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THE COMPANIES AND INTELLECTUAL Third Respondent
PROPERTY COMMISSION
LEILA ESSOP N.O. Fourth Respondent
WILLEM JACOBUS VENTER N.O. Fifth Respondent
REASONS
DE VOS AJ
[1] On 23 January 2025 this Court granted an order in the following terms:
1. The urgent business rescue application of the First, Second and Third Applicant is
dismissed .
2. The costs of this application be costs in the administration of the insolvent estate of
Amogelang Logistics CC .
[2] On 5 February 2024, the applicant requested reasons for the order. These are the
reasons for the order.
CONTEXT
[3] The applicants sought, urgently, to place Amogelang Logistics CC (“the business”)
under Business Rescue. The business was finally liquidated in terms of a court order
granted on 10 April 2024. The order stands. The central legal issue to be decided is
whether the applicants have shown that it would be just and equitable to order
business rescue and that there is a reasonable prospect of rescuing the business in
terms of section 131(4)(a)(iii) of the Companies Act 71 of 2008 .
[4] The applicants , who allege they are employees of the business, emphasise the
objects of the Companies Act. In particular , section 7(1) which states that the purpose
of the Companies Act is to promote compliance with the Bill of Rights as provided for
in the Constitution, in the application of company law and to provide for the efficient
rescue of financially distressed compa nies, in a manner that balances the rights and
interests of all relevant stakeholders . The applicants contend that , as employees , their
ability to earn a living is in jeopardy whilst the business is in liquidation – but that they
have means to put food on the table if the business is placed in business rescue . In
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addition, the applicants submit that they have shown that the business bears
reasonable prospects of recovery and it would be just and equitable to grant business
rescue .
[5] Daimler Truck Financial Services (Pty) Ltd (“the affected creditor”) accepts the
purpose of business rescue within which the applicants frame their case. However,
the affected creditor submit s that, factually, the applicant has not shown a prospect of
recovery and that it would not be just and equitable to order business rescue in this
context.
[6] The Court considers, firstly the issue of reasonable prospects of recovery.
REASONABLE PROSPECTS OF RECOVERY
[7] A court may not grant an application for business rescue unless there is a reasonable
prospect for rescuing the company . There must be a reasonable prospect of
facilitating its rehabilitation so that it continues on a solvent basis or, if that is not
possible, yields a better return for its creditors and shareholders than what they would
receive through liquidation. (Newcity Group (Pty) Limited v Pellow N.O. and Others
(577/2013) [2014] ZASCA 162 para 15).
[8] In deciding that question the court exercises a discretion in the wide sense – it makes
a value judgment. As to what “reasonable prospect ” means, it as a yardstick higher
than “a mere prima facie case or an arguable possibility ” but lesser than a “reasonable
probability ”. It must be a prospect based on reasonable grounds to be established by
a business rescue applicant in accordance with the rules of motion proceedings.
(Oakdene Square Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami)
(Pty) Lt d and Others 2013 (4) SA 539 (SCA) ).
[9] Vague averments and mere speculative suggestions will not suffice in this regard.
There can be no doubt that, in order to succeed in an application for business rescue,
the applicant must place before the court a factual foundation for the existence of a
reasonable prospect that the desired object can be achieved. (Oakdene para 16).
[10] Our courts have not approached the test by setting general minimum particulars of
what would constitute a reasonable prospect in this regard. However, the Supreme
Court of Appeal has held that the standard does not require :
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“concrete and objectively ascertainable details of the likely costs of rendering the
company able to commence or resume its business, and the likely availability of the
necessary cash resource in order to enable the company to meet its day -to-day
expenditur e, or concrete factual details of the source, nature and extent of the
resources that are likely to be available to the company, as well as the basis and
terms on which such resources will be available, is tantamount to requiring proof of
a probability, a nd unjustifiably limits the availability of business rescue proceedings.”
[11] The applicant need not provide a detailed plan, but must establish grounds for the
reasonable prospect of achieving recovery . The recovery must be realistic .
Particularly where, a court has already found that it is just and equitable for the
insolvent business to be wound up and , as in this case, importantly, it did so without
any objection from shareholders, creditors or employees.
[12] One would not want to send a hopelessly insolvent company with little prospect of
commercial rehabilitation through a process of business rescue only for its winding -
up to be later resumed after an unnecessary waste of time and resources to the
prejudice o f the waiting creditors. (Forty Squares (Pty) Ltd and Another v Noris Fresh
Produce (Pty) Ltd t/a Golden Harvest and Others; 2023 (5) SA 249 (WCC ) para 20) .
[13] The Court must then determine if this standard has been met. The Court will consider
the evidence relied on by the applicants and the affected creditor, as well as certain
information placed before the Court by the provisional liquidators.
Provisional liquidators
[14] The provisional liquidators were joined to these proceedings on 31 December 2024.
The matter was set down for the urgent week of 14 January 2024. G iven the se
timeframes, the provisional liquidators had not yet been able to apply in terms of
section 18(3) of the Insolvency Act for leave to have their powers extended, to appoint
attorneys and to defend against any legal action. In this context, the provisional
liquidators presented a report on its findings in relation to the business. The report
was presented in the late afternoon on 8 January 2025 . The affected creditor then
incorporated the report into a supplementary affidavit and itself presented further
evidence based on the information contained in the report, under oath. The applicants
did not file a response to the report or the supplementa ry affidavit filed by the affected
creditor.
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[15] The status of the evidence contained in the report and incorporated into the
supplementary affidavit has to be determined. The applicants object to the
admissibility of the evidence on the basis that it is hearsay as it has not been
presented under oath or in the format of an affidavit.
[16] The affected creditor submitted that in its supplementary affidavit the contents of the
report had been placed under oath – albeit as hearsay. In this supplementary affidavit,
the affected creditor explicitly relied on the provisions of section 3(1)(c) of the Law of
Evidence Amendment Act 45 of 1988 which permits the admissibility of hearsay
evidence in certain circumstances.
[17] The evidence in the supplementary affidavit relating to the report is hearsay. The court
must consider the relevance of this report. It is a report filed by the provisional
liquidators in this matter and relates to the financial affairs of the business. It is directly
relevant. The Court must also weigh the reason the evidence is hearsay. The common
cause explanation is that the provisional liquidators have not had the time to be
granted the necessary powers to appoint lawyers in order to place the evidence before
court in the format of an affidavit. The explanation is sound and weighty. The Court
considers whether the applicants will be prejudiced by the admission of the evidence.
The applicants have not presented such prejudice. The applicants had the opportunity
to respond to the supplementary affidavit and choose not to.
[18] The hearsay evidence is relevant. The reason it is not presented by the person on
whose credibility it relies , is clearly explained – and not disputed. There is no prejudice
to the applicant in this context. The Court admits the hearsay evidence contained in
the affected creditor’s further affidavit in terms of section 3(1)(c) of the Law of
Evidence Amendment Act .
[19] Aspects of th e report need to be quoted directly . The report make s several points,
the first is that the basic premise that under liquidation the employees would not be
able to earn a living is disputed:
“11. With the limited powers as per our certificates of appointment and the limited
information and documents received to date, we, the liquidators, specifically report
on the inconsistencies in the founding affidavit of the applicant and our preliminary
findings on the bank statements of Amogelang Logistics CC.
12. I will refer to the paragraphs of the applicant’s founding affidavit and comment
thereupon ad seriatim.
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13. At paragraph 26, the applicant stat es that all the employees of Amogelang
Logistics CC will effectively have their employment contracts terminated by virtue of
the winding -up order.
14. This is, in essence, incorrect. Section 38 of the Insolvency Act 24 of 1936 deals
with the effect of liquidation on employment contracts and provides that employment
contracts are suspended from the date of the provisional order of liquidation of the
emplo yer.
15. I further refer you specifically to section 98A(1)(a), (b) and (3) of the Insolvency
Act 24 of 1936 …..(quoted in full). Therefore section 98A entitles the employees to
preference claims in liquidation for arrear salaries, wages, leave and payments due
for any other form of paid absence.
16. At paragraph 43, the applicant states that no payments will be made towards
employees’ salaries, provident fund, and medical aid benefits. I refer you to section
386 of the Companies Act, specifically subsection 4(f) and (i).
17. The liquidators may elect to trade the company in liquidation if it would be to the
benefit o f the generally body of creditors and therefore would be able to continue
payment towards the employees’ salaries, provident fund, and medical aid benefits
should such payments and/or benefits be contained in the employees’ employment
contracts.
[20] The liquidators contend that the premise of the application, that the employees would
be better off under business rescue rather than liquidation is contradicted by specific
provisions in the Insolvency Act and Companies Act.
[21] Second, the liquidators raise grave concerns regarding aspects of the applicants’
founding affidavit:
“24. At paragraph 45, the applicant attached the financial statements for the year
ended 30 April 2024 of Amogelang Logistics (CC).
25. We did not have adequate time prior to this report to investigate the financial
statements and compare them to the actual source documents in an attempt to
confirm the figures reflected in the financial statements: therefore, we would not be
able to comment on the correctness of the statements .
26. Notwithstanding the above, we proceeded to do a simple comparison of the
financial statements and historical bank statements. From the financial statements
attached to the applicant’s founding affidavit, the statements confirmed income tax
payable to SARS exceeding R 250 000, and after the perusal of the historical bank
statements, no payment to SARS was made for the income tax due.
27. Therefore, Amogelang Logistics is not tax compliant and/or diligently attending
to the statutory duties in terms of the Tax Administration Act, and further
investigations will be conducted hereon. ”
[22] Third, the bank statements raised “some questionable transactions flagged on the
statements ” which included the following:
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“30. Several significant payments referenced as “loan to ATS” were made on a
monthly basis from Amogelang’s account, and these payments should be calculated
and recovered. ATS does not appear as a recovery in the account receivable age
analysis attached to the applicant’s founding affidavit, and these transactions should
be investigated.
31. In addition to the payment of salaries for Amogelang’s employees, several
payments referenced as “Farm Worker Salaries” are made from Amogelang’s
account. These payments should be investigated, and if it is confirmed that
Amogelang Logistics CC is paying f or another entity’s employees and not receiving
any benefit f or the payment, then those paym ents would constitute a disposition in
terms of the Insolvency Act.
32. Each month, two debit orders with descriptions S Bsa Homel xxx3449 and SBsa
Homel xxx2073 are paid from Amogelang’s account.
33. SBsa Homel is the abbreviation for a home loan with Standard Bank.
34. These payments total more than R 43 000 per month, and the significance
thereof is that there is no bond registered on Amogelang’s immovable property and
therefore no bond payments.
35. Therefore, there may be a possibility that Amogelang Logistics CC is paying a
bond on a thir d party’s immovable property. These payments will be investigated
and dealt with accordingly. ”
[23] The core issue is that the liquidators conclude, based on these paragraphs:
“38. Consequently, I believe there exists sufficient factual cause to establish
reasonable suspicion that the trade dealings and affairs of Amogelang Logistics CC
warrant investigation through the mechanism of section 417/418 of the Companies
Act.”
[24] The liquidators then refer the Court to the matter of PFC Properties (Pty) Ltd v
Commissioner for the South African Revenue Services and Others 2024 (1) SA 400
(SCA). Therein Weiner JA carefully considered the stratagem of the applicants in the
applicatio n for business rescue together with the relevant timeline of events leading
to the business rescue applications to ensure the business rescue application was not
abuse of court process. Weiner JA further considered the matter of Villa Crop
Protection (Pty ) Ltd Bayer Intellectual P roperty GMbH 2023 (4) BCLR 461 (CC) where
the Court deal t with the fate of proceedings launched by a party with an ulterior motive.
[25] The liquidators state –
“42. Considering the recent applications launched in the matter of Amogelang
Logistics CC, namely the application for liquidation, application for leave to appeal,
and the two business rescue applications, the court should consider if the launch of
the business rescue application was again a stratagem of the member of the entity ,
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and whether the applicant had any intention of prosecuti ng the application to its
conclusion and that it does not constitute an abuse of court process.
46. As previously mentioned, we believe there exists sufficient factual cause to
establish reasonable suspicion that the trade dealings and affairs of Amogelang
Logistics CC warrant investigation through the mechanisms of Section 417/418 of
the Companies Act and should the application for business rescue be dismissed,
the liquidators will immediately approach court and obtain leave to convene the
enquiry.
[26] Fourth, the liquidators state that the court must consider if there is any prospect of
success should the company be placed in business rescue. In this regard the
liquidators state that -
“44. The current liabilities of Amogelang Logistics are as follows:
44.1 Mercedez Benz Financial Services R 1, 809, 098.99
44.2 Daimler Truck Financial Services R 4, 841, 377.98
44.3 Ticktech (Pty) Ltd R 104, 246. 41
44.4 SARS PAYE R 1, 799, 819.00
45. SARS further confirmed the taxpayer declared a loss for Income Tax purposes
and not a profit as per the financial statements attached to the applicant’s founding
affidavit.
[27] In summary, the liquidators state –
27.1 The premise that employees will be prejudiced under liquidation and remain
gainfully employed under business rescue , is not borne out by the statutory
scheme.
27.2 They have grave concerns regarding aspects of the applicant’s founding
affidavit and whether it squares with the financial information in the liquidators’
possession.
27.3 They have identified questionable transactions, in particular that salaries of
non-employees and third party’s home loans have been paid from the account
of the business. These transactions ought to be investigation in terms of section
417/418 of the Companies Act.
27.4 The prospect of recovery must be considered in light of the debt owed by the
business and that it has declared no profit for tax purposes.
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[28] The affected creditors submit that based on the further findings presented in the report
and the supplementary affidavit , it is clear that it would not be in the interest of any of
the affected parties to have the business placed in business rescue, that the entity
should remain in liquidation and that the liquidators should be allowed to conduct the
necessary section 417 / 418 enquiries. A business rescue practitioner would not be
able to do so. The liquidators, upon being provided with all information, wo uld be able
to assess if it would be in the best interest of all affected parties and the general body
of creditors for them to continue to conduct the business whilst they continue with the
required enquiries. If it is so determined that it would be in the best interest of the
parties, the liquidators would then be able to continue to pay the salaries of the
employees until all enquiries and matters are finalised.
[29] The Court gave the applicants an opportunity to make submissions based on the
evidence. The applicants pointed out that one aspect of the report relate s to a creditor
of another entity, being Amogelang Transport (Pty) Ltd , and not the present business.
Prospect of recover y presented by the parties
[30] The applicants contend the business stand a prospect of recovery. The main points
they rely on this regard are :
12.1 The applicants present the Court with two contracts with the Department of
Education, one in Limpopo and one in Gauteng. The contracts are for a period
of five years, this being the first year of the contract. The applicants then
attach the contracts. They contend that the business will be able to generate
an income based on these contracts.
12.2 The applicants attach the financial statements for the year ending in April
2024 and submits that this shows that business does make a profit and can
cover its obligations.
12.3 The applicants also rely on the general benefits of a business being placed
under business rescue and contend that this would place the business in a
“far better position”.
12.4 There is a list of creditors – which shows only a “few creditors”.
12.5 There are assets owned by the business which can be sold to assist in the
turnaround. The asset value is approximately R 26 000 000.
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12.6 The business generally generates a profit.
[31] The applicants submit that they have shown a prospect of recovery.
[32] The affected creditor responds as follows. In relation to the contracts with the
Department of Education:
32.1 The contract was entered into after the business had been finally liquidated,
which was known to Mr Mere who signed the contract at the time. The contract
is therefore invalid.
32.2 The contract is incomplete (as attached to the FA). The omitted pages make
it impossible to see what the actual value of the contract income is.
32.3 Lastly, on the terms of the contract itself, it provides in clause 21 that it would
be terminated immediately in the event of liquidation or if it was unable to pay
any amounts due to their creditors as and when they fell due.
[33] The second “agreement” is not a contract, but a letter from the Department indicating
that they accepted a bid from the business. In any event, the letter provides that the
bid was accepted on condition that the business sort out their tax matters. This ha s
not happened – and the failure to comply with the condition means that the
acceptance is invalid.
[34] The affected creditor submits that these are, on the applicants’ version the only
income generating contracts to support the applicants ’ case for prospects of recovery.
They are, according to the affected creditor no true contracts as they are invalid on
their own terms.
[35] As for the “few creditors” the affected creditors plead that Mr Moabi places no
documents or records before the Court in which all amounts due to creditors or
employees on a monthly basis are stated, nor does he place the actual recent
statements from the creditors of the business before the court, in order to ascertain
the true amounts in arrears.
[36] The affected creditor also refers to another set of creditors. Whilst the business was
placed in liquidation by one creditor (Kal Tires), another set of creditors (Kalamazoo
Coaches) who were unaware of the existing liquidation proceedings, sought to place
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the business in liquidation, as well. This second set of creditors do not appear on the
list of creditors provided by the applicants.
[37] The affected creditor submits that Mr Moabi appears almost elusive in what he wants
to present to the above Honourable Court in support of the application for business
rescue. He is clearly not forthcoming with any information which proves that there are
any reasonable prospects of success through business rescue.
[38] Mr Moabi provides a list of available assets for alleged turn around which includes an
overgrown stand and funds available in the bank account. But it is clear that these
funds, if one has consideration for what was said by Mr Moabi, will be utilised towards
salaries. There is still absolutely no list of all available assets which can serve as
security for their indebtedness to creditors. Despite providing a little bit more of the
information related to the contracts with the Department of Education, Mr Moa bi still
does do not all or the full contracts to determine their value or if these contracts and
income earned from same will be sufficient to pay all creditors and expenses on a
monthly basis.
[39] The affected creditor presses on the court that t he applicants rely on speculative
suggestions – such as the effect of business rescue will place the applicant in a “far
better position” and that the applicant will be able to secure “funding” and “further
contracts” once under business rescue. This , contends the affected creditor, is not
enough.
Prospect of recovery
[40] The standard demanded from the applicants is not to prove a probability of recovery.
It is lower. It need also not provide detailed plans of how the business will be turned
around – that will come with the business practitioner. However, the applicants m ust
show the Court some basis for its submission that there is a prospect of recovery.
[41] The applicants pressed, particularly at the hearing, the right to earn a living of the
employees of the business. This must weigh with the Court. The ability to earn a living
provides the wherewithal to exercise many of the rights in the Bill of Rights.
[42] In addition, in Minister of Home Affairs v Watchenuka 2004 (4) SA 326 (SCA) para 27
the Supreme Court of Appeal has specifically linked the right to work with the right to
dignity:
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“[t]he freedom to engage in productive work... is indeed an important
component of human dignity... for mankind is pre -eminently a social species
with an instinct for meaningful association. Self -esteem and the sense of self -
worth – the fulfilment of what it is to be human – is most often bound up with
being accepted as socially useful.”
[43] The ability to earn a living is a component of the right to dignity.
[44] It is further clear that section 7 of the Companies Act demands that the Court must
consider the ability to earn a living of employees as a factor in considering whether to
grant business rescue.
[45] The difficulty is that the report provided statutory provisions which contradicted the
premise of the applicants’ submission: that employment is certain under business
rescue and unemployment certain under liquidation . Specifically, the report refers to
section 98A which entitles the employees to preferen tial claims in liquidation for arrear
salaries, wages, leave and payments due for any other form of paid absence.
[46] In relation to the applicants ’ allegation that no payments will be made towards
employees’ salaries, provident fund, and medical aid benefits, the liquidators refer to
section 386 of the Companies Act, specifically subsection 4(f) and (i) which provide
that the liquidators may elect to trade the company in liquidation if it would be to the
benefit of the generally body of creditors and therefore would be able to continue
payment towards the employees’ salaries, provident fund, and medical aid benefits
shoul d such payments and/or benefits be contained in the employees’ employment
contracts.
[47] The statutory scheme does not support the applicants’ submission. The applicants
could not counter these statutory provisions or the conclusion drawn by the liquidators
in this regard. The applicants have not identified the specific basis on which they
contend that the se sections would not sufficiently protect them based on the facts of
this case.
[48] In addition, even if the applicants’ submission was sound, that employment was
secure under business rescue and that there was no safeguarding of the employees’
rights under liquidation – it had to be weighed against the clear jurisdictional
requirement of section 131 which is that there had to be a prospect of recovery. It
cannot be that the impact on workers, which weighs heavily with this Court, overrides
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the jurisdictional requirement of section 131 of the Companies Act. If there is no
prospect of recovery, the Court cannot grant business rescue – even in the face of an
impact on employees’ rights.
[49] It further weighs with the Court that the applicants have not disputed the contents of
the liquidator’s report relied on by the affected creditors . The Court therefore has
concerns regarding transactions made from the business’ account. The applicants
provided the Court no comfort in response to this evidence. The liquidators raised
concerns regarding aspects of the founding affidavit. Again, the ap plicants provided
the Court with no counter to these allegations . The liquidators flagged certain
payments as being paid for third parties from the business’ account, which should be
investigated in a section 417/418 process. And again, the applicants provided no
response to these serious allegations.
[50] The applicants’ have not shown a prospect of recovery, particularly in light of the
uncertainty of the validity of the contracts with the Department and the flow of money
to be expected from these contracts. These are – save for the hope of fundraising
referred to by the applicants – the only source of income identified. In any event, the
liquidators ’ report and evidence of a longer list of creditors diminishes the prospect of
recovery.
[51] The Court is in the position where there is nothing reliable before it showing any flow
of money in terms of valid agreements into the business . The Court also does not
have any sense of how much money will be flowing in and no true sense of what the
business’ obligations or creditors are. The applicant has in this way failed to show a
prospect of recovery.
[52] The Court is also left with changing and conflicting evidence regarding the business’
tax compliance and list of creditors . With no clarity and no comfort in this regard, the
Court is left without a basis to conclude that there is a prospect of recovery.
[53] In addition, the report clearly identified the case law and the basis on which it contends
that the present application is an abuse to avoid the investigation powers which comes
with section 417/418 of the Companies Act – which are needed based on the flag ged
transactions. The applicant has also failed to dispel these serious allegations in the
report that the present application is an abuse of process.
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Date of reasons : 25 February 2025