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[2015] ZAWCHC 167
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Business Partners Limited v Tsakiroglou and Others (17827/2014) [2015] ZAWCHC 167; 2016 (4) SA 390 (WCC) (17 September 2015)
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
CASE NUMBER: 17827/2014
DATE:17 SEPTEMBER 2015
In the matter between:
BUSINESS PARTNERS
LIMITED
........................................................................................
Applicant
And
KONSTANTINOS TSAKIROGLOU & 2
OTHERS
........................................................
Respondents
J U D G M E N T
LE GRANGE, J:
This is an extended return date of a
rule nisi issued by Riley AJ on 13 May 2015 calling upon the first
respondent to show cause
why the order placing his estate under
provisional sequestration should not be made final. The factual
matrix underpinning the
provisional order briefly stated is as
follows: the applicant carries on business as a registered credit
provider and financier.
The applicant applied for the provisional
sequestration of the first respondent’s estate by virtue of the
fact that the first
respondent is indebted to the applicant in the
total amount of at least R13 855 666.16. These are liquidated
claims.
According to the applicant the first
respondent’s estate is factually insolvent as he owns no
immovable property and possessed
certain movable property with a
limited value. The indebtedness of the first respondent to the
applicant arises from a deed of
suretyship concluded by him on 15
June 2009 (“the suretyship”), on behalf of a close
corporation called Target Shelf
284 CC (“Target Shelf”)
of which he is the sole member.
In terms of the suretyship, the first
respondent bound himself as surety and co-principal debtor to the
applicant for the debts
of Target Shelf. The suretyship is
unlimited. Target Shelf is indebted to the applicant in an amount of
not less than R13 855
666.16. The first respondent on 27 November
2013 caused a resolution to be filed in terms of
section 129
of the
Companies Act 71 of 2008
, whereby he resolved to begin business
rescue proceedings and place Target Shelf under liquidation.
According to the applicant, the
business rescue practitioners, who procured their appointment through
Mr Van Rensburg, the attorney
of the first respondent, (who also
argued the matter in this Court), proposed a spurious rescue plan
which was nothing more than
a disguised liquidation. The rescue plan
simply provided for the sale of immovable property owned by Target
Shelf and wherein the
business rescue practitioners refused to deal
with the liability relating to the surety of the first respondent. As
a result, according
to the applicant, it viewed the purported
business rescue as an abuse of process.
The applicant then exercised its 100%
voting interest at the first meeting of the creditors of Target Shelf
in February 2014 and
voted against the business rescue plan. The
applicant was immediately informed by the business rescue
practitioners that they
would launch an application to Court to
declare the vote to be inappropriate. At the second creditors’
meeting the applicant
again used its 100% voting interest to reject
an amended business rescue plan as it did not deal with all the
concerns it raised
via its attorney and inter alia did not deal with
the question of the liability of the first respondent as surety.
Moreover, the applicant viewed the
amended business plan as fatally flawed because there was no
verification by the business practitioners
that the immovable
properties would fetch more on sale during business rescue
proceedings than on liquidation, as in any event
a forced sale was
envisaged after 120 days. Furthermore, the applicant expressed the
view that the first respondent through Target
Shelf conducted its
affairs unlawfully. According to the applicant the immovable
properties owned by Target Shelf were erected
illegally and cannot be
sold. In addition, the first respondent over a long period of time
has failed to submit, on behalf of
Target Shelf, tax returns, nor
does it appear the first respondent kept the required books of
accounts and records for Target Shelf.
In terms of the deed of suretyship, any
default on the part of the principal debtor entitles the applicant to
sue the first respondent
as he bound himself as surety and
co-principal debtor. The first respondent has also specifically
waived the benefit of excussion
in the suretyship. The first
respondent raised a number of defences to oppose the provisional
order, namely; had the applicant
not opposed the business rescue
proceedings in respect of Target Shelf, the applicant would in all
likelihood have been paid the
amounts due to it; the applicant had
acted in a matter which was prejudicial to him and this entitles the
first respondent to be
released from his obligation as a surety.
Furthermore, the first respondent suggested he would derive funds
from Target Shelf to
have met his obligations. It was however not
disputed by the first respondent that certain buildings erected by
Target Shelf were
not in accordance with the local building
regulations.
The first respondent also conceded that
as a result of cash flow problems on the part of Target Shelf, it did
not file all the tax
returns of Target Shelf timeously. Riley AJ,
dealt extensively with the defences raised by the first respondent
and came to the
conclusion at para [42] of the judgment that the
first respondent is factually insolvent. At para [28] the following
was also
stated:
“In any event it appears that all
that the business rescue practitioners are in fact proposing amounts
to, what has in my
view correctly been described as ‘a
liquidation under the guise of a business rescue plan.’
Accordingly I am satisfied
that the first respondent cannot rely on
the alleged prejudicial conduct of BPL (the applicant).”
The first respondent’s estate was
accordingly placed under provisional sequestration. The findings by
Riley AJ, are not seriously
challenged on the return day. The first
respondent however resists the granting of a final order by launching
a counter-application.
The nub of first respondent’s
counter-application is that as a surety he is entitled to the benefit
of the statutory moratorium
afforded under
section 133
of the
Companies Act, 71 of 2008
.
A similar point was made by counsel for
the first respondent, which was considered and rejected by Riley, AJ.
In his judgment, Riley
AJ, placed reliance on the dictum in Investec
Bank Limited v Bruyns
2012 (5) SA 430
(WCC), where the court examined
the position of a surety in circumstances where the principal debtor
is placed in business rescue.
The court in Investec supra held at
para [17] that the question whether
section 133(1)
statutory
moratorium can be raised as a defence by the defendant as surety, in
favour of the principal debtor company depends on
the well-known
distinction between defences in rem and defences in personam. The
court held that the statutory moratorium in favour
of the company
undergoing business rescue proceedings is a defence in personam and
concluded that such statutory moratorium in
favour of the company
does not avail the surety.
This time around Mr Van Rensburg, the
instructing attorney of the first respondent, has clothed the same
point in a constitutional
garb. The first respondent has also joined
the Minister of Trade and Industry and originally wanted to join the
Companies and
Intellectual Property Commission. The joinder of the
latter was abandoned. Counsel for the Minister, Mr de
Villiers-Jansen, indicated
that the relief sought by the first
respondent is opposed, but, due to the short service of the papers on
the Minister, an affidavit
in this regard could not be filed
timeously.
Mr de Villiers-Jansen however aligned
himself with the submissions made by Mr G Woodland SC, who appeared
for the applicant. The
crux of Mr Woodland’s argument is that
the counter-application is contrived and spurious and only brought to
delay the inevitable
final winding-up of the first respondent’s
estate. Furthermore, the first respondent’s allegation that
were it not
for the
section 133
moratorium, the applicant would not
have pursued the first respondent in his capacity as surety and
co-principal debtor in solidum
with Target Shelf, is simply
incorrect.
According to Mr Woodland this
contention overlooks the fact that the first respondent bound himself
in favour of the applicant as
surety and co-principal debtor in
solidum with Target Shelf, in terms of the suretyship. Moreover, the
first respondent expressly
waived the defences of the excussion and
division and the applicant had a right to proceed against the first
respondent the moment
that Target Shelf fell into arrears.
The relief sought in the
counter-application is essentially an order that:
“1. That the provisions of
section 133 of the Companies Act 71 of 2008 (“the Act”)
be declared to be unconstitutional
and in conflict with the
provisions of the Constitution of the Republic of South Africa, 1996
(“the Constitution”),
insofar section 133 of the Act
precludes legal proceedings against a company or close corporation
during business rescue proceedings
but does not preclude legal
proceedings, alternatively insolvency proceedings against a guarantee
or surety of the same company
or close corporation during such
business rescue proceedings;
…
3. Declaring the legal proceedings
initiated by the applicant under above case number against the first
respondent and for the sequestration
of first respondent’s
estate pursuant to a suretyship agreement while Target Shelf 284 CC
(registration number 2002/097530/23)
is or was subject to business
rescue proceedings in terms of the Act to be unconstitutional and in
conflict with the provisions
of the Constitution of the Republic of
South Africa, 1996;”
For purposes of the
counter-application, the first respondent alleges that his
fundamental rights to equality, dignity and property
as protected in
the Constitution are infringed by section 133 of the Act as currently
interpreted and applied. The nub of Mr Van
Rensburg’s
argument, if understood correctly, is that section 133 of the Act,
precludes creditors from instituting legal
proceedings against a
company or close corporation during business rescue proceedings, but
permitting such creditors to bring legal
proceedings, alternatively
insolvency proceedings, against a guarantee or surety of the same
company or close corporation during
such business rescue proceedings.
According to him it differentiates between people or categories of
people, and such differentiation
bears no rational connection to a
legitimate government purpose. Mr van Rensburg for his proposition
relies on the dictum in Harksen
v Lane N.O and Others
[1997] ZACC 12
;
1998 (1) SA 300
(CC).
It was also contended by first
respondent and amplified in argument by Mr Van Rensburg that the
court in Investec case supra if
consideration was given to the
relevant constitutional argument, would have arrived at a different
conclusion, which would have
benefited the first respondent.
I have carefully considered the
arguments advanced by Mr Van Rensburg but remain unconvinced by it.
Where section 9 of the Constitution
is invoked it is to attack a
legislative provision or executive conduct on the ground that it
differentiates between people or
categories of people in a manner
that amounts to unequal treatment or unfair discrimination. The first
enquiry must be directed
to the question as to whether the impunged
provision does differentiate between people or categories of people.
If it does differentiate,
then in order not to fall foul of the
provisions in section 9 of the Constitution there must be a rational
connection between the
differentiation in question and the legitimate
governmental purpose it is designed to further or achieve.
If it is justified in that way, then it
does not amount to a breach of the provisions in section 9 of the
Constitution. The assessment
of this relevant question cannot be
taken in a vacuum but must be based both on the wording of the
section and the constitutional
and historical context of the
developments in South Africa. In Prinsloo v Van Der Linde and
Another
1997 (3) SA 1012
(CC) at para [25] the following was stated:
“In regard to mere
differentiation the Constitutional State is expected to act in a
rational manner. It should not regulate
in an arbitrary manner or
manifest naked preferences that serve no legitimate governmental
purpose for that will be inconsistent
with the rule of law and the
fundamental premises of the Constitutional State. The purpose of
this aspect of equality is therefore
to ensure that the State is
bound to function in a rational manner.”
In the present instance there is indeed
differentiation albeit between natural persons and juristic persons
in a sense that the
moratorium in section 133 of the Act is available
only to companies and close corporations and not to natural persons.
However,
as correctly submitted by Mr Woodland, the differentiation
bears a rational connection to a legitimate government purpose. In
Cloete Murray and Another NNO v Firstrand Bank Limited t/a Wesbank
2015 (3) SA 438
(SCA) the Supreme Court of Appeal held at para [14]
that:
“It is generally accepted that a
moratorium on legal proceedings against a company under business
rescue is of cardinal importance
since it provides the crucial
breathing space or a period of respite to enable a company to
restructure its affairs. This allows
the practitioner in conjunction
with the creditors and other affected parties to formulate a business
rescue plan designed to achieve
the purpose of the process.”
The main purpose of the moratorium is
thus designed to allow business practitioners, in conjunction with
the creditors and other
affected parties, to formulate a business
rescue plan to achieve the purpose of the process in restructuring
the affairs of the
company or close corporation. The differentiation
between natural persons and juristic persons in section 133 of the
Act clearly
serves a legitimate government purpose. The criteria
applied by the legislature to achieve this differentiation are not
arbitrary
but serves a particular purpose. There can in any event be
no suggestion that the expressed purpose of section 133 of the Act as
set out above would find any application insofar as natural persons
are concerned, as the view expressed in Investec that the statutory
moratorium in favour of the company undergoing business rescue
proceedings is a defence in personam and as such the statutory
moratorium in favour of the company does not avail the surety, was
met with approval in Newport Finance Company (Pty) Ltd v Nedbank
Limited; Mostert and Another v Nedbank Ltd 2015 (2) ALL SALR 1 (SCA)
at para [13].
In any event in terms of the
suretyship, the first respondent bound himself in favour of the
applicant as surety and a
co-principal debtor in solidum with
Target Shelf. The applicant was therefore entitled to proceed
against the first respondent
the moment that Target Shelf fell into
arrears in respect of its payment obligations to the applicant.
The first respondent’s liability
in this respect has nothing to do with the moratorium imposed by
section 133 of the Act.
Furthermore, the following remarks made in
Investec supra at para [22] and [23] are apposite in this instance.
“[22] … Whenever a
creditor sues a surety, there is a possibility that at some stage in
the future that creditor may
compromise with the principal debtor or
for that matter that the principal debtor may even discharge the debt
by payment. These
possibilities whether likely or unlikely do not
permit the surety to ward off enforcement if at the time he is sued
the principal
debt is in existence. If the creditor takes judgment
against a surety and the principal debt is later reduced or
discharged before
execution is levied against a surety, the latter
could claim the benefit of the discharge or reduction. If the
creditor were to
recover from the surety in full, the right to
consider a compromise against the principal debtor would pass to the
surety because
the creditor would fall out of the picture and the
surety would take the creditor’s place by a virtue of his right
of recourse
against the principal debtor”
“[23] … If the lawmaker
had intended to prohibit creditors from enforcing their claims
against sureties of companies
undergoing business rescue proceedings,
it would have said so. Such a prohibition would be a drastic
interference with the rights
of creditors and would require a clear
language. Here there is no language at all on which to rest this
opposed prohibition.”
For these reasons the Constitutional
challenge of section 133 of the Act must fail. It follows that the
counter-application cannot
succeed. On a conspectus of all the
papers filed of record, I am satisfied that the applicant is entitled
to a final winding up
order of the first respondent’s estate.
In the result the following order is made:
THE COUNTER APPLICATION IS DISMISSED
WITH COSTS.
THE RULE NISI IS CONFIRMED AND THE
FINAL ORDER IS GRANTED.
LE GRANGE, J