Knoop and Another NNO v Gupta (Tayob Intervening) (116/2020) [2020] ZASCA 163; [2021] 1 All SA 726 (SCA); 2021 (3) SA 88 (SCA) (9 December 2020)

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Knoop and Another NNO v Gupta (Tayob Intervening) (116/2020) [2020] ZASCA 163; [2021] 1 All SA 726 (SCA); 2021 (3) SA 88 (SCA) (9 December 2020)

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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 116/2020
In the
matter between:
KURT
ROBERT KNOOP NO

FIRST

APPELLANT
JOHAN
LOUIS KLOPPER NO

SECOND APPLELLANT
and
CHETAALI
GUPTA

RESPONDENT
MAHOMED
MAHIER TAYOB
INTERVENING

PARTY
Neutral
citation:
Knoop and Another NNO v
Gupta (No 2)
(Case No 116/2020)
[2020]
ZASCA 163
(9 December 2020)
Coram:
WALLIS, MBHA and MOCUMIE JJA and EKSTEEN and
MABINDLA-BOQWANA AJJA
Heard
:
6 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 is deemed to be 09h45 on 9 December 2020
Summary:
Removal of business rescue
practitioners – s 139(2) of
Companies Act 71 of 2008
–
grounds – whether grounds for their removal established.
ORDER
On
appeal from:
Gauteng Division of the
High Court, Pretoria (Ledwaba DJP, Janse van Nieuwenhuizen J and
Senyatsi AJ concurring, sitting as
court of first instance) reported
sub nom
Gupta v Knoop NO and Others
2020
(4) SA 218
(GP);
[2019] ZAGPHC 960:
1 The appeal is upheld with costs, such costs to include those
consequent upon the employment of two counsel.
2 The order of the high court is set aside and replaced with:
'The application is dismissed with costs, such costs to include those
consequent upon the employment of two counsel.'
3 The costs occasioned to the appellants by the application to
intervene by Mr Tayob, including those consequent upon the employment

of two counsel, are to be paid by Mr Tayob in his personal capacity.
JUDGMENT
Wallis
JA (Mbha and Mocumie JJA and Eksteen and Mabindla Boqwana AJJA
concurring)
[1]
The respondent, Mrs Chetali Gupta, her
husband, Mr Atul Gupta, and his brothers Messrs Rajesh and Arti Gupta
(collectively 'the
Guptas'), are the sole shareholders in equal
shares, in two companies, Islandsite Investments One Hundred and
Eighty (Pty) Ltd
(Islandsite) and Confident Concept (Pty) Ltd
(Confident Concept). On 16 February 2018 Islandsite and Confident
Concept were both
placed under voluntary business rescue in terms of
resolutions taken by their respective boards of directors under
s
129(1)
, read with s 129(2), of the Companies Act 71 of 2008 (the
Act). Acting on the recommendation of their attorneys, the board of
directors
of Islandsite appointed the appellants, Messrs Kurt Knoop
and Johan Klopper, as business rescue practitioners (BRPs) and
the
board of Confident Concept appointed Mr Knoop as BRP.
[2]
Less than a year later, in November 2018,
Mrs Gupta launched an application in the Gauteng Division of the High
Court, for the removal
of Messrs Knoop and Klopper as BRPs of these
two companies. A full court (Ledwaba DJP, Janse van Nieuwenhuizen J
and Senyatsi AJ)
was specially constituted to hear the application.
On 13 December 2019, in a judgment by Ledwaba DJP concurred
in by
his colleagues, it granted an order for the removal of the
BRPs.
[1]
An application for leave to appeal against that order was lodged and
leave to appeal to this court was granted on 7 February 2020.
[3]
On the same day that it granted leave to
appeal the full court granted an order that the noting of an appeal
would not suspend the
operation of the removal order ('the execution
order'). The execution order was itself the subject of an extremely
urgent appeal
in terms of
s 18(4)(ii)
of the
Superior Courts Act
10 of 2013
. Both appeals were set down for hearing in this court on
6 November 2020. The circumstances in which that occurred
are
set out in the judgment already delivered upholding the urgent
appeal.
[2]
In this appeal Mr Tayob, the intervening party, applied for leave to
intervene and submit evidence to the court. That application
was
abandoned, but we need to deal with the costs it occasioned. The
issues it raised were disposed of in the judgment in the urgent

appeal.
[4]
That judgment also dealt with and disposed
of issues raised in this appeal concerning the purported withdrawal
of this appeal, the
locus standi
of
Messrs Knoop and Klopper to pursue the appeal and whether it had been
rendered moot by the actions of persons purportedly appointed
to
replace them as BRPs. For the reasons there given the contentions on
behalf of Mrs Gupta in regard to these issues in this appeal
are
rejected. This appeal has not been withdrawn; Messrs Knoop and
Klopper have
locus standi
to
pursue it; and, it has not been rendered moot. The only issue we now
need to deal with is whether the order for their removal
as BRPs was
correct.
The
background
[5]
The business affairs of the Guptas have
come to public attention through media reports; the 'State of
Capture' report by the then
Public Protector, Ms Thuli
Madonsela; and the activities and daily public hearings of the
Commission of Inquiry into Allegations
of State Capture, known
eponymously as the Zondo Commission after the commissioner,
Deputy Chief Justice Raymond
Zondo. The Commission was
appointed in fulfilment of the remedial action determined by the
Public Protector in her report.
[6]
In consequence of allegations made about
the Guptas, a number of companies in the group through which the
Guptas conducted their
business activities became 'unbanked', because
the major banks in South Africa were not prepared to afford them
banking facilities.
This precluded them from continuing with their
business operations and very probably rendered them commercially
insolvent.
[3]
That was why Islandsite and Confident Concept were placed under
supervision and went into voluntary business rescue. For the same

reason, six other companies in the group were placed under business
rescue at the same time, namely: Tegeta Exploration and Resources

(Pty) Ltd (Tegeta); Optimum Coal Mine (Pty) Ltd (OCM); Koornfontein
Mines (Pty) Ltd (Koornfontein); Optimum Coal Terminal (Pty)
Ltd
(OCT); Shiva Uranium (Pty) Ltd (Shiva) and VR Laser Services (Pty)
Ltd (VR Laser).
[7]
All of these companies are controlled by
the Guptas. They are directly or indirectly subsidiaries of
Islandsite through Oakbay Investments
(Pty) Ltd (Oakbay), which
controlled the operations of all the other companies in business
rescue. Forty percent of the shares
in Oakbay are owned by Islandsite
and the balance by Mr and Mrs Gupta. It is convenient to refer to
these companies generally as
the Oakbay Group. Its acting Chief
Executive Officer (CEO) is Ms Ronica Ragavan.
[8]
The present appellants, Messrs Knoop and
Klopper, were not only appointed as the BRPs in respect of Islandsite
and Confident Concept,
but they also held appointments as BRPs in
respect of some of the other companies in the Oakbay Group. Sometimes
these were held
jointly, sometimes only one of them was appointed,
and sometimes they were appointed in conjunction with other BRPs. The
relevance
of these appointments will become apparent later.
[9]
Although appointed at the instance of the
directors, Ms Ragavan and Mr Ashu Chawla in the case of Islandsite,
and Mr Chawla in the
case of Confident Concept, disputes arose
between the BRPs, Ms Ragavan and other employees in the Oakbay Group
shortly after the
business rescue commenced. These will be described
in greater detail later, but suffice for the present to say that they
led to
Mrs Gupta making this application on 28 November 2018.
She did so on the basis of an affidavit deposed to by Ms Ragavan. The

latter's authority to institute these proceedings on behalf of Mrs
Gupta and the authenticity of the latter's signature on certain

affidavits was challenged on the basis of discrepancies between the
dates on the affidavits and the dates of attestation shown
by the
commissioners of oaths in the South African consulate in Dubai before
whom they were attested. There is no reason to believe
that Mrs Gupta
did not appear before these consular officials and depose to the
affidavits so the point was not pursued.
[10]
Ms Ragavan summarised Mrs Gupta’s
complaints against the BRPs in the following four paragraphs of her
founding affidavit:
'16.1 the staff appointed by the First Respondent (who
is the sole business rescue practitioner of Confident Concept and who
is
the lead business rescue practitioner, in the sense that the
Second Respondent hardly seems to be involved at all, in respect of

Islandsite) to attend to the affairs of Confident Concept and
Islandsite are simply not up to the task;
16.2 the approved business plans (which are binding as a
matter of law) are being ignored and undermined by the respective
business
rescue practitioners in various respects;
16.3 the respective business rescue practitioners are
totally ignoring very competitive third party offers which are made
in respect
of various of the very valuable assets in question and
have insisted, across the board, on sales by way of auctions;
16.4 the First Respondent has in
writing
instructed
that quotations are issued instead of VAT invoices in circumstances
where I am advised and respectfully submit VAT invoices should

properly be issued. This instruction is most disturbing.'
[11]
In addition to these specific allegations
Ms Ragavan said that the conduct of the BRPs in various unspecified
respects was not in
good faith; amounted to a failure by them to
perform their duties; involved a failure to exercise a proper degree
of care in the
performance of their duties; evidenced a conflict of
interest or lack of independence and was consistent with neither the
conduct
of an officer of the court nor the responsibilities of a
director of the companies in question. This was merely a recitation
of
the provisions of the section, with the addition of references to
ss 140(3)
(a)
and
(b).
She
did not identify any conduct by either Mr Knoop or Mr Klopper that
fell short of what was required of an officer of the court.
Nor was
reference made to any breach of a provision in
ss 75
to
77
.
[12]
The factual allegations against the BRPs
quoted above in para 10 needed to be substantiated by evidence. In
the light of the requirements
of
s 139(2)
factual findings
needed to be made and considered to determine whether a case for
their removal had been made out. The general
recitation of some of
the provisions of the Act added nothing to the factual allegations in
para 10. In order for the BRPs to know
what it was they were charged
with doing, or omitting to do, and in what respects their conduct of
the business rescue was said
to be deficient, specific facts needed
to be set out in the founding affidavit to which they could respond
in order to defend their
administration. Knowledge of the allegations
with which one is confronted and an opportunity to rebut or explain
them is central
to the fair conduct of legal proceedings.
[13]
It is unfortunately necessary to restate
these basic propositions because the judgment under appeal contains
no analysis of the
factual case made by Mrs Gupta and no factual
findings in respect of the alleged conduct of the BRPs. There are no
findings of
fact:
(a) in regard to the competence of their staff;
(b) that they ignored and undermined the approved business rescue
plans;
(c) that they ignored very competitive third party offers in respect
of various valuable assets or that they insisted across the
board on
sales by way of auction;
(d) in regard to alleged breaches of the Value-Added Tax Act 89 of
1991 (the VAT Act).
The
absence of factual findings on these issues necessitates a fuller
treatment of the facts than would ordinarily be necessary.
It is not
possible to determine from the full court's judgment whether it
thought that these factual allegations had been established
and
justified removal of the BRPs, or whether its judgment rests on a
wholly different factual foundation. Both possibilities must

therefore be addressed. A court of first instance is obliged to set
out clearly in its judgment the factual findings and reasons
upon
which the judgment rests, in order for the appeal court to perform
its functions, which is to examine whether on those facts
and for
those reasons the claim for relief was correctly determined.
Regrettably that was not done in this case.
[14]
An application for the removal from office
of a BRP requires the facts relied on by the applicant to be measured
against the circumstances
in which the court is empowered to remove
the BRP. It is therefore helpful to deal at the outset with the
provisions of s 139(2)
of the Act and the circumstances in which
a court may order the removal of a practitioner. As the full court
laid great stress
on the provisions of ss 140(3)
(a)
and
(b)
the proper application of those sections in business rescue and the
duties they impose on BRPs will also be addressed.
Section
139(2) of the Act
[15]
In a voluntary business rescue the BRPs are
appointed by the board of directors of the company,
[4]
but they can only be removed by a court order under s 130 of the
Act, or under the provisions of s 139.
[5]
The relevant provision for present purposes is s 139(2), which
provides:
'Upon request of an affected person, or on its own
motion, the court may remove a practitioner from office on any of the
following
grounds:
(a)
Incompetence
or failure to perform the duties of a business rescue practitioner of
the particular company;
(b)
failure
to exercise the proper degree of care in the performance of the
practitioner’s functions;
(c)
engaging
in illegal acts or conduct;
(d)
if
the practitioner no longer satisfies the requirements set out in
section 138(1);
(e)
conflict
of interest or lack of independence; or
(f)
the
practitioner is incapacitated and unable to perform the functions of
that office, and is unlikely to regain that capacity within
a
reasonable time.'
The
full court relied on subsecs
(a)
and
(e)
,
although potentially sub secs (
b
)
and (
c
)
might be thought to have been engaged. The focus is therefore on
these provisions.
[16]
Proceedings under s 139(2) may be
brought by affected persons. That expression is defined in s 128
as meaning a shareholder
or creditor of the company; a registered
trade union representing employees of the company; and, if any
employees are not so represented,
each of those employees or their
representatives. Mrs Gupta is a shareholder of both Islandsite and
Confident Concept, so she has
locus
standi
to bring an application under
s 139(2). She did so in her own right. The papers do not
indicate the attitude of her co-shareholders
to the application,
although it seems inevitable that they are aware of it. Not only the
familial relationship, but also the fact
that the principal
affidavits on behalf of Mrs Gupta were executed by Ms Ragavan,
whose position as acting CEO of the Oakbay
Group means that she is
responsible to the shareholders of Islandsite for her actions in that
capcaity, make it apparent that the
three Gupta brothers must be
aware of this litigation. However, they were not joined and have not
sought to intervene or depose
to affidavits. Their silence is
puzzling, but no inference can be drawn from it. What is before us is
an appeal against an order
granted at the instance of someone to whom
the Act gives
locus standi
to
bring this type of application.
[17]
The court has a discretion either to grant
or to refuse an order for the removal of a BRP. The discretion is
exercisable if one
or more of the grounds for removal set out in
s 139(2) has been established on a balance of probabilities.
However, proof
of a ground for removal alone does not dictate that an
order for removal must follow. The power of removal is not combined
with
a duty to exercise that power, of the type referred to in
Schwartz v Schwartz
.
[6]
The range of actions by BRPs that might fall within these
sub-sections and the degree of seriousness and varying implications
they may have for the business rescue process, is such that it cannot
be said that proof of one or more of these grounds will necessitate

removal, or even give rise to a presumption or inclination to order
removal. Whether they do is a matter for judgment on the facts
of the
particular case. In that sense it involves what is loosely called a
discretion, meaning only that the court must take into
account a
number of disparate and incommensurable features.
[7]
However, that does not afford the decision any special immunity on
appeal, where the appeal court is in as good a position as the
high
court to determine the case.
[8]
The question before the court of first instance was whether the BRPs
should be removed. It was not choosing among two or more different

but permissible options, as a court does on questions of sentence, or
costs, procedural issues, or the quantum of general damages.
It was
providing the correct or incorrect answer to the question of removal.
On appeal this court is therefore free to interfere
if it concludes
that the high court erred.
[18]
Before turning to the various grounds upon
which the full court ordered the removal of the BRPs, it may be
helpful to make some
general remarks, as this is not a question that
has previously engaged the attention of this court. The power now
given to the
court is not novel. Under our common law the court has
always had and exercised the power to remove trustees and
administrators
of deceased estates on the ground that their
continuation in office would prejudicially affect the proper
administration of the
estate entrusted to them and prejudice the
beneficiaries of that estate.
[9]
That power extends to the removal of executors,
[10]
liquidators of companies
[11]
and trustees in insolvency.
[12]
Cases dealing with these situations will be instructive in regard to
the approach to be adopted to removing BRPs. Two general principles

will be that removal is not something to be ordered lightly and that
the primary reason justifying removal will be actual or potential

prejudice or harm to the interests of the estate, trust or company,
and those in whose interests the administration was established,
such
as heirs in an estate or creditors in circumstances of insolvency.
[19]
The general nature of the grounds for
removal is such that they cannot be established directly. They are
factual conclusions or
inferences drawn from other proven facts. It
is necessary for the applicant for removal to specify and establish
by evidence the
conduct on the part of the BRP that they say
justifies an order for removal. Only if there is proper proof of the
primary facts
can the question of drawing an inference properly
arise. The drawing of inferences from the facts must be based on
proven facts
and not matters of speculation. As Lord Wright said in
his speech in
Caswell v Powell Duffryn
Associated Collieries Ltd
:
[13]
'Inference must be carefully
distinguished from conjecture or speculation. There can be no
inference unless there are objective
facts from which to infer the
other facts which it is sought to establish … But if there are
no positive proved facts from
which the inference can be made, the
method of inference fails and what is left is mere speculation or
conjecture.'
[20]
The first ground relied on in this case was
incompetence or a failure to perform the duties of a BRP of the
particular company.
Reliance on this ground required evidence of
specific instances of incompetence, or failure to perform the BRPs
duties, in relation
to the company under business rescue.
Incompetence suggests that the BRP lacked the necessary skills to
perform their duties. It
may be established by proof that the BRP is
'of inadequate ability or fitness; lacking the requisite capacity or
qualifications'.
[14]
That is a reasonably high bar. Merely moderate ability does not
amount to incompetence. Nor does the failure to meet the standards

that the affected party would like to see achieved, whether that
relates to the time taken to complete the business rescue process,
or
the prices at which assets are sold, or the manner in which the BRP
approaches their task. The alleged incompetence must relate
directly
to the performance of the task of a BRP. An inability to perform the
role of BRP properly in relation to the circumstances
of the
particular company must be demonstrated.
[21]
Where a failure to perform the duties of a
BRP is relied on it is essential to identify the duties that the
affected party says
should have been performed and to show the
respects in which they were not performed. A failure to convene
meetings as required
by the statute and the business rescue plan, or
a failure to report to the creditors and other affected parties, come
to mind as
fairly obvious examples. A general neglect of the duties
of a BRP, where the BRP simply fails to deal with matters requiring
attention
in a regular and timeous fashion, may suffice, but a BRP
who is attending to matters in a manner which the affected party does
not approve of is not failing to perform their duties.
[22]
A failure to exercise a proper degree of
care in the performance of their functions will in most instances
require proof of negligence.
It is difficult to see how that could be
shown by way of general allegations without reference to specific
instances of negligence.
While proof of harm to the company, whether
in the implementation of an approved business plan or from the
perspective of its future
operations after business rescue is
terminated, may not be a prerequisite to proof of a failure to
exercise a proper degree of
care, in the absence of harm it may be
difficult for a court to conclude that the BRP has not exercised a
proper degree of care.
At the very least the potential for harm to
have been caused by the actions of the BRP must be considered even if
that harm was
averted or did not materialise.
[23]
Lastly, a conflict of interest or a lack of
independence are also reasons for the removal of a BRP. There is
little difficulty with
the notion of a conflict of interest, a
concept that has over many years received the attention of our
courts. The classic statement
of the principle is in the judgment of
Innes CJ in
Robinson v Randfontein
Estates
:
[15]
'Where one man stands to another in a position of
confidence involving a duty to protect the interests of that other,
he is not
allowed to make a secret profit at the other's expense or
place himself in a position where his interests conflict with his
duty.'
Examples of the
principle in action are provided by cases such as
Barnett v Estate
Beattie
[16]
and
Grobbelaar v Grobbelaar
,
[17]
which involved the removal of executors who had claims against the
estate that were disputed. In the latter case Van Blerk JA said:
[18]
'It is clear that a substantial
conflict arises between the personal interests of the respondent and
those of the estate, in consequence
of which a situation is created
where the respondent's position as executor is rendered intolerable.
He finds himself in the impossible
position that on the one hand, as
a creditor of the estate, he must fight for his claim, and on the
other hand, in his capacity
as executor of the estate, he must defend
against the same claim. In this role he would be compelled to choose
sides. He cannot
remain neutral or impartial.' (My translation.).
In
Van Niekerk v Van Niekerk
[19]
the conflict arose because the executrix and sole heir to the estate
had a substantial interest in excluding or diminishing the
claim by
the widow to half the estate or substantial maintenance and acted
accordingly.
[24]
The requirement that the BRP be independent
is likewise well-established in related contexts such as the
appointment of liquidators,
where the general rule is that the
liquidator should be independent of the company in liquidation.
[20]
That has been held to disqualify from appointment as liquidators
shareholders, directors, creditors and the attorney acting for
the
company. Once appointed they are required to be independent and to
carry out their duties without partiality.
[21]
Independence requires that they do not have a relationship, direct or
indirect with the company, its management or any person concerned
in
its affairs that may place them in a position of conflict of
interest,
[22]
or prevent them from exercising an independent judgment on the
affairs under their control. Whilst in a voluntary business rescue

the BRP owes their appointment to the directors of the company, they
must not allow themselves to be dictated to by the directors
or
shareholders or any third party. They must at all times exercise an
independent judgment taking into account the potentially
conflicting
interests of different affected parties.
[25]
An extreme case of the absence of
independence on the part of the BRP came before this court in
African
Bank of Botswana v Kariba Furniture
.
[23]
The board, consisting of its only two shareholders, a husband and
wife, appointed an attorney as BRP. The company had not been

operational for some five years, yet the BRP presented a business
rescue plan without the benefit of any current financial statements.

An amount of R5 million that the shareholder had said on oath
was available to fund the business rescue was not included or

accounted for. The BRP said it had been consumed in the costs of
certain litigation, but was unable to furnish details of those
costs.
The money simply vanished. The bank that was the principal creditor
objected to the business rescue, but the BRP ignored
their
objections. The business rescue plan presented to the creditors fell
'woefully short' of compliance with the requirements
of s 150 of
the Act and did not provide information from which an assessment of
reasonable prospects of the business rescue
succeeding could be made.
The BRP relied entirely on information furnished to him by the
shareholders and his own unsubstantiated
assessment. The justified
impression gained by the bank was that he was acting as a
representative of the company.
[26]
Matters came to a head at the meeting where
the business rescue plan was rejected by the creditors. An offer was
presented on behalf
of the shareholders in terms of s 153(1)
(b)
(ii)
of the Act and the BRP ruled that it was not open to the bank to
respond to the offer because it was binding. In terms of the
offer he
transferred the bank's voting interest to the shareholders, thereby
giving the latter a 95 percent interest. They then
voted to approve
the rescue plan. The offer did not disclose who was making it, the
price, or where, when and how payment was to
be made. This court held
that it was not an offer at all. In the ensuing litigation the BRP
acted as attorney for both the company
and himself, and deposed to
the principal answering affidavit for himself and the shareholders.
At the appeal he sought to represent
himself and the company, until
the manifest impropriety of this was pointed out.
[27]
This court was faced not only with the
appeal, in which the bank sought to set aside the BRP's acceptance of
the 'binding offer',
but also with an appeal against the high court's
refusal to set aside the resolution placing the company in business
rescue and
to set aside the appointment of the BRP. Having upheld the
appeal on the merits and set aside the resolution placing the company

under business rescue, it held that it was unnecessary to deal with
the BRPs appointment, but went on to make certain comments
about his
conduct preparatory to ordering him to pay the costs jointly and
severally with the shareholders. These comments were
relied on by the
full court in this case to justify the removal of the BRPs, so it is
necessary to deal briefly with them.
[28]
There are three passages appearing in para
35 and paras 37 and 38 of the judgment of Dambuza JA that are
relevant. They read as
follows:
'[35] …
However,
the conduct of the practitioner in this case raises serious concerns.
This is because of the responsibility he had, as
a business
practitioner under the Act, which he does not seem to have
appreciated. A business rescue practitioner must be held
to a high
professional and ethical standard. In addition to the powers and
duties specifically conferred on business rescue
practitioners by ch
6, they are also officers of the court (s 140(3)
(a)
)
and have the responsibilities, duties and liabilities of a director
as set out in ss 75 – 77 (s 140(3)
(b)
).
It was the duty of the practitioner in this case to conduct a careful
assessment of Kariba's affairs and to prepare a plan
that adequately
reflected the prospects of Kariba's rescue. Against this standard,
and the standard expected of the practitioner
as an attorney, the
attitude displayed by the practitioner, in regard to serious concerns
expressed by the bank regarding what
it considered to be the
shortcomings in Kariba's affairs and the rescue plan, is disturbing.
[37] … He ignored, and was
even hostile to, inquiries by the bank's representatives when such
inquiries related to aspects
which were the core of his function as a
business rescue practitioner. The impression gained by the bank's
representatives that
he acted as a representative of Kariba,
rather than as an independent practitioner, was justified. The
apparent lack of appreciation,
by the practitioner, of the
seriousness of the office he held is unacceptable.
[38] In addition the practitioner
was expected to act objectively and impartially in the conduct of the
business rescue proceedings.
So too, when it came to the institution
of legal proceedings, was an objective and impartial attitude to be
expected. This was
lacking in the extreme.' (Footnotes omitted.)
[29]
Against the background of the facts of that
case it will be apparent that these comments were directed very
specifically at the
particular conduct of the BRP. They did not state
any new principle of law, but criticised the BRP's conduct against
the background
of established principle. As Leach JA said in his
concurrence, it was no surprise that the bank applied for his
removal.
[24]
Whether they have any relevance to the conduct of Messrs Knoop and
Klopper depends upon the proven conduct in this case. However,
the
full court stressed the references to ss 140(3)
(a)
and
(b)
of
the Act and much play was made in Ms Ragavan's affidavit of alleged
failures to meet the standards of officers of the court and
directors
of companies, so it is necessary to consider the implications of
these provisions for BRPs.
Section
140(3)
(a)
and
(b)
of the Act
[30]
Section 140(3)
(a)
of the Act, says that during the
business rescue proceedings the practitioner:
'is an officer of the court, and must report to the
court in accordance with any applicable rules of, or orders made by,
the court'.
This
is a somewhat mystifying provision. In
Gupta
1
[25]
it was pointed out that a voluntary business rescue 'is an entirely
private process involving the company, the BRP and all affected

persons'. Unless the court is approached for some reason, for
example, to set aside the resolution to commence business rescue
or
the appointment of the BRP, or the BRP applies to place the company
in provisional liquidation, the process takes place without
any
engagement at all with the court. In those circumstances it is
difficult to ascribe any meaning to a provision that says they
are
officers of the court.
[31]
The obligation to report to the court in
accordance with any applicable rules of the court is equally
mystifying. There are no rules
of court imposing an obligation on
BRPs to report to it. Nor are there any orders by a court requiring
reports. In a voluntary
business rescue the only occasion on which
the BRP is required to inform the court of anything is under
s 141(2)
(a)
of
the Act when they conclude that there is no reasonable prospect that
the company can be rescued and apply for its liquidation.
[26]
The mere fact that they are applying for the company's liquidation is
information enough that they do not believe that it is capable
of
being rescued. If the court disagrees and refuses a liquidation order
there are no apparent consequences for the BRP.
[32]
Section 141(2)
(b)
says that if the BRP concludes that
there are no longer any reasonable grounds for thinking that the
company is financially distressed
they are obliged to inform the
court, the company and all the affected parties in the prescribed
manner. With a voluntary business
rescue, it is unclear how the court
is to be informed or what it is to do with this information. A judge
faced with an unopposed,
and probably
ex
parte
, application in the motion court,
in which no relief was asked and no order could be made, would
rightly question whether it was
properly before the court. The BRP
merely has to file a notice of termination of business rescue with
the CIPC.
[27]
This brings the business rescue to an end.
[28]
Section 141(2)
(b)
seems
inapplicable in the case of a voluntary business rescue. There is no
other provision of the Act that requires them to report
to the court
as envisaged in s 140(3)
(a)
.
In my view, whatever relevance the description of a BRP as an officer
of the court may have in the context of business rescue
ordered by
the court under s 131 of the Act, it has no application to a
voluntary business rescue and these provisions should
be construed
accordingly.
[33]
In any event, I do not think that
describing a BRP as an officer of the court adds anything to their
duties or responsibilities.
The expression 'officer of the court' is
most commonly used to refer to advocates or attorneys who are
admitted by the courts and
ethically owe special duties to the court
that may at times conflict with the interests of their clients. Its
origins in the present
context appear to lie in England where certain
processes such as insolvency administration were functions of the
Court, but delegated
to and performed by specific officers of the
court designated as such by statute.
[29]
The Admiralty Registrar, who had responsibility for the sale of ships
arrested in proceedings
in rem
in
the Admiralty Court, appears to have been in much the same position.
There are no similar officers in our jurisprudence, where
these
functions are discharged by the Master and trustees or liquidators
appointed by the Master, or chosen by creditors and subject
to the
direction of creditors and the overriding supervision of the Master.
The nearest comparison might be with the Registrar
or the Sheriff. To
say that someone is an officer of the court conveys little practical
meaning. It '
is a vague term without
legal content'.
[30]
At most it conveys that a fairly high standard of personal integrity
is called for from the person so described. But that flows
in any
event from the duty of good faith and as there was no attack on the
personal integrity of Messrs Knoop and Klopper this
was not a
relevant consideration.
[34]
I turn then to s 140(3)
(b)
of the Act that provides that BRPs have
'the responsibilities, duties and liabilities' of a director of the
company as set out in
ss 75 to 77 of the Act. Like the previous
provision this is an unfortunate legislative shortcut, given that the
directors of the
company remain in office and perform their duties
subject to the authority of the BRP.
[31]
The BRP does not become a director of the company for the purposes of
the sections in question.
[32]
Section 75 deals with the personal financial interests of a
director and their duties of disclosure in relation to matters
coming
before the board of directors. It is difficult to see how this is to
operate in relation to the BRP. For the reasons dealt
with above,
they are already precluded from placing themselves in a position
where their personal interests conflict with those
of the company or
persons interested in it. That would generally preclude them from
contracting with the company, other than to
agree further
remuneration in terms of s 143(2) of the Act. Assuming there can
be contracts or decisions by the company that
actually or potentially
affect their financial interests or those of related persons, to whom
are they obliged to make disclosure?
Who can sanction the arrangement
after such disclosure, given that the directors can only act subject
to the authority of the BRP?
These and other conundrums arise from
any endeavour to make s 75 applicable to BRPs.
[35]
Section 76(2) enacts in statutory form the
basic principle of our common law that has existed since the seminal
decision in
Robinson v Randfontein
Estates.
[33]
It is already part of the duties of BRP. Similarly, the requirements
of s 76(3) that a director must act in good faith for
a proper
purpose and in the best interests of the company are already implicit
in the fact that failing to do so constitutes grounds
to remove the
BRP. It might be thought that s 76(3)
(c)
is of assistance in setting the
standard of care that the BRP must display, but applying it in any
particular case is frustrated
by the inability of the BRP to invoke
the provisions of ss 76(4) and (5) describing the circumstances
in which the duty is
fulfilled.
[36]
Section 77 contains a number of provisions
dealing with the potential liability of a director to the company
arising out of their
conduct as a director. Some of its provisions
are manifestly inapplicable to a BRP and others are difficult to
apply, but it is
unnecessary to discuss these any further. The fact
that in certain circumstances the BRP may incur liability to the
company for
actions performed in the course of the business rescue,
says nothing about the scope and extent of the duties of the BRP, nor
does
the possibility that such liability may arise – including
as a result of perfectly honest conduct by the BRP
[34]
– affect a decision on an application for the BRPs removal.
[37]
In the light of these considerations
ss 140(3)
(a)
and
(b)
are
generally unhelpful in determining whether in a particular case the
court should order the removal of a BRP. They should not
be invoked
by way of a ritual incantation to justify removal, when the reasons
advanced by the applicant seeking removal do not
rely on the breach
of any express provision by the BRP. Only where there is reliance on
specific provisions of ss 75 to 77
will it be necessary to
consider whether these provisions may be relevant to the decision
whether to remove the BRP. There was
no such reliance in this case. I
turn then to consider the basis upon which the application was
brought by reference to the founding
affidavit of Ms Ragavan.
The
application
[38]
Ms Ragavan sought to provide evidence to
support her specific allegations. She summarised the provisions of
the two business rescue
plans and emphasised those on which she
placed reliance. She then set out under three headings what she
described as 'Detailed
aspects pertaining to Islandsite' and under a
further three headings 'Detailed aspects of Confident Concept'. She
then advanced
specific complaints under the headings 'Attempts to
obtain reports', 'The attitude of the first and second respondents',
'No compliance
with statutory obligation to submit reports and
updates' and 'Westdawn Investments'.
[39]
Mr Knoop filed a detailed opposing
affidavit dealing with these broad allegations and the detail
furnished by Ms Ragavan, and Ms
Ragavan delivered a reply. She
applied to strike out certain portions of the opposing affidavit. A
supplementary affidavit was
then delivered by Mr Knoop to, as he put
it, update the court with events that had transpired since the filing
of his opposing
affidavit and to inform the court of the current
status of the business rescue. This affidavit was admitted
notwithstanding opposition
on behalf of Mrs Gupta. It is unclear from
the full court's judgment what happened in regard to the application
to strike out,
which was included in the appeal record but not
referred to in argument. It appears to have gone the way of most such
applications.
[40]
The case was argued on the papers and there
was no application for it to be referred to oral evidence. It follows
that in considering
the evidence the
Plascon-Evans
rule applied and the application fell
to be determined on the version of Messrs Knoop and Klopper, together
with any undisputed
evidence in the affidavits of Ms Ragavan and
the supporting affidavits on behalf of Mrs Gupta. There was no
suggestion that
any of the evidence of Mr Knoop, or the other
witnesses on behalf of the BRPs, was so unworthy of credence that it
could safely
be rejected on the papers. The appeal requires us to
consider the evidence on both sides and determine whether on the
facts a case
was made that the BRPs had in any respect acted in a
manner bringing them within the purview of s 139(2). Any
question of
discretion only arises if that case was established on
the papers on a balance of probabilities.
[41]
The first complaint that the staff employed
by Mr Knoop were not competent can be disregarded. It was not
supported by chapter and
verse. No-one was identified as not
performing adequately. The response by Mr Knoop was that the team
supporting the BRPs were
all competent administrators having many
years of financial experience who had managed or administered many
entities. In a fairly
characteristic reply Ms Ragavan said that she
had no personal knowledge of the team or their experience, but denied
that the BRPs
had competently administered Islandsite and Confident
Concept. Counsel did not persist with the complaint.
[42]
In order to place the remaining matters in
context a brief synopsis of the business rescue plans presented to
meetings of creditors
in respect of both Islandsite and Confident
Concept and adopted by the creditors is desirable. The conduct of the
BRPs can only
be assessed in the light of their duties in terms of
those plans.
The
business rescue plans
Islandsite
[43]
The Islandsite plan was presented at a
meeting of creditors and adopted on 17 April 2018. There had
been an earlier meeting
of creditors on 5 March 2018 at which
the BRPs reported that the company had debtors of approximately
R48 million and
assets substantially exceeding that amount. The
principal source of the company's income was rentals and the cause
for it being
in financial distress was that the company and related
entities were unbanked. The plan recorded that there had been
numerous unsuccessful
approaches to financial institutions to obtain
banking facilities. There were said to be two possibilities open to
the BRPs in
order to rescue the companies and avoid liquidation. The
one was the sale of the business as a going concern and the other was
to enter into a management contract at arms-length with a third
party. Either of those was said to be a course of action that would

maintain the continued trading status of Islandsite.
[44]
The more immediate proposal was to pay the
pre- and post commencement creditors from trading income, that
is, rental receipts
and 'arms-length sales by private treaty (as a
preference) and/or public auction'. The shareholders, that is, the
Guptas, were
given a right of first refusal to match any offer. The
creditors voted to mandate estate agents and auctioneers to market
the immovable
properties that were a major asset and authorised the
BRPs to proceed with a sale of the largest property, over which the
Bank
of India held a mortgage, in terms of a sale agreement tabled at
the meeting. This property was occupied by Sahara Computers (Pty)
Ltd
(Sahara), another business controlled by the Guptas. The intention
was to settle post-rescue debts and sums due to the Bank
of India in
respect of unspecified credit agreements. The secured assets being
those held by the Bank of India were to be realised
either by private
treaty or public auction within 30 days of the sanction of the plan.
If this all occurred as planned the Bank
of India would be paid in
full within six to nine months and the preferent and trade creditors
would likewise be paid in full within
the same period.
[45]
A number of conditions attached to the
plan. It contemplated the company trading as a going concern during
the period of business
rescue. Lease agreements were annexed that
reflected that much of the rental income needed to come from related
companies. Some
of these were occupying premises in the building that
was to be sold in terms of the sale agreement. Another lease related
to a
Cessna Sovereign 680 aeroplane, which was burdened by an
unspecified security in favour of Cessna Finance Corporation. Yet
another
related to the lease of mining equipment to Westdawn
Investments (Pty) Ltd (Westdawn), which was not in business rescue,
but was
a direct subsidiary of Oakbay. SARS imposed four conditions
including an undertaking that the company would ensure that all
future
tax obligations be met until proceedings had been terminated.
The condition said that any deviation from this would constitute a

material breach of the plan and 'proceedings will in such instance be
deemed to have terminated'. It is unclear what the effect
of this
provision would be if invoked by SARS for whose benefit it was
included in the plan. It cannot have meant that the business
rescue
would in fact terminate because that can only occur in terms of s 132
of the Act. At most it would give SARS a ground
for escaping from the
restrictions of the plan. VAT liability was payable in full.
[46]
There were several areas where the plan was
silent. It did not deal at all with the fact that the company was
owed nearly R695 million
by other companies in the Oakbay Group, or
companies connected to the Oakbay Group. It made no assessment of the
likelihood of
rentals being paid by these related companies. It did
not identify specific properties to be sold to pay the one secured
creditor
and the preferent and trade creditors. There was no
assessment of who the debtors were or the recoverability of these
debts. It
left two secured creditors unpaid and made no provision for
the disposal of any movable property, in particular the aeroplane.
Lastly, it did not set out a plan for the sale of the business as a
going concern or for the conclusion of a management contract
in order
to restore access to banking facilities. Nonetheless, it was approved
by the creditors.
[47]
Ms Ragavan contended that the intention
behind this plan was to make use of the moratorium on pursuing claims
against Islandsite
to realise sufficient funds to pay the Bank of
India and the preferent and trade creditors and then to end the
business rescue
proceedings forthwith. However, she did not say how
the company was going to be able to secure banking facilities. Nor
did she
deal with the inter-company loans, beyond saying that they
were not to be repaid in terms of the business rescue. She did not
say
whether this was the general intention behind the plan or
Islandsite's intention, but in his answering affidavit Mr Knoop did
not
join issue with her statement. It is safest to accept that in
general this may have been the general aim in preparing the plan.
[48]
Achieving this general aim was necessarily
subject to whether it was practically achievable. The plan aimed for
the identified creditors
to be paid within six to nine months. At the
time of its adoption the BRPs had not yet undertaken a complete
investigation of the
company's affairs as mandated by s 141(1)
of the Act and in any event the BRPs remained under an obligation, if
at any time
they concluded that there was no longer a reasonable
prospect of the company being rescued, to inform the court, and all
affected
persons, and apply for it to be placed in liquidation. In
other words, while the BRPs were obliged to try to implement the
plan,
whether they could do that, or do it within the contemplated
timeframe depended on matters not within their control. One cannot

treat a business rescue plan as being writ in stone or having the
same status as the Laws of the Medes and Persians.
Confident
Concept
[49]
An initial plan for Confident Concept was
withdrawn and a revised plan presented at a meeting of creditors on
9 May 2018. That
meeting was further postponed to 16 May 2018
for further revisions to the plan. The outcome of the meeting was
summarised in a
letter addressed to all affected parties and
creditors on 18 May 2018. The plan was adopted subject to certain
further amendments.
Islandsite did not vote on the adoption of the
plan, which was potentially significant as it was, according to the
information
then available to Mr Knoop, the largest creditor of
Confident Concept, with a claim of R119 million.
[50]
An objection to the plan was lodged by a Mr
Nath, who claimed to be present as the representative of the
shareholders, that is,
the Guptas. Ms Ragavan identified him as the
Chief Financial Officer of Tegeta. He contended that it was
unnecessary to sell any
assets, as the debts could be discharged by
collecting outstanding debtors. Mr Knoop responded that the majority
of the debtors
were companies in the same group all of which were in
business rescue
[35]
and, whilst he then thought the prospects of recovery were good, it
would not occur in the immediate future. It is significant
that only
six days earlier Messrs Knoop and Klopper had instructed a forensic
auditor to analyse and confirm the money flows between
the various
companies in business rescue and the position with the inter-company
loans.
[51]
Mr Nath then suggested that the BRP should
have liquidated Shiva, which was shown as owing R54 million, but
it was pointed
out that it was also under business rescue and subject
to a statutory moratorium on legal proceedings. He then indicated
that he
wished to represent Islandsite at the meeting on the
authority of its shareholders, but this was rejected as it was for
the BRPs
to represent Islandsite.
[52]
The approach of the BRP in Confident
Concept to resolving the problem of the company being unbanked was
slightly different from
the approach in Islandsite. It was either to
sell the immovable properties and movable assets – the latter
consisting largely
of mining equipment and fourteen luxury motor
vehicles
[36]
– or to sell the business as a going concern. In regard to the
movable mining equipment the intention was to engage with
the
respective mines using it with a view to their acquiring it at market
related values, after having regard to the offers tabled
for that
equipment. The proposed plan was formulated against a backdrop of
seeking authority to continue the trading activities
of the business,
whilst as a first preference selling all encumbered movables and
collecting book debts. Authority would also be
sought to accept
offers and negotiate the sale of immovable and movable assets,
alternatively the sale of the business as a going
concern by private
treaty or, failing that, by open tender.
[53]
The creditors eventually voted for approval
on a preliminary basis for the BRP to have authority to:
'2.1 Immediately sell all encumbered movable assets, at
the best price, on the basis that every offer received shall be
distributed
to all registered/affected creditors, allowing them an
opportunity of 10 calendar days after the date of distribution to
provide
a better offer, failing which the business rescue
practitioner shall be entitled to accept such offer and dispose of
the equipment,
subject to the prior consent of the affected secured
creditor and the practitioner shall use his best endeavours to
complete the
process by 30 June 2018.
2.2 Immediately institute action for the collection of
debtors;
2.3 Immediately mandate estate agents and/or auctioneers
to market and sell the immovable properties (subject to the prior
written
consent of the secured creditors), with such process to be
facilitated (with guarantees) within four (4) months of the adoption

of the plan;
2.4 To accept and do all things necessary to give effect
to the transfer of such immovable properties.
2.5 To market and sell such mining equipment in the open
market, as contemplated in Part B, 2.1 herein above.
2.6 settle post rescue debt as a first charge inclusive
of sums due in respect of credit agreements in favour of the secured
creditors
(pertaining to accruing post rescue interest/debt).
2.7 To, against realisation and
registration of assets (as applicable), settle the creditors pursuant
to the creditors ranking attributed
thereto.'
[54]
Unlike the Islandsite plan, the Confident
Concept plan provided for all creditors, including related party
creditors, to be paid.
It is unclear how this was to be achieved,
given that the total amount said to be owing to all creditors
exceeded the value of
the assets. Furthermore, the BRP undertook to
sell only those assets that were necessary to pay the secured,
preferent and trade
creditors. If that could be achieved it would
leave the company with the residual assets and claims against it by
related parties.
At what stage it could be disposed of as a going
concern was not clear.
[55]
Ms Ragavan's allegation that the BRPs in
the case of Islandsite and Mr Knoop in regard to Confident Concept
ignored and undermined
the approved business rescue plans must be
measured against the plans as summarised above. She alleged that the
BRPs 'embarked
upon and are continuing to carry out very different
activities', an allegation that Mr Knoop denied. She relied on a
passage from
the proposal section of the plan that referred to sales
by private treaty being a first option, but the proposal adopted by
the
creditors, set out above in para 53, contained no such
constraint. The same was true of the Islandsite plan.
The
areas of complaint
[56]
Three areas were identified as giving rise
to the allegations of non-compliance with the business rescue plan of
Islandsite. The
first was the manner in which the BRPs dealt with
issues concerning the insurance of the Cessna Sovereign 680 aircraft,
an endeavour
to re-register it in the Isle of Man and its
maintenance. The second related to offers to purchase the Cessna and
offers to purchase
three properties owned by Islandsite. The third
concerned an instruction given in regard to accounting for VAT.
[57]
Three issues were raised in regard to
Confident Concept. The first related to the amount realised by the
sale of equipment. The
complaint was that there was a discrepancy
between the amount for which it had been sold and the amount
available for distribution
to creditors. The second related to Mr
Knoop's dealing with Mr Nath, the representative of the shareholders
in both companies,
that is, the Guptas, and his endeavours to assist
the BRPs in identifying properties that could be sold by private
treaty. Ms Ragavan
said that the BRPs insisted on proceeding by
public auction and that this attitude was 'inflexible', contrary to
the business rescue
plans and not in the best interests of the two
companies. The third issue arose from the distribution of the
proceeds of the sale
that formed the subject of the first complaint.
An amount was paid to Sahara and nothing to Islandsite even though it
was the largest
creditor. It was said both that this was a departure
from the business rescue plans and that it demonstrated an
irresoluble conflict
of interest between Islandsite and Confident
Concept.
[58]
Only one of Ms Ragavan's general complaints
related to non-compliance with and undermining of the business rescue
plans. This was
that the BRPs in Islandsite were disregarding the
right of first refusal given to the shareholders when selling
immovable property
and effect was being given to sales by public
auction instead of the preferred method of sales by private treaty.
The broader complaints
related to a failure to provide reports and
information to Mrs Gupta. In what follows the nature and basis for
each complaint is
examined in the light of the response by the BRPs.
Dealings
with the aircraft
[59]
The first complaint in regard to insurance
cover for the Cessna turned out to be a storm in a teacup. This
started as a complaint
that the BRPs had not renewed the insurance on
the aircraft. The invoices for March and April 2018 for the
insurance were
forwarded to Mr Knoop's office on 9 May 2018. On
receipt, confirmation was sought that the aircraft was grounded and
not currently
being used. Instead of providing the information asked
for, Ms Ragavan's response was that the BRPs had placed the aircraft
at
risk as it was uninsured 'at the moment'. Then followed a
complaint about other requests for payment not being authorised and a

suggestion that Islandsite was vulnerable and various assets were
uninsured. Ten minutes later a further email was sent by Ms Ragavan

saying that the fact that the aircraft was grounded did not affect
the liability to ensure that it was comprehensively insured
and
asking that approval for payment be provided urgently. The person
dealing with the matter then asked Mr Knoop to approve payment
and
payment was made on 14 May 2018. Emails were sent to Ms Ragavan
by Mr Knoop's assistant asking whether the aircraft was
grounded and
its current location. These attracted the reply that she had 'no
knowledge of the status of the aircraft and you may
liaise with the
curator.' Presumably that was a reference to Mr Knoop.
[60]
The second complaint arose from the
endeavour to change the registration of the aircraft to the Isle of
Man. It arose on 8 June
2018, at a stage when Mr Knoop had not
yet ascertained the whereabouts of the aircraft. Mr Nel from
Continued Airworthiness Maintenance
Organisation - South Africa
(CAMOSA) sent Mr Knoop an email asking for authorisation for the
registration to be changed from the
South African registry to the
Isle of Man. He explained that this had been put in train in January
2018, shortly before Islandsite
was placed under business rescue, and
that the reason for the change was to enable the aircraft to operate
in Europe and the Middle
East. Mr Knoop forwarded this to Ms Ragavan
asking for her input. The response, from Ms Reshma Moopanar, the
Oakbay Group Head
of Legal, was that this commenced prior to business
rescue and it should proceed.
[61]
Mr Knoop said that the BRPs found the
request to alter the registration of the aircraft alarming. He
explained that Islandsite was
a South African company with South
African directors and the expenses of maintaining the aircraft were
being incurred in South
Africa and paid by Islandsite. Yet until
receipt of an email from Mr Nel on 13 June 2018 saying that the
aircraft was parked at
DC-Aviation in Dubai, the BRPs did not know
its whereabouts or what it was being used for. The BRPs suspected
that it was being
used by the Guptas for their private affairs, not
for the benefit of Islandsite. Registering it in the Isle of Man
would place
it even further beyond the control of the BRPs.
[62]
These concerns led the BRPs to ask Mr Nel
for further information about the aircraft. On 18 June 2018 Mr Knoop
asked at whose instance
the aircraft was to be deregistered and
exported and for all relevant information and documents. The response
was that the aircraft
was not being exported, but needed to be
registered in the Isle of Man because it was based in Europe and the
Middle East and it
was not practical legally to operate a South
African registered aircraft in that area with limited maintenance
support for regulatory
reasons. This caused the BRPs further concern
because there was no basis for the aircraft to be operating in those
areas. The endeavours
to change its registration seemed to coincide
with the Guptas' departure from South Africa to reside in Dubai. Its
whereabouts
had been concealed from the BRPs. For those reasons they
were not prepared to agree to the change in registration. It is not
clear
from the papers whether this decision was clearly communicated
to Mr Nel or Ms Ragavan.
[63]
A claim by Mr Nel to be paid for
maintenance work on the aircraft emerged in July 2018. However, the
work had not been authorised
by the BRPs and they did not pay for it.
Again, it is unclear whether this was clearly communicated to Mr Nel
and Ms Ragavan.
[64]
More information emerged from Mr Knoop's
supplementary affidavit. He said that the BRPs learned from Mr Nel
that there was maintenance
on the aircraft outstanding from January
2018 and the logbooks could not be located. He and the BRPs' attorney
consulted with the
pilots to obtain information with a view to
retrieving the aircraft. They also used the services of two other
individuals, Messrs
John Taylor and Ian Greenwood, to make enquiries
about the aircraft, assist in tracing the logbook, ascertain its
current condition
and what needed to be done to 'get it up and
running'. The information obtained indicated that the costs would run
to millions
of Rand and the company did not possess those funds.
[65]
It is convenient at this stage to deal with
the offer to purchase the aircraft and the BRPs' endeavours to sell
it. The offer to
purchase was transmitted by Mrs Gupta's then
attorney, a Mr Pieter van der Merwe. While it was dated 16 October
2018, it was forwarded
to the BRPs on 27 October 2018 with no
information as to its provenance. There was no indication that Mr van
der Merwe had
found the purchaser or how it came to be in his
possession. It is an interesting document. It emanated from a broker
based in Muscat,
Oman. It did not identify the buyer, saying only
that the buyer would be introduced to the seller after the acceptance
of the offer.
The offer, in an amount of US$1.2 million, was subject
to the endorsement and approval of an agreeable Aircraft Sales
Agreement
between 'the seller, the seller's administrator and/or
liquidator' within ten weeks. Upon 'initial approval' of the offer
the buyer
would make an immediate site visit to see the aircraft
inside and out and to collect a copy of all its documents including
all
technical data and aircraft documents, which would presumably
have included the logbook. At this stage a deposit of US$100 would
be
paid to an escrow agent.
[66]
The sale was subject to the seller
delivering the aircraft at its sole cost. Delivery was subject to a
number of conditions. The
aircraft's airworthy systems and avionics
were to be functioning normally. Its maintenance program was to be up
to date without
deferments or extensions. All its records, logbooks,
flight manuals and accessories in the owner's possession were to
accompany
delivery. All relevant authority approvals and clearances
had to be provided. Lastly it was to be free and clear of all
encumbrances,
which was significant as according to the business
rescue plan Cessna Finance Corporation was owed R22 million and
was a secured
creditor. Payment of the price would be made ten days
after delivery of the aircraft and no security for payment was
offered.
[67]
Mr van der Merwe claimed that this was an
extremely good offer. The BRPs took a different view. They believed
that they could not
accept an offer from an unknown source, subject
to onerous conditions. They did not know the precise whereabouts or
condition of
the aircraft, beyond the fact that it was in Dubai in
the possession of DC Aviation. In reply Ms Ragavan accused them
of lacking
the appropriate negotiating skills and knowledge of
international sales of aircraft and said that it had been stored in a
hangar
since August 2018 in desperate need of maintenance and at
increasing cost. It is a curious feature of this reply that in her
earlier
exchange with Mr Knoop she had said that she had no knowledge
of the status of the aircraft, but it was apparent that she was in

communication with the company storing it.
[68]
When the replying affidavit was delivered
it foreshadowed the possibility of an offer to purchase the aircraft
and Mr Knoop indicated
that the BRPs would consider any offer that
was forthcoming. He said Ms Ragavan was aware of the offer. This
was not disputed.
When the supplementary affidavit was delivered, two
offers in excess of the earlier offer had been made. One was for
US$4,5 million
thereby dispelling the notion that the earlier offer
was a 'good' one. Endeavours were then made between July and
September 2019
to obtain information from DC Aviation concerning
the aircraft. It is unnecessary to rehearse these attempts beyond
saying
that DC Aviation's responses to perfectly simply enquiries was
wholly obstructive. That is where the matter stood when the case
was
argued before the full court.
The
offers to purchase immovable properties
[69]
With the letter conveying the offer to
purchase the aircraft, Mr van der Merwe also enclosed two
offers to purchase immovable
properties owned by Islandsite. One was
in respect of 106A, 16
th
Road, Midrand, for an amount of R27 million and the other for
units 70 and 80 in SS Thiebault House jointly for R8 855 000.

Mr van der Merwe again did not explain how these offers had been
obtained or why he was the vehicle through which they were being

submitted. He had asked Mr Stephan Nel, an employee of Sahara,
to follow up on the offers. Mr van der Merwe's view was that
if these
transactions could be consummated it would be necessary to arrange
the documentation to 'uplift' the business rescue,
by which he
presumably meant that it should be terminated. Why Mrs Gupta's
attorney would think that it was for him acting on behalf
of his
client to attend to this is not clear.
[70]
Be that as it may, the BRPs did not accept
this offer. Their reasons, as explained by Mr Knoop, were that the
offer was conditional
on the purchaser's bank returning a favourable
valuation on the property; the purchaser completing a due diligence
to its satisfaction
on the property; and the bank agreeing to provide
the purchaser with a bond of R30.5 million on the security of
the property.
The BRPs did not consider it appropriate to accept an
offer on the basis that the contract would be subject to such
conditions.
They also were not happy with the warranties in regard to
defects that they would be required to give to the purchaser. Ms
Ragavan's
response was that this was an unduly passive approach to
have taken and that she regarded the conditions as common in
agreements
of this type.
[71]
Ms Ragavan did not comment on the offer in
respect of the two units in SS Thiebault House and it is unnecessary
to consider it further.
The BRPs pointed out that it had lapsed by
the time it was presented to them and enquiries addressed to Mr van
der Merwe as to
whether it had been renewed received no response.
VAT
[72]
This issue arose from an instruction to the
Accounts Executive of Oakbay, Ms Remona Govender, when dealing
with invoices to
parties leasing premises or equipment from the two
companies. A number of them were not paying rent or hire charges
either timeously
or at all, and were substantially in arrears. On 26
June 2018 the BRPs instructed that in respect of all clients a
quotation for
the rental or hire charges should be issued, and not a
tax invoice reflecting a charge for VAT. The reason for this
instruction
was that Islandsite and Confident Concept would be
obliged to include VAT on invoices as output VAT in its VAT returns
in circumstances
where it was not in receipt of payment. If payment
was received a tax invoice would be issued and the VAT received would
be included
in the returns to SARS.
[73]
After an exchange of emails Mr Knoop wrote
to Ms Govender, copying the email to Ms Ragavan, saying:
'We are authorised to raise a quotation invoice. Upon
payment the tax invoice will be issued. The Companies are in rescue
and although
recoverable it is a timing issue.'
Ms
Ragavan's response to this in her founding affidavit was that the
instruction tied her hands, but that she knew of no authority
to act
in this way. She complained that this was tantamount to a fraud on
the fiscus.
[74]
Mr Knoop's response was that the companies
in question were not paying rent and Islandsite did not have the
resources to pay VAT
on issue of an invoice before receiving payment.
If it issued an invoice it would have to write the debt off as bad in
order to
claim a VAT credit. He went on to say:
'The only commercially practical way to approach the
problem in the circumstances was on a quotation basis. If payment was
forthcoming,
a VAT invoice would be issued immediately, and payment
of the VAT processed. However, the payments were never received.
It is common practice in financially distressed
companies under business rescue for quotations to be issued rather
than VAT invoices
because of the cash flow problems being
experienced.'
In
reply Ms Ragavan denied that this was in accordance with the VAT Act.
The
sale of Confident Concept's equipment
[75]
This related to the sale of certain
equipment by Confident Concept. Mr Knoop arranged for offers to be
submitted for this equipment.
Immediately after the bids had been
received and considered Mr Knoop wrote to all known affected
parties and creditors advising
that the combined highest bids
totalled R68 651 999 exclusive of VAT. This figure was
confirmed by the auctioneer and
liquidity service company that had
processed the offers. On 3 October 2018 Mr Knoop wrote to
Mr Nath, who had represented
the Guptas at the meeting of
creditors in Confident Concept, informing him that the sum available
for distribution from these sales
was R53 086 199.59. He
also set out the way in which that amount would be distributed among
creditors. Three creditors,
among them Sahara, were paid in full
while four others received a pro rata dividend. Nothing was paid
to Islandsite.
[76]
The explanation for the difference between
these two amounts was that, after the publication of the prices
offered by purchasers,
disputes arose, the resolution of which
resulted in a reduction of the amount available for distribution.
Sahara and Shiva claimed
that certain of the equipment sold was in
Shiva's possession and owned by it. In response to this claim the
disputed equipment
was excluded from the sale and the price adjusted
accordingly. The resultant figure was R57 222 699. From
this amount
some R650 000 was paid to Sahara to settle its
claim, thereby removing it as an affected party in relation to
Confident Concept.
A little over R600 000 was used to settle a
claim to a lien over tyres fitted to some of the mining equipment.
The final deduction
related to the BRPs' fee. Mr Knoop said that Ms
Ragavan was aware of this. That seems probable from the fact that Mr
van der Merwe,
the attorney acting for Mrs Gupta and, according to
some of the correspondence, the shareholders of the two companies,
was in possession
of the letter sent to Mr Nath as well as a similar
letter sent to him in relation to Islandsite. Ms Ragavam annexed this
letter
to her founding affidavit.
[77]
While dealing with this distribution, it is
convenient to point out that the payment to Sahara in settlement of
its claim was said
to be a breach of the business rescue plan and
illustrative of a conflict of interest because one related party
creditor was paid
in preference to Islandsite. Mr Knoop's answer was
that it was neither, as it was a commercial settlement for practical
business
reasons.
Public
auction not private treaty
[78]
It is a little difficult to ascertain the
precise basis for this complaint. According to Ms Ragavan Mr Nath was
authorised to represent
the Guptas in their capacity as shareholders
of Islandsite. She said that she asked Mr Nath to meet with Mr Knoop
to obtain feedback
on the total amount outstanding to the respective
creditors of the two companies and to assist him in identifying
properties owned
by the companies that could be sold in order to pay
the creditors who were to be paid in terms of the business rescue
plans. It
is not clear what qualified Mr Nath to perform this latter
task, but nothing was made of it. According to Ms Ragavan a meeting
was arranged with Mr Knoop for 16 October 2018 but it did not take
place.
[79]
On the strength of these allegations Ms
Ragavan alleged that Mr Knoop was not interested in even considering
private offers at competitive
prices for the respective immovable
properties and was insisting on proceeding by way of sales by public
auction. She said that
this was contrary to the approved plans and
showed a rigid and unyielding approach that was not in the best
interests of the companies.
She also complained that the right of
first refusal given to shareholders in Islandsite was disregarded.
[80]
Mr Knoop denied these allegations. He said
that no valid private offers had been rejected by the BRPs, and that
the sales that had
taken place by public auction were authorised by
the business rescue plans. In his supplementary affidavit he
furnished details
of a number of sales, some by public auction and
some by private treaty, that had been concluded by the BRPs. In each
case he said
that the affected parties and creditors were informed of
the sales and no-one sought to exercise a right of first refusal. Ms
Ragavan
did not point to any occasion when one of the shareholders
wished to exercise the right of first refusal and was precluded from

doing so.
The
absence of reports
[81]
Apart from these specific complaints Ms
Ragavan said that attempts to obtain information and reports from the
BRPs through enquiries
by attorneys met with no or an inadequate
response. She complained separately that the statutory reports
required by s 132(3)
of the Act had not been furnished. All of
this was said to be irregular and highly prejudicial to the two
companies, although there
was no attempt to explain the nature of
that prejudice. It was said to demonstrate a conflict of interest, a
lack of independence,
a failure to perform their duties as BRPs, a
failure to exercise the requisite degree of care and a lack of
bona
fides
.
[82]
Some of these complaints arose from
correspondence between an attorney, Mr Pieter van der Merwe, and the
BRPs between August and
October 2018. It started with a letter from
Mr van der Merwe saying that he acted on behalf of the shareholders
of both companies,
that is, the Guptas. When asked to furnish proof
of his authority he produced a document signed by Mrs Gupta. On 3
October 2018
he was furnished with copies of two letters addressed to
Mr Nath, who it will be remembered said he represented the Guptas.
The
one dealt with the distribution of the proceeds from the sale of
Confident Concept's mining equipment and set out in terse terms
the
amounts owing to three specific creditors and the general body of
concurrent creditors. Ms Ragavan said that this did not furnish
the
information requested. That was incorrect. As to the other document,
although Ms Ragavan said it would be annexed it was not
in the
record.
[83]
On 5 October 2018 Mr van der Merwe replied
and grumbled about the information furnished, without being specific
as to its alleged
shortcomings, and requested a meeting 'to discuss
viable options to take these companies out of business rescue'. He
said that:
'… it seems at this stage as if there exists a
strong possibility that our clients might be in a position to repay
these
debts, therefore resuscitating these companies.'
It
is apparent that the letter was written on behalf of the Guptas, not
Mrs Gupta alone. No indication was given of the viable options
or how
the debts were to be paid. The BRPs did not respond. On 11 October
Mr van der Merwe wrote on behalf of the Guptas
to the
auctioneers who had notified Mr Nath, Ms Moopanar and him of a sale
of one of Confident Concept's properties, insisting
that all future
correspondence be addressed to him. He said in the letter that his
clients were 'considering on an urgent basis
to provide financial
means/plans to get both these companies out of business rescue'.
[84]
The insistent drumbeat of the further
correspondence from Mr van der Merwe was that the companies
were to be taken out
of business rescue as soon as possible, with
demands for further information about sales, although it was plain
that he was aware
of the proposed sales and did not require further
information. The objection was to any sales taking place 'if our
client's funding
is accepted'. Whether this referred to Mrs Gupta
alone, or the Guptas collectively as in the earlier correspondence,
was unclear.
What is clear is that there was no evidence of either
the Gupas collectively, or Mrs Gupta on her own, providing any
details of
possible funding that could be used to pay creditors and
would avoid further sales.
[85]
On 25 October 2018 Mr van der Merwe wrote
on a different tack suggesting, without providing any detail, that
the BRPs might not
have been keeping Islandsite's documents up to
date and threatening claims against the BRPs 'once the business
rescue proceedings
have terminated'. The apparent reason for his not
writing on behalf of Confident Concept emerged four days later when a
different
firm of attorneys, Mayet Vittee Inc, wrote on
behalf of the shareholders of that company, that is, the Guptas,
asking
for a stay of the public auction of a property known as Alanda
Lodge. The purpose of the sale was to enable their clients to obtain

'post-commencement finance'. This did not appear to contemplate
finance in terms of s 135 of the Act, but simply procuring
funds
to pay off creditors.
[86]
The response to this new line of approach
was a letter from the BRPs' attorney pointing out that the sales were
sanctioned in terms
of the business rescue plan and had the support
of the secured creditor in respect of one of the properties. The
letter also displayed
a wariness on the part of the BRPs about
accepting funding from the Guptas. It said:
'In addition, our clients are of the
opinion that it will not be in the best interests of the company to
allow your clients –
members of the Gupta family – to
supply the company with post-commencement finance, as this may cast
aspersions over the
legitimacy of the process, as the perception may
be created that our clients are relying on post-commencement finance
obtained
from a family that may have raised such finance in an
illegitimate manner.'
[87]
Mr Knoop respond to this correspondence
saying that the affected parties were informed about the sales
through the monthly status
reports, which alerted them to forthcoming
auctions. These were conducted in terms of the authority given by the
business rescue
plans. After auctions the successful bids were
circulated to affected parties to enable the right of first refusal
to be exercised.
No shareholder ever sought to exercise that right.
The complaint about the statutory reports in terms of s 132(3)
of the Act
was dealt with by providing copies of the statutory
reports. Mr Knoop pointed out that he did not have an address
for Mrs
Gupta in Dubai and, although she claimed to be resident in
the family home in Saxonwold, neither she nor her husband were in
fact
living there. They appeared to be living in Dubai where
Mrs Gupta deposed to her affidavits.
[88]
Ms Ragavan's reply was by way of a general
denial that the statutory reports were adequate or satisfied the
requirements of the
Act in regard to reporting to affected persons
and creditors. There was no indication of what they should have
contained and what
was omitted. They deal with the sale of properties
and the progress being made with each sale and the transfer of the
properties.
Ms Ragavan denied that Mrs Gupta or herself had received
the reports, but did not say how they should have been sent to Mrs
Gupta.
Westdawn
[89]
The issue of a possible conflict of
interest was raised again in relation to Westdawn, which leased
mining equipment from Islandsite.
(Mr Knoop described it as labour
broker.) Its business involved what Ms Ragavan described as 'front to
back mining services' for
various mining companies. It appears that
this involved performance of the actual mining operations for these
mines. One of the
mines was OCM, another of the eight companies in
business rescue, of which Messrs Knoop and Klopper, together with two
others were
the BRPs. Westdawn was placed in final liquidation on
3 October 2018 at the instance of a third party and Oakbay
launched
an application on 16 November 2018 to rescind that order. On
14 November 2018 the BRPs of OCM caused a letter to be sent to

the liquidators of Westdawn, terminating the mining contracts with
it, on the basis of a clause in those contracts that required

Westdawn to certify that it was not trading in insolvent
circumstances. Ms Ragavan contended that Westdawn was not insolvent
and
the liquidation order should not have been granted. She said that
the letter was written in a contrived attempt to avoid the mining

contracts and was highly prejudicial to Islandsite.
[90]
Ms Ragavan proffered no explanation for the
BRPs doing this if that was indeed the case. On her version this was
a profitable agreement
generating a substantial cash flow for
Islandsite. The BRPs were aware that a final liquidation order had
been granted, but could
not have been aware of Oakbay's application
for the rescission of that order as that had not yet been launched.
Mr Knoop said that
the four BRPs of OCM had taken advice on what to
do in the light of the liquidation of Westdawn and their actions
flowed from that
advice. The suggestion that the letter was a
contrived attempt to avoid the mining contracts was denied. In reply
Ms Ragavan suggested
that the BRPs were obliged in the interests of
Islandsite to oppose the provisional liquidation of Westdawn, without
saying how
they would have had knowledge of it, and that they should
have applied for the order's rescission. No ground for doing this was

suggested.
Discussion
of the complaints
[91]
The first contention based on these
complaints was that the BRPs ignored and undermined the business
rescue plans. The second which
was closely related to the first was
that the BRPs were ignoring competitive third party offers in respect
of valuable assets and
insisted across the board on sales by auction.
Reliance was placed on the fact that in both plans a preference was
expressed for
private treaty sales rather than sales by public
auction.
[92]
The final contention related to the
instruction not to issue VAT invoices to parties defaulting on their
obligations in respect
of the payment of rental or hire charges. Ms
Ragavan described this as 'most disturbing' but did not link it
specifically to any
of the provisions of s 139(2). In that sense
it is a 'standalone' issue largely separate from the other
complaints. It is
convenient to deal with it at the outset.
The
VAT instruction
[93]
Although the affidavits promised legal
argument on this issue, we received no detailed argument with
reference to the provisions
of the VAT Act. In strict law Ms Ragavan
may be correct that the instruction given by Mr Knoop was
inconsistent with the obligations
of the companies in regard to the
payment of VAT. My starting point is s 15(1) of the VAT Act,
which requires vendors to account
for tax on an invoice basis, save
in certain special circumstances. Although we had no direct evidence
on this, I assume from the
nature of the correspondence over this
issue, that the companies were obliged to account on an invoice
basis. Under s 16(3)
the vendor is obliged to account for VAT by
deducting from all output tax for the period, as determined under
s 16(4), the
amounts specified in the various sub paragraphs
of that section. Under s 16(4)
(a)
(i)
the standard basis of accounting for output VAT is the amount
chargeable when a taxable supply is made during that period. That

amount should be reflected in a tax invoice issued when the supply is
made. Section 20(1) requires that a tax invoice be issued
within 21
days of making a taxable supply.
[94]
These requirements undoubtedly create cash
flow problems where the vendor is not expecting to receive payment
from the recipient
of the taxable supplies. Provision is made in s 22
for the recoupment of VAT already paid where a debt becomes
irrecoverable,
but it is not directly helpful where the supply is
made in circumstances where there is little or no expectation of
payment. There
is a further potential difficulty when the taxable
supply is made to another vendor that is a member of the same group
of companies
as the vendor liable to account for the tax. In terms of
s 22(6) it is impermissible to make a deduction on the basis
that
the debt has been written off as irrecoverable for as long as
the two companies remain members of the same group of companies. It

seems likely that this provision would also be of application in the
present case.
[95]
For those brief reasons, I am prepared to
accept that Ms Ragavan may be correct in saying that in strict law
the instruction to
issue quotations and not tax invoices was
inconsistent with the provisions of the VAT Act. But where does that
take the case that
the BRPs should be removed? Mr Knoop said, and
this was not controverted, that it was common practice in financially
distressed
companies to act in this fashion in order to address the
cash flow problems that would otherwise arise from issuing tax
invoices
for supplies to parties where there was no expectation of
receiving payment. He did not say whether this was known to SARS, but

it would be surprising were it not.
[96]
There are a few notable features of the VAT
issue. The first is that Ms Ragavan does not suggest that as a
director of Islandsite
she raised the issue with SARS. Instead she
claimed that her hands were tied. But they were not. She remained a
director of the
company and there was no obligation on her to accept
an unlawful instruction from Mr Knoop. Why then did she not simply
contact
her local SARS office dealing with the company's VAT returns
and check whether Mr Knoop was correct in claiming, as he did, that

the BRPs were authorised to operate on this basis? Insofar as she
suggested that Mr Knoop's instruction was a breach of the obligations

of a director under s 140(3)
(b)
of
the Act, her failure to report it must likewise have been a breach of
her obligations as a director.
[97]
The second feature is that while the
instruction may not have been permissible it does not appear to have
caused any loss to the
fiscus. There is nothing to suggest that
issuing tax invoices would have resulted in the tax being paid either
by the beneficiaries
of the supplies or by either company. The
beneficiaries were in default and neither company had the resources
to pay large amounts
of VAT in respect of non-existent receipts. To
give one example, Islandsite was leasing mining equipment to Westdawn
and the hire
charges payable in terms of the lease in the documents
relating to the business rescue plan was in excess of R7.5 million
per month. The VAT payable on that would be of the order of R1.25
million per month. There is no evidence to show that Islandsite
could
have paid that.
[98]
That brings me to the third feature, which
is that Mr Knoop gave the instruction in the interest of the
companies in business rescue
to preserve their financial position and
to avoid incurring further expenses and causing their financial
position to deteriorate.
He explained that this was the only
commercially practical way of addressing the problem. That was
consistent with the approach
outlined at the first meeting of
creditors in Islandsite that the rescue would depend on a careful
management of the cash flow
structure. Nothing suggests that he and
Mr Klopper were not acting in good faith in adopting this approach.
They may have been
wrong in law in doing so, something I have been
prepared to assume for the purposes of discussing this issue, but an
erroneous
approach on their part does not provide grounds for their
removal from office.
[99]
The VAT issue was stressed in the heads of
argument on behalf of Mrs Gupta. Assuming that the instruction
involved an illegality,
something that is by no means clear, it might
have fallen under s 139(2)
(c)
,
but there is no reason to think that the BRPs did not bona fide
believe that their approach was permissible. That would undoubtedly

be the case if, as Mr Knoop says, this is a common practice in
dealing with distressed companies. This was not a ground on which
to
remove the BRPs.
Ignoring
the business rescue plans and competitive offers
[100]
It is convenient to deal with these issues
together. I start with whether any actions by the BRPs were in
conflict with the business
rescue plans. Four of the specific
complaints dealt with above might be thought to support this
allegation. They relate to the
sale of the aircraft; the failure to
accept the offers furnished through the attorney, Mr van der Merwe;
the alleged
insistence on selling by public auction instead of
private treaty; and the payment to Sahara out of the proceeds of the
sale of
equipment by Confident Concept.
[101]
Nothing was said in the Islandsite plan
about the sale of the aircraft or any other movable. The plan
proceeded on the basis that
the immovable properties would, if sold,
generate sufficient to pay the Bank of India and the preferent and
trade creditors. It
said nothing about selling the aircraft or about
satisfying the secured claim of Cessna Finance Corporation. Nor did
the refusal
to sell it in response to the offer emanating from an
undisclosed purchaser represented by a broker in Oman undermine the
plan.
Mr Knoop's reasons for not accepting the offer must be accepted
on an application of the
Plascon-Evans
rule. The fact that Ms Ragavan did not
regard them as sufficient is neither here nor there. In the absence
of any evidence that
the decision would undermine the achievement of
the aims of the plan this factor was irrelevant. I will revert to it
when dealing
with the general allegations. I can find no trace in the
full court's judgment that this played a role in its conclusions.
[102]
In regard to the offer presented by Mr van
der Merwe for the units in SS Thiebault House, Ms Ragavan said
nothing and it is unnecessary
to address them further. That leaves
the offer in respect 106A, 16
th
Road, Midrand. Mr Knoop explained why that offer was not accepted. Ms
Ragavan accused him of undue caution, but the refusal was
not in
breach of the business rescue plan. The offer was conditional and
there was no evidence that the conditions would be fulfilled.
The
BRPs were under no obligation to accept it.
[103]
The complaint that the BRPs were not
willing to accept private offers is belied by the history of sales of
immovable properties.
The first sale of the Sahara property was a
private sale as a result of an introduction by Mr Nel from Sahara.
That was registered
on 31 August 2018 and the proceeds
distributed to creditors. Of the five subsequent sales of immovable
properties owned
by Islandsite, three were by public auction and two
by private treaty. The sale of equipment by Confident Concept was by
a public
tender process, which was consistent with the plan. Three
properties owned by Confident Concept were sold by public auction,
but
two of those sales were cancelled. One of them has now been sold
by private treaty. In the founding affidavit it was said that Mr
Nath
wanted to meet with Mr Knoop to help to identify properties that
could be sold to satisfy claims. No properties were mentioned
in the
affidavit and there was no indication that Mr Nath had identified any
that were especially appropriate to be sold. And if
the matter was so
important to the Guptas, whom he represented, why did he not write a
simple letter to Mr Knoop containing his
suggestions? There was no
merit in this complaint.
[104]
The final issue under this head was the
payment to Sahara from the proceeds of the sale of equipment by
Confident Concept. Mr Knoop
demonstrated that Sahara was causing
difficulties in proceeding with the sale for the general benefit of
creditors. A settlement
of its claim was reached for commercial
reasons. The error underpinning the complaint was that this payment
stood on the same footing
as a dividend to related creditors. It did
not. It was a settlement to remove an obstacle to the recovery of
over R50 million
for creditors. It stood on the same footing as
the payment to release the lien claimed over vehicle tyres. The
necessary conclusion
is that there was no merit to any of the
complaints about the sale of assets. They were made in accordance
with the plans. No competitive
offers were produced. Some were by
public auction and some by private treaty. All this was in accordance
with the plans and did
not undermine them.
Conflict
of interest
[105]
The Sahara payment was also relied on to
contend that there was a conflict of interest on the part of Mr Knoop
as BRP in respect
of Confident Concept and as BRP of Islandsite. It
was based on the same erroneous view that the payment to Sahara was
by way of
a dividend to a related creditor. It was therefore
factually ill-founded. The full court relied on a potential conflict
of interest
as a reason for removing Mr Knoop as BRP of both
companies, but it is unclear whether this was based on the specific
issue raised
on behalf of Mrs Gupta, or on the more general basis
that it is undesirable for a person to be the BRP for two companies
that may
have claims against one another. This will be explored when
I come to deal with the full court judgment.
The
remaining specific complaints
[106]
These can be disposed of shortly. The
complaint about the distribution of the proceeds of the sale of
Confident Concept's mining
equipment was, at best for Ms Ragavan,
attributable to a lack of understanding of the claims made after the
completion of
the public tender. Mr Knoop said that there was no room
for misunderstanding as she was fully informed. We do not need to
resolve
this issue. The factual basis of the claim was wrong and it
provided no support for concluding that any of the requirements of
s 139(2) were satisfied. The same is true of the alleged absence
of the statutory reports that must be provided if the business
rescue
lasts longer than three months.
[37]
It will be recalled that Mr Nath identified himself as representing
the Guptas and Ms Ragavan confirmed this. The reports were
sent to
him and Mr Knoop produced the reports and alleged that they had been
sent to all affected persons. Mrs Gupta's complaint
that she had
not received the reports rang a little hollow, given that she has
steadfastly failed to furnish an address to which
they could be sent
while she was in Dubai. There had been no direct interaction between
her and the BRPs, to the extent that they
legitimately doubted
whether she had authorised Mr van der Merwe to act on her behalf or
the bringing of these proceedings. That
correspondence may not always
have been responded to immediately, but the issues it raised were
unfounded and the BRPs were entitled
in the light of certain matters
to which I will refer when dealing with the full court's judgment to
be cautious about the endeavours
to provide funds to secure the
termination of the business rescue proceedings.
[107]
Finally, there was the complaint about the
cancellation of the Westdawn contract. Its relevance was not apparent
from the founding
affidavit and the reply did nothing to clarify the
position. The assertion in the heads of argument that it was not in
the best
interests of Islandsite was an assertion and nothing more.
Conclusion
on the specific complaints
[108]
It is apparent from this regrettably
lengthy analysis of the allegations made by Ms Ragavan on behalf of
Mrs Gupta and the responses
by Mr Knoop, that none of the specific
complaints advanced on behalf of Mrs Gupta were established on a
balance of probabilities.
We cannot tell whether this was also the
conclusion by the full court because it did not engage with or seek
to analyse the evidence.
It made no factual findings on these issues
in favour of Mrs Gupta. In my view none could properly be made on the
evidence before
the court.
[109]
Where does that leave the application for
the removal of the BRPs? They were brought to court to face specific
allegations about
their actions as BRPs and those were not proved on
a balance of probabilities. These allegations were the basis for Mrs
Gupta's
contentions that the court should infer that the requirements
of s 139(2) were present and justified an order for the removal

of the BRPs. Her failure to prove them meant that she failed to prove
that there was a proper basis for their removal in terms
of s 139(2).
The stage was not even reached where the court would have had to
exercise a discretion whether or not to remove
them. The application
should on ordinary principles have been dismissed, but as we know it
was not. It is therefore necessary to
examine the basis upon which
the full court ordered the removal of the BRPs.
The
full court's judgment
[38]
[110]
After setting out a little of the
background to the business rescue the judgment quoted the general
allegations made by Ms Ragavan
that recited the provisions of
ss 139(2) and 140(3).
[39]
It did not quote the specific allegations against the BRPs as set out
in paras 16.1 to 16.4 of Ms Ragavan's affidavit.
[40]
After reciting the definition of business rescue in s 128(1)
(b)
of the Act and s 139(2), the
question before the court was summarised in the following terms:
[41]
'
What
is vital is for this court to therefore determine whether the BRPs
in
casu
executed
their duties in accordance with the standard set not only by the Act
but also by the courts as judicial officers or whether
the applicant
has successfully made out a case demonstrating that the BRPs acted in
a manner short of the required standard in
terms of the Act.
'
[111]
I pause here to point out that BRPs are not
and were not judicial officers. The Act says that they are officers
of the court, an
expression that was discussed earlier in this
judgment.
[42]
There appears to have been some confusion, because the description of
them as judicial officers was repeated twice more in subsequent

paragraphs of the judgment. There there were also two references to
them as officers of the court. This was unfortunate as it may
have
affected the full court's approach to assessing the standard of
conduct required of a BRP. I have already explained why the

description of the BRP as an officer of the court was inappropriate
and added nothing to their statutory obligations. A judicial

officer's obligations are not comparable with those of a BRP.
[112]
Reverting to the judgment, one would have
expected that after identifying the question as being whether the
applicant had made out
a case for the BRPs removal, the court would
have had regard to the case advanced in the founding affidavit and
the answer to that
case and weighed the evidence accordingly. Had
that been done, there could only have been one conclusion, namely
that Mrs Gupta
had not discharged the onus of proving her allegations
and the requirements of s 139(2) were not satisfied. Regrettably
the
judgment did not deal with the evidence and whether it was
sufficient to discharge the onus resting on Mrs Gupta. Instead it
contains
a number of general statements and adverse findings
concerning the BRPs without reference to the evidence. This was not
the correct
approach.
The
issue of fees
[113]
At an early stage a theme emerged that
appeared to have weighed heavily with the full court. It said:
[43]
'
As
an officer of the court, it is an uncompromising requirement that a
BRP execute his/her duties in good faith, bearing in mind
that the
benefit of earning fees should never outweigh the duty to act in good
faith.'
The
authority
[44]
cited for this latter proposition did not support it. More to the
point there had been no accusation against the BRPs that they
were
abusing their position in order to sustain or increase the fees they
would earn from it.
[45]
However, the full court returned to this in the following paragraph
of its judgment, when saying:
[46]
'The
sale of the companies' assets seemed to be a frequent feature in the
argument raised by the first and second respondents in
response to
the question regarding the execution of their duties. The first and
second respondents argued that in the execution
of their duties they
had overseen the sale of numerous properties belonging to the
companies. However, we find this argument to
be untenable. It cannot
be that the first and second respondents can unabatedly continue to
sell off the assets of the respective
companies and earn fees and
commissions without having a plan regarding how the respective
businesses are going to operate moving
forward once the creditors
have been paid.'
That this was a
fundamental consideration in the full court's judgment is apparent
from the following paragraph:
[47]
'
We
therefore find the first and second respondents' continual earning of
fees and commissions, despite their failure to timeously
conclude the
business rescue proceedings in respect of both companies, to be
wholly at odds with their mandate in terms of the
Act.'
[114]
Ms Ragavan had not raised this issue in the
founding affidavit or the reply. She did not suggest that the BRPs
were dragging out
the process of business rescue in order to continue
to earn fees from unnecessary sales of property. The BRPs had not
been called
upon to respond to allegations of this type. In raising
them, without the benefit of evidence, the full court took into
account
irrelevant considerations and misdirected itself in a very
material respect. The full court made the point that business rescue

proceedings are not intended to last indefinitely. It said that the
BRPs had not timeously concluded the business rescue proceedings.
It
is unclear on what this conclusion was based. The period of three
months referred to in s 132(3) is not a cut-off date
for
business rescue. It is merely a date after which the BRPs are obliged
to prepare and circulate to affected parties a progress
report in
regard to the proceedings. The Islandsite plan said that the process
would take some six to nine months and this had
barely expired by the
time the application was launched. The BRPs had been hampered in
their efforts by the extensive litigation
referred to below and the
general lack of co-operation of Ms Ragavan and her colleagues. On the
papers the BRPs were not unduly
delaying the business rescue process.
[115]
The importance of this misdirection is
apparent from the stringent terms in which the full court expressed
its condemnation of the
BRPs' conduct. It said that:
[48]
'…
we
find the BRPs' conduct
in
casu
to be at
odds with the requirements as set out in the Act. As judicial
officers, the first and second respondents failed to execute
their
duties with the highest level of good faith, objectivity and
impartiality on several fronts, the sale of the assets of the

companies being the first.'
This criticism was
wholly unsupported by anything in the evidence. It was not a charge
levelled against the BRPs by Ms Ragavan,
who showed no reluctance to
level other complaints against them and who consistently accused them
of acting in breach of their
obligations. Yet on this she was silent.
The heads of argument on behalf of Mrs Gupta were likewise silent on
this issue. Given
the seriousness of the imputations against the
BRPs, it is necessary to say that these findings were entirely
unjustified.
Prospects
of business rescue succeeding
[116]
The next matter raised by the full court
was that the BRPs had 'failed to make out a cogent case to support
their opinion that reasonable
prospects of rescue existed'.
[49]
The short answer to this is that they were never called upon to do
so. It was not an issue in the case. If one peruses the
correspondence,
Mrs Gupta and the other shareholders adopted the
stance that the companies should be taken out of business rescue and
restored
to the shareholders and directors. When Mr van der
Merwe sent the offers to purchase the aircraft and certain properties
to
the BRPs attorneys on 27 October 2018 he said that the aim was to
'uplift' the business rescue proceedings. On 5 October 2018

he had written to the BRPs' attorney saying that if information could
be provided about the debts of the companies 'there was a
strong
possibility that our clients [the Guptas] might be in a position to
repay these debts, therefore resuscitating these companies'.
On 3
October 2018 he had written suggesting that post-commencement finance
could be obtained that would 'bring these businesses
out of business
rescue'. Far from there being no reasonable prospect of rescue, the
approach of Mrs Gupta, as expressed through
her representatives, was
that there was no longer a need for business rescue and every
prospect of bringing them out of business
rescue as operating
entities.
[117]
The full court's concern was that there was
no proposal to secure a bank account for the companies to enable them
to continue with
their business. No such concern is to be found
anywhere in the affidavits on behalf of Mrs Gupta, or the
correspondence annexed
to the papers. It was a matter addressed
specifically in both business rescue plans. In the case of Islandsite
the plan proposed
the sale of the business as a going concern or
entering into a management contract at arms-length with a third
party. In the case
of Confident Concept the proposal was either to
sell the immovable properties and movable assets or to sell the
business as a going
concern. This was the basis upon which the
business rescue plans had been proposed to and accepted by creditors.
It was not an
issue in the removal proceedings. The BRPs were under
no obligation to deal with it any further.
Failure
to report criminality
[118]
The third issue relied upon by the full
court needs to be set out
in extenso
.
It read:
[50]
'
[30]
The first and second respondents' lack of good faith in conducting
the affairs of the companies is again demonstrated in their

contention that there exists an element of criminal unlawfulness in
the manner in which the board and shareholders have conducted
the
affairs of the companies. As judicial officers, the first and second
respondents bore the onus of reporting such suspicions
to the
relevant authorities.
Their
failure to do so, in this court's view, is dispositive.
Not only does this mean that the first and second respondents'
investigation into the affairs of the companies has been tainted
as a
result of their potential failure to be forthcoming regarding any
dubious activities on the part of the board and shareholders,
the
first and second respondents' failure to report their findings to the
relevant authorities in turn also taints their impartiality
as
officers of the court. Given the nature of the office of a BRP and
that the ability to execute one's duties as a BRP requires
a high
level of impartiality and independence, the conduct of the first and
second respondents in failing to report such findings
is critical and
speaks to whether the respondents are indeed fit and proper to
execute the duties of a BRP.
[31] In the answering affidavit
the respondents contend that, although the initial reason for the
commencement of business rescue
proceedings was the un-banking of the
Gupta-linked companies, it later emerged that the entire group was in
financial turmoil due
to the gross and reckless mismanagement of the
affairs of the companies.  The respondents further submit that
both Islandsite
and Confident Concept form part of the Gupta empire
through which billions of rands were channelled under the direction
and control
of the board of directors, management and shareholders.
We, however, find the unsubstantiated nature of the first and second
respondents'
allegations in this regard particularly vexing. Again,
if the first and second respondents were so aggrieved at the alleged
mismanagement
of the companies and the unsavoury and criminal
activities that the companies were being subjected to at the hands of
the board
and shareholders, as an integral part of their judicial
duty the first and second respondents could have and should have
reported
their findings to the appropriate authorities. Raising such
allegations at this stage appears to be a grossly disingenuous
litigation
tactic that again does not put the first and second
respondents' conduct as officers of the court in the best of light.
[32] It is in turn both intriguing
and troubling that the first and second respondents have filed papers
vilifying the companies'
board and shareholders, alleging that they
have mismanaged the affairs of the companies, and in the same breath
want to rescue
the companies for the ultimate benefit of the same
board and shareholders. This again speaks to the credibility of the
first and
second respondents and begs the question whether the
accusations levelled at the board and shareholders are truly being
raised
in good faith. Lastly, this court cannot overlook the position
of conflict that the first respondent may potentially find himself
in
as a BRP for both companies. This court finds that the gravity of the
position held by a BRP requires the utmost level of impartiality
and
independence and in the event that such impartiality and independence
may potentially be compromised, intervention is warranted.'
(Emphasis
added, footnotes omitted.)
[119] The full court
was not justified in condemning the BRPs conduct on these grounds, or
in harsh terms that reflected so adversely
on their credibility,
their integrity and their bona fides. As with the issue of fees t
he
alleged failure to report criminal conduct to the relevant
authorities was not raised as a ground of complaint or dealt with
in
the papers. The likelihood of it having been a ground of complaint by
Mrs Gupta, speaking through Ms Ragavan, was nil,
inasmuch as any
such criminal conduct would have been by the Guptas and directors and
employees of companies in the Oakbay Group,
such as Ms Ragavan and Mr
Chawla. It transpired that it was also factually incorrect. Mr Knoop
set the record straight in his answering
affidavit in the application
for an execution order, explaining that the BRPs had reported their
suspicions of potentially criminal
conduct to the SAPS, the National
Prosecuting Authority, the Special Investigations Unit, the
Asset Forfeiture Unit, SARS
and the Zondo Commission.
[120] Not reporting
potential criminal conduct to the relevant authorities was not raised
in the papers, and the judgment did not
address the difficulties that
confronted the BRPs in managing and operating the companies under
business rescue. They were working
against a background of public
controversy about the business practices of the Guptas and their
possible involvement in what was
commonly referred to as 'state
capture'. Under s 141 of the Act the BRPs were required to
investigate the affairs of the companies
under business rescue. Under
s 142 the directors were obliged to co-operate with and assist
the BRPs. The evidence showed
that the efforts of the BRPs to do the
former was at all times obstructed by the directors non-compliance
with their statutory
obligation, co-ordinated as far as could be seen
by Ms Ragavan. This conduct appeared to the BRPs to be furthering the
interests
of the Guptas and had nothing to do with the successful
management of the business rescue.
The barrage of
litigation
[121] The lack of
co-operation manifested itself within six weeks of the companies
going into business rescue and the appointment
of the BRPs, when Ms
Ragavan refused the BRPs access to the premises of the businesses
without first making an appointment and
refused access to documents
and business records. Early in
April 2018 the
BRPs, together with the other two BRPs appointed in relation to OCM,
brought proceedings to interdict and restrain
Ms Ragavan and various
other individuals connected to the Oakbay Group, from obstructing or
refusing them or their nominated agents
access to the premises from
which the various businesses under business rescue operated. An order
was granted on 13 April 2018
by Fisher J. On 18 April 2018 she
refused leave to appeal and granted an execution order in terms of
ss
18(1)
and (3) of the
Superior Courts Act. The
urgent appeal against
the execution judgment was dismissed on 3 May 2018.
[122]
The
BRPs also wanted access to the computer servers located on the
premises and access to all information thereon relating to the

various companies under business rescue. An order compelling Ms
Ragavan and the other respondents to afford such access to the
BRPs
was granted as a matter of urgency on 4 May 2018. It was joined with
the issue of an order threatening Ms Ragavan and the
other
respondents with contempt of court.
[123] One might have
thought that this would suffice to impress upon Ms Ragavan and her
colleagues the need to discharge their statutory
duty to co-operate
with the BRPs. Far from it. What followed between then and the launch
of this application was a barrage of litigation
directed at opposing
whatever the BRPs sought to do, whether in relation to these two
companies, or in relation to the other six
companies under business
rescue. Ms Ragavan played a major role in this litigation.
Sometimes it was brought in her own name
and sometimes she deposed to
the principal affidavit. In a few instances her role was merely
supporting. Others involved were
Ms Pushpaveni
Govender, the financial manager of the Oakbay Group, the sole
director of OCM and a director of OCT and VR Laser;
Ms Moopanar;
and Mr George van der Merwe, a director of Shiva and OCT and the CEO
of OCM, Koornfontein and Shiva. The following
litigation ensued, all
of which was either directly or indirectly aimed at Messrs Knoop
and Klopper in their capacities as
BRPs in these and other companies
in the Oakbay Group.
[124]
Ms Govender launched two applications on 9
April 2018 where the founding affidavits were deposed to by
Ms Moopanar. One sought
the removal of Messrs Knoop and
Klopper as BRPs of OCM and replacing them with the intervening party,
Mr Mahier Tayob,
and Mr Jeremy Mashaba. The second
application sought an interdict against the other two BRPs of OCM
from holding themselves out
to have been duly appointed as such and
purporting to exercise any powers flowing from that office and
interdict against all four
BRPs from implementing certain agreements
concluded by them in their capacity as BRPs. The removal application
was subsequently
withdrawn and the urgent application was dismissed
on the grounds that Ms Govender did not have
locus
standi
and that it was not urgent.
[125]
Mr van der Merwe had been at court when Ms
Govender's application came before Kollapen J. On 24 April 2018 he
launched a similar
application to remove the BRPs in respect of OCM,
Koornfontein and OCT. On 26 June 2018 that application was struck
from the roll.
Ms Ragavan and other members of the pre-existing
management of the companies under business rescue and the Oakbay
Group either
deposed to affidavits in support of these applications,
or were signatories to resolutions purporting to authorise the
intended
litigation. It is plain that their actions were collective.
[126]
Further litigation at this time, involved
the diversion of some R90 million by way of a VAT refund from
OCM to a company called
In House Wages (Pty) Ltd, the
director of which, Mr Maharaj, was appointed two days after OCM was
placed in business
rescue. The BRPs brought an urgent application on
16 April 2018 and the funds were retrieved. Mr Maharaj explained that
the refund
was diverted from SARS to his company on the specific
instructions of Ms Ragavan and that this was not the first occasion
on which
such a diversion had occurred. He also informed the BRPs'
attorney that he had been instructed by Ms Ragavan to oppose
their
application. Ms Ragavan did not deal with these statements in
her replying affidavit.
[127]
On 30 April 2018 Oakbay launched
proceedings aimed at interdicting the BRPs for Koornfontein from
convening a meeting in terms of
s 151(1) of the Act. Ms Ragavan
supported the application, but it was withdrawn on 4 May 2018. On 30
April 2018 Centaur Ventures
Ltd (Centaur), a company registered
in Bermuda, brought an urgent application to restrain the BRPs in OCM
from attempting to convene
a meeting in terms of s 151(1) of the Act,
alternatively postponing any meeting
sine
die
. The BRPs of OCM regarded Centaur
as a company controlled by the Gutpas. Their allegations to that
effect have never received a
response. One of the shareholders and
directors of Centaur, is a relative by marriage of the Gupta
brothers, having married their
niece. His wedding at Sun City
arranged by the Gupta brothers caused controversy and the BRPs
suspected that it had been financed
by funds intended for the
development of the Estina Dairy Farm in the Free State. The
application by Centaur, like many others
was withdrawn. It concerned
coal supply agreements concluded between Centaur and OCM where the
BRPs had been advised that OCM was
not in a position to produce the
quantity of coal allegedly ordered or purchased by Centaur. Money
received from Centaur was not
retained by OCM but, according to Mr
Knoop (and not challenged by Ms Ragavan) 'the money received from
Centaur was not retained
by OCM for its benefit but was channelled
through OCM to the Guptas and the other companies within the group.'
[128]
On 2 May 2018 Oakbay launched proceedings
to restrain the BRPs in Tegeta from attempting to convene a meeting
in terms of s 151
of the Act. On the same day a foreign company,
Charles King SA, brought an urgent application against the BRPs and
Tegeta for an
order declaring it to be an independent creditor of
Tegeta, alternatively to postpone a meeting scheduled for 9 May 2018
pending
the finalisation of urgent arbitration proceedings to
determine the lawfulness of the cancellation of a sale of shares
agreement.
That claim was dismissed, but it is the subject of an
appeal.
[129]
The focus then shifted to Shiva. Westdawn
sought an order against the BRPs requiring it to amend its business
plan, which reflected
Westdawn's claim against Shiva as disputed. The
following day Oakbay launched proceedings against the BRPs to
interdict and restrain
a proposed meeting of creditors of Shiva. In
October 2018 the BRPs and Shiva issued an application out of the
Companies Tribunal
in order to prevent the unlawful appointment by
Mr George van der Merwe of Messrs Tayob and January as
substitute
BRPs in respect of Shiva. That was challenged and very
specific allegations were made that Mr van der Merwe
was
party to endeavours by the Guptas to disrupt and frustrate the
business rescue process of the eight companies in the Oakbay Group.

These allegations were not denied and the attempt to appoint
Messrs Tayob and January failed. They then tried to interdict

the implementation of the tribunal decision. Their application was
dismissed on 21 December 2018 and their subsequent application
for
leave to appeal was dismissed on 22 February 2019.
[130]
Lastly, in the latter stages of 2018 Oakbay
brought an application to procure the removal of Messrs Knoop and
Klopper as BRPs of
Tegeta. The application was unsuccessful. Leave to
appeal against that judgment was refused by Potterill J, but an
application
for such leave has been referred for oral argument to
this court.
[131]
The present proceedings were said to be a
continuation of
this tsunami
of litigation against the BRPs in the various companies. Whilst the
identity of the applicants may have varied and
the target of the
litigation may have changed from time to time, the picture painted by
Mr Knoop was of a campaign of litigation
directed at the BRPs and
aimed at disrupting the process of business rescue. None of this
evidence was disputed. It was not a matter
of 'vilifying the
companies' board and shareholders' as suggested by the full court. It
was no more and no less than a description
by the BRPs of the
background circumstances against which they asked the court to view
the present application. Their case was
that these proceedings were a
further endeavour to hijack the business rescue process because the
Guptas, rep
resented by Ms Ragavan
and her colleagues, disliked the direction it was taking.
Concerns
over financial mismanagement and inter-company transfers
[132]
The full court described the BRPs'
allegations that the entire group of Gupta-linked companies was in
financial turmoil due to gross
and reckless mismanagement, and that
Islandsite and Confident Concept form part of the Gupta empire
through which billions of rands
were channelled under the direction
of the shareholders, directors and management, as 'unsubstantiated'
and 'particularly vexing'.
It said they were 'a grossly disingenuous
litigation tactic' that did not show them in the best of light.
[133]
This criticism was entirely unjustified.
Apart from the background of non-cooperation by Ms Ragavan and other
staff at the Oakbay
Group and the failure to provide information to
the BRPs, there was clear evidence that amply justified the concerns
of the BRPs.
From the outset it was apparent in both companies that
there were major inter company transactions involved in the
network
of the Oakbay Group so that the viability of one company
depended on the viability of the others. The rentals that formed the
principal
source of income of Islandsite emanated to a substantial
extent from other companies in the group. The hire charges that
formed
the major source of income to Confident Concept came from
Shiva and Westdawn, the latter a subsidiary of Islandsite. In turn
the
revenue of Westdawn came substantially, if not entirely, from
contracts to undertake mining activities in respect of OCM,
Koornfontein
and Shiva. By way of illustration of the inter-connected
state of the finances of the companies, Westdawn claimed that Shiva
owed
it some R52 million; according to the business rescue plan,
inter-company loans in Islandsite show a total of some R673 million

in relation to Oakbay, Sahara and Westdawn; the plan in respect of
Confident Concept showed that all its debtors were persons or

companies linked to the Gupta family totalling over R70 million,
while its largest creditor was Islandsite in an amount of over
R119
million.
[134]
Given this web of transactions, there was
manifestly a real risk that the entire corporate edifice could
collapse like a house of
cards. The BRPs were perfectly entitled to
be concerned about this. Their concern would have been exacerbated by
the report they
obtained from the forensic auditor Mr Harcourt-Cooke
in May 2018. This showed that some R2.3 billion rand had been
transferred
from OCM to Tegeta between May 2016 and January 2018. In
the same period Tegeta transferred some R1.2 billion rand to OCM and
some
R2.7 billion was transferred from Koornfontein to Tegeta.
Tegeta's bank accounts with the Bank of Baroda for the period from
28 February
2017 to 21 February 2018 showed that R366.4
million was paid to Oakbay and Oakbay paid Tegeta some R36 million.
[135]
One of the claims that the BRPs in
Islandsite were confronted with involved an amount of R200 million
paid to it by Westdawn and
described as a 'security deposit'.
According to a tax invoice issued by Islandsite to Westdawn this was
security for the leasing
of equipment to Westdawn. On the face of it
this amount needed to be retained against the possibility that it
would have to be
repaid. On 8 June 2018 the BRPs asked
Ms Govender, the accounts executive, where these funds were
being held. The answer
was that the information was being collated
and would be sent shortly. The only explanation by Ms Ragavan in her
replying affidavit
was that by October 2018 the services of all the
staff of Islandsite had been terminated. There was silence on the
question of
where the R200 million paid as a deposit was held.
[136]
Finally, when dealing with whether there
was a factual basis for the concerns of the BRPs in regard to the
business operations of
the Oakbay Group and the inter-company loans
that featured so prominently in the accounts, the BRPs had obtained
from Bank of Baroda
the bank accounts of Islandsite for the period
from 23 February 2017 to 10 January 2018. The picture painted by
these would alarm
any BRP and it is surprising that it had not
attracted the attention of the bank's compliance officers. They
showed that money
was transferred between the different companies in
the group with bewildering rapidity. A few examples of many will
suffice. On
1 March 2017 R28 million was received from Oakbay
and transferred on the same day to Sahara. On 6 March 2017 Oakbay
deposited
R711 000 and it was transferred the same day to
Confident Concept. On 14 March the process was repeated save
that the
amount was R8.5 million. On 16 March Oakbay transferred
R25.25 million to Islandsite and this amount was immediately
transferred
to Coalcor Mining. On the same day another transfer from
Oakbay of R199 638 was immediately repaid. On 17 March
Oakbay
deposited R2 736 000 and a payment of the same
amount was made to Confident Concept. On 23 March Oakbay deposited
R25 million
and R20 million was paid to Sahara, R480 000
to Confident Concept and R674 000 to Oakbay.
[137]
These examples appeared on a single page of
the bank statements. The same picture was repeated on the following
sixteen pages. The
image of a washing machine or spin dryer springs
to mind when looking at these bank statements, with money coming in
from group
companies and going out almost immediately to other group
companies in enormous quantities on virtually a daily basis. This was

plainly something of legitimate concern to the BRPs and on 4 October
2018 an email was addressed by the BRPs' attorney to Mr van
der
Merwe asking for an explanation of these payments. The request was
simple:
'Kindly explain why this was done. What were the
relationships between these parties?'
Despite
a follow-up email on 29 October 2018 there was never a response
to this enquiry. A month later the application for
the removal of the
BRPs was launched. Mr Knoop said this enquiry had 'touched a nerve'
and led to the institution of the present
proceedings.
[138]
There was no factual response by Ms Ragavan
to this simple and direct question. Instead she referred to a number
of leases and said
that the suggestion that the application had been
launched because of these enquiries was 'replete with sound and fury
but, in
the end, signifying nothing'. The quotation showed a closer
acquaintance with the works of Shakespeare
[51]
than with the realities of litigation and the fact that Mrs Gupta
needed to respond to these serious allegations. Ms Ragavan,
as a
director of Islandsite and the acting CEO of the Oakbay Group, should
have been able to explain these transfers if there was
a satisfactory
explanation for them, but none was forthcoming.
Conclusion
on failure to report criminality
[139]
The full court said that this 'failure' was
dispositive of the application. It was not. The complaint, like
others that were referred
to in the judgment, appears to have been
raised by the court
mero motu
.
For that reason alone, the judgment cannot stand. However, given the
stringent criticism of the BRPs the basis for this finding
advanced
by the full court had to be examined in detail. For the reasons set
out above it was without foundation.
Conflict
of interest
[140]
The allegations of conflict of interest
made by Ms Ragavan related to the payment to Sahara from the proceeds
of the sale of Confident
Concept's equipment and the Westdawn
contract termination. Neither complaint was justified. Neither
involved a true conflict of
interest. There was no suggestion that
either Mr Knoop or Mr Klopper would benefit personally from either of
these decisions. They
were the type of decision that have to be made
on an everyday basis when dealing with the financial problems of a
group of companies
in financial difficulties, where there are
significant overlapping relationships between the companies, both in
terms of active
business relationships, as with the leases and hiring
of equipment, and in terms of inter-company loans.
[141]
It has long been the practice in
liquidations of a number of companies in the same group for the
Master to appoint one or two lead
liquidators and some others to
ensure that there is an ongoing working relationship between all the
liquidators, to enable information
to be shared and to enable the
liquidators to build a clear picture of the overall position in the
group. This facilitates the
winding-up process and is generally
beneficial to the winding-up process.
[52]
The fact that one company in the group may be indebted to another
does not normally present a problem. Where there is a genuine
dispute
about the claim this may give rise to a problem, but in the ordinary
course that should not be the case. There was an obvious
advantage to
the creditors for the investigation into the affairs of the companies
under business rescue to be undertaken by someone
having access to
the books and records of all of them. That was far and away the best
way in which to untangle the web of inter-company
loans and determine
whether these were genuine or whether they might involve transactions
falling within s 141(2)
(c)
of
the Act.
[142]
It is unclear whether the full court
adopted the view that appointing the same BRP in two companies in the
same group, where there
was a debtor and creditor relationship
between the two, was inevitably a situation giving rise to a conflict
of interest on the
part of the BRP. If that was its view it erred. It
equally erred if its view was that the potential for a conflict of
interest
to arise, alone sufficed to warrant the removal of the BRPs
and presumably should have precluded their appointment.
[53]
The existence of a disqualificatory conflict of interest under
s 139(2) must be determined on the facts of a particular case

and what is required is an actual conflict of interest not a notional
one. In this case the facts revealed no such conflict of
interest. No
conflict of interest or lack of independence was proved in relation
to either Mr Knoop or Mr Klopper.
Conclusion
in relation to the full court's judgment
[143]
In the result all of the grounds advanced
by the full court in support of its conclusion that the BRPs should
be removed were unfounded.
Had it confined itself to a consideration
of the factual allegations advanced on behalf of Mrs Gupta it should
have concluded that
they failed to make out a case for the BRPs'
removal. The grounds relied on in its judgment should not have been
relied on, as
they dealt with matters not in issue between the
parties. They were in any event unsustainable on the facts and the
applicable
legal principles. For those reasons the judgment cannot
stand.
Result
[144]
The appeal must succeed. In regard to the
costs occasioned to the BRPs by Mr Tayob's attempt to intervene, his
counsel conceded
that they had to follow upon the result of his
intervention. It was without merit for the reasons set out in
Gupta
1
so he must pay those costs, including
the costs occasioned by the employment of two counsel. I did not
understand Mr Tsatsawane
SC to suggest that any additional costs
incurred by his client as a result of the abortive intervention
should be paid by Mr Tayob.
[145]
Before concluding it is appropriate to
remark that the application papers in this matter reflect little
credit on the legal practitioners
responsible for their preparation.
They were replete with allegations in emotive terms not borne out by
any of the evidence. Ms
Ragavan's allegations against the BRPs did
not stand up to scrutiny and the charges of incompetence, conflict of
interest, lack
of independence, a failure to live up to the high
professional standards expected of BRPs and the like, were
unwarranted. It should
not be necessary to remind legal professionals
who draft affidavits for their clients that they bear a
responsibility for the contents
of those documents and may not use
them for the purpose of abusing their client's opponents. Such
allegations should only be made
after due consideration of their
relevance and whether there is a tenable factual basis for them. This
aggressive tone was likewise
reflected in the affidavits of Mr Knoop
where he described Ms Ragavan and others as 'Gupta acolytes', an
expression more appropriate
to a newspaper report than an affidavit.
On many points, he would have been better advised to set out greater
detail and less rhetoric.
As to some of the correspondence between
the attorneys, the less said the better. It was marked by aggression,
hostility and accusations
but little of great relevance to the case
and little that reflected well on the authors.
[146]
The following order is made:
1 The appeal is upheld with costs, such costs to include those
consequent upon the employment of two counsel.
2 The order of the high court is set aside and replaced with:
'The application is dismissed with costs, such costs to include those
consequent upon the employment of two counsel.'
3 The costs occasioned to the appellants by the application to
intervene by Mr Tayob, including those consequent upon the employment

of two counsel, are to be paid by Mr Tayob in his personal capacity.
_________________
M J D WALLIS
JUDGE OF APPEAL
Appearances
For
appellant:       P Stais SC (with him
GD Wilkins SC)
Instructed
by:        Smit Sewgoolam Inc,
Johannesburg;
McIntyre
Van der Post, Bloemfontein
For
respondent:     NK Tsatsawane SC (with him J
Snijder)
Instructed
by:        BDK Attorneys,
Johannesburg;
Honey
Attorneys Inc, Bloemfontein.
For Mr
M M Tayob:       NA Cassim SC (Heads of
Argument by MA Chohan and L Kutumela):
[1]
Gupta v Knoop NO and Others
2020 (4) SA 218
(GP);
[2019] ZAGPHC 960
(Full court).
[2]
Knoop and Another NNO v Gupta (No 1)
[2020] ZASCA 149
('
Gupta 1')
.
[3]
Murray
and
Others NNO v African Global Holdings (Pty) Ltd and Others
[2019]
ZASCA 152; 2020 (2) SA 93 (SCA); [2020] 1 All SA 64 (SCA).
[4]
Sections 129(1) and (3)
(b)
of the Act.
[5]
Section 139(1) of the Act.
[6]
Schwartz v Schwartz
[1984] ZASCA 79
;
1984 (4) SA 467
(A) at 473-474.
[7]
Mahomed v Kazi's Agencies (Pty) Ltd and Others
1949 (1) SA 1162
(N) at 1168;
Knox
D'Arcy Ltd and Others v Jamieson and Others
[1996] ZASCA 58
;
1996
(4) SA 348
(A) at 360F-362E;
Trencon
Construction (Pty) Ltd v Industrial Development Corporation of South
Africa Ltd and Another
[2015] ZACC 22
;
2015 (5) SA 245
(CC) paras 83-88.
[8]
Media Workers Association of South Africa and
Others v Press Corporation of South Africa Ltd ('Perskor')
[1992] ZASCA 149
;
1992
(4) SA 791
(A) at 797D-H;
Gaffoor and
Another v Vangates Investments (Pty) Ltd and Others
[2012]
ZASCA 52
;
2012 (4) SA 281
(SCA) para 39;
Giddey
NO v JC Barnard and Partners
[2006]
ZACC 13
;
2007 (5) SA 525
(CC) para 19 fn 17.
[9]
The Master v Edgecombe's Executors and
Administrators
1910 TS 263
;
Sackville
West v Nourse and Another
1925 AD 516.
[10]
The power is contained in statute. Section
54(1)
(a)
of the Administration of Estates Act 66 of 965.
[11]
Under s 379 of the Companies Act 73 of 1963 the
court may remove a liquidator for good cause.
[12]
Fey NO and Whiteford NO v Serfontein and
Another
1993 (2) SA 605
(A) and
s 59
of the
Insolvency Act 24 of 1936
as amended by
s 18
of Act 99 of
1965.
[13]
[1939] 3 All ER 722
(HL) at 733E-F, cited in
Motor Vehicle Assurance Fund v Dubuzane
1984 (1) SA 700
(A) at 706B-D;
MV
Pasquale della Gatta: MV
Filipppo
Lembo;
Imperial Marine Co v Deiulemar Compagnia di Navigazione Spa
[2011]
ZASCA 131
;
2012 (1) SA 58
(SCA) para 24
.
See also
Great River Shipping Inc v
Sunnyface Marine Limited
1994 (1) SA
65
(C) at 75I-76C and particularly the statement that ‘evidence
does not include contention, submission or conjecture.’
[14]
Shorter Oxford English Dictionary
,
6 ed (2007), Vol 1 at 1355, sv 'incompetent', meaning 2.
[15]
Robinson v Randfontein Estates Gold Mining
Company Ltd
1921 AD 168
at 177-178.
[16]
Barnett v Estate Beattie
1928
CPD 482
at 485.
[17]
Grobbelaar v Grobbelaar
1959
(4) SA 719
(A) at 724F-G. C/f
Webster v
Webster en ń Ander
1968 (3) SA
386
(T) at 388C-D.
[18]
At 725G-H. The judgment was in Afrikaans and the
original passage read:
'Dit is duidelik dat hier
wesenlike botsing bestaan tussen die persoonlike belange van die
respondent en die van die boedel waardeur
toestand geskep is wat
respondent se posisie as eksekuteur vir hom onhoudbaar maak. Hy
bevind hom in die onmoontlike posisie
dat hy enersyds as skuldeiser
van die boedel sal moet veg vir sy eis en andersyds in sy
hoedanigheid as eksekuteur die boedel
sal moet verdedig teen
dieselfde eis. In hierdie rol sal hy genoodsaak wees om kant te
kies. Hy kan nie onsydig of onpartydig
bly nie.'
[19]
Van Niekerk v Van Niekerk and Another
2011
(2) SA 145
(KZP). See also
Bagnall NO
and Others v Acker NO and Others
[2020]
ZAWCHC 161
paras 67 to 112.
[20]
In Re Greatrex Footwear (Pty) Ltd (II)
1936
NPD 536.
[21]
Standard Bank of South Africa v The Master of
the High Court (Eastern Cape Division)
[2010] ZASCA
4;
2010 (4) SA 405
(SCA) paras 124 to 128.
[22]
Hudson and Others NNO v Wilkins NO and Others
2003 (6) SA 234
(T) para 13
[23]
African Banking Corporation of Botswana Ltd v
Kariba Furniture Manufacturers (Pty) Ltd and Others
[2015]
ZASCA 169; 2015 (5) SA 192 (SCA).
[24]
Ibid para 56.
[25]
Op cit, fn 1, para 41.
[26]
Section 141(2
(a)
of
the Act.
[27]
Section 141(2)
(b)
(ii)
of the Act.
[28]
Section 132(2(
(b
)
of the Act.
[29]
Gilbert v Bekker and Another
1984
(3) SA 774
(W) at 777E-778A.
[30]
Ibid at 781D.
[31]
Section 137(2)
(a)
of
the Act.
[32]
See the definitions of 'director' in s 75(1)
(a)
and s 76(1) of the Act.
[33]
Op cit fn 15. See also
Bellairs
v Hodnett and another
1978 (1) SA 1109
(AD);
Gross and Others v Pentz
[1996] ZASCA 78
;
1996 (4) SA 617
(A);
Phillips v
Fieldstone Africa (Pty) Ltd and Another
2004 (3) SA 465
(SCA);
Breetzke and
Others NNO v Alexander NO and Others
[2020]
ZASCA 97; 2020 (6) SA 360 (SCA).
[34]
See ss 77(9) and (10) of the Act.
[35]
Islandsite, Shiva, VR Laser and Tegeta.
[36]
The list of assets included a Range Rover, a
Porsche, two Land Cruisers, a Mercedes Benz SLS, a Lamborghini, a
Jeep Grand Cherokee,
a Lexus LX, an Audi Q7 TDI Quattro, a Rolls
Royce, an S60 D4 Volvo, a Land Rover, an S65 AMG Mercedes Benz and
an armoured Nissan
QX80 5.6 SUV.
[37]
Section 132(3) of the Act.
[38]
Full court
,
op cit fn 1.
[39]
See para 11 ante.
[40]
See para 10 ante.
[41]
Gupta 1
para 25.
[42]
See paras 30 to 33 ante.
[43]
Full court op cit, fn 1, para 26.
[44]
Murgatroyd v Van den Heever NO
and Others
2015
(2) SA 514
(GJ); [2014] ZAGPJHC 142.
[45]
A situation considered in the context of removing
liquidators in
Standard Bank of South
Africa v The Master of the High Court (Eastern Cape Division)
[2010]
ZASCA 4; 2010 (4) SA 405 (SCA).
[46]
Full court op cit para 27.
[47]
Full court op cit para 28.
[48]
Full court op cit para 27.
[49]
Full court op cit para 29.
[50]
Full court op cit paras 30 – 32.
[51]
Macbeth Act 5, scene 5, lines 24-28:
'Life's but a walking shadow, a poor player,
That struts and frets his hour upon the stage,
And then is heard no more; it is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.'
[52]
Pellow NO and Others v The Master of the High
Court and Others
2012 (2) SA 491
(GSJ)
paras 33   34.
[53]
Section 138(1)
(e)
of
the Act.