Subject index outline

Held that the preliminary points were without merit, and mostly were irrelevant to the present matter.

Turning to the principal defence, the Court explained that section 133 of the Companies Act 71 of 2008 set a general moratorium on legal proceedings against company during business rescue proceedings, and section 134 protected the company’s property interests. The applicant’s cause of action in the present case was the rei vindicatio. It sought to recover property in respect of which it had a real right, namely ownership. It did not seek to enforce any contractual or other personal right against respondent. As the property in question in this case did not belong to the respondent, the business practitioners could therefore not rely on the provisions of section 133(1) of the Companies Act 71 of 2008 as a defence to applicant’s claim. Similar reasoning applied to the interpretation of section 134(1)(c) of the Companies Act 71 of 2008. Therefore, the applicant was not precluded by the provisions of sections 133(1) and 134(1)(c) of the Companies Act 71 of 2008 from asserting its right of ownership in the property.

Minnaar v Van Rooyen NO
[2015] JOL 33908 (SCA)

Civil procedure – Default judgment – Section 424(1) – Companies Act 61 of 1973 – Personal liability of members of close corporation – Acting recklessly in conducting affairs of company – Granting of order under section 424(1) of Companies Act 61 of 1973 by default where no evidence has been adduced – Erroneous within meaning of rule 42(1)(a) – Uniform Rules of Court

Judgment by default was granted against the appellant in terms of section 424(1) of the Companies Act 61 of 1973, which was still in operation at the time of the order being granted. The application had been brought by the liquidator of a company against the appellant and four other former directors, on the basis that they had acted recklessly in the conduct of the affairs of the company and should thus be liable for all the debts of the company.

Ten months later, the appellant sought the rescission of the default judgment in terms of rule 42(1)(a) of the Uniform Rules of Court, and under the common law. The Court refused relief under the rule because the order had not been erroneously sought, and refused relief under the common law on the basis that the appellant was in wilful default.

On appeal, the appellant argued that evidence must be led in order to determine liability under section 424(1). The court must determine whether a director’s conduct is reckless or whether the business of the company was carried on with the intention to defraud creditors of the company. It was contended further that the plaintiff must prove this on a balance of probabilities, and the court must assess the evidence. In this matter, no evidence at all was led.

Held that rule 41(1)(a), on which the appellant relied provides that a court may, in addition to any other powers it may have, mero motu or upon the application of any party affected, rescind or vary an order or judgment erroneously sought or erroneously granted in the absence of any party affected thereby.

None of the allegations against the appellant were supported by evidence. None was led. There was thus no proof at all, let alone prima facie proof, of whether his conduct had been fraudulent or reckless. Default judgment should, therefore, not have been granted. The question that then arose was whether it was erroneously sought and erroneously granted within the meaning of rule 42(1)(a). The Court held that it is inconceivable that an order would be made declaring a director liable for the debts of a company on the basis of reckless or fraudulent conduct where no evidence is led to support the allegations made. The liquidators were not entitled procedurally to default judgment against the appellant without leading evidence. By its very nature, the right to the relief sought under section 424(1) of the Companies Act 61 of 1973 had to be proved on a balance of probabilities. The liquidators were not entitled to rely on allegations made in the particulars of claim and denied in the defendants’ joint plea. At the very least they should have lead witnesses to show that the directors had acted recklessly or with intent to defraud creditors. The order in terms of section 424(1) was thus erroneously sought, and, as a result, erroneously granted. It accordingly had to be rescinded in terms of rule 42(10(a).

The appeal was upheld and the default judgment set aside.

Liu v Roering NO and Another (25713/2016) [2016] ZAGPPHC 205 (15 April 2016)Creditors-rights-applying for sale of business as a going concern-application dismissed

The applicant is urgently applying that the respondents be prevented from selling any of the liquidated company’s, Xing Xing Farming, assets pending the rendering of a valuation report by a chartered accountant and an order directing the respondents to take the aforesaid report into account when contemplating a sale of any, or all of, Xing Xing Farming’s assets.  This chartered accountant should be nominated and appointed by the Chairperson of the South African Institute of its Chartered Accountants and must do so by no later than 7 court days after the expiration of the 10 days.  The chartered accountant is to be granted access by the respondents to all of Xing Xing Farming’s assets on portion 28 of the Groenfontein Farm in the Bronkhorstspruit district for a proper valuation of the assets.  The applicant is also further applying that the respondents be interdicted from selling any or all the assets of Xing Xing’s pending finalisation of an application to be brought within 30 days of an order being made to set aside the ex parte order made on 9 February 2016 by Louw J under case number 8595/2016.

The Xing Xing Farming operation is a close corporation; it was placed under voluntary liquidation and the respondents are the appointed liquidators. The close corporation’s business comprises of the production and sale of chicken eggs in batteries. 

 The applicant in his affidavit set out how he became involved in the business with his brother.  He averred that he was unaware of the liquidation and was very surprised as the business was from 2003 until 2015 (excluding the year 2002) making a substantial profit each year.  He is a creditor due to his share of the profits never being paid out to him. 

Despite his back-breaking work in building the batteries and his contempt for not receiving his share of the profits he is not contesting the liquidation i.e. applying for the rescission of the liquidation and has not instituted action against his brother for his fair share.  His aim is to claim his share of the profits as a creditor in the liquidation.  To achieve this, this application is to ensure that not only for his benefit, but also for the benefit of the other creditors, the business is sold as a going concern and not as a forced sale.  Although it is not put out in the papers that it must be sold as a going concern this was submitted from the bar.  The reason why it must be sold as a going concern is that “simple arithmetic indicates that the business is doing well and is very far from being bankrupt or even in trouble”.  To this end a chartered accountant’s valuation is necessary and the sale must be stopped to facilitate a higher sale value.  Louw J’s order must also be set aside.

In response to this the respondents set out that the operation of this business comprise of chickens consisting of productive lay hens, chickens destined to become lay hens and which are in the process of being reared and lay hens past their production stage.  All of this requires immediate and extensive management in order to avoid any loss in numbers.  As it was a fully operational farmer operation that was taken over it required immediate attention in the form of insuring that the hens are properly fed, water provided, eggs removed and sold and all the other duties normally to be expected of an operation of this nature.  To this extent they approached the court to extend their power to effect the running of the business.  It was conceded that this ex parte application contains the standard or normal orders for an extension of the powers of liquidators.  From this order it is clear that the respondents were now empowered to defend or institute legal proceedings of a civil nature, criminal proceedings, urgent legal proceedings and the recovering of outstanding accounts.  To offer compensation made to the company debtor and to accept payment or to grant an extension of any debtor.  To compromise or admit any claim and to make arrangements with creditors.  Furthermore the order entailed that they could carry on or discontinue any part of the business of the company insofar as it may be necessary for the beneficial winding-up thereof.  They were also empowered to sell any movable and immovable property of the company by public auction, public tender or private contract.  Without this order being extended they would not have been entitled to continue trading the business to engage services of the employees and pay their salaries and similar practical requirements which impact on the normal day to day running of the business. 

At the end of January 2016 when the liquidators took control of Xing Xing Farming there existed a major threat to the farming operation in that there was virtually no water on the farm as the borehole supplying water “have but dried up”.  It was common cause that there was a serious drought during this period.  Without this order being granted the liquidators would not have been entitled to procure water from the neighbouring farms.  A further three boreholes were drilled on the property.  Chicken feed had to be procured to the value of approximately R350 000 per week.  This feed supply could be maintained only on arrangement for delayed payment of accounts.

There is no further cash available to pay the outstanding amount of R847,218.60 due to Satinsilk Investments (Pty) Ltd the supplier of the feed.  A successful battery operation requires stringent disease control which in turn means substantial amounts have to be paid for medicine.

The total outstanding debts amount to R2,483,661.10.  The amount of overdue debtors is growing and becoming a major concern.

A veterinarian surgeon, Dr. P.W. Smith, attended to the farm and his report as attached to the answering affidavit.  It is his opinion that the pullets are to be transferred to laying houses as soon as possible.  He is further of the opinion that if the chickens are not placed out soon there will be serious consequences, amongst which will be vices such as egg-eating and cannibalism.  A buyer, Ascend Investment Holding (Pty) Ltd, was identified who is willing to purchase the movable assets, vehicles and equipment, the hatcheries and livestock for an amount of R4,1 million.  In view of the dire consequences of not feeding the chickens the sale is thus necessary and must be executed eminently.

The respondents also caused the valuation of the assets of Xing Xing Farming which was also done by a duly appointed registered appraiser which is also attached to the answering affidavit.  According to this valuation report a value of R4 779,770.00 is established as a forced sale value.

It is accordingly the respondents’ contention that the application to rescind Louw J’s order is misconceived as it will render it impossible for the respondents to continue with the farming operation.

It was also argued that the legal duties and obligations of the liquidators and specifically section 353 of the Companies Act, 61 of 1973, provides that the effect of a voluntary winding-up on the status of a company is that it shall from the commencement of the winding-up cease to carry-on its business except insofar as it may be required for the beneficial winding-up thereof.

 

The applicant’s application for the stay of the sale is also ill-conceived.  I cannot find that the liquidators are not fulfilling their duties in terms of the law.  The whole nature of liquidation applications call for forced sales. This kind of operation that have to be run by liquidators that do not have expert knowledge of chicken battery farming has a huge duty in terms of the law to keep the business running but obtain a willing buyer as soon as possible. No valuation by the applicant is attached to his papers.  No reasons are set out why a chartered accountant would be in a position to give a valuation of the assets.  It is conceivable that a chartered accountant could give a total of the assets, but not of a forced sale value.  In view of Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (AD) at 634H there is nothing to gainsay the valuation as attached to the answering affidavit of the respondents and the court must accordingly accept the respondents’ version.  If this test is applied to the facts in this application it was submitted that the applicant was not entitled to any relief.

This application is fatally flawed, misconceived and does not pass muster of the Plascon-Evans principles and therefore I make the following order:The application is dismissed with costs.

 

Schickerling NO and Another v Chickenland (Pty) Ltd t/a Nando's (22712/2016) [2016] ZAGPPHC 208 (15 April 2016)

Business rescue-business rescue practitioner-knowledge of cancellation of franchise agreement

The applicant, the business rescue practitioner, is applying on an urgent basis that a mandatory interdict be granted in favour of the second applicant in terms of which the respondent is ordered to fulfil all its obligations towards the second applicant in terms of the provisions of the franchise agreement entered into by and between the second applicant and the respondent on 1 December 2009.  The second applicant offers reciprocal performance of its obligations in terms of the same agreement.  This mandatory interdict is pending the outcome of the pending action between the second applicant and the respondent under case number 3880/2015.  The applicants are also requesting that the respondent be ordered to notify all suppliers to the second applicant to continue to supply the second applicant with product in terms of the provisions of the agreement on the same cash on delivery basis as before.

The first applicant is the business rescue practitioner of the second applicant Ashraf Alli Gani Investments CC. The respondent is franchisor of a chain of fast foods commonly known as Nando’s. The second applicant and the respondent on 18 February 2009 concluded a franchise agreement. This agreement was subject to an option for the renewal of the contract which was to expire on 30 November 2014.

The option to renew the franchise agreement is before this court under case number 3880/2015 and set down for trial on 31 October 2016. On 28 November 2014 the members of the second applicant adopted a resolution to commence business rescue proceedings. On 19 February 2015 the applicant proposed a business rescue plan which was adopted.

In the business rescue plan the following proposal was adopted:

“PROPOSALS

Pending the outcome of the action under case number 3880/15 the company will continue to trade under the name and style of a Nando’s branded franchise from the current leased premises and undertake to substantially comply with the franchise agreement concluded with Chickenland (Pty) Ltd, to the extent that it is consistent with the adopted business rescue plan.

That the practitioner may appoint any individual from time to time, at his sole discretion, to attend the training provided in terms of the franchise agreement with Chickenland (Pty) Ltd.”

On 24 February 2015 the attorney of the respondent gave a written undertaking which reads as follows:

“(1) Pending finalisation of the declaratory issued under case number 3880/15, Ashraf Alli Gani Investment CC (in business rescue) (“the franchisee”) and Chickenland (Pty) Ltd (“the franchisor”) will comply with their respective contractual obligations provided for in the franchise agreement concluded between the parties on 18 December 2009, as if the franchise agreement was still in existence.

(2) It is recorded that the franchisor agrees hereto in order to avoid unnecessary costs in litigation and does not hereby waive any rights that it has flowing from the expiry of the franchise agreement on 30 November 2014, alternatively determination thereof by the franchisor.

(3) Insofar as supply of products through Vector Logistics (Pty) Ltd and other suppliers are concerned, the continued supply thereof is dependent upon the franchisee meeting its obligations with such suppliers.”

Paragraph 17.1.2 of the franchise agreement reads as follows:

“17.1 Notwithstanding any other provision contained in this agreement it is agreed that this agreement shall terminate, at the FRANCHISOR’s sole and absolute discretion at any time subsequent to the happening of any of the events listed below, notwithstanding that there may be a delay between the event and the exercising of the election in the event that the FRANCHISEE:-

17.1.1 …

17.1.2 fails to timeously pay the franchise, royalty, marketing fee or any other amount due and owing by it to the FRANCHISOR; …”

The royalties were not paid but were paid in on 30 March 2016 reflected at the respondent on 31 March 2016.

 The applicant has accordingly not established a prima facie right entitling him to continue to operating the franchise after the valid termination thereof.

I am satisfied that on the common cause facts the royalties were only paid after the date set out in the cancellation letter.  I am satisfied that clauses 17.1 read with 17.1.2, the cancellation clause, constitutes a lex commissorio.  Thus even if the respondent is an unwilling party to the current de facto and de jure situation it does not affect the lex commissisorio and the cancellation.

I find that the letter of cancellation came to the knowledge of the first applicant.  I find that it should have come to his notice as the business rescue practitioner who was responsible to ensure payment of these royalties.  This is further enunciated by section 140 of the Companies Act. 

The only question the court must then ask itself is whether the adopted business rescue plan can in any way impact on the cancellation of the agreement.  The applicant could not provide any section in the Companies Act, or any case law, that the mere fact that there are business rescue proceedings impacting on the cancellation.  Upon a perusal of the sections in the Companies Act relating to business rescue no such prohibition could be found.  When interpreting the Companies Act the Act must be interpreted and applied in a manner that gives effect to the purpose of section 7.  It could be argued that the cancellation does not conform to the purpose of section 7(d).  Section 7(d) reads as follows:

“reaffirm the concept of the company as a means of achieving economic and social benefits”.

The application is dismissed with costs.

Absa Bank Ltd v Van Zyl NO and Another (35976/2015) [2016] ZAGPPHC 247 (22 April 2016)

Application for sequestration-nulla bona-sheriff did not execute the writ of execution-application dismissed-only return that was filed, was signed by Mr Barkhuizen-On Mr Barkhuizen's own version he was never duly appointed as a deputy sheriff and never had the authority to fulfil the duties of a deputy sheriff.

The applicant applied for the provisional sequestration of the Doornbult Trust which conducts farming operations in the North West Province. The applicant bank instituted an action against the trust which resulted in an order during November 2011 for payment of approximately R2,5 million to the applicant. All attempts to appeal the order were unsuccessful.

During August 2014 a writ for attachment of movable property was obtained and according to the applicant a Sheriff of the High Court was instructed to execute same. According to the applicant the return of the Sheriff was one of nulla bona and it was on the basis of this alleged deed of insolvency which the applicant based its application for sequestration. In the alternative it was submitted that the trust is factually insolvent.

I shall deal first with the issue of the alleged deed of insolvency. On behalf of the respondent it was submitted that the writ of execution relating to movables was not executed by a Sheriff of the High Court, that the applicant has consequently failed to prove a deed of insolvency on the part of the respondent with the result that the application should be refused.

It is necessary to say a little more about the execution process in this matter. On behalf of the applicant it was stated that the writ of execution was duly executed by the Sheriff, Mr B. Mosikili. According to the first respondent, who is one of the trustees of the trust, the writ was never executed by Mr Mosikile. He stated that on 3 February 2015 Mr H Barkhuizen of the office of the Sheriff of Schweizer Reneke came to the farm on which the farming operations are conducted. He was apparently armed with the writ of execution relating to the movables of the trust. In the return, under the hand of Mr Barkhuizen, he stated, inter alia, that he served the document personally on the first respondent and also stated that after a proper investigation he could not find any assets for the outstanding amount. He then stated the following: "Hereby I submit a nulla bona fide." The reference to a "nulla bona fide" is, on the face of it, support for the statement of the first respondent that Mr Barkhuizen did not really know what he was supposed to do on the farm. He clearly also did not ask the first respondent to point out sufficient disposable property to satisfy the judgement. That much is evident from the return itself.

The second, and perhaps biggest problem relating to the execution of the judgement, is the fact that it appears that Mr Barkhuizen was not a duly appointed Sheriff or deputy sheriff of this court. In the answering affidavit the first respondent disputed the legality of the nulla bona return. He stated that Mr Barkhuizen had never lawfully been appointed as Sheriff or deputy sheriff of either the Magistrate's Court or the High Court. He could consequently not have lawfully executed the judgement against the trust. As such, the trust did not commit the deed of insolvency upon which the applicant relied to prove its entitlement to sequestrate the trust.

The application is dismissed with costs.

 

Oelofsen NO and Another; In re: Oelofsen NO and Another v Bamboo Rock 1215 CC and Others (8949/16) [2016] ZAGPPHC 245 (21 April 2016)

Liquidators-ordered to pay costs de bonis propriis-omitted to divulge information to the court -uberrimae fides

Ex parte applications-material facts not disclosed-de boniis cost s awarded

The applicants are joint provisional liquidators of the insolvent estate, Tradewell Investments (Pty) Ltd (Tradewell). About 26 days before the liquidation of Tradewell four immovable properties were transferred from Tradewell estate to Bamboo Rock. This was the catalyst of the liquidator's ex parte application who sought a caveat be registered over all four properties and instituted an action to set aside the said dispositions.

It is contended by the liquidators that no exchange of funds took place for the disposition of the properties. However, the first respondent states that the disposition was conducted in terms of a contract that was concluded between it and Tradewell even though no bonds were registered over the properties.

The first respondent submits that on 28 October 2013 it sold two properties to Tradewell for R7000 000.00 (seven million) excluding vat. Tradewell developed a Sectional Title Complex known as River View on these properties purchased. According to the sale agreement, between the first respondent and Tradewell, provision was made for the purchase price to be paid by means of the transfer of selected units, in River View, to the seller, the first respondent.

The first respondent submits that to the best of its knowledge this sale agreement was transmitted to the first applicant on 27 January 2016 by the attorneys responsible for the transfer of the properties, Van Den Berg Attorneys. That being the case the first respondent contends that the sale agreement was in the hands of the applicant's when the ex parte order was sought. It is further contended, that the transfer of the units, in terms of the sale agreement, took place on 6 November 2015.

It is common cause that at the time that the applicant's launched their ex parte application they were well aware of the sale agreement and its contents.

The first respondent has persisted with the submission that the sale and transfer was in the ordinary course of business. Further, when the applicant's brought their ex parte application they had the duty of uberrimae tides in presenting all the material facts, the terms of the sale agreement and together with a copy thereof before the court, as these were essential to consider for the decision to grant or not to grant the order sought.

There is one crisp issue before me and I am guided by the dictum in National Director of Public Prosecutions v Basson (2002) 2 All SA 255 at para [21]:

"[21] Where an order is sought ex parte it is well established that the utmost good faith must be observed. All material facts must be disclosed which might influence a court in coming to its decision, and the withholding or suppression of material facts, by itself, entitles a court to set aside an order, even if the non-disclosure or suppression was not wilful or ma/a fide (Schlesinger v Schlesinger 1979 (4) SA 342 (W) at 348E - 349B)."

In addition to these paragraphs is the applicant's reply to the first respondent's contention that material facts were not placed before the presiding officer who heard the ex parte application, this the sale agreement was received by the applicants, that it was 'evident' that more than the purchase price was paid for sale, in that over and above the transfer of the units, an amount of R2 703 000.00 was 'allegedly' paid as 'a partial payment'.

Further, that in their replying affidavit they allege that the contents of the agreement were brought to the attention of the presiding officer and ' disclose (d) the contents thereof to the above Honourable Court, in my founding affidavit'. That the contents of the sale agreement will be in dispute and this was the reason why a copy was not attached for the ex parte application.

In dealing with this matter, I am of the view that the applicants have conceded that they did not attach the sale agreement in the ex parte application as the contents thereof were going to be in dispute in an action to be instituted and as such was not provided to the presiding officer at the ex parte application.

Was it a material document that the presiding officer required to make an informed decision in granting of the order that was made? From the first applicant's own averments the contract was alluded to in the form of what Paul Moolman claimed and it was also stated that the contents of the agreement were brought to the attention of the presiding officer at the hearing. What I am not able to discern from the papers, is the applicant's disclosure on the papers of the contents of the agreement in the founding affidavit as submitted by the applicants in their replying affidavit, especially so in respect of the manner of the payment of the purchase price.

“On an examination of the facts, the date of sale, the terms of the sale agreement, especially as regards the manner of the payment of the purchase price, the date of the opening of the sectional title and the date of transfer of the units, all these point towards, to my view, an ordinary sale agreement in the course of the business of the first respondent.”

[24] The applicants themselves found it relevant to make a cursory mention of the 'claim' of the sale agreement and when called out on the said sale agreement, in this current application, they saw it fit to put up the sale agreement which was in their possession and they saw it fit to advise the court of its contents.

The aforesaid, to me, is an indication that the sale agreement and the contents thereof were recognised by the applicants as being material. The applicant's saw it fit to suppress and not disclose this material information when they moved the ex parte application. This amounts to the violation warned of in Schlesinger supra when moving an ex parte application.

The reason advanced for the suppression of the material fact of the sale agreement, that is, the contents were to be contested in an action to be instituted, is evident that the applicant acted in a mala fide manner in the non-disclosure. The presiding officer should have been apprised of all the facts in order to make an informed decision. As the matter stands before me the likelihood is that a different result would have emerged and the order sought by the applicants might not have been granted.

In the circumstances I conclude that in this instance an order setting aside the order granted by Lauw J on 9 February 2016 is warranted.

The fact that the applicants are liquidators, owing a duty to the estate that is being liquidated (Tradewell), does not give them carte blanch to flaunt the law and act in a mala fide fashion, all in the name of protecting the estate. All litigants have a duty to ensure they litigate in good faith, uberrimae fides. If the applicant's suspected that this amounted to a dispossession and they had the necessary factors to back this up and refute the first respondent case, then what was wrong with being honest and upfront with the court?

The order of Lauw J of 9 February 2016 is reconsidered and set aside.

The applicant's, Jacobson Marthinus Oelofsen N.O and Lebogang Michael Moloto N.O, are ordered to pay the costs de bonis propriis on a party a party scale the one paying the other to be absolved.

Such costs are to include the employment of two counsels, one being senior counsel.