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[2020] ZASCA 151
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Cooperativa Muratori Cementisti - CMC Di Ravenna and Others v Companies and Intellectual Property Commission (1325/2019) [2020] ZASCA 151; 2021 (3) SA 393 (SCA) (20 November 2020)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 1325/2019
In the
matter between:
COOPERATIVA
MURATORI CEMENTISTI –
CMC
Di RAVENNA Società Cooperativa a
Responsabilita
Limitata
First
Appellant
LIEBENBERG
DAWID RYK
VAN
DER MERWE
NO
Second Appellant
CHRISTOPHER
RAYMOND REY N.O.
Third Appellant
and
COMPANIES
AND INTELLECTUAL
PROPERTY
COMMISSION
First Respondent
ESOR
CONSTRUCTION (PTY) LTD
Second Respondent
ABSA
BANK LTD
Third Respondent
STEFCOR CONSTRUCTION (PTY) LTD
Fourth Respondent
Neutral
citation:
CMC v CIPC and Others
(1325/2019)
[2020] ZASCA 151
(20
November 2020)
Coram:
PONNAN, WALLIS and MOLELMELA JJA and EKSTEEN and
MABINDLA-BOQWANA AJJA
Heard
:
9 November 2020
Delivered
:
This judgment was handed down electronically by circulation to the
parties’ representatives by email, publication on the
Supreme
Court of Appeal website and release to SAFLII. The date and time for
hand-down of the judgment is deemed to be 09h45 on
20 November
2020.
Summary:
Companies Act 71 of 2008
–
business rescue – whether external company can enter business
rescue – recognition of foreign composition among
creditors
approved by Italian court – who may apply and basis for
recognition.
ORDER
On
appeal from:
Gauteng Division, Pretoria
of the High Court (Potterill J, sitting as court of first
instance):
1 The application to lead further evidence on appeal is dismissed
with costs on the scale as between attorney and client, including
the
costs of two counsel.
2 The appeal is dismissed with costs, including the costs of two
counsel.
JUDGMENT
Wallis
JA (Ponnan and Molemela JJA and Eksteen and Mabindla Boqwana
AJJA concurring)
[1]
The central issue in this appeal is whether
a company incorporated in a country other than South Africa is
entitled to take advantage
of the business rescue provisions of the
Companies Act 71 of 2008 (the Act). That issue arose in the following
circumstances. The
Appellant, Cooperativa Muratori &
Cementisi-CMC Di Ravenna Societá Cooperativa a Responsibilita
Limitata (CMC), is a
long-established company incorporated in Italy
and active in the construction industry internationally. It is
registered as an
external company in terms of the Act. In the latter
stages of 2018 CMC internationally encountered a cash flow crisis and
significant
financial difficulties. This caused it to lodge with the
Court of Ravenna, Bankruptcy Section, a preventive application for
admission
to the procedure for the arrangement with creditors
pursuant to article 161 of the Italian Bankruptcy Law. On
7 December 2018
the Court of Ravenna issued an order
assigning CMC sixty days within which to file a proposal for
composition with its creditors;
ordered it to submit to possible
authorisation requests and to furnish monthly reports; and appointed
three judicial commissioners
to oversee these functions.
[2]
Not content with these proceedings in its
country of incorporation, the board of directors of CMC resolved on
14 December 2018
that the company was financially distressed as
contemplated in s 129(1) of the Act and should be placed under
supervision. Pursuant
thereto, Messrs Van der Merwe and Rey, who have
played no active role in this litigation, were appointed as business
rescue practitioners
(BRPs) to CMC. However, on 15 February 2019 Mr
Rey was advised by the first respondent, the Companies and
Intellectual Property
Commission (CIPC), that because CMC is an
external company it could not be placed under business rescue in
terms of the Act. That
precipitated the present application, brought
as a matter of urgency on 7 March 2019, for an order declaring that
CMC was under
business rescue in terms of the Act, alternatively
declaring that the order issued by the Court of Ravenna was
enforceable in South
Africa.
[3]
The CIPC was cited as the sole respondent
in that application. However, Esor Construction (Pty) Ltd (Esor), the
second respondent;
Absa Bank Ltd (Absa), the third respondent; and
Stefcor (Pty) Ltd (Stefcor), the fourth respondent, sought leave to
intervene in
the proceedings. Esor and Stefcor delivered affidavits
in opposition to the relief sought. Stefcor also sought an order for
the
provisional winding up of CMC.
[4]
The application came before Potterill J in
the Gauteng Division of the High Court, Pretoria. She dismissed CMC’s
claims and
Stefcor’s counter-application. The appeal by CMC is
with her leave. Only Esor opposed the appeal. Absa played no active
role
in the litigation and Stefcor has indicated that it abides the
decision of this court on the appeal.
Was
business rescue available to CMC?
[5]
Business rescue is defined in s 128(1)(
b
) of the Act as
meaning proceedings to facilitate the rehabilitation of a company
that is financially distressed. It does this by
placing the company’s
affairs under temporary supervision by a BRP; granting a temporary
moratorium on the rights of claimants
against the company or in
respect of property in its possession; and making provision for the
approval of a plan to rescue the
company by restructuring its
affairs. In terms of s 129(1) the board of a company may resolve that
the company voluntarily begins
business rescue proceedings and place
the company under supervision. Any such resolution must be lodged
with the CIPC and the company
must appoint a BRP to undertake the
supervision of the business rescue. This is the route that CMC
followed and it appointed Messrs
Van der Merwe and Rey as BRPs.
[6]
Business rescue is available only to a company. That is defined in
s 1 of the Act as meaning:
‘
A juristic person incorporated in terms of this
Act, a domesticated company, or a juristic person that, immediately
before the effective
date─
(
a
) was registered in terms of the ─
(i) Companies Act 1973 …, other than as an
external company as defined in that Act; or
(ii)
Close Corporations Act 1984
…, if it has
subsequently been converted in terms of Schedule 2;
(
b
) was in existence and recognised as an
‘existing company’ in terms of the Companies Act 1973 …;
or
(
c
) was
deregistered in terms of the Companies Act 1973 …, and has
subsequently been re-registered in terms of this Act.’
[7]
Whether business rescue was available to
CMC depended on it being a company in terms of this definition. In
argument it was accepted
that it is not a company in terms of any of
the three sub-sections of the definition. Although it was registered
as an external
company in terms of the Companies Act 61 of 1973 (the
old Act), sub-section
(a)
expressly
excludes an external company registered under the old Act and it was
never a close corporation. A company existed and
was recognised under
the old Act if it existed and was recognised in terms of the 1926
Companies Act, 46 of 1926, but CMC was not
such a company and does
not qualify under sub-section
(b)
.
Finally, it was not deregistered under the old Act so it does not
qualify under sub section
(c)
.
[8]
CMC attempted to circumvent this in the
following way. The definition of a 'foreign company' under s 1
of the Act means 'an
entity incorporated outside the Republic'
irrespective of whether it is a profit or non-profit entity,
or carrying on business or non-profit activities within the Republic.
The definition of ‘juristic person’ includes a foreign
company and the definition of an ‘external company’:
‘
Means a foreign company that is carrying on
business, or non-profit activities, as the case may be, within the
Republic, subject
to section 23(2).’
[9]
The argument proceeded as follows. The
definition of 'company' commences by saying that it is 'a juristic
person incorporated in
terms of this Act'. A juristic person includes
a foreign company and where that is carrying on business or
non-profit activities
within the Republic it is an external company
that is required to register in terms of s 23 of the Act. The
expression 'incorporated
in terms of this Act' must therefore be
construed as including a foreign company that had registered in terms
of s 23 of the
Act.
[10]
There is no merit in this argument, which
flies in the face of the language of the Act. Incorporation and the
legal status of companies
is dealt with in Part B of Chapter 2 of the
Act. Incorporation takes place in terms of s 13(1) by the
completion and signing
of a Memorandum of Incorporation and filing a
Notice of Incorporation with the CIPC. As soon as possible after
accepting the Notice
of Incorporation the CIPC assigns a unique
registration number to the company and enters the prescribed details
in the register.
[1]
From the date of registration the company is a juristic person and
exists thereafter until its name is removed from the register.
[2]
CMC has not been incorporated in terms of this process.
[11]
Section 23 of the Act dealing with the
registration of foreign companies is in Part C of Chapter 2 of the
Act dealing with 'Transparency,
accountability and integrity of
companies'. That places it firmly outside the provisions of the Act
dealing with the incorporation
of companies. A foreign company
registered as an external company is not incorporated 'in terms of
this Act' as required by the
definition of 'company', because it has
not been incorporated under the provisions of the Act that deal with
the incorporation
of companies.
[12]
The final nail in the coffin for this
argument is provided by sub-section
(a)
of the definition of 'company', which
expressly excludes a foreign company from being a 'company' under the
Act, notwithstanding
that it was registered in terms of the old Act.
That shows clearly that foreign companies were only to be required to
register
in South Africa for limited purposes. Where a foreign
company is required to comply with the same provisions of the Act as
a domestic
company, which is the case where it wishes to make a
public offering of securities in this country in terms of Chapter 4
of the
Act, there is special provision for this. Thus s 95(1)
provides a special definition of 'company' by saying that:
In addition to the meaning set out in section 1, also
includes a foreign company.’
That extended
definition includes both external companies, that is foreign
companies doing business in South African and registered
under the
Act, and any other foreign company that seeks to make a public offer
of securities to the South African public. This
is to ensure that any
such offer complies with South African requirements in regard to
disclosure and the like in the making of
any such offer. The special
definition reinforces the conclusion that elsewhere in the Act when
there is reference to a company
it means a company as defined in s 1.
The inevitable conclusion is that an external company may not be
placed under business rescue
and the views of the CIPC that led to
this application were correct.
The
Italian proceedings
[13]
In the alternative to a declaratory order
that the company was in business rescue, CMC asked for an order in
the following terms
when these proceedings were launched in March
2019:
'3.1 the order issued by the Court of Ravenna
(Bankruptcy Office) in Italy dated 6 December 2018, granting the
Preventative
Arrangement sought by the first applicant in the
composition proceedings; ('the Italian order') is hereby recognised
in the Republic
of South Africa;
3.2 it is declared that the Italian
order is enforceable in the Republic of South Africa.'
[14]
In the English translation annexed to the
founding affidavit the order in question read:
'Assigns the applicant company a deadline of 60 days to
file the agreement with creditors proposal, the certification
statement
and documentation pursuant to article 161, sections 2
and 3 of the Bankruptcy Law, or alternatively, the possible
restructuring
agreement and the report prepared by the professional
certifier, referred to under section 1 of article 182 bis of the
Bankruptcy
Law.
Orders the company to submit possible authorisation
requests pursuant to article 161, section 7 of the Bankruptcy Law to
the court,
and on a monthly basis send a summarised report,
specifying the ordinary and extraordinary magnitude deeds performed
and the payable
and receivable transactions that occurred,
accompanied by the bank statements for the relevant period.'
Three
individuals were named as judicial commissioners for the purpose of
'performing the functions referred to in the motivation
and any
additional and eventual functions that may become necessary'.
[15]
A brief explanatory memorandum by an
Italian lawyer indicated that the process under which the order was
made involves an endeavour
by the company to reach an arrangement
with its creditors that will enable it to continue in business. The
period of 60 days was
directed at enabling the terms of a proposal to
be prepared for submission to creditors. During that period there
appears to be
some kind of moratorium on enforcement of legal claims
against the company. On 6 February 2019 the Court of Ravenna extended
the
sixty day period until 6 April 2019.
[16]
By the time the application was heard by
Potterill J matters had moved on considerably. A plan was lodged
with the court on
8 April 2019 and on 12 June 2019 the
court granted an order (a) admitting the company to the
pre-insolvency arrangement
procedure; (b) appointing a delegated
judge and judicial commissioners; (c) directing that the
pre-insolvency arrangement be communicated
to creditors by 31 July
2019; and (d) providing for a meeting of creditors to be convened by
no later than 13 November 2019 to
consider the arrangement.
[17]
These changed circumstances did not prompt
CMC to amend the relief it was seeking, namely, the recognition of
the order of 6 December 2018.
The fact that everything that
the Court of Ravenna had directed should happen in terms of that
order had happened and that further
and different orders had been
granted was disregarded. It is an understatement to say that this
introduced an air of unreality
into the proceedings.
[18]
That air of unreality became even more
mystifying after Potterill J handed down her judgment and
granted leave to appeal, because
in its notice of appeal to this
court CMC said that, if its argument in regard to business rescue was
not upheld, it would seek
in the alternative an order recognising the
order of 6 December 2018. By this stage, as we now know, the
creditors' meetings
had taken place and the proposed composition with
creditors approved. This was reflected in CMC's heads of argument
which said
that it intended to seek the leave of the court to adduce
further evidence apprising it of the progress of the proceedings in
Italy
and the fact that a plan had been approved by the requisite
majority under the Italian Bankruptcy Law. That was on 30 June 2020.
The need for such evidence became clamant when Esor's heads of
argument were filed on 29 July 2020 as they said that they
would
seek leave to adduce further evidence that on 29 May 2020, following
hearings on 11 and 25 March 2020 the
Court of Ravenna
had finally approved the composition on 29 May 2020. In fact
they did not do so.
The
application to lead further evidence
[19]
Notwithstanding the manifest urgency of any
application to adduce further evidence on appeal, nothing was
forthcoming until Friday,
6 November 2020, three days before the
appeal was to be argued on Monday, 9 November 2020. This
revealed that Esor was
correct in saying that the composition had
been approved by a court order granted on 29 May 2020. The
composition allegedly
dealt with CMC's assets and liabilities
worldwide and the worldwide claims of creditors including those in
South Africa. On 7 August
2020 the Chancellor's Office of the Court
of Ravenna certified that there was no appeal against the order
approving the composition.
[20]
The only explanation for this delay was a
single paragraph in the affidavit filed in support of the
application, reading as follows:
'In August the courts in Italy are
closed for the summer holidays. As a result of this the decree
granted by the Court in Ravenna
on the 7
th
August 2020 was only received in early September 2020. In addition
because of the Covid emergency, obtaining an appointment for
the
translation of the decree took some time. Ultimately, the translation
of the decree was only obtained on the 16
th
October 2020. It was for this reason that the launch of this
application was delayed.'
[21]
This explanation was wholly unacceptable as
was the delivery of 100 pages of affidavits and annexures in the
middle of a court term
and three days before the hearing of the
appeal. Describing the explanation as cursory is to flatter it. The
judgment approving
the composition reflects that the president of the
court in Ravenna twice directed expedited hearings in the light of
the Covid-19
epidemic and hearings were held with the use of personal
protective equipment and the application of social distancing
guidelines.
The judgment showed that the judicial commissioners
supported the composition and only a handful of creditors expressed
objections.
These were addressed at a hearing on 20 May 2020 and the
judgment approving the compromise was handed down on 29 May
2020.
It was translated into English immediately; the translator's
certificate being dated 6 June 2020. This court was not given
the elementary courtesy of it being recognised that adducing
additional evidence required similar urgency from the litigants and
their legal representatives. When this was raised with counsel we
were not even favoured with an apology.
[22]
It is inexcusable that this information was
not brought to this court's attention simultaneously with the
delivery of the heads
of argument. Instead the heads of argument were
inaccurate in saying only that the creditors had voted in favour of
the composition
and not mentioning that it had been approved by the
court. There is a cryptic statement in para 122 of the heads of
argument for
CMC that CMC is entitled in its alternative prayer to an
order 'recognising the court ordered arrangement with creditors,
granted
by the court of Ravenna on 7 December 2018'. It is
unclear whether this was possibly hinting at the order of 29 May
2020.
We have no affidavit from the South African attorney explaining
his instructions to counsel and, if they did not refer to the order
of 29 May 2020, why this important information was not included. Nor
do we know whether he was advised by counsel to bring the
application
urgently and, if not, why not.
[23]
The excuse quoted above in para 20, that
the certificate that there were no appeals pending was only issued on
7 August, when
the courts were closed for the summer holidays,
is not born out by the certificate. That shows that it was issued at
the specific
request of CMC's lawyer, a Mr Fabrizio Corsini, on 7
August 2020. It is dated and signed on 7 August and bears what
appear
to be revenue stamps of four euros. On the face of it, Mr
Corsini had it in his possession on that day and certainly must have
been aware of it. All the relevant information was in the possession
of CMC and its Italian lawyer and should have been in the possession
of its South African lawyer. There was no reason to wait until
16 October 2020 for the certificate to be translated in Italy.
There are Italian translators in this country.
[3]
In any event this uncontroversial information could have been
furnished to the court on the basis of information and belief in
a
short affidavit from the South African attorney.
[24]
The additional evidence demonstrated in no
uncertain fashion, what was apparent by the time the case came before
the High Court,
namely that the order sought in the original notice
of motion and the notice of appeal had long since ceased to be of any
relevance.
There is nothing to recognise in that order. The period it
gave CMC to produce a plan of composition with its creditors has
passed
and it has done just that. Everything that has happened since
has happened in accordance with other court orders and provisions
of
the Italian Bankruptcy Code that have not been furnished to us.
[25]
Mr Brett SC argued that the order of
7 December 2018 was a process akin to one of judicial management
or a section 311
compromise under the old Act, or business
rescue under the Act, and that we should treat the recognition of the
order as a continuation
of that process. That is plainly wrong. An
order giving a company a temporary moratorium from claims while it
prepares a plan to
place before its creditors is fundamentally
different from an order convening meetings to consider a plan, or an
order approving
the adoption of the plan by a meeting of creditors.
Under none of the three processes he identified would an initial
order, for
example, the appointment of provisional judicial managers
or an order for meetings to be convened to consider an offer of
compromise,
be treated as encompassing the final judicial management
order or the sanction of the compromise.
[26]
The last, but by no means the least
important, reason for not admitting this evidence is that, pursuant
to it, CMC sought an order,
the effect of which as explained in
argument would be to impose upon South African creditors the terms of
the composition approved
by the Court of Ravenna, without their being
cited or served or having had any opportunity to submit evidence or
argument against
an order having that effect. That would amount to a
wholesale breach of their constitutionally guaranteed right of access
to courts.
It cannot be countenanced.
[27]
The application to adduce further evidence
must be dismissed. An appropriate penal order for costs should
accompany its dismissal.
The
alternative relief
[28]
For the reasons already canvassed the
prayer for alternative relief in the form of an order recognising the
Court of Ravenna's order
of 7 December 2018 was moot long before
the appeal reached this court. The prayer was in any event fatally
flawed and doomed
from the outset to fail.
[29]
In the first place there was nothing in the
order of 7 December 2018 that was capable of being enforced
or recognised
in South Africa. CMC was given leave to prepare a plan
for a composition with its creditors. It was required to submit
certain
authorisation requests and reports to the Court of Ravenna.
Neither of those was in any way executable in South Africa and
recognising
the order in South Africa could not possibly have had any
effect in this country.
[30]
The purpose behind this request was
twofold. It was claimed that a recognition order would put CMC's
South African operations under
the supervision of the Board of
Commissioners appointed by the Italian court for so long as the
process of securing approval of
a composition with creditors
continued in Italy. Second it was suggested that this would entitle
CMC to the same moratorium against
claims by creditors in this
country as the Italian proceedings afforded CMC in Italy.
[31]
The legal foundation for this was
misconceived. Reliance was placed upon the decision of this court in
Jones v Krok
[4]
to claim the enforcement of the Court of Ravenna's order in this
country. But not all judgments by foreign courts are enforceable
in
South Africa solely on the grounds set out in that case. Judgments
that determine a party's rights or status
[5]
are capable of giving rise to a cause of action in South Africa and
Jones v Krok
was concerned with that type of case. It was not concerned with the
enforcement in this country of the statutes of other countries
governing matters such as company law or insolvency. There the
principle that foreign statutes have no extra-territorial effect
comes into play. Absent recognition by our courts in appropriate
proceedings the foreign trustee or liquidator has no authority
to
deal with assets in this country and any moratorium operating
elsewhere will not bind South African creditors.
[6]
[32]
In dealing with issues involving foreign
liquidators and similar persons acting in terms of the legislation
governing insolvency
or bankruptcy or the winding-up of companies,
the established principle is for the foreign liquidator to apply for
recognition
in this country. Without recognition in this country they
are not entitled to bring proceedings in a court in South Africa.
[7]
The court granting recognition will then make an appropriate order
including that they furnish security and will distribute the
assets
in this country in accordance with the law of this country.
[8]
Such recognition is granted on terms that protect the position of
local creditors holding security for their claims under domestic
law
and the powers to be exercised by the foreign liquidator will be
dealt with in the recognition order.
[9]
[33]
If anyone were to seek recognition in this
country of the order of the Court of Ravenna it would have to be the
Judicial Commissioners,
who appear from the sparse information in the
founding affidavit to play some kind of oversight role in relation to
the process
of arriving at and securing the approval of a
composition. But they do not appear to hold a position similar to a
trustee or liquidator
who is charged with the possession of the
assets of the company and owes a duty to creditors to deal with their
claims. Judging
by the judgment of 29 May 2020, which is
the only source available to us, their role is to report to the court
on the
fairness of the composition. Nevertheless, if anyone was to
apply for recognition in this country it would be them and they have
brought no such application. On the face of it the claim that the
order of the Court of Ravenna be recognised in this country is
brought by a party (CMC) that has no right to seek such an order.
[34]
For those further reasons the application
for the alternative order was as misconceived as the application for
the main order.
Result
[35]
Both the application to lead further
evidence and the appeal must be dismissed. To show the court's
disapproval of the manner in
which the application to lead further
evidence was brought, its dismissal will be accompanied by an order
that it pay the costs
on an attorney and client scale. The following
order is made;
1 The application to lead evidence on appeal is dismissed with costs
on the scale as between attorney and client, including the
costs of
two counsel.
2 The appeal is dismissed with costs, including the costs of two
counsel.
____________________
M J D WALLIS
JUDGE
OF APPEAL
Appearances
For
appellant:
JJ Brett
SC (with him D Mahon)
Instructed
by:
Terry Mahon
Attorneys, Sandton;
Webbers, Bloemfontein
For
second respondent: WG La Grange SC (with him AC
Russell)
Instructed
by:
Tiefenthaler
Attorneys Inc, Rivonia;
Honey Attorneys Inc, Bloemfontein.
[1]
Section 14(1) of the Act.
[2]
Section 19 of the Act.
[3]
The website of the Italian Consulate has a list
of 18 sworn translators.
[4]
Jones v Krok
[1994] ZASCA 177
;
1995
(1) SA 677
(A) at 685B-E;
Purser v
Sales; Purser and Another v Sales and Another
[2000] ZASCA 135
;
2001 (3) SA 445
(SCA) para 11, cited with approval in
Government
of the Republic of Zimbabwe v Fick and Others
2013
(5) SA 325
(CC) para 38.
[5]
LAWSA, Vol 7(1) 3ed (2019) para 369. The most
usual cases involve monetary judgments and claims to specific
property.
Questions of status such as the
grant of a decree of divorce will be more readily recognized than an
order for the custody of
a minor child where the interests of the
child are paramount.
Righetti v Pinchen
and Another
1955 (3) SA 338 (D).
[6]
Ward and Another v Smit and Others: In re Gurr
v Zambia Airways Corporation Ltd
1998
(3) SA 175
(SCA) at 179D-J.
[7]
Moolman v Builders & Developers (Pty) Ltd
(in provisional liquidation)
1990 (1)
SA 954
(A) at 959E-960 C.
[8]
Donaldson v British South Africa Asphalt and
Manufacturing Co Ltd
1905 TS 753
at
756-757,
[9]
Re African Farms Ltd
1906
TS 373.