Brief Summary

Companies — Business rescue — Application for business rescue — Requirements for proper service — Business rescue application not properly made as it failed to comply with service and notification requirements of section 131 of the Companies Act 71 of 2008 — Application dismissed. The applicants sought to place VV4 Agri (Pty) Ltd under business rescue while it was under provisional liquidation, contending that they were entitled to initiate the application as affected persons. The business rescue application was opposed by creditors, including Standard Bank, which had an undisputed claim against VV4 Agri. The legal issue was whether the business rescue application was properly made, specifically regarding compliance with the service and notification requirements mandated by the Companies Act. The court held that the business rescue application was not properly made, as the applicants failed to serve the application on all joint provisional liquidators and did not adequately notify affected parties, resulting in a material defect that did not suspend the liquidation proceedings.

Comprehensive Summary

Summary of Judgment

1. Introduction

The judgment concerned two related applications involving VV4 Agri (Pty) Ltd (“VV4 Agri”), a company trading as a cold storage and packaging facility and also providing transport-related services and bin/crate storage. At the time of the hearing, VV4 Agri was under provisional liquidation.

The first matter (case no 19457/2022) was an application for the final winding-up of VV4 Agri. It was instituted by Sterkwater Holdings (Pty) Ltd as applicant, with The Standard Bank of South Africa Limited later admitted as an intervening applicant on the basis of its own creditor’s claim. VV4 Agri was the respondent. Two entities, DJD Beleggings (Pty) Ltd and DAD/DAJ Beleggings (Pty) Ltd (as cited in the papers), participated as intervening parties.

The second matter (case no 17068/2023) was an urgent business rescue application brought shortly before the return day in the liquidation proceedings. The applicants in that matter were Dirk Jacobus Viljoen, Daniël Albertus Viljoen, and two shareholder companies (DJD Beleggings (Pty) Ltd and DAJ Beleggings (Pty) Ltd) (collectively referred to in the judgment as the “BR applicants”). The respondents included the joint provisional liquidators (cited in their representative capacities), Sterkwater Holdings (Pty) Ltd, Sterkwater Estate (Pty) Ltd t/a Sterkwater Boerdery, and Standard Bank, among others (including the Companies and Intellectual Property Commission).

Procedurally, Sterkwater Holdings obtained a provisional liquidation order from Wille J on 7 February 2023, together with a rule nisi calling upon interested parties to show cause on the return day why a final order should not be granted. Standard Bank was granted leave to intervene on 23 July 2023. The return day for the final liquidation was 9 October 2023. On 5 October 2023, the BR applicants launched an urgent business rescue application under section 131(1) of the Companies Act 71 of 2008, which was enrolled for hearing on the same day as the final liquidation proceedings.

The general dispute concerned whether the late business rescue application (a) had been validly initiated so as to suspend the liquidation proceedings under section 131(6), and (b) if valid, whether it met the statutory merits threshold for placing VV4 Agri under supervision and commencing business rescue. If business rescue failed, the court was required to determine whether final liquidation should be ordered, particularly in light of Standard Bank’s uncontested indebtedness.

2. Material Facts

VV4 Agri operated a business in cold storage and packaging, with additional services relating to transport and storage bins and crates. It was common cause in the proceedings that VV4 Agri was financially distressed and, on the evidence accepted by the court, unable to pay its debts as they fell due, rendering it commercially insolvent.

Sterkwater Holdings, a creditor of VV4 Agri, alleged indebtedness of approximately R3.8 million arising from various loans. VV4 Agri disputed Sterkwater’s claim, relying primarily on an alleged “counter-claim” of approximately R7.2 million, although the court recorded that this counter-claim appeared in truth to lie against Sterkwater Boerdery rather than Sterkwater Holdings. Notwithstanding that dispute, the proceedings also included Standard Bank’s position as creditor.

Standard Bank’s creditor claim (approximately R12 million, quantified in the judgment at R12,009,984.48) was undisputed and no opposing papers were filed in relation to it. Standard Bank was admitted as an intervening applicant in the liquidation proceedings and persisted in seeking a final winding-up order.

Shortly before the return day, the BR applicants sought to place VV4 Agri into business rescue under section 131(1). For the purposes of whether the business rescue application had been properly initiated, the court relied on the following facts regarding service and notification.

The BR applicants purported to serve the business rescue application on one of the joint provisional liquidators (the third respondent) and on the CIPC by email. The court treated this as insufficient for purposes of section 131(2) read with the Uniform Rules, given the need for proper service in accordance with Rule 4(1)(a) on each liquidator and on the Commission.

The court also relied on the absence of proper notification to affected persons, including employees and known creditors. The papers did not set out the number or identities of employees, and the only allegation relied upon was that a line manager (Mr Faro) had “informed all the employees” of the business rescue application. The court treated this as inadequate notification in the prescribed manner. In relation to creditors, the provisional liquidators’ initial report dated 1 June 2023 identified SARS as a preferent creditor with an estimated claim of approximately R1.1 million, yet SARS was not notified of the business rescue application and its claim was not properly disclosed and addressed in the application. The court also noted no indication that another creditor cited in the business rescue application itself, Louw Redelinghuys Accountants, had been notified.

On the merits of business rescue, the court relied on the BR applicants’ assertion that they had obtained funds to settle Standard Bank’s claim and that proof was annexed as “V7”. Factually, the court found that no such annexure was attached to the founding affidavit as commissioned. A letter dated 6 October 2023 was later placed in the court file as “V7”, but it was not initialled as part of the founding papers and did not exist as at the date of commissioning of the affidavit (4 October 2023). In any event, the letter was an offer by attorneys for Pomegranade Dejuicing Company (Pty) Ltd to buy Standard Bank’s debt, an offer which had not been accepted by Standard Bank. Standard Bank continued to oppose business rescue and persisted in seeking liquidation.

The court further relied on the lack of substantiated information supporting the claim that VV4 Agri would return to profitability now that its erstwhile CEO (Mr Wille Gibson) had left the business. Although the BR applicants alleged that the 2023/2024 season would commence in November 2023 and that signed contracts worth about R4.5 million had been finalised, the court found that the annexures did not support this. The only contract attached (with Du Toit Vrugte) related to a period that had already elapsed, and an email from Du Toit Vegetables reflected only an intention to discuss arrangements later, not a binding contract.

Finally, the court relied on aspects of the provisional liquidators’ report of 1 June 2023 identifying matters not addressed by the BR applicants, including that the facility lacked British Retail Consortium accreditation (with implications for packaging/exporting) and that the immovable property did not meet insurer standards, requiring substantial remedial work for which there were no funds. The BR applicants did not engage these issues in motivating for business rescue.

3. Legal Issues

The first central legal question was whether the urgent business rescue application had been properly “made” within the meaning of section 131(6) of the Companies Act 71 of 2008, such that it would suspend the pending liquidation proceedings. This required determination of compliance with the service and notification requirements in section 131(2), read with applicable court rules and regulations. This was primarily a question of law (statutory and procedural compliance), applied to the established facts regarding service and notification.

If the business rescue application was properly made (or if the court was wrong on that point), the second question was whether the BR applicants satisfied the substantive requirements of section 131(4)(a), in particular whether there was a reasonable prospect of rescuing the company. This involved the application of law to fact and an evaluative assessment of whether the evidential material rose above speculation to the threshold contemplated by the statute and relevant case law.

A third question, which became dispositive once business rescue failed, concerned whether VV4 Agri should be placed under final winding-up, given Standard Bank’s uncontested indebtedness and the principles governing winding-up of commercially insolvent companies. This involved the application of established insolvency and liquidation principles, together with the court’s limited discretion to refuse liquidation in exceptional circumstances.

4. Court’s Reasoning

On the threshold issue of whether the business rescue application was properly “made”, the court applied the Supreme Court of Appeal’s interpretation of section 131(6) in Lutchman NO v African Global Holdings 2022 (4) SA 529 (SCA). The court treated Lutchman as establishing that, to trigger the statutory suspension of liquidation proceedings, a business rescue application must be issued, served on the company and the Commission, and each affected person must be notified in the prescribed manner. The court emphasised that these are not mere technicalities but substantive requirements, and that strict compliance is required due to the potential for abuse of business rescue proceedings.

Because VV4 Agri was in provisional liquidation, the court reasoned (with reference to Lutchman and the SCA authorities it cited) that service on “the company” required service on each of the joint provisional liquidators, and that mere knowledge of the application was insufficient. The court further reasoned that service had to be effected in a manner contemplated by Uniform Rule 4(1)(a), and that email service to one liquidator and the Commission did not satisfy this. It also held that the matter was a substantive application rather than an interlocutory one capable of being served under Rule 4(1)(aA).

On notification to affected persons, the court read section 131(2)(b) together with regulation 124 of the Companies Regulations, 2011, which requires delivery of a copy of the court application (in accordance with regulation 7) to each affected person known to the applicant. The court found material non-compliance because the BR applicants did not identify the employees, did not establish prescribed notification to them, and relied on an unsubstantiated assertion by Mr Faro. Similarly, the court held that the failure to notify SARS (identified in the liquidators’ report as a preferent creditor) constituted a material defect; even if the BR applicants disputed SARS’s claim, they were not entitled simply to ignore it and were required at least to disclose and address it. The court also noted the lack of indication that Louw Redelinghuys Accountants (a creditor cited in the application) had been notified.

On these grounds, the court concluded that the business rescue application was not properly “made” for purposes of section 131(6), and therefore did not suspend the liquidation proceedings.

The court nonetheless proceeded to address the merits in the alternative. It accepted that it was not disputed that VV4 Agri was financially distressed, but emphasised that section 131(4)(a) additionally requires a reasonable prospect of rescue. The court applied the approach in Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd 2012 (2) SA 423 (WCC), treating it as requiring concrete and objectively ascertainable details addressing the causes of the company’s failure and offering a sustainable remedy, rather than proposals that merely prolong insolvency by substituting one debt for another.

The court reasoned that the BR applicants were insiders (including directors and shareholders, with the first applicant having been appointed CEO in August 2022) and therefore were expected to provide the necessary particularity. The court regarded the applicants’ handling of Standard Bank’s claim as central, because the alleged rescue rested materially on removing or settling that debt. It rejected the proposition that funds had been obtained to settle Standard Bank’s claim, because the purported proof (“V7”) was not properly part of the founding papers, and in any event was only an offer by Pomegranade to purchase Standard Bank’s debt. As the offer was unaccepted and Standard Bank persisted in opposition, the bank’s uncontested claim remained. The court further reasoned that even if the debt were purchased, this would tend to substitute one creditor for another without reducing the company’s overall indebtedness, and thus did not itself establish a rescue prospect.

Beyond the Standard Bank issue, the court found a broader lack of concrete detail. The BR applicants attributed the business’s poor performance to the alleged sabotage of the former CEO, but the court noted that the former CEO had resigned in July 2022 and the first applicant had been CEO since August 2022. The court considered the alleged contracts and revenue prospects for the coming season and found that the annexed material did not substantiate binding contracts or secured income at the level asserted. The omission to attach alleged signed contracts was treated as justifying an adverse inference.

The court also reasoned that the BR applicants failed to engage material issues raised by the provisional liquidators’ report, including accreditation and insurance-compliance concerns requiring funds. In the court’s view, this undermined the suggestion that a workable and funded plan existed to restore viable trading. The court accordingly held that the BR applicants failed to establish a reasonable prospect of rescue as contemplated by section 131(4)(a).

Having dismissed business rescue, the court turned to final winding-up. It reasoned that Standard Bank’s application was unopposed, and that VV4 Agri was in default and unable to pay Standard Bank’s debt, establishing commercial insolvency. The court held that the Companies Act 71 of 2008 did not change the general principles applicable to winding-up commercially insolvent companies, and applied Afgri Operations v Hambs Fleet 2022 (1) SA 91 (SCA) for the proposition that an unpaid creditor generally has a right, ex debito justitiae, to a winding-up order, and that the discretion to refuse such an order is very narrow and exercised only in special or unusual circumstances. The court found no exceptional circumstances warranting refusal.

5. Outcome and Relief

In case no 17068/23 (the business rescue application), the court dismissed the application. It ordered the applicants to pay the costs of the fourth, fifth and sixth respondents, including the costs of two counsel where employed, on a joint and several basis.

In case no 19457/2022 (the final winding-up application), the court placed VV4 Agri (Pty) Ltd under a final winding-up order. It ordered that the costs of the applicant (Sterkwater Holdings) and the intervening applicant (Standard Bank) would be costs in the winding-up.

Cases Cited

Lutchman NO v African Global Holdings 2022 (4) SA 529 (SCA)

Van Staden NO v Pro-Wiz Group (Pty) Ltd 2019 (4) SA 532 (SCA)

Taboo Trading 232 (Pty) Ltd v Pro Wreck Scrap Metal CC 2013 (6) SA 141 (KZP)

Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd 2012 (2) SA 423 (WCC)

Murray NO v African Global Holdings (Pty) Ltd 2020 (2) SA 93 (SCA)

Absa Bank Ltd v Rhebokskloof (Pty) Ltd 1993 (4) SA 436 (C)

Afgri Operations v Hambs Fleet 2022 (1) SA 91 (SCA)

Legislation Cited

Companies Act 71 of 2008, sections 128(1)(a), 130(3)(b), 131(1), 131(2), 131(3), 131(4), 131(6), 132, and item 9 of Schedule 5

Companies Act 61 of 1973, sections 344(f) and 345(1)(c)

Companies Regulations, 2011 (GN R351 in GG 34239 of 26 April 2011), regulations 7 and 124

Rules of Court Cited

Uniform Rules of Court, Rule 4(1)(a) and Rule 4(1)(aA)

Held

The court held that the business rescue application was not properly “made” for purposes of section 131(6) because the BR applicants failed to comply with the substantive service and notification requirements in section 131(2). In consequence, the business rescue application did not suspend the final liquidation proceedings.

The court further held, in the alternative, that the business rescue application failed on the merits because the applicants did not establish a reasonable prospect of rescuing the company as required by section 131(4)(a). The evidential material did not substantiate the alleged funding to settle Standard Bank’s claim, nor did it provide a sufficiently concrete and supported rescue plan.

The court held that VV4 Agri was commercially insolvent, at least on the basis of Standard Bank’s uncontested claim, and that there were no special or unusual circumstances justifying refusal of a winding-up order. A final winding-up order was accordingly granted.

LEGAL PRINCIPLES

The judgment applied the principle that, for purposes of section 131(6) of the Companies Act 71 of 2008, a business rescue application triggers suspension of liquidation proceedings only if it has been properly “made”, which requires that the application be issued, served on the company and the Commission, and that affected persons be notified in the prescribed manner. The court treated these requirements as substantive, not merely procedural, and requiring strict compliance due to the potential for abuse of business rescue proceedings.

Where a company is under provisional liquidation, service on “the company” for purposes of section 131(2) requires proper service on each of the joint provisional liquidators in accordance with the applicable rules of court. Informal notice or mere knowledge of the application is insufficient.

On the merits of business rescue, the court applied the principle that establishing “reasonable prospect” requires more than speculative assertions. The applicant must provide concrete and objectively ascertainable information demonstrating a viable plan that addresses the causes of financial distress and shows how the company will meet operating costs and obligations going forward. A plan that merely substitutes one creditor for another, without a sustainable path to solvency, is unlikely to satisfy the threshold.

In winding-up proceedings, the court applied the principle that an unpaid creditor generally has a right, ex debito justitiae, to a winding-up order against a company unable to pay its debts, and that the discretion to refuse such an order is narrow and exercised only in exceptional circumstances. The Companies Act 71 of 2008 was treated as not having altered these core winding-up principles in the context of commercial insolvency.

Viljoen and Others v Bester N.O. and Others (17068/23; 19457/22) [2023] ZAWCHC 260 (20 October 2023)