implemented has not been reached in this matter on the following high-level bases:
81.1. The SARS issue referred to above on the basis of which there has not
been substantial implementation of the BR Plan.
81.2. The core purpose of the business rescue was to afford the Company
time to achieve certain specified revenue and profit levels: the ‘ breathing
space’ referred to in the cases in which the Company and its affairs are under
the control of the BR Practitioner.
81.3. I consider that it must be implicit in this that there would be some
material progress in the business of the Company in business rescue (after all
it is the business which is subject t o the rescue) and, further, which would be
to some material benefit to the creditors who had had their vast claims
converted to equity in the Company in terms of the BR Plan (there is no need
to quantify this in principle because there has been no material benefit). As
pointed out by the first applicant:
“The business rescue plan contemplated that Cambridge Services
would be trading successfully and profitably to the extent that
significant dividends would be paid to affected persons … None of that
has occurred ... No tangible benefit has accrued to any of the affected
persons of Cambridge Services.”
81.4. This has not been achieved in any respect. It seems to me that the BR
Plan has failed miserably for more than four years. One would expect details
to have been provided by the respondents in the answering affidavit as to
current work in progress and what will likely be earned from it. The averments
in the answering affidavit in this regard are , in my view, vague in the extreme
with no concrete details, for example, as to actual work or projects in progress
or anticipated income streams or even resources and staff employed (besides
the fifth respondent).
81.5. In the answering affidavit, the BR Practitioner asserts previous reports
attached to the answering affidav it, the latest dated 21 December 2023, but
none of them provide any detail in this regard as to operations.
81.6. The revenue and profit projections in the BR Plan have not been
achieved in any material respect. Much or even most of the revenue and profit
achieved, negligible in the relative context of the lofty projections in the BR
Plan, consists of the interest on the loan from fifth respondent in respect of
which there is no indication that it was in fact paid and received (I have little
doubt that it was).
81.7. I am of the view that t here has in fact been an almost complete, if not
complete, failure in this regard.
81.8. On the contrary, what the BR Plan has so far achieved is to exonerate,
protect and quarantine fifth respondent from claims against him (besides his
liability in respect of his loan from the Company) and possibly also, as argued
by the applicants, including liability in terms of section 424 of the Companies
Act 61 of 1973, clause 27 of the BR Plan providing as follows:
“Should the Creditors approve the B usiness Rescue Plan, the
payment under the Business Rescue Plan as set out above by way of a
capitalisation of loans will be in settlement of their claims against the
Company, group company/entity, shareholders and directors and the
directors shall be rele ased from any personal sureties entered into up
to the date of the filing of the notice of substantial implementation.”
81.9. The other aspect of the further affidavit which was sought to be filed by
the respondents two days before the hearing, is to aver income ‘from services
rendered for a six-month period’. The details provided are vague, including an
averment that after tax profit of R10 million was made. I do not consider this
late affidavit to be of any material as sistance to the respondents. Mr
Hartzenburg submitted that this affidavit illustrates that from 13 March 2020
the company did very little for over four years, effectively passing time with
nothing of substance happening to get through the business rescue and that it
was only in 2023, when the applicants started making enquiries, and launched
this application, that some activity was stimulated. I consider there to be some
force in this submission. This was reinforced by an affidavit of the third
applicant wh ich was delivered by agreement at the hearing on 14 August
2024 in response to the respondents’ affidavit which was delivered on 12
August 2024 in which various problematic aspects were pointed out, such as
the absence of any management accounts, why nothing of substance had
been achieved previously and that once a notice of substantial
implementation has been filed there would be no real incenti ve for the fifth
respondent to remain with the Company . Even more importantly, no level of
detail was provided to justify the projections of very substantial future profits
which is effectively a repeat of what was projected and represented almost
five years ago. An affidavit of a forensic auditor was also delivered in which it
was pointed out that no attempt was made to substantiate the projections with
any form of calculation of source documentation.
82. I am therefore of the view that there has not been substantial implementation
of the BR Plan and, accordingly, the BR Practitioner may not file a notice of the
substantial implementation of the business rescue plan at this stage.
83. That, however, is not the full answer to the issue of a prima facie case in this
matter. This is because while it may be that the BR Practitioner may not file a notice
of the substantial implementation of the business rescue plan at this stage , this does
not mean that this will extend until the determination of the Proposed Action. For that
relief pending the determination of the Proposed Action, a prima facie case must be
made out for the relief sought in the Proposed Action as to the setting aside of the
BR Plan. That question is considered below.
(g) Whether fraud is a basis competent in law for the setting aside of a
business rescue plan
84. The a pplicants rely on the principle that ‘fraud unravels everything’ (Gilbey
Distillers & Vintners (Pty) Ltd and Others v Morris NO and Another 1991 (1) SA 648
(A) at 658J – C, Intongo Property Investment (Pty) Ltd and Another v Groenewald
and Others 2022 (2) SA 543 (WCC) at paragraphs 25 to 27).
85. In response, the respondents argue that f raud, even if established, does not
simply result in all the consequences of an action being set aside which must be
assessed, citing Absa Bank Limited v Moore and Another 2017 (1) SA 255 (CC) at
paragraph 39:
“… The maxim is not a flame -thrower, withering all within reach. Fraud
unravels all directly within its compass, but only between victim and
perpetrator, at the instance of the victim. Whether fraud unravels a contract
depends on its victim, not the fraudster or third parties.”
86. The respondents argue that a case based on f raud for the relief to be sought
in the Proposed Action is not legally competent because it can only be granted on
the basis of remedies specifically provided in the Act. They argue as follows:
86.1. Section 152(4) provides as follows:
“A business rescue plan that has been adopted is binding on the company,
and on each of the creditors of the company and every holder of the
company’s securities, whether or not such a person-
(a) was present at the meeting;
(b) voted in favour of adoption of the plan; or
(c) in the case of creditors, had proven their claims against the
company.”
86.2. Henochsberg states in respect of Section 152(4):
“This provision is often referred to as a “cram-down” provision in other
jurisdictions, as it binds not only the company to the provisions of the
approved business rescue plan but also all the creditors and the
holders of the issued security of the company: ... This includes
creditors, and/or hol ders of the company’s securities subject to s 146,
whether they were present at the meeting or not but voted against the
adoption of the plan, and, in the case of creditors, also those who did
not prove their claims against the company . This is a strange
provision, as a person who was not present at the meeting cannot vote
against the business rescue plan. However, the provision that the
business rescue plan will also be binding on eg creditors who were not
present at the meeting cannot, it is submitted, also be applicable to
known creditors who did not receive notice of the meeting and should
only apply to persons who were notified and were entitled to attend but
who chose not to do so: … The application of sub -s (4) is nevertheless
subject to s 134 in respect of the rights of a creditor in respect of
security over the property of the company (see s 134 sv Subsection (3)
but cf ABSA Bank Limited v Du Toit and Others 7311/13, 13 December
2013 (WCC) where this was apparently not considered).” [emphasis
supplied]
86.3. This issue was also addressed in African Banking Corporation of
Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd and Others 2013 (6)
SA 471 (GNP) at paragraph 59:
“Returning to the question of whether it is permissible for the Bank to
challenge the adoption of the plan, it is clear from a reading of ch 6 of
the Act that it does not provide a remedy to an affected person to
challenge the approval and adoption of a pr oposed business rescue
plan, regardless of whether such approval and adoption are preliminary
or final. The adoption of a business rescue plan in terms of s 152 of
the Act is pivotal to the business rescue process. Once adopted, the
practitioner is required to manage and conduct the affairs of the
company in accordance with the plan. The practitioner is responsible
for the implementation of the business rescue plan: this task is not left
to some other authority. Nor, for that matter , is there any need for
court approval of the business rescue plan. Accordingly, once adopted
or approved in terms of s 152 of the Act. a business rescue plan forms
the foundation of the business rescue proceedings to which all the
affected persons are bo und, It is binding on the company, on each
creditor and on every holder of securities of the company, whether or
not that person was present at the meeting, voted in favour of adoption
of the plan or, in the case of creditors, had proven their claims again st
the company . What occurs is a process of 'cramdown' in terms of
which creditors are forced to accept a business rescue plan, even
against their wishes - thus enabling the business rescue to proceed,
despite objections by disgruntled creditors. It is with this object in mind
that the legislature saw fit not to provide a disgruntled party with a
judicial remedy to seek to set aside the adoption of a business rescue
plan. It is, therefore, not open to any ‘affected person’, after the plan
has been adopte d, to seek to set it aside. Nor is it permissible for an
'affected person' to seek to set aside the proceedings of the second
meeting of creditors in terms of which a business plan is adopted. ”
(emphasis supplied)
86.4. For the applicants to succeed with such a common law claim they must
first establish that the Act permits the reliance on the common law as a basis
to set aside a BR Plan.
86.5. In assessing whether a common law ground would constitute the basis
for such a claim, regard must be had to the statute. If the statute deals with
the matter, either expressly or by implication, then the consequences as set
out in the statute apply and the common law would find no application: Tuning
Fork (Pty) Ltd t/a Balanced Audio v Greeff and Another 2014 (4) SA 521
(WCC) at paragraph 37 and following.
86.6. The provisions of the Act, and in particular section 152(4), set out that
a BR Plan adopted at a meeting, firstly, binds all creditors even if they voted
against the adoption of the plan and, secondly, that the BR Practitioner is
obliged to implement the plan (section 152(5)).
86.7. The Act therefore sets out explicitly that in the event that a business
rescue plan receives the required votes, it binds all creditors and the business
rescue practitioner is obliged to implement that plan.
87. The respondents contend that t here is no preservation of common law rights
or remedies in the Act, while its other provisions (notably section 154) indicate that a
creditor, upon the adoption of a business rescue p lan, loses any right to challenge
the adoption of that plan.
88. They also contend that n o authority has been cited by the applicants for the
proposition that a duly adopted business rescue plan can be set aside on the
grounds of fraud. That seems to be correct , but it does not mean that it cannot, but
rather that it is a novel question of law.
89. I am inclined to disagree with the respondents’ submissions:
89.1. Paragraph 37 of Tuning Fork relied on by the respondents reads as
follows (the first sentence of paragraph 38 is included as well for contextual
meaning):
“[37] A distinction must, in my view, be drawn between a legal
consequence dictated by the terms of a statute and a legal
consequence determined by the common law in response to a
statutory event. If the statute deals with the matter, whether expressly
or b y necessary implication, cadit quaestio; the statute applies,
regardless of what the common law might otherwise have determined.
If the statute does not deal with the matter, the answer must be sought
in the common law, even though such answer might be inf luenced by
the character of the statutory event.
[38] In regard to a release from creditors’ claims pursuant to the new
compromise procedure, s 155(9) expressly provides that the
compromise does not affect the liability of any person who is a surety
of the company.”
89.2. In my view, this does not provide what the respondents submit:
89.2.1. The court was dealing with a statutory provision in the
business rescue context in relation to a surety which changed the
common law position in relation to the effect on the liability of a surety
when the principal obligation is discharged (from discharging the surety
to not discharging the surety). The court held that once that is the effect
of the statutory provision, then the common law position falls away.
That, to me, is uncontroversial.
89.2.2. It, however, is not, in my view, what is in issue in the instant
matter which involves whether a business rescue p lan actuated by
fraud can be set aside. The application of fraud as a common law
concept is not removed by the Act.
89.2.3. The fact (or legal position) that a validly passed business
rescue plan is binding on all creditors means simply that as long as it is
in place it is so binding. That is a different issue to whether it can be set
aside and on what basis that can happen . The respondents appear to
conflate these two concepts.
89.3. I think that the respondents go a step too far in suggesting that a
business rescue plan is immune from being set aside on the basis of fraud
because it is provided in the Act that the plan is binding (I leave aside other
grounds because this case did not concern them).
89.4. Mr Muller submitted that the statutory provision (section 152) must be
interpreted to determine whether by necessary implication it includes a
remedy based on fraud. I asked him to con sider whether the correct
perspective should rather not be whether by necessary implication it excludes
a remedy based on fraud. In this regard:
89.4.1. In Fey NO and Whiteford NO v Serfontein and Another 1993
(2) SA 605 (A) at 613FG it was held as follows:
“It is trite law, moreover, that statutes in derogation of the
common law are t o be strictly construed . The common law will
be displaced only where the terms of the statute are
irreconcilably opposed to the common law. That approach, in
the context of the present exception, harmonises with and
follows another cardinal principle of our law: that the jurisdiction
of the Supreme Court is not to be ousted unless by the express
language of, or an obvious inference from, a statute.”
89.4.2. Further in this regard, reference was made in Fey to Welkom
Village Management Board v Leteno 1958 (1) SA 490 (A) at 502G:
“… the Court’s jurisdiction is excluded only if that conclusion
flows by necessary implication from the particular provisions
under consideratio n, and then only to the extent indicated by
such necessary implication.”
89.5. I think that the above (especially the dictum in Welkom) resolves the
debate on perspective referred to above against that submitted by Mr Muller.
In other words, reliance on fraud must be excluded by necessary implication,
as opposed to included by necessary implication.
89.6. Mr Hartzenburg submitted that t here is no clear indication in the Act of
the ouster of reliance on the alleged fraudulent conduct (Fey at 609G-613I).
89.7. Mr Muller submitted that business rescue is a new concept which does
not change the common law and therefore the situation is different. In
principle, however, I do not think that this detracts from whether fraud as a
remedy must be excluded by necessary implication in the statutory provision.
89.8. Further, the respondents’ contention would mean that, even were it to
be common cause that the BR Plan was caused to be concluded by means of
material fraudulent misrepresentation – even if the business rescue
practitioner openly admitted fraud – it would nonethe less remain immune to
attack. I believe that such a proposition need only be stated to be recognised
as a situation which the law ought not to countenance . Mr Hartzenburg
submitted that t o interpret s 152(4) of the Act on the basis that once a
business rescue plan had been adopted it becomes immune to any and all
challenges, even where such challenges are on the basis of fraud in respect
of the propriety of the process whereby adoption of the plan was secured,
would be tantamount to providing a licence to the unscrupulous to trap
creditors and subvert their interests. I tend to agree.
90. In the premise, I conclude that a business rescue plan actuated by fraud may
be set aside.
(h) The statutory structure of business rescue plans in the Act and the core
and central part played therein by representations
91. I think that i t is vital to a proper appreciation of the context in which t he
alleged misrepresentations were made by first respondent to consider the core and
prominent role that representations as to projections and the like play in the business
rescue construct. For this reason, the construct of the Act in which these
representations are made will be considered and thereafter some observations will
be made in regard thereto.
92. The applicable construct in the Act:
92.1. Core and central to the structure of the business rescue construct in
the Act and its ability to operate effectively is that representations have to be
made to affected persons on the basis of which they must exercise their right
to vote in respect of that plan. Especially fundamental are representations as
to projections of future income for the next three years.
92.2. Section 150(2) of the Act provides that the business rescue plan must
contain all the information necessary to facilitate affected persons in deciding
whether or not to accept or reject the plan and that it must be divided into
three different parts, with “Part C – Assumptions and conditions” providing
inter alia that such assumptions and conditions must include:
“(iv) a projected -
(aa) balance sheet for the company; and
(bb) statement of income and expenses for the ensuing three years,
prepared on the assumption that the proposed business plan is
adopted.”
92.3. Section 150(3) and (4) of the Act provide as follows:
“(3) The projected balance sheet and statement required by
subsection (2)(c)(iv)-
(a) must include a notice of any material assumptions on which the
projections are based; and
(b) may include al ternative projections based on varying
assumptions and contingencies.
(4) A proposed business rescue plan must conclude with a
certificate by the practitioner stating that any-
(a) actual information provided appears to be accurate, complete,
and up to date; and
(b) projections provided are estimates made in good faith on the
basis of factual information and assumptions as set out in the
statement.”
92.4. The Act and the business rescue plan establish a decision -making
process which must b e followed when voting takes place on the adoption or
rejection of a business rescue plan. Such plan can only be adopted if more
than 75% of the creditors’ voting interests voted are in favour of the adoption
of the plan and provided further that at least 50% of the independent creditors’
voting interests similarly vote in favour of the adoption of the plan (section
152(2) of the Act). The decision -making mechanism is therefore a process
involving individual decisions by creditors exercising their voting in terests or
rights which must reach certain threshold levels as prescribed by section
152(2) of the Act.
92.5. As mentioned above, core and central to this statutory scheme and its
ability to operate effectively is that representations are made on the basis of
which affected persons vote.
93. Observations:
93.1. As mentioned above, I think that it is vital to a proper appreciation of
the context in which the alleged misrepresentations were made by first
respondent to consider the core and prominent role that representations as to
projections and the like play in the business rescue construct.
93.2. Those representations are the gatekeepers for whether the business
rescue should be recommended to proceed, with the gatekeeper in chief
being the business rescue practitioner. It is his say -so (particularly in the form
of the representations contained in the draft business rescue plan) on which
the affected persons rely to cast their votes and which is invariably for all
intents and purposes their sole or main source of fundamental information.
93.3. Those representations are grounded in the essential, mandatory (and
expected) mechanism in the business rescue construct that the gatekeeper in
chief (the business rescue practitioner) conducts a meaningful, thorough and
sufficiently in-depth investigation into the affairs of the company in question in
order to inform himself/herself to be in a position for him/her (and not
someone else) to make representations which he/ she is able to make as
being correct and which affected persons can use reliably and with confidence
to make their decisions in regard to the business rescue.
93.4. I mention this because compliance with this crucial mechanism should
not in any respect be reduced to a glib and facile exercise of, largely,
repetition of what someone from the company in question , especially one who
has a vested interest one wa y or the other , has told the business rescue
practitioner, without the business rescue practitioner having properly and
independently s atisfied himself/herself as to the correctness and reliability
thereof. By independently I mean without effectively relyi ng solely on what
someone from the company in question (especially one with a vested interest)
has said.
93.5. Absolutely fundamental and crucial, in my view, to this whole exercise,
is that affected persons will rely on what the business rescue practitioner
represents in the business rescue plan and, crucially, that he/she, as an
independent filter between the off icer(s) of the company in question (who
may, or invariably may, have their own vested interests), has conducted
sufficient investigations to place himself/herself in the position to make the
representations in question.
93.6. I stress that I believe that it is not only the representations but also the
quality, relative independence and reliability of the investigations in regard
thereto and informing them which are part and parcel of the representations.
The corollary of this is that a business rescue practitioner should not simply
take at face value what he/she has been told by the officers of the company.
93.7. I am of the view that this would be greatly magnified in appropri ate
circumstances, a good example (pertinent to this matter) being where ,
effectively, one officer of the company is providing the information, has
formulated and promoted the proposal in the draft business rescue plan,
appears to have much to gain from it and appears to have much to lose
without it.
93.8.
(i) The applicants’ case as to fraud
94. It is in the above context that applicants’ alleged case as to prima facie fraud
is to be evaluated.
95. Fraud may be committed by a person misrepresenting his/her state of mind,
belief or attitude (Rex v Myers 1948 (1) SA 375 (A) at 383 to 384 , Vereeniging
Consolidated Mills Ltd v Newman and Others 1958 (2) SA 20 (C) at 23AE).
96. “… a dishonest opinion as to a future event may be sufficient to found an
action for fraudulent mi srepresentation insofar as it falsely re flects the state of mind
of the representor … ” ( Presidency Property Investments v Patel 2011 5 SA 432
(SCA) at paragraph 28).
97. The applicants contend that t he effect of any fraudulent misrepresentations
made with regard to a business rescue plan is to impair and corrupt the decision -
making process. They contend further that this happened in the instant matter with
reference to clauses 14.14 to 14.18 of the BR Plan.
98. Annexures 12 and 13 to the BR Plan contain projected profit and loss
statements and balance sheets of the Company for the years 2020 to 2022,
respectively. Annexure 14 contains projections of the cash flow of the Company for
the years 2020 to 2022. These have been dealt with in the factual exposition above.
99. Part of the allegations to be pleaded in the Proposed Action is that the first
respondent in material breach of his certification as contained in the BR Plan, and
acting in collusion with the fifth resp ondent, alternatively aided and abetted by the
fifth respondent, incorporated representations (set out in paragraphs 10.5.1 to 10.5.7
of the draft particulars of claim) knowing such misrepresentations and projections
and estimates to be false, alternativel y in circumstances where neither the fifth
respondent, nor the first respondent held any honest belief in the truth and
achievability of such representations, projections and estimates , but nevertheless
incorporated them into the BR Plan and presented them to affected persons of the
Company, including the applicants, reckless as to whether such representations
were true or such projections and estimates were based upon facts and/or facts
based on realistic and achievable assumptions. It is further alleged t hat the BR
Practitioner, by his conduct, induced affected persons of the Company to vote for the
adoption of the business rescue plan.
100. The a pplicants rely on FirstRand Bank Ltd (t/a Rand Merchant Bank) and
Another v Master of the High Court, Cape Town and Others 2014 (2) SA 527 (WCC),
Absa Bank Ltd v Moore and Another 2017 (1) SA 255 (CC) and Mosiesa v Master of
the High Court, Pretoria 2021 JDR 0135 (GP) as examples of fraudulent
misrepresentations grounding a claim. I n Mosiesa, a fraudster did not hav e the
requisite authority to pass transfer of a property and , relying on the principle that
‘fraud unravels all subsequent transactions’, this included a subsequent sale to bona
fide purchasers. In Moore, Absa was not directly implicated in the fraud perpetrated
by third parties on the Moores but its mortgage bond was nonetheless set aside.
101. The a pplicants contend that, as in FirstRand, the misrepresentations would
have impaired the decision-making process and the resultant voting by creditors.
102. Part of the relief sought in the draft particulars of claim is the setting aside of
the BR Plan and its adoption on the basis of fraud. The applicants contend that the
vote in favour of the BR Plan was actuated by fr audulent misrepresentation.
Collusion between first respondent and fifth respondent is pleaded as part of one of
the alternatives pleaded , but I am of the view that it is necessary for that to be
considered for the purposes of this application as to whethe r a case based on fraud
and/or fraudulent misrepresentation is made out. This is because, as illustrated by
the extract underlined and italicised above , and with reference to the authority cited
above in this section, a claim is based on the following:
102.1. The first respondent in material breach of his certification as contained
in the BR Plan;
102.2. aided and abetted by the fifth respondent;
102.3. incorporated represent ations in circumstances where neither the fifth
respondent, nor the first respondent , held any honest belief in the truth an d
achievability of such representations, projections and estimates, but
nevertheless incorporated them into the BR Plan and presente d them to
affected persons of the Company, including the applicants.
103. The facts , considerations and contentions relied upon by the applicants for
their submission that they have established a prima facie basis for the relief
ultimately to be sought in the Proposed Action are very wide ranging and include:
103.1. The applicants were significant creditors of the Company having
secured judgment against the Company on 30 April 2019.
Loans to directors being a cause of the Company’s problems
103.2. The loans:
103.2.1. The fifth respondent , along with Von Holdt and Botha ,
secured large loans of money from the Company totalling together
more than R230 million.
103.2.2. These loans were on terms which were on any basis
extraordinary both in their size and the favourable terms enjoyed by the
borrowers. Notably, the loans were only rep ayable after the lapse of
some 15 years and were unsecured.
103.2.3. There is no evidence that any of the borrowers repaid any
of the loans or even portions of the loans.
103.3. The inherent probabilities dictate that the granting of such loans by the
Company to the fift h respondent, von Holdt and Botha must have impacted
upon the solvency and liquidity of the Company.
103.4. On the applicants’ version, such loans were prejudicial to the Company
and were calculated to subvert the interests of the Company’s creditors,
including the applicants.
103.5. On the first respondent’s and the fifth respondent’s version, the loans
were motivated by an effort on behalf of the Company to secure and retain the
services of the fifth respondent and those of von Holdt and Botha , so-called
‘Marlin’ loans.
103.6. The motivation advanced by the respondents for the granting of such
extraordinary loans to the fifth respondent and Von Holdt and Botha is not
borne out by the facts and objective circumstances:
103.6.1. There were no contractual undertakings binding them to
the Company, despite the vast and favourable loans.
103.6.2. Von Holdt and Botha have long since left the employ of
the Company.
103.6.3. The applicants are presently engaged in action
proceedings against Von Holdt and Botha (Rocket Capital) to recover
the monies disbursed by the Company to them, as a result of having
taken cession of the Company’s claims against them when the
applicants sought to execute the judgment they secured against the
Company.
103.7. The AF S of the Company do not bear out the first and fifth
respondents’ version of the terms of the loan (s) by the Company to the fifth
respondent
103.7.1. The only audited AFS of the Company were those for the
2017 year (which incorporated figures for 2016). The directo r’s report
which formed part of those AFS was signed by the fifth respondent on
18 October 2018. The auditors’ report by Mazars was similarly signed
and dated 18 October 2018.
103.7.2. In the 2017 AFS, the balance of the fifth respondent’s
loan account in the Company was stated to be R69 485 000. In note 7,
the terms of the loan are described in the following terms:
“The loan is unsecured and bears interest at the SARS official
rate of interest for individuals per annum (2016: SARS official
rate of interest). The loan is repayable on demand. The loan is
not expected to be settled in the forthcoming 12 month period.”
103.7.3. In none of the Company’s other AFS are the terms of
repayment of the loan by the Company to the fifth respondent set out in
the terms alleged by the first respondent and the fifth respondent. Save
for the 2018 and 2019 AFS, in note 6 of which it is stated that the loan
was ‘not expected to be settled in the forthcoming 12 months period’ ,
the remaining AFS do not state what the terms of repayment of the fifth
respondent’s loan to the Company were.
103.8. The terms of repayment of the fifth respondent’s loan are rel evant to a
consideration of the Company’s cashflow as well as its solvency and liquidity.
All of the Company’s AFS were signed by the fifth respondent in his capacity
as a director of the Company. The inconsistent statements made in the
documentation conce rning the terms of repayment of the fifth respondent’s
loan to the Company, are also relevant within the context of making an
assessment of whether the representations relevant to this matter could have
been honestly made.
103.9. No agreements were put up by the first or fifth respondents showing
any contractual commitment by the fifth respondent, Von Holdt or Botha to
remain employed by the Company, more especially because of the loans of
money to them by the Company.
103.10. There is no documentary evidence produced by the first or fifth
respondents confirming that the loan by the Company to the fifth respondent
‘falls due on 30 June 2034’, as is stated in Note ‘D’ at page 11 of the BR Plan.
103.11. The vast amounts and favourable terms of the loans carry with them a
red flag as to the cause of the Company’s financial problems.
Ascendis and the cause of financial distress
103.12. The first respondent, in paragraph 5.2.7 of the BR Plan, gave a
description of the causes of the Company’s financial distress which was linked
to the collapse of the share price of Ascendis Health. He said:
“The impact of the loss of value on the Company’s indirect investment
in Ascendis as a result of the events between December 2016 and 30
November 2019 was R2,7 billion.”
103.13. The only evidence of any actual loss suffered by the Company as a
result of a collapse of the Ascendis Health share price is the realised losses of
R21 639 000 and R1 848 000 in the 2019 and 2018 AFS of the Company.
103.14. There is no evidence in the Company’s AFS that it had large holdings
of Ascendis Health shares.
103.15. The large amounts of money d iverted to the fifth respondent and to
Von Holdt and Botha (Rocket Capital) cannot be excluded as being related to
the financial distress of the Company experienced during 2019.
103.16. An inference is to be drawn that the fifth respondent, in collusion with
Von H oldt and Botha , was engaged in a pattern of conduct whereby they
diverted monies from the Company to themselves, over a number of years up
to 2018, ostensibly as long -term loans, in circumstances where they had no
intention to repay such monies , to the detriment of creditors, and in
circumstances in which the Company became heavily insolvent.
Auditors
103.17. In paragraph 4.1.7 of the BR Plan it is stated that Mazars were the
auditors of the Company , yet the AFS of the Company from 2019 to 2023
were not audited. This raises the obvious question as to why not, the corollary
of which is how reliable the information provided by the fifth respondent could
be considered to be.
The interests of the fifth respondent
103.18. With the fifth respondent being aware that the applic ants had secured
judgment against both him and the Company, there was a material risk that
the applicants or other creditors of the Company would take steps to liquidate
the Company. Such risk would also have been evident to the first respondent.
103.19. The first respondent when formulating the BR Plan would have, and in
fact did have, as one of his objectives the protection not only of the Company
but also the fifth respondent.
103.20. It is against that background that the performance and profitability
projections incorporated by the first respondent into the BR Plan should be
considered.
103.21. The motivation would be to put forward projections which would
appeal to the creditors of the Company but at the same time would also result
in the protection of both the Company and the fifth respondent.
The representations (especially the projections)
103.22. The first respondent gave a resoundingly positive resumé of the fifth
respondent’s achievements and skills in the field of mergers and acquisitions
in clause 14.14 of the BR plan. It was also against that background that the
first respondent proceeded to provide the earnings and profits forecasts in
paragraphs 14.15 to 14.21 of the BR Plan, as read with annexures 11 to 14.
103.23. In Part C of the BR Plan, the first respondent was obliged to deal with
a number of specific things, including the effect of the plan on the number of
employees of the Company and their terms and conditions of employment
(section 150(2)(c)(ii) of the Act) and a notice of material assumptions on which
the projections were based (a balance sheet and statement of income and
expenses for the ensuing three years : section 150(2)(iv) of the Act). Apart
from the projections as set out in annexures 11 to 14 of the BR Plan, the first
respondent did not include a separate notice of material assumptions on
which the projections were based.
103.24. The significant variance between the projections included by the first
respondent in the BR Plan and the Company’s performance and profitability is
sought to be explained by him by the advent of the Covid 19 pandemic. At this
stage, a definitive finding on this aspect of the matter is not required to be
made which will be a triable issue in the Proposed Action. At a prima facie
level the following appears:
103.24.1. By the time the first respondent published the BR Plan (5
March 2020), the Covid 19 disease had already received publicity in
the media.
103.24.2. On 12 March 2020, the World Health Organisation
(WHO) had declared the disease a pandemic.
103.24.3. On 15 March 2020, the Covid 19 pandemic wa s declared
a national disaster in terms of the Disaster Management Act 57 of
2002.
103.24.4. On the probabilities, the first respondent must have been
aware of the developments concerning the Covid 19 pandemic, both
before 13 March 2020 and at the time when the meeting of affected
persons took place to consider the BR plan.
103.24.5. He could not have been oblivious to the potential risk of
the pandemic impacting negatively on the business environment
generally, at least.
103.24.6. Yet, the first respondent appears to have allowed h is
optimistic projections in the BR Plan to stand unqualified.
103.25. The magnitude of the failure of the Company to reach the levels of
projected performance is indicative of impropriety and the absence of an
honest belief in the achievability of the projections. In this context, a
representor in the position of the first r espondent would have an onerous
responsibility to refrain from making representations to affected persons
where there are novel or unfamiliar circumstances which could influence the
outcome of what is projected.
103.26. Where the representor himself/herself cannot with confidence know or
predict the impact of novel circumstances, it would be fraudulent to make
representations and projections of the performance of the business in the
future, more especially where such projections are optimistic ( Rex v Myers ,
Vereeniging Consolidated Mills).
103.27. The absence of any assertion by the first respondent that he
consulted independent experts to guide and advise him (as opposed to simply
following the projections of the fifth respondent, a party with a heavy vested
interest in pushing for business recue) and to explain that he became aware
of the Covid 19 pandemic before the BR Plan was considered on 13 March
2020, on ce again is at best for the first respondent, indicative of some
indifference on his part in formulating and especially, presenting , the
projections on the Company’s future performance and profitability.
103.28. Regard being had to the provisions of paragraphs 14. 1 and 27.1 of
the BR Plan, the inherent probabilities further suggest that the first respondent
was committed to advancing and protecting the interests of the fifth
respondent.
103.29. What the applicants seek to protect and secure in these proceedings
is their st atus as creditors of the Company. That would entitle them to apply
for the liquidation of the Company on the basis that it unable to pay its debts.
If the BR Plan were to be set aside, the debts owing by the Company to its
creditors at the relevant time would be enforceable.
103.30. The tool of investigative interrogations in terms of s ections 415 and
417, read with s ection 418 of the 1973 Act, is only available in respect of a
company which is liquidated and is unable to pay its debts. The applicants
wish to pursue that in order to recover not only monies of the Company which
had been disposed of in terms of the ostensible loans to the fifth respondent
and Von Holdt and Botha, but also assets and funds acquired with the monies
thus lent to the fifth respondent and Von Holdt and Botha for the benefit of the
creditors of the Company, including the applicants.
104. The respondents point out that the applicants did not raise allegations of fraud
at the time that they were prepared to vote on the BR Plan and contend that to seek
to set it aside many years later, on the grounds of fraudulent representations causing
the adoption of the BR Plan by the creditors over four years ago, itself compels a
particularly critical eye to be cast over the allegations. In my view, while t his may be
so, the facts are what must be considered and this consideration does not detract
materially therefrom.
105. The respondents point out that it is trite that a party relying on fraud must
plead and prove it clearly and distinctly, and that fraud is no t readily inferred, relying
on Courtney-Clarke v Bassingthwaighte 1991 (1) SA 684 (Nm) at 689G , Gilbey
Distillers & Vintners (Pty) Ltd v Morris NO 1990 (2) SA 217 (E) at 225J -226A and
Loomcraft Fabrics CC v Nedbank Ltd & Another 1996 (1) SA 812 (A) at 817GH).
The respondents contend that the applicants have not passed that threshold , even
on a prima facie basis.
106. In my view, on the facts, key aspects to consider in respect of whether there is
a case to be met for fraudulent misrepresentation, include (somewhat laboriously,
instances of the knowledge of the BR Practitioner which I consider to have been
established on a prima facie basis are pointed out expressly where applicable , the
reason for this being that I consider it to be important to a consideration of his state
of mind):
106.1. The BR Practitioner knew that the Company had made vast losses for
the years preceding the business rescue (as also pointed out by Chapman).
The BR Practitione r knew that i t was therefore not Covid -19 which caused
loss making to start. This question, and that in respect of Ascendis, are
considered further below.
106.2. The BR Practitioner knew the terms of the BR Plan in regard to fifth
respondent:
106.2.1. The BR Practitioner knew that fifth respondent was
exonerated from liability for the debts of the Company for which he had
stood surety. Depending on the interpretation of clause 27 of the BR
Plan, he may have also been exonerated from any personal liability ,
such as in terms of section 424 of the 1973 Act.
106.2.2. The BR Practitioner knew that fifth respondent ’s
continued long term involvement was vital to any prospects of success
of the BR Plan which had been proposed by the fifth respondent.
106.2.3. The BR Practitioner knew that, despite this , no
contractual commitment to the Company was procured from fifth
respondent, aggravated by the fact of the considerable advantage of
the BR Plan to fifth respondent and when his involvement was
considered vital to the success of its business rescue. In this regard the
BR Practitioner stated in his answering affidavit: “It was clear to me that
the involvement of the Fifth Respondent was vital ...”
106.2.4. The BR Practitioner knew that the BR Plan bore material
advantages for fifth respondent, all based on the projections of very
substantial future revenue and profit.
106.2.5. The BR Practitioner knew that the fifth respondent stood
to gain substantially from the BR Plan and had every motivation to do
what he could for it to be approved.
106.3. The loans to directors:
106.3.1. The BR Practitioner knew that t he Company had
ostensibly lent extraordinarily large amounts of money, the balance
exceeding R250 million, to the fifth respondent , Von Holdt and Botha
(Rocket Capital) in circumstances where the fifth respondent was at all
times a director of the Company and its CEO, and Von Holdt and
Botha, members of the management of the Company.
106.3.2. The BR Practitioner knew that t he terms of the se loans
were unusually favourable to the borrowers, with notably long
repayment dates, and with no security being put up by the borrowers.
106.3.3. The BR Practitioner knew that the averred motivation for
the generous terms of the loans, namely, to secure their loyalty to the
Company, was not accompanied by any contractual commitment on
the part of the borrowers to remain employed by the Company for any
extended period of time. The BR Practit ioner knew that the Von Holdt
and Botha had left the employ of the Company seemingly well before
the alleged repayment dates in respect of the monies borrowed by
them from the Company.
106.4. The respondents ’ contend along the lines that , because the effects
proper of Covid-19 had not yet set in , the projections cannot be criticised for
not having taken the fact of Cavid-19 into account:
106.4.1. I consider this to be a highly problematic aspect for the
BR Practitioner’s case in regard to the interdict.
106.4.2. The BR Practitioner knew that the BR Plan was dated 5
March 2020, which coincide s with the date on which the first Covid 19
case was reported in South Africa. The Covid 19 disease was declared
a pandemic by the World Health Organisation on 12 March 2020 , the
day before the BR Plan was approved.
106.4.3. The BR Practitioner knew that Covid-19 and the real
prospect of economic uncertainty was a reality in March 2020 when the
BR Plan was adopted.
106.4.4. The BR Practitioner knew that at the time when the
proposed BR Plan was considered by creditors on 13 March 2020, the
risks posed by the Covid 19 pandemic were well known.
106.4.5. The BR Practitioner knew that the projections and
representations did not take the possible serious consequences of
Covid-19 into account . That was his case . In this regard, the
respondents submitted that “ The BRP has explained that the
projections did not anticipate or take into account the serious economic
consequences which flowed and the fact that the business environment
in which the Company would operate was severely affected.”
106.4.6. The BR Practitioner knew that by March 2020 the whole
world was facing grave uncertainty in the face of the likelihood of a
pandemic setting in.
106.4.7. I consider that, if there was a failure to consider the
possible or likely serious effects of the looming pandemic, it would be
an aggravating factor and a serious deficiency in the investigations and
the preparation of the BR Plan on the part of the BR Practitioner.
106.5. The failure of the Company to realise the optimistic projections of the
performance and profitability of the Company, in business rescue, on the
facts, appear s not to be explicable merely by the advent of the Covid 19
pandemic, certainly over such a prolonged period. No case is made out for
this.
106.6. The averred impact of the collapse of the Ascendis Health share price:
106.6.1. The BR Practitioner knew that one of the reasons given
by the respondents for the Company’s woeful failure to achieve the
projections was the decrease in the value of its holdings in Ascendi s
shares.
106.6.2. The BR Practitioner knew that he was advised of this by
the fifth respondent.
106.6.3. The BR Practitioner knew that such holding was ,
however, negligible. The respondents aver other entities that also held
Ascendis shares, but details were not provided nor is the effect thereof
on the Company.
106.6.4. The BR Practitioner knew that in paragraph 5.2.7 of the
BR Plan, it is alleged that the impact of the l oss of value on the
Company’s indirect investment in Ascendis as a result of events
between December 2016 and 30 November 2019 was R2.7 billion.
106.6.5. The BR Practitioner knew that the only losses in this
regard recorded in the Company’s AFS, were the losses of
R21 639 000 and R1 848 000, as shown in the Company’s AFS for
2019 and 2018, respectively. As large as they may be, these amounts
are not material when compared to the amounts of money diverted
from the Company and ostensibly lent to the fifth re spondent, Vo n
Holdt and Botha (Rocket Capital) , the liabilit ies to the applicants and
Chapman and the vast losses incurred by the Company.
106.7. The BR Practitioner knew that t he terms of the BR Plan, and more
especially paragraphs 14.1 (conversion of debt to sh ares) and 27.1
(indemnification of the Company and the fifth respondent against creditors’
claims), at face value, appear generous and unusually favourable to
especially the fifth respondent.
106.8. The BR Practitioner knew that the fifth respondent must have been
aware of the risks to which the Company and also the fifth respondent were
exposed at the time to creditors of the Company taking steps to liquidate the
Company and to recover the monies which the Company had lent and
disbursed to the fifth respondent along with Von Holdt and Botha (Rocket
Capital).
106.9. The BR Practitioner knew that he did not consult independent experts
to guide and advise him in regard to the projections.
106.10. The BR Practitioner knew that he effectively relied solely on and
followed the projections of the fifth respondent, a party with a heavy vested
interest in pushing for business recue . He glibly states in the in the answering
affidavit that “After receiving information from the Fifth Respondent, I formed
the view … In my discussions with the Fifth Respondent and as a result of the
information set out in the BR Plan dated 5 March 2020, I formed the view that
business rescue was appropriate and there was a prospect that the company
could be saved.”
106.11. The BR Practitioner knew that the projections and the business
rescue proposal were those of the fifth respondent, p aragraph 14.1 of the BR
Plan providing as follows:
“In order to generate return of significant value to the creditors, an
income structure (together with forecasted (sic) earnings) has been
proposed by the director , as set out in section 14.15 – 14.18 of this
proposal.” [emphasis added]
106.12. The factors in paragraphs 81.2 to 81.9 are material to the overall
issue addressed in this paragraph 106.
107. Mr Hartzenburg submitted as follows:
107.1. The facts illustrate that the first respondent relied exclusively on
information provided by the fifth respondent. For example, on the first
respondent’s own version, he relied in developing the business rescue plan
on his interactions with the fifth respondent. Paragraph 14.1 of the BR Plan
quoted above is material in this respect.
107.2. Factors set out in paragraph 106 above should have raised red flags
for the first respondent in regard to relying effectively only on fifth respondent.
107.3. The BR Practitioner is not an investment expert. Third party advice
should have been obtained, a factor which is aggravated because of the fifth
respondent’s interests.
107.4. The BR Practitioner failed to investigate. No such investigation was
explained by the BR Practitioner and n o independent advice taken. He
effectively relied solely on the fifth respondent.
107.5. The i nference to be drawn in the absence of any explanation as to
investigations is that the BR Practitioner had ‘closed his eyes ’ and simply
accepted what the fifth respondent had fed him.
107.6. It is therefore a t riable issue whether the BR Practitioner had in fact
formed an honest opinion as to the achievability of the projections or rather
just followed them blindly.
107.7. It is therefore a triable issue whether he incorporated representations
into the BR Plan in circu mstances where neither he, nor the first respondent,
held any honest belief in the truth and achievability of such representations,
projections and estimates, but nevertheless incorporated them into the BR
Plan and presented them to affected persons of the Company, including the
applicants.
107.8. It is therefore a triable issue whether his certification of those
representations incorporated into the BR Plan were made without being able
to reach a reasonable conclusion on their truth and achievability , and
therefore whether the fact of that certification was an act which could not have
been honestly effected.
108. Some four and a half years after the adoption of the BR Plan, nothing material
has been achieved in respect of the revenue and profit projections. There is also the
unresolved SARS issue referred to above. This is in stark contrast to the BR Plan
which was concluded on the basis that the Company would have over R200 million
in equity by 2023:
“It is expected that at the end of 2023 the equity balan ce will exceed R200m
and the equity value to be north of that (Annexure 13).”
109. Chapman made what I consider to be some telling observations in his affidavit
filed as an affected person:
109.1. “I abstained from voting. My abstention stemmed from a lack of
certainty regarding the plan’s potential benefits, compounded by my position
as a layperson who was not fully informed about its potential negative
implications.”
109.2. “It has become evident that the business rescue plan offers no
substantial benefit or payment to any of the affected persons, including
myself, and is simply a smokescreen to disguise the company’s inability to
make reparations. The business plan appears to serve merely as a delay
tactic rather than providing a genuine solution for affected parties.”
109.3. “I abstained from voting. My abstention stemmed from a lack of
certainty regarding the plan’s potential benefits, compounded by my position
as a layperson who was not fully informed about its potential negative
implications.”
109.4. With regard to Covid -19, “… the c ompany was already experiencing
financial difficulties and failing to achieve profitability even before the onset of
the pandemic. Consequently, the invocation of COVID -19 as an excuse is
entirely unsubstantiated and lacks credibility.”
109.5. With regard to the projections, “… I am convinced that these proposals
and payments will not be realized and appear to be illusory in nature with their
purpose being to simply mislead stakeholders.”
110. After the institution of this application, the fifth respondent contacted
Chapman after many years of non -communication to solicit his support for the BR
Plan which Chapman declined.
111. The r espondents contend ed that it was evident when the BR Plan was
adopted that a liquidation of the Company at that stage would have resulted in no
benefit whatsoever to creditors of the Company, including the applicants. The
applicants contended that a liquidation brings with it the machinery of the Insolvency
Act 24 of 1936 (“the Insolvency Act”) and that of the 1973 Act referred to above. This
is a well-known advantage to creditors in the context of insolvency. The advantages
of, for example, enquiries in terms of section 417 and 418 in terms of the 1973 Act
are that the Company may have claims against third parties, including the fifth
respondent and the enquiry will assist them in attempting to follow the trail of the
money. Mr Muller submitted that the applicant could liquid ate on the basis of the just
and equitable ground and call for an enquiry without setting the BR Plan aside which
is unnecessary . The problem I perceived with this submission, was that such an
enquiry is only available when a company is unable to pay its debts, but the BR Plan
wiped out all of the debt of the Company . There cannot be an inability to pay debt
which does not exist . I raised this with Mr Muller and we considered t he AFS from
the period of the business rescue which reflect this and d o not show any inability to
pay debts. They in fact reflect equity.
112. The respondents contend that the “… significant elapse of time is significant in
respect of the relief sought by the Applicants.” They also contend that “… the real
motive for this application is for the Applicants to frustrate the BR process in order to
obtain an advantage in asserting their claims either against the Company or various
third parties. In this regard it is not without significance that the Applicants have
existing judgments and cessions in respect of certain of the Company’s claims which
do not require the BR to be terminated in order to be pursued.” Similar
considerations to those in the above paragraphs apply to this contention.
113. In my view, a claim based on fraudulent misrepresentation to set aside the BR
Plan is actionable on a prima facie basis.
Irreparable harm
114. First respondent has indicated that he intends to file a notice of substantial
implementation of the business rescue proceedings. If he does so, that will finally (or
perhaps more correctly, irreversibly) complete the conversion of the claims of
erstwhile creditors against the Company into equity. For the reasons explained,
erstwhile creditors will then have lost their status as creditors for the purposes of
liquidating the Company and of seeking further redress through the winding -up
process. That outcome is, in my view, permanent and irreparable.
Balance of Convenience
115. As has been found above, the BR Practitioner, in my view, is not yet in a
position to file a notice of substantial implementation of the BR Plan. It can therefore
not suffer any prejudice at this stage.
116. With an interim interdict being in issue, should circumstances change and
warrant a variation or discharge of any interim interdict granted, the respondents will
be in a position apply therefor.
117. The respondents contend that, in the event that the interim interdict is
granted, the business rescue, with the Company trading, will continue until the
determination of the Proposed Action which will be for years, which runs against the
balance of conveni ence being in favour of granting the relief sought. In my view,
bearing in mind that the business rescue proceedings have been on the go for
almost five years (t he Company was placed in business rescue with effect from
November 2019) this does not seem to be an assertion of any merit.
118. On another level, it may well be that the only thing keeping fifth respondent
with the Company is that the business rescue is not finalised. The BR Practitioner
himself stated in his answering affidavit that at the time the business rescue was
being considered there “… was nothing stopping the Fifth Respondent from
resigning which would have meant that the business rescue process would fall fla t.”
Nothing on the papers suggests that this has changed . In fact the content thereof
suggests the contrary, the BR Practitioner stating that the fifth respondent is
reluctant to remain with the Company if business rescue continues for years and “if
he chooses to leave the company there is little which could be done.” I do not see
any reason for the converse applying – that once the business rescue is finalised by
means of the filing of the notice of substantial implementation he will leave the
Company which is 49% owned by third parties. As stated by first applicant: “With
there being no contractual obligation on the fifth respondent to continue to render
services to Cambridge Services with a view to generating income and profits, the
likelihood is that the Company will not continue trading.” The applicants point out that
the notion of securing loyalty in this way was illusory in the absence of contractual
commitments, bearing in mind the previous departure of Von Holdt and Botha.
119. If the respondents are p roved correct in due course that the relief sought in
the Proposed Action will fail and it does, then the Company will continue as they
suggest.
120. The respondents are at liberty to seek to refer the matter to a Judge in terms
of Rule 37(8) to promote the eff ective conclusion thereof and to seek to obtain an
accelerated date to be allocated for its hearing with a view to having the matter
heard within approximately a year. In the context of the nearly five years which have
passed already in business rescue, complaints in respect of a further year or two
tend to attract questions as to their credibility (the factors raised by the respondents
having being applicable throughout).
121. The respondents contend that the Company and its shareholders (being the
erstwhile creditors) will be prejudiced if an interim interdict is sought for the following
reasons:
121.1. The creditors of the Company who have acquired shares in it would be
placed in a situation in which that acquisition could be overturned at a date,
years from now, and the payment of dividends to those shareholders in terms
of the BR Plan would be placed in jeopardy. My view is as follows: This is a
risk of litigation. After over four years of no d ividends and none predicted in
the near future this is not a very weighty consideration. I do not regard this
aspect as legally relevant or material prejudice.
121.2. It is conceivable that those entities would no longer be shareholders of
the Company. Their claims would presumably be resurrected with the
possibility that any dividends paid to them arising from the BR Plan would
have to be set aside. My view is as follows: The question of dividends is
addressed in the above sub -paragraph. Further, the entities in question have
all had notice of this application and have not opposed and they will receive
notice/service of the Proposed Action. I do not regard this aspect as legally
relevant or material prejudice.
121.3. The R2 million which has been invested in the Company will have to be
dealt with and, presumably, returned. That amount was invested in the
Company in terms of clause 14.8.4 of the BR Plan in which a third party,
being Cambridge Capital (Pty) Ltd took up shares in the Company. My view is
as follows: This is in all probability a related company and the amount
involved is negligible in the context of this matter. I do not regard this aspect
as legally relevant or material prejudice.
121.4. The Company will continue to operate while in business res cue. That
continued status makes it difficult for the Company to operate. An interdict
would make matters worse. It would have to be disclosed to third parties that
agreements entered into could be set aside at a later date, years from now.
My view is as follows: The considerations in the above sub-paragraphs apply.
I do not regard this aspect as legally relevant or material prejudice.
121.5. The Fifth Respondent, who is integral to the success of the Company,
has indicated that he is not prepared to remain inv olved in the event that
business rescue was to continue for years. My view is as follows: I have dealt
with this aspect in the above paragraph. I do not regard it as legally relevant
or material prejudice.
121.6. There are three other companies in the group which are also in
business rescue and which are intricately intertwined in the Cambridge
Services business rescue plan which has now been substantially
implemented. The nine steps involved in the implementation of the BR Plan
were carefully implemented in that sequence in order to extinguish the claims
from group creditors in the correct order and the steps resulted in the
preservation of the significant tax losses in the Company running into several
hundred million Rand which otherwise would have been lost. My view is as
follows: I do not understand the gravamen of this aspect and do not regard it
as legally relevant or material prejudice.
122. I am therefore of the view that the balance of convenience favours the
granting of an interim interdict.
Lack of alternative satisfactory remedy
123. The first respondent has indicated that he will file a notice of substantial
implementation of the business rescue proceedings. Respondents contend that there
is a damages claim as an alternative. However, such a claim cannot restore the
applicants as creditors with all of the rights and consequences which follow from
that. It also does not appear that such damages can readily be calculated.
Discretion
124. In my view, the findings in this judgment warrant against the exercise of a
discretion in the respondents’ favour to refuse the grant of an interim interdict and
there is no need to traverse that material any further.
Conclusion
125. The rule nisi issued on 22 May 2024 will be partially confirmed and made final
in the form of an order as set out below, save in respect of two aspect as to costs
and that no leave in terms of section 133 is required to be ordered.
Costs
126. Costs will be reserved for later determination, save as set out below.
127. Mr Muller submitted that, should the section 133 leave issue be decided
against the applicants and the interim interdict be granted, then a portion of the costs
of this application which the court considers proportionately applicable to the section
133 leave issue appropriate in the circumstances of the matter should be paid by the
applicants, with the balance of the costs to be reserved . When asked what
proportion he considered appropri ate, he said that was best left in the hands of the
court. When asked whether he considered that the court take a robust approach , he
affirmed this. I asked Mr Hartzenburg for his view on Mr Muller’s suggestion and he
confirmed that he agreed therewith. I am amenable to proceed on the basis
suggested. Having found against the applicants on the section 133 leave issue, this
basis of costs is to be invoked. While the section 133 issue consumed a fairly
substantial portion of the papers, heads of argument and oral argument, it was
significantly less than 50%. It played a much more minor role in the papers (leaving
side factual aspects which would overlap both issues which I think should be part of
the costs which stand over). I assess, on a robust approach, that 20% of the costs of
the application be apportioned to this issue and applicants will be ordered to pay
such costs accordingly, with the balance to be reserved.
128. The respondents contend that t he costs occasioned by the postponement of
this ma tter on 2 2 May 2024 when the rule nisi was issued and those on 7 March
2024, which stood over for later determination, stand on a different footing.
129. In respect of the hearing on 7 March 2024 , the respondents contend that the
applicants should not have set the matter down in the unopposed motion court in
what is known as the Third Division of this court. However, at that stage the delivery
of a notice of substantial implementation may have still been in issue. When the
matter was postpone d, the Court ordered that the application be postponed to the
semi-urgent roll but that costs would stand over for later determination. As questions
in relation to substantial implementation arose and will arise in the Proposed Action, I
am of the view that these costs should stand over to be determined in the Proposed
Action.
130. In respect of the costs incurred in respect of the date of set down of 24 May
2024 (I think that this should also include 22 May 2024 which is the actual date when
the rule nisi was issued):
130.1. The respondents contend that the applicants were always aware of the
fact that notice of the application had to be given to the affected parties who
were cited as the fourth respondent and that the applicants made no attempt
to give notice to those parties or to identify them specifically when the
application was launched.
130.2. The respondents have correctly pointed out that in terms of the BR
Plan all creditors of the Company had their claims converted to equity.
Accordingly, the applicants were always able to inspect the Company’s
register of shareholders in order to ascertain the identity of the affected
parties and their addresses. It is apparent that prior to the application being
launched and subsequently the applicants did not avail themselves of their
rights in terms of the Act to inspect the Company’s share register.
130.3. Accordingly, the Applicants failed to identify those parties despite being
able to do so. The respondents in their answering affidavit pointed out those
aspects and also attached a copy of the Company’s share register which
reflects the names and addresses of the shareholders which are affected
parties. That affidavit was delivered on 23 March 2024 and it appears that
subsequently the applicants did nothing to identify or to serve this application
on those affected parties.
130.4. When the applicants’ heads of arg ument were delivered on 3 May
2024, mention was made that the applicants would seek limited relief (on
24 May 2024) in keeping with the applicants’ intended amended notice of
motion which was subsequently delivered on 14 May 2024. Despite the
content of those heads of argument and the apparent difficulties with the relief
sought in the notice of motion, the applicants did not seek to amend that relief
formally until 14 May 2024.
130.5. The applicants failed to ensure that that occurred and were forced to
seek the issue of a rule nisi which resulted in wasted costs being incurred.
The rule nisi was extended by order on 22 May 2024 while the matter had
been set down for 24 May 2024. Accordingly, this aspect implicates the costs
on both 22 and 24 May 2024.
130.6. The applicants will be ordered to pay the costs associated with the set
down and postponement of the matter on 22 and 24 May 2024.
Order
131. Provision for ‘any related relief’ will be made in the order where reference is
made to the action to be instituted, because I apprehend there to be a prospect that
the action actually instituted will likely extend beyond the question of the setting
aside of the BR Plan, as is the case of the Proposed Action.
132. It is ordered as follows:
1. Leave is granted to the applicants in terms of Rules 4(2) and 5(2) to
serve the applicants’ combined summons in an action, in which the applicants
intend to claim an order setting aside the business rescue plan dated 5 March
2020 in respect of the Company, Cambridge Services (Pty) Ltd (‘ Cambridge
Services’), and its adoption on 13 March 2020 (“the Action”) , and any related
relief, by electronic mail on all affected persons of Cambridge Services at the
email addresses furnished by the first respondent’s atto rneys to the
applicants’ attorneys in accordance with the order of this court in this matter
on 22 May 2024.
2. Pending the final determination of the Action, the first respondent is
interdicted and restrained from filing a notice of substantial implementation of
the business rescue plan approved and adopted by the creditors of
Cambridge Services on 13 March 2020 in terms of s 132(2)(c)(ii) of the Act.
3. The Action is to be instituted (by which is meant , for the purposes of
this paragraph of this order, issued by this court and served on the first and
third respondents) within one calendar month from the date of this order,
failing which the interdict in paragraph 2 of this order will ipso facto lapse.
4. The costs of this application are reserved for decision in the Action,
save that the applicants are ordered to pay, jointly and severally:
4.1 the wasted costs associated with the set down and
postponement of the matter on 22 and 24 May 2024; and
4.2 20% of the remaining costs of the application.
_________________
A Kantor
Acting Judge of the High Court
Appearances:
For Applicant: Adv. CJ Hartzenberg SC
Adv. R Randall
Attorney: KM Attorneys and MacRobert Attorneys
For Respondent: Adv. Jeremy Muller SC
Adv. D Van Reenen
Attorney: Guthrie Colananni Attorneys