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[2015] ZAWCHC 117
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Yatzee Investments CC (Under Business Rescue) v Capx Finance (Pty) Ltd and Others (3300/2015) [2015] ZAWCHC 117 (26 August 2015)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
Case No: 3300/2015
DATE: 26 AUGUST 2015
In the matter between:
YATZEE INVESTMENTS
CC
................................................................................................
Applicant
(UNDER BUSINESS RESCUE)
And
CAPX FINANCE (PTY)
LTD
.....................................................................................
First
Respondent
THE COMMISSIONER FOR THE SOUTH
AFRICAN
.....................................
Second
Respondent
REVENUE SERVICES
COMBINED MORTGAGE NOMINEES (PTY)
LTD
............................................
Third
Respondent
KOORTS,
HEINRICH
.............................................................................................
Fourth
Respondent
KOTZEE,
NANETTE
..................................................................................................
Fifth
Respondent
BENJAMIN,
ILZE
.......................................................................................................
Sixth
Respondent
THE COMPANIES AND INTELLECTUAL
PROPERTY
.................................
Seventh
Respondent
COMMISSION
Court: Justice J Cloete
Heard: 12 August 2015
Delivered: 26 August 2015
JUDGMENT
CLOETE J:
Introduction
[1] The applicant was purportedly
placed in voluntary business rescue by the seventh respondent
(‘CIPC’) pursuant to
an application by its sole member,
the fourth respondent (‘Koorts’) at the end of November
2014. Mr Matheus Johannes
Schlechter was appointed the applicant’s
business rescue practitioner (‘BRP’) on 1 December 2014.
He applies
for an order extending the date for publication of a
business rescue plan prepared by him which, he contends, is worthy of
consideration
by the first to third respondents (the applicant’s
creditors) and in particular the third respondent (‘CMN’)
which is the applicant’s major creditor and which, it is common
cause, is the only creditor which has any prospect of recovering
monies due to it by the applicant.
[2] CMN, supported by the first and
second respondents, opposes the relief sought by the BRP and has
filed a counter-application
for the applicant to be placed in
provisional liquidation. CMN advances two attacks. The first is that
the resolution filed with
the CIPC in support of the application for
voluntary business rescue is a nullity. The second is two pronged,
namely that there
is no reasonable basis to believe that the
applicant is financially distressed, and that there is no reasonable
prospect of the
applicant being rescued.
Background
[3] The applicant’s main business
is that of an estate agency. Its only asset of any value is an
immovable property situated
at 146 Oostewaal Street, Langebaan, which
is a commercial property (‘the property’) and which it
initially acquired
with loan(s) from CMN on 24 August 2008.
[4] The applicant is indebted to CMN in
the sum of at least R10 million (according to a certificate of
balance provided by CMN,
the amount owing at 31 March 2015 was R11
180 323.07 together with further interest at 9.25% per annum
calculated from 1 April
2015 until date of payment). The applicant’s
indebtedness is secured by way of participation mortgage bond no.
B19190/2008
registered over the property in the amount of R10 million
plus an additional sum of R2 million. CMN is the applicant’s
only
secured creditor. Koorts bound himself as surety and
co-principal debtor with the applicant to CMN for the limited amount
of R8
496 000 excluding interest and costs.
[5] The applicant defaulted on its
payment obligations and the last payment made to CMN was R10 000 on 1
April 2011. Koorts has
never made any payments.
[6] The applicant first successfully
applied for voluntary business rescue on 23 July 2012. Mr Jean-Pierre
Jordaan (‘Jordaan’)
was appointed as business rescue
practitioner by the CIPC on 31 July 2012. Just under two months later
Jordaan terminated the business
rescue proceedings on the basis that
there was no longer a reasonable prospect of rescuing the applicant
as contemplated in s 141(2)(a)(i)
of the Companies Act 71 of 2008
(‘the Act’). He informed the applicant’s creditors
that he would apply for the
applicant’s liquidation in terms of
s 141(2)(a)(ii) of the Act, and duly launched the liquidation
application on 17 October
2012 for hearing on 26 November 2012.
[7] The applicant opposed that
liquidation application, as did Koorts in his personal capacity as an
intervening creditor. After
various postponements and for reasons
which are unclear, Jordaan eventually withdrew the application for
liquidation on 31 May
2013.
[8] On 8 November 2013 CMN instituted
action against the applicant and Koorts to recover the sums owing to
it. Both entered an appearance
to defend and CMN applied for summary
judgment. Koorts approached CMN’s attorney to discuss the
possible settlement of the
matter. Various postponements followed
over a period of five months while attempts were made to settle.
These negotiations finally
broke down. For various reasons more
postponements followed and CMN instructed its attorneys to move for
summary judgment on 1
December 2014. At the eleventh hour Koorts
again applied for the applicant to be placed in voluntary business
rescue by the CIPC.
Documents purportedly evidencing its business
rescue status were handed by Koorts to CMN’s attorney on 1
December 2014.
[9] This resulted in the application
for summary judgment against the applicant being postponed sine die
(in terms of s 133(1) of
the Act). Summary judgment was however
granted against Koorts and he has not made any attempt to satisfy
that judgment.
Steps taken since BRP appointed
[10] The first meeting of creditors was
held on 15 December 2014. According to the minutes of that meeting
the BRP informed the
creditors that:
10.1 The applicant was experiencing
‘certain financial and operational difficulties’ and he
had been appointed ‘to
assist the current management’ to
address these;
10.2 He could not express a view on the
applicant’s financial position at the time because ‘the
financial statements
are still to be finalised’;
10.3 Based however on the information
provided by the applicant’s ‘members’ and taking
into account rentals paid
by long-term tenants of the property, he
was satisfied that there was a reasonable prospect of rescuing the
applicant ‘if
ABSA [i.e. CMN] was willing to negotiate the
restructuring of the bond, which would allow for payment to ABSA and
other creditors’.
[11] It will thus immediately be
apparent that even at that early stage the BRP was alive to the fact
that any potential rescue
was conditional upon CMN agreeing to the
restructuring of the bond.
[12] At the same meeting the BRP
secured a postponement for publication of the plan until 30 January
2015 (it would otherwise had
to have been published within 25
business days of his appointment in terms of s 150(5) of the Act). On
29 January 2015 the BRP
requested another extension until 6 March
2015 which the creditors refused. He then launched the application
for an extension on
24 February 2015.
[13] The reasons advanced by the BRP
were that:
13.1 In order to properly investigate
the applicant’s affairs he required properly drafted management
accounts and financial
statements ‘correctly and accurately
setting out the true financial position’;
13.2 The applicant’s auditors had
been instructed accordingly but because the applicant’s
financial information ‘was
in such a shambles’ this was
proving to be a lengthy process; and
13.3 CMN had not submitted a claim form
‘in the manner and form requested’ (nothing turns on this
for the reasons which
follow).
[14] The BRP proceeded to set out what
he considered to be the material facts which could render the
proposed business plan viable.
In essence he relied on a valuation of
the property carried out by a quantity surveyor of R10 602 780.63
which he confirmed was
disputed by all of the applicant’s
creditors. He explained that he was awaiting a valuation ‘of an
independent valuator’.
It is unclear why the BRP did not regard
the one provided by the quantity surveyor to be independent.
[15] He also referred to the rental
income received or to be received from various tenants in a total sum
of R73 683.16 per month
as well as residential rental commissions
apparently received by the applicant of an average of R12 404 per
month. The BRP stated
that according to Koorts the applicant was
expecting commission from various sales of immovable property but
that ‘due to
time constraints the member [i.e. Koorts] could
not provide me with a precise schedule of the list of transactions’
(although
the BRP deposed to this affidavit on 20 February 2015,
almost three months after Koorts had applied for voluntary business
rescue
on the applicant’s behalf). The BRP made mention that
Koorts was involved in negotiations with a ‘possible investor
with a view to the possible sale of the property’ but declined
to divulge details due to what he referred to as ‘the
sensitive
stage of the negotiations, and for fear of possible third party
interference’. The BRP submitted that:
‘54. Having regard to the total
income that stands to be generated, it is clear that the business is
capable of being rescued,
should I as practitioner negotiate
repayment terms with the Third Respondent [i.e. CMN] in terms of the
bond payments’
[16] Again, therefore, the BRP accepted
that the success of any plan was conditional upon CMN agreeing to
altered repayment terms.
[17] The BRP subsequently prepared a
plan dated 6 March 2015 which is annexed to CMN’s answering
affidavit. The following
portions thereof are relevant:
17.1 The property had been
independently valued at a market value of R6.9 million and a forced
sale value of R4.83 million;
17.2 In the event of a forced sale CMN
would likely receive a dividend of 39 cents in the rand and on a sale
in the normal course
a dividend of 62 cents in the rand;
17.3 The only option other than sale of
the property was to apply the revised rental income of an estimated
R60 000 per month to
payments to CMN on a monthly basis towards
settlement of the applicant’s indebtedness and to cede the
rental income to CMN
for this purpose; and
17.4 Despite the financial hardship
experienced by the applicant due to the general economic decline in
South Africa since 2008
and its former contractual obligations
towards its licensor, Seeff Properties:
‘2.8 The Company has however over
the last 3 years made great strides in improving its cash flow
problem, by taking various
measures to minimise its monthly
overheads, and by steadily settling its creditors over the last 3
years, to the point where the
Company now only has a possible
responsibility towards the three parties listed in the business
rescue plan.’
[18] Despite his earlier reliance on
the necessity of obtaining audited financial statements, the BRP
stated as follows at paragraph
3.2 of the plan:
‘3.2 According to the Member,
accountant and the auditors of the Company, the signed financial
statements for the financial
years ending on 28 February 2013 and
2014 respectively, as well as the management accounts for the period
1 March 2014 to 31 January
2015 will be available during the course
of the coming week. These documents will be forwarded to all relevant
parties as soon
as same comes to hand.’
[19] Although the business rescue plan
is dated 6 March 2015, when the matter served before me the financial
statements had not
yet been provided to CMN. Insofar as forecast
trading for the next three years is concerned, the BRP expressed the
following view:
‘5.1 The forecast for the
following 3 years is irrelevant at this point in time.’
[20] In subsequent affidavits the BRP:
20.1 Disclosed that the applicant’s
average monthly expenses amount to R60 861.21 including Koorts’
drawings or salary
of R20 000 per month, which effectively wipes out
its rental income;
20.2 Supplied the applicant’s
schedule of anticipated commission on sales of immovable property
totalling the sum of R115
670.18 excluding VAT over an eight month
period (the last sale having taken place in March 2015) and thus, on
an optimistic scenario,
an average during that eight month period of
R14 458.77 per month with no sales at all for the past five months;
and
20.3 Disclosed the existence of two
offers made by the same prospective purchaser (‘offeror’)
to buy the property (including
the existing leases) by private
treaty, the first for R5 million – which was not even signed by
the BRP and offeror –
and the second, which followed hot on the
heels of the first, for R5.25 million. The first offer was
purportedly made in late June
2015 and the second in early July 2015.
Both were subject to the suspensive conditions that CMN consent to
the sale (which it has
refused to do); and provided such consent was
forthcoming, the approval of what appears to be a 100% bank loan to
enable the offeror
to pay the purchase price.
[21] In both of these offers it is
recorded that the applicant and Koorts jointly and severally warrant:
‘7.2.5 That the Seller’s
books and records pertaining to the business have been properly
maintained according to law,
save for the finalisation of the
Seller’s audited financial statements for both of the financial
years ending on 28 February
2013 and 2014 respectively.’
[22] It can thus safely be inferred
that, as late as July 2015, and despite the BRP’s assertion to
the contrary in the business
rescue plan of 6 March 2015, the
financial statements for the years ended February 2013 and 2014 had
still not been finalised
just over a month before the application
served before me.
The position of CMN
[23] During argument it was conceded on
behalf of the BRP and Koorts that the applicant is both factually and
commercially insolvent.
It is thus not necessary to deal with CMN’s
allegations in this regard and I will only highlight the following
pertinent
aspects pointed out by CMN in its affidavits as well as
argument on its behalf.
[24] First, in the affidavit deposed to
by Koorts on 25 November 2014 in support of the application for
voluntary business rescue,
it was alleged that:
‘5. The Applicant renders
services as a real estate agency.
6. Due to the recession the Applicant
was placed under extreme financial pressure and suffered [sic] to
meet all its financial obligations
due to the reduction in workflow.
7. The above gave rise to the Applicant
experiencing financial difficulties and finally created financial
distress for the Applicant
as the Applicant could no longer meet its
financial obligations as it [sic] became due.
8. As a result of the above the
Applicant has fallen into arrears with its accounts and the debt
multiplied increasingly.
9. Due to this fact it is unlikely that
the Applicant will be able to meet its financial obligations as they
become due and payable
within the next 6 months…’
[25] These allegations are in direct
contradiction to those of the BRP, recorded in the business rescue
plan, that the applicant
had over the past three years made great
strides in improving its cash flow problem and by steadily settling
its creditors.
[26] CMN has gone to considerable
lengths to try to resolve the matter of the applicant’s
indebtedness, as is borne out by
the protracted negotiations which
followed the institution of action in 2013 and culminated ultimately
in summary judgment being
granted against Koorts. It seems that this
was something of a hollow victory for CMN given that Koorts appears
to be a man of straw
who has thus far managed to successfully play
for time insofar as both the applicant’s and his own
indebtedness to CMN are
concerned.
[27] On the applicant’s own
version, the best offer received for the property has been R5.25
million which would, at best,
meet roughly half of the applicant’s
indebtedness. There is no indication on the papers that the BRP has
received any other
offers. Leaving the rental and estate agent’s
income out of the equation for the reasons already mentioned, at best
for the
applicant, its only other source of income (residential
letting commission) of an average of R12 404 per month is a drop in
the
ocean when regard is had to the fact that the interest component
alone which continues to accrue on the outstanding capital sum
exceeds R85 000 per month.
[28] CMN argues that, not only could
Koorts not truly have believed that there was a reasonable prospect
of the applicant being
saved when he applied for the second time for
its voluntary business rescue, there is no prospect whatsoever of the
applicant being
saved.
CMN’s first attack
[29] It is CMN’s position that
the resolution adopted by the applicant in support of its application
for voluntary business
rescue is a nullity because it failed to
comply with the mandatory publication requirements of s 129(3) of the
Act as read with
regulation 123 of the Companies Regulations 2011.
[30] In short its complaint is that the
applicant filed the resolution at the CIPC on 24 November 2014 but
failed to publish a notice
of the resolution in the prescribed manner
within five business days thereafter, i.e. by 1 December 2014.
Alternatively, if the
date of the CIPC’s stamp of 26 November
2014 is to be taken as the correct filing date, then the applicant’s
publication
of its resolution was similarly out of time, because
publication took place on 2 December 2014 and 5 December 2014
respectively.
[31] It is also submitted that the
applicant failed to comply with regulation 123(2)(b)(ii) of the
regulations, in that it failed
to conspicuously display a copy of the
Notice of Commencement of Business Rescue at its principal place of
business or on its website
and persists in this failure.
[32] On the other hand the BRP argues
that the applicant has complied with the relevant publication
requirements, alternatively
has substantially complied therewith.
[33] In Panamo Properties (Pty) Ltd v
Nel and Another NNO (35/2014)
2015 ZASCA 76
(27 May 2015) it was held
at para [29] that:
‘Once it is appreciated that the
fact that non-compliance with the procedural requirements of s 129(3)
and (4) might cause
the resolution to lapse and become a nullity, but
does not terminate the business rescue, the legislative scheme of
these sections
becomes clear. The company may initiate business
rescue by way of a resolution of its board of directors that is filed
with CIPCSA.
The resolution, and the process of business rescue that
it commenced, may be challenged at any time after the resolution was
passed
and before a business rescue plan is adopted on the grounds
that the preconditions for the passing of such resolution are not
present.
If there is non-compliance with the procedures to be
followed once business rescue commences, the resolution lapses and
becomes
a nullity and is liable to be set aside under s
130(1)(a)(iii). In all cases the court must be approached for the
resolution to
be set aside and business rescue to terminate. That
avoids the absurdity that would otherwise arise of trivial
non-compliance with
a time period, eg the appointment of the business
rescue practitioner one day late as a result of the failure by CIPCSA
to licence
the practitioner timeously in terms of s 138(2) of the
Act, bringing about the termination of the business rescue, but
genuine
issues of whether the company is in financial distress or
capable of being rescued having to be determined by the court. There
is no rational reason for such a distinction.’
[34] For present purposes, I will
assume, without deciding, that the applicant has substantially
complied with the publication requirements
contained in the Act. To
my mind, a finding either way would make little difference, given
what follows.
CMN’s second attack
[35] CMN relies on s 130(1)(a)(i) and
(ii) of the Act as well as African Banking Corporation of Botswana
Ltd v Kariba Furniture
Manufacturers and Others (228/2014)
[2015]
ZASCA 69
(20 May 2015) and Oakdene Square Properties (Pty) Ltd v Farm
Bothasfontein (Kyalami) (Pty) Ltd
2013 (4) SA 539
(SCA).
[36] S 130(1)(a)(i) and (ii) provide
that:
‘ 130. Objections to company
resolution. –(1) Subject to subsection (2), at any time after
the adoption of a resolution
in terms of section 129, until the
adoption of a business rescue plan in terms of section 152, an
affected person may apply to
a court for an order—
(a) setting aside the resolution, on
the grounds that—
(i) there is no reasonable basis for
believing that the company is financially distressed;
(ii) there is no reasonable prospect
for rescuing the company…’
[S 130(2) is not relevant]
[37] In African Banking Corporation of
Botswana Ltd it was held at paras [30] and [34] that:
‘[30] I am mindful of the warning
by this court in Oakdene against being prescriptive about the
assessment of reasonable prospects
of rescue. But there can be no
dispute that the directors voting in favour of a business rescue must
truly believe that prospects
of rescue exist and such belief must be
based on a concrete foundation. Given the apparent state in which
Kariba’s affairs
were when the resolution to commence business
rescue was taken, there could have been no true basis, on 31 January
2012, for Mr
and Mrs Nchite to believe that there were reasonable
prospects of Kariba’s rescue…
[34] The true state of Kariba’s
affairs as at January 2012 and its anticipated operations could not
be established without
an update of the books of account, conducted
on sound accounting principles, proper valuation of the company
assets, and substantiated
prospective income and expenditure. All
these were lacking and no cogent case was made to support an opinion
of reasonable prospects
of rescue. Consequently, the resolution to
commence business rescue was taken without a proper basis and falls
to be set aside.’
[38] CMN submits that the findings in
African Banking Corporation of Botswana Ltd are those which should be
made in this matter.
It contends that having regard to the facts the
true financial status of the applicant could not have been known to
Koorts when
the resolution was passed in late November 2014. As such,
there could have been no true basis at the end of November 2014 for
Koorts
to have believed that there were reasonable prospects of the
applicant’s rescue.
[39] There can be little doubt that
CMN’s contentions are correct. Counsel for the applicant and
Koorts correctly did not
dwell on this aspect. He rather focussed on
whether the BRP has produced a business rescue plan which is
reasonably capable of
consideration within the ambit of the Act, or
put differently, whether the plan has some merit to it for purposes
of business rescue
as contemplated in the Act.
[40] In Oakdene the court, dealing with
the meaning of ‘a reasonable prospect’ held as follows:
‘A reasonable prospect
[29] This leads me to the next debate
which revolved around the meaning of “a reasonable prospect”.
As a starting point,
it is generally accepted that it is a lesser
requirement than the ‘reasonable probability’ which was
the yardstick
for placing a company under judicial management in
terms of s 427(1) of the 1973
Companies Act (see
eg Southern Palace
Investments 265 (Pty) Ltd v Midnight Storm Investments 386 Ltd
2012
(2) SA 423
(WCC) para 21). On the other hand, I believe it requires
more than a mere prima facie case or an arguable possibility. Of even
greater significance, I think, is that it must be a reasonable
prospect – with the emphasis on “reasonable” –
which means that it must be a prospect based on reasonable grounds. A
mere speculative suggestion is not enough. Moreover, because
it is
the applicant who seeks to satisfy the court of the prospect, it must
establish these reasonable grounds in accordance with
the rules of
motion proceedings which, generally speaking, require that it must do
so in its founding papers.’
[41] Counsel for the applicant and
Koorts did not take issue with the figures provided by the BRP, but
sought to persuade me that
the reasonable prospect lay in affording
the BRP time to sell the property on the open market so as to achieve
a higher dividend
for CMN than on a forced sale scenario. When he was
asked about the best offer received of R5.25 million, he argued that
this offer
had been made at a time when the applicant was
self-evidently distressed and that with time a better price could be
achieved.
[42] However this amounts to pure
speculation, which is precisely what the court warned against in
Oakdene. The BRP has not produced
a shred of evidence to suggest
that, with time, there is a reasonable prospect of securing a better
offer. What we do know is that:
(a) only two offers were received
from the same offeror over the eight month period following the
applicant being placed in voluntary
business rescue; (b) both offers
were made shortly prior to the hearing; (c) the higher of the two
offers is substantially less
than the market value of the property;
(d) the only realistic prospect of CMN recovering any portion of the
monies owing is on
sale of the property, given the stark fact that
even if the applicant continues to trade it will be unable to meet
its payment
obligations; and (e) interest is accruing on the amount
owing at the alarming rate of more than R85 000 per month.
[43] The BRP has suggested that
liquidation will inevitably result in a forced sale of the property.
This is not correct when regard
is had to s 386(4)(h) of the
Companies Act 61 of 1973 which confers on a liquidator the power to
sell property by private treaty.
[44] CMN is the only creditor which
stands to gain. It has advanced cogent reasons why it is opposed to
the purported rescue continuing.
Neither the BRP, the applicant nor
Koorts have been able to satisfactorily gainsay those reasons.
Neither the applicant nor Koorts
have made a single payment on
account of the indebtedness since 1 April 2011. Having regard to what
was expressed in Oakdene at
para [38] I can see no reason why CMN’s
opposition should be regarded as unreasonable or mala fide.
[45] As was stated in Oakdene at para
[33]:
‘[33] My problem with the
proposal that the business rescue practitioner, rather than the
liquidator, should sell the property
as a whole, is that it offers no
more than an alternative, informal kind of winding-up of the company,
outside the liquidation
provisions of the 1973 Companies Act which
had, incidentally, been preserved, for the time being, by item 9 of
schedule 5 of the
2008 Act. I do not believe, however, that this
could have been the intention of creating business rescue as an
institution. For
instance, the mere savings on the costs of the
winding-up process in accordance with the existing liquidation
provisions could
hardly justify the separate institution of business
rescue. A fortiori, I do not believe that business rescue was
intended to achieve
a winding-up of a company to avoid the
consequences of liquidation proceedings, which is what the appellants
apparently seek to
achieve.’
Conclusion
[46] Counsel for the applicant and
Koorts accepted that in the event of the business rescue being
terminated CMN has made out a
proper case for provisional liquidation
and has furthermore complied with the necessary procedural
requirements.
[47] CMN has asked for the costs of its
opposition to the main application to be paid by Koorts personally in
terms of s 130(5)(c)(ii)
of the Act. While there is merit in this
request it is unlikely to have any practical effect on its own, and I
thus intend ordering
that such costs be borne by the applicant and
Koorts jointly and severally.
[48] In the result an order is granted
in the following terms:
1. The applicant’s application to
extend the date for publication of the business rescue plan is
dismissed with costs, such
costs to be paid by the applicant and the
fourth respondent jointly and severally.
2. The resolution adopted by the member
of the applicant in terms of
section 129
of the
Companies Act 71 of
2008
on 19 November 2014 is set aside.
3. The applicant and fourth respondent
shall jointly and severally pay the costs of the third respondent in
applying to set aside
the resolution.
4. The applicant is placed in
provisional liquidation in the hands of the Master of this Court.
5. A rule nisi is issued calling upon
the applicant and any other interested party to show cause to this
Court, if any, on TUESDAY
13 OCTOBER 2015 why the applicant should
not be placed in final liquidation.
6. Service of this order shall be
effected on:
6.1 The South African Revenue Service;
6.2 The registered office or principal
place of business of the applicant;
6.3 All employees of the applicant;
6.4 Any trade union representing such
employees; and
6.5 By publication in one edition of
each of the Cape Times and Die Burger.
7. The costs of the counter-application
(save as set out in paragraph 3 above) shall be costs in the
liquidation.
J I CLOETE