BUSINESS RESCUE

Facts: Arnot owns and operates a coal mine in Middleburg that taps into the largest known coal reserve in Africa. It is in business rescue under the stewardship of Mr Mkhombo. A business rescue plan was voted on and adopted on a preliminary basis at a meeting called by Mr Mkhombo and the substance of that plan is that Arnot and the mine it controls is to be sold to Ndalamo. Mashwayi is a cessionary of various of Arnot’s creditors and a lessee of some of Arnot’s rail allocation.

Application: The applicants, Wescoal and Salungano, are creditors of Arnot and approach the court on an urgent basis to confirm that the business rescue plan is valid and enforceable. Wescoal and Salungano wish to enforce the plan because they expect to derive a significant financial benefit from it. Ndalamo wants the plan to go through because it wants to purchase Arnot’s mine. Mashwayi opposes the application because it expects to derive little or no benefit from that sale.

Discussion: Section 152(2)(a) of the Companies Act 71 of 2008 and the requirement for consideration of a business rescue plan of support by the holders of more than 75% of the creditors’ voting interests; whether the statutory threshold of 75% had been reached; that it was contended that if Mashwayi’s votes are excluded from the tally, the business rescue plan did achieve the 75% threshold; and the contention that Mashwayi was not a creditor of Arnot or that it only became a creditor of Arnot after the business rescue process commenced and that “post-commencement creditors” such as Mashwayi are not “creditors” with “voting interests” in the approval or rejection of a business rescue plan.

Findings: The business rescue provisions of the Companies Act assign voting interests under section 152 of the Act only to creditors who were creditors of the entity under business rescue at the time the business rescue process commenced. If just any creditor could vote an interest at a section 152 meeting (even a creditor who appears to have come onto the scene on the eve of the meeting itself) there would be little to stop speculators or asset strippers preying on business rescue proceedings, blocking the adoption of appropriate business rescue plans, and forcing liquidations where they could be avoided. But for Mashwayi’s votes against it, the plan reached the required statutory threshold. Mashwayi’s votes should not have been counted and, on a proper application of the statute, the plan did reach the required statutory threshold.

Order: It is declared that Option B of the Business Rescue Plan placed before the meeting was duly approved and finally adopted in accordance with section 152 of the Act. Ndamalo’s offer made in terms of Option B is declared to have been accepted. Mr Mkhombo is ordered to implement the Business Rescue Plan and give effect to the bid.

WILSON J

Facts and issue: Application to place Eraki under supervision and to commence business rescue proceedings in terms of s 131 of the Companies Act 71 of 2008. Mr Gouws states the business rescue plan will likely result in a better return for Eraki’s creditors than would result from a final liquidation. Mr Gouws relies on the allegations that, if Eraki is placed under business rescue, a manufacturer and installer of kitchen granite tops and counters, namely Turaco, is willing to subcontract to Eraki the manufacturing and installation of kitchen cupboards will generate an income stream for Eraki of approximately R1,4 million.

Discussion: The threshold standard for deciding that an order is appropriate is whether there is a reasonable prospect or reasonable possibility of achieving a rescue through statutory objectives. Speculative and uncorroborated evidence has been put up in support of the business rescue application. Court is not satisfied that there is a reasonable prospect that business rescue will result in a better return for Eraki’s creditors compared to a liquidation. The business rescue application is not based on solid information. 

Findings: Mr Gouws has not met the threshold standard of showing that there is a reasonable possibility of achieving a rescue of Eraki or that business rescue will likely result a better return for Eraki’s creditors or shareholders compared to liquidation.

Order: The application is dismissed, with costs.

Facts and issue: Airlink seeks a declaratory order regarding its entitlement to claims against the first respondent being honoured by the Receivers in the Receivership of South African Airways SOC Limited. One of the main features of the Plan was the establishment of a receivership upon the implementation date. The purpose of which was to take on various liabilities that SAA had to certain of its creditors. The dispute that has arisen between Airlink on the one hand and SAA and the receivers on the other is whether Airlink continues to have claims against SAA now that SAA has been rescued.

Discussion: The question is whether the definitive findings that the debt owed by SAA to Airlink is a pre-commencement debt and that Airlink is therefore a concurrent creditor, decided by the previous courts can be escaped. Airlink cannot escape to findings that its debt is a pre-commencement debt, resulting in it being a concurrent creditor. That results in the fact that Airlink’s claim is unenforceable against the recued SAA and can only be asserted against the Receivership in accordance with its status as a concurrent creditor. In the context of the Plan, and the Act, the different categories are pre-and post-commencement claims, the applicant has a pre-commencement claim and it must so be dealt with. The Plan did not intend to change the status of Airlink’s claim.

Findings and order: The application is dismissed with costs.

Facts and issue: The Minister approached the court on an urgent basis seeking an order to place SAPO under supervision and in business rescue in terms of s 131(1) of the Companies Act 71 of 2008. A case is made out for the application to be heard on an urgent basis. The Government's unwavering stance, as communicated through the Minister's affidavits, that it is only willing to provide capital if SAPO is placed in business rescue.

Discussion: An applicant must satisfy the court of two factors. The first is that the company is, factually, in a distressed financial position. The second is that there is a reasonable prospect of 'rescuing the company'. Rescuing the company means achieving one of two objectives. The primary objective is to restructure the company in a way that maximizes the likelihood of its continued existence on a solvent basis. If this is not possible, the secondary goal of business rescue is to achieve a better return for creditors than the company's immediate liquidation. A company may be placed in business rescue if it achieves either of these objectives. According to the provisional liquidators, any portrayal of SAPO's financial status at present is a matter of some guesswork. The study conducted by Thakhathi indicates that although this reality creates challenges in that it makes it more difficult for the business rescue practitioner to develop a clear and concise rescue plan in the shortest possible time frame, it is not, without more, a bar to business rescue proceedings.

Findings and order: The South African Post Office Soc Ltd, is placed under supervision and in business rescue, and business rescue proceedings are to commence with immediate effect.

Facts and issue: 266 Bree is a property holding company. Mr Kgaboesele suggests that Mr Farber’s conduct is in some respects fraudulent, particularly in the way he has controlled the finances of his different entities, including 266 Bree and HCI.  Mr Farber, in turn, accuses Mr Kgaboesele of colluding with TUHF to cause the business rescue plan to fail and to force 266 Bree into liquidation. The applicants sought an interdict prohibiting Mr Kgaboesele from acting as the business rescue practitioner and taking any steps to implement the business rescue plan.  Mr Kgaboesele seeks an order discontinuing the business rescue proceedings and placing 266 Bree in provisional liquidation in terms of section 141(2)(a)(ii) of the Companies Act 71 of 2008.

Discussion: There is an additional difficulty underpinning the Farber applicants’ contention that this court can extend the existing business rescue plan.  The question arises whether it is permissible for a court using its discretion under s 141(3) to make an order extending a business rescue plan that has already failed in its implementation? The most import consideration of course is that, quite simply, business rescue has failed.  There is no realistic prospect of rescue. In the absence of support from TUHF, the liquidation of 266 Bree is inevitable.

Findings: Business rescue in respect of 266 Bree must be ended and the company placed under liquidation.

Order: The business rescue proceedings in respect of the second respondent are discontinued. The second respondent is placed under final winding-up in the hands of the Master.

Facts and issue: The applicant applied under this case number to convert the liquidation proceedings in respect of the first respondent to business rescue proceedings in terms of section 131 of the Companies Act, 2008. One of the benefits put forward by the applicant should the first respondent be placed into business rescue was that the applicant would procure the transfer of a property. 

Discussion: The applicant had previously in a letter from its attorneys made a tender that it was inter alia “willing to consider throwing Erf 257 into the proverbial pot of the business rescue” for purposes of advancing the business rescue. This tender removed one of the major obstacles standing in the way of a potentially successful business rescue. This tender, once repeated and clarified during the course of the hearing before me by the applicant and its subsidiary, SBD Investments, opened a pathway for engagement between the applicant’s and sixth respondent’s respective counsel as to whether in these evolving circumstances consensus could be reached as to whether the first respondent should now be placed in business rescue. Having stood the matter down to enable the applicant and sixth respondent to engage with each other, they were able to agree upon a consent order.

Findings: The liquidation proceedings of the first respondent under Master’s reference number T935/16 is converted to business rescue proceedings as contemplated in Chapter VI of the Companies Act, 71 of 2008.   

Facts and issue: The applicants have applied to place TFM Industries (Pty) Ltd under supervision and an order directing that the first respondent commences with business rescue proceedings. The company, at this point in time, is not trading and has been wound up. The intervening parties argued that not only is the company financially distressed, but it is factually insolvent. The core issue for determination is whether the business rescue application is justified.

Discussion: The applicants failed to explain their predicament relating to “the City” debt. The applicants’ version on their papers remain improbable. The applicants have failed to establish a cogent basis with the necessary and sufficient factual detail to enable this court to find that the business rescue proceedings are not only appropriate but remains a viable basis to undertake the affairs of the company going forward. The averments made in the founding and supplementary papers are inadequate to demonstrate there are reasonable prospects that the company should be placed under supervision. 

Findings and order: The business rescue application is dismissed.

Facts: During 2015 Danco found itself in financial distress and was placed in business rescue. Mr Cawood and another were appointed as business rescue practitioners. An investment account was opened with Allan Gray and R600,000 was transferred from Danco into the investment account. Mr Cawood opened an account in the name of Danco and only he knew of its existence. He got the funds in the Allan Gray account transferred there and then The Recue Company raised an invoice for R519,074.45. Mr Cawood transferred the sum of R595,000 (the entire balance except R958.95) to the account of The Rescue Company ostensibly for “BRP fees and D”. He then filed a notice of the termination of the business rescue with the CIPC.

Application: Danco seeks an order for the payment of R595,958.95 together with interest and costs against Mr Cawood and The Rescue Company.

Discussion: That section 132(2) of the Companies Act 71 of 2008 regulates the duration of the business rescue proceedings and determines how the business rescue proceedings terminate; the provisions for the ending of the business rescue proceedings when the court has ordered a conversion to liquidation proceedings and when the proposed business rescue plan has been rejected and no further steps taken by any affected person in terms of section 153; and whether it was permissible for Mr Cawood to make payment to The Rescue Company.

Findings: The business rescue practitioner should always prioritize the needs of the business they are rescuing and the stakeholders of such a business. Mr Cawood neither conducted himself in a manner nor to a standard expected of a business rescue practitioner. The Rescue Company was only incorporated some 6 months after Danco was put under business rescue. Danco had no knowledge of the Rescue Company and it was not a creditor of Danco. Business rescue terminated in terms of section 132(2)(c)(ii) on 22 January 2016. Mr Cawood ceased to be the business rescue practitioner and had no authority to either open the new bank account, close the Allan Gray Investment, or pay funds belonging to Danco to anyone, let alone an unconnected third party.

Order: Mr Cawood and the Rescue Company are ordered to pay applicant R595,958.95 and interest from 22 August 2016 to date of payment, both days inclusive. They are to pay applicant’s costs on the scale as between attorney and own client.
MILLAR J

Facts: Louis Group was placed under supervision in 2013, when business rescue commenced. At a meeting in 2020 the business rescue practitioner placed a business rescue plan to a vote but the plan was rejected by the creditors. Binding offers to purchase voting interests were later made but were rejected by all the creditors. The practitioner then declared his intention to apply for the conversion of the business rescue proceedings into winding-up proceedings. The appellants objected and ended up approaching the High Court.

Appeal: Against the dismissal by the High Court of the application for an order setting aside as irregular the decision of the practitioner to close the reconvened meeting. The appellants contend that the business rescue practitioner was required, once the binding offers were rejected, to proceed in terms of section 153(4) of the Companies Act 71 of 2008.

Discussion: Whether, in business rescue proceedings, section 153(4) is to be applied after a binding offer made in terms of section 153(1)(b)(ii) of the Act has been rejected; and whether business rescue proceedings terminate when a binding offer to purchase the voting interests of the person or persons who opposed the adoption of a business rescue plan is rejected or whether the affected person who made the offer has further remedies in terms of section 153(4) of the Act.

Findings: It could not have been the legislature’s intention that a party whose voting interests remains unaltered as a result of the rejection of a binding offer would be entitled to a further opportunity to exercise one of the alternatives provided for in section 153(1)(b)(i) of the Act. The interpretation contended for by the appellants would cause a never- ending loop. Section 153(4) of the Act only finds application when a binding offer in terms of s 153(1)(b)(ii) is accepted.

Order: The appeal is dismissed with costs.
VAN DER MERWE JA and BASSON AJA (PLASKET JA, HUGHES JA and SIWENDU AJA concurring)

Facts: Golden Harvest operated a large wholesale fruit distribution business at premises in Cape Town and Johannesburg. The staff compliment in its heyday was of the order of 180 employees. In 2022 the business ran into financial difficulties and it defaulted on payments to suppliers and generally gave its creditors the run-around. A disgruntled supplier was owed R1,4 million and lodged an application for provisional winding up. A final order of winding-up was later granted and the liquidators secured an order to proceed with an inquiry into the affairs of the company.

Application: Forty Squares, which holds the shares in Golden Harvest, and some of the employees of Golden Harvest have lodged an application to place the liquidated company into business rescue in terms of section 131 of the Companies Act 71 of 2008.

Discussion: That the business rescue application is opposed by the liquidators and by Erfco which as a landlord says it has claims for  arrear rental of at least of R12,5 million; that the total liabilities of Golden Harvest are said to be over R136 million; that already certain of the major creditors of Golden Harvest have stated under oath that they will not support the proposed business rescue plan, either in its present form or any similar iteration; the approach to business rescue and the meaning of “a reasonable prospect”; and the approach in Oakdene Square and whether the bar is higher when a company has been finally wound up.

Findings: There are no anticipated circumstances that will radically improve the prospects of Golden Harvest being returned to solvency and commercial viability. No court is going to put a moribund company through the expectation of commercial resurrection, with all the concomitant expense and delay, if the plan is not going to be adopted by the creditors. Furthermore, the liquidators have cancelled all of the company’s leases. The company’s workforce was sorely depleted and many of its top managers have drifted away. The company has suffered severe reputational damage in the marketplace and is no doubt likely to experience difficulty in procuring produce from suppliers who, having been once burnt, are likely to be twice shy of extending any further credit. The proposed three years for the rescue plan was extraordinarily long. The haste with which this application was brought suggests that it is not bona fide.

Order: The business rescue application is dismissed and the suspension of liquidation proceedings is lifted.

GAMBLE J

Facts and issue: Application for the postponement of the trial by the 2nd to 6th defendants. The controversy which the parties are fighting about is whether there are good grounds in law and facts to grant the postponement applied for. The defendants contend, through Mr Hollander that the facts upon which the application is premised, justify the postponement application. Mr Botha SC on behalf of the plaintiff contends that the application should be refused. 

Discussed: Court considers the principles applicable in the application for postponement. See Insurance and Banking Staff Association and Others v SA Mutual Life Assurance Society (2000) 21 IJL 386. Since the loan was disbursed, not a single payment was made by the first defendant. This is so despite the defence raised by the defendants that the repayment was only to commence during July 2019. The only payment made, would have been the amount kept in the escrow account following this court’s order during August 2022 by agreement between the parties that the business rescue practitioner pays the amount to be kept in an interest bearing account pending the finalisation of the action. Therefore any further delays in adjudicating this matter will not be in the interest of justice to all parties involved in the litigation.

Findings and order: The application for postponement of the hearing is refused.

Facts and issue: Applicant seeks leave to commence and proceed with applications against the companies in business rescue in terms of subsec 133(1)(b) of the Companies Act 71 of 2008, that the business rescue proceedings of the companies be converted into liquidation proceedings and that the companies be placed under provisional liquidation in the hands of the Master of this court.

Discussion: Insofar as the applicant relies on the companies’ inability to pay their debts and that it is just and equitable to be wound up, subsecs 344(f) and (h) of the 1973 Act should be considered. Unpaid creditors who cannot obtain payment and who bring their claims within the parameters of subsec 344(f), read with s 345, are entitled to relief, subject to the limited discretion of the court. In weighing up the advantages and disadvantages of business rescue proceedings versus liquidation proceedings the Court take cognisance of the co-operation between business rescue practitioners and directors and managers of companies in business rescue on the one hand and liquidators acting on the instructions of creditors on the other hand. Court satisfied that liquidators to be appointed in the case of a winding-up will be able to utilise ss 417 and 418 of the 1973 Companies Act in order to do interrogations.

Findings and order: Court satisfied that the applicant has made proper cases for the relief claimed in both applications. Leave is granted to the applicant to commence and proceed with its application against the first respondent company in terms of s 133(1)(b) of the Companies Act 71 of 2008; the business rescue proceedings in respect of the first respondent company are converted into liquidation proceedings in terms of s 132(2)(a)(ii) Companies Act 71 of 2008.