Subject index outline

Advantage to creditors? And discretion?

[35] The respondent’s case in its answering affidavit is that he has no assets, has had none since 2010, and that he can hardly come by on his monthly income of R15 000. He explains that the provenance of the indebtedness is his suretyship for the indebtedness of a private company through which he and two others had acquired fixed property then worth R18m, assisted by a loan from the applicant on security of the property and the suretyships of the three joint venturers.

[36] The three fell out, the loan was not repaid, and the applicant sued for its money. It attached its security, but since according to the applicant the property was worth R20m, the applicant could easily recover full repayment of the debt by realising the security. Yet the applicant has never tried to sell the property, according to the respondent.

[37] In reply the applicant disclosed that the property was put up for sale sold by the sheriff by public auction on 9 November 2012, a year and nine months before the respondent asserted in his answering affidavit that the applicant had never tried to sell the property. No bids were received, and the applicant bought it in for R2.1m.

[38] The respondent also answered the applicant’s assertions that he was interested as member in five juristic entities, each of which owned fixed properties at some stage, and most of which still owned fixed properties. On his case, three of these have since been either deregistered or wound up, and of the remaining two he has resigned without retaining any interest.

[39] These assertions are challenged in reply. The applicant says that in the case of Zimzeni 150 CC the respondent is wrong in saying that it was finally deregistered on 16 July 2010. Its CIPC searches have revealed that as of 15 November 2013 this CC was still active and owned four fixed properties.

[40] In the case of Aeterno Investments 168 (Pty) Ltd, the applicant says that its searches revealed that as of 15 November 2013 it too was still active, owning four fixed properties, despite it having been finally deregistered, according to the respondent, on 16 July 2010.

[41] In both these two disputed cases, the evidence relied on by the respondent is a CIPC search which indicates that a deregistration process was somehow connected to the annual return.  One knows that under Companies Regulations 40(2), if a company has failed to file an annual return two years in succession, the commission may demand that it does so, failing which the commission may deregister the company. But that is a process that takes time, since as appears from Companies Regulation 40 generally, much opportunity is afforded the company to cure its default.

[42] Against this background the following factors weigh with me.

[43] First, the threshold for advantage to creditors is relatively low in arms-length sequestrations. Cameron JA (as he then was) said in Commissioner, South African Revenue Services v Hawker Air Services (Pty) Ltd, 2006 (4) SA  292 (SCA) at [29], that the court need only be satisfied that there was reason to believe, not even a likelihood but a prospect not too remote, that as a result of investigation and enquiry assets might be uncovered that will benefit creditors.

[44] Second, I am unconvinced that the respondent has made a clean breast of his position in circumstances where he would fully have appreciated how important it was to have done so. For instance, why has he not explained the identity of his employer? Why has he not annexed any evidence substantiating his income level? Why not annexe returns of income to the SARS or other extraneous proof? What has happened to the assets of the juristic entities in which he admits having had an interest at some stage?

[45] Third, in exercising a discretion I weigh up the unenviable position of the applicant who cannot without a provisional order scale the stone wall put up by the respondent, against the inconvenience caused to the respondent by a provisional sequestration order. If he has assets that can be availed, they will out. In the meantime, he will be able to practice as an attorney, and he will be able to build up a new estate, and so start with a clean slate.

I grant a provisional sequestration order returnable on 18 April 2016, in terms of the draft that I have initialled, dated and marked “X”.

Pouroullis v Market Pro Investments 106 (Pty) Ltd (South African Bank of Athens Ltd and Absa Bank Ltd (20370/2015) [2016] ZAGPJHC 12 (12 February 2016)

Business rescue- s.131 (1) of the Companies Act 71 of 2008 -intervening creditor

This is an application by a director (“the applicant”) of the respondent (“the company”) under s.131 (1) of the Companies Act 71 of 2008 (“the Act”) to place the company under supervision and to commence business rescue proceedings. The first intervening creditor (“Bank of Athens”) and the second intervening creditor (“ABSA”) oppose the application. In a separate and earlier application under case number 3852/2015 ABSA had applied for the company to be placed under winding-up.

[2] The applications were both ripe for hearing and were argued together. So inter-related were they that counsel were agreed that if the business rescue application succeeds, the winding-up application must automatically be postponed; and if it fails, the winding-up application must automatically be granted. The parties were agreed too that reference could be had to both sets of papers for the adjudication of both applications.

The company’s existence centres around a single asset, fixed property of about 250 000 sq m, in Brakpan. The improvements are office blocks of brick and steel, and factory outbuildings.  They are all in good condition. These were let to an associated company, thereby providing a rental income. The company has no employees. The tenant has since been liquidated and the property has not had a tenant since the beginning of 2015. The company acquired the land in 1998 for about R985 000. ABSA is its only bondholder. The indebtedness to ABSA as of February 2015 was R14 987 460.

[5] The sole shareholder of the company is a trust, the Christos Pouroullis Investment Trust, which has two trustees. The applicant is one of them. The trust deed is not available, nor do we know anything about the powers of the trustees to litigate.

[6] The company is “financially distressed” as that concept is defined in s.128(1)(f) of the Act. It has defaulted on its monthly bond repayments to ABSA. These initially amounted to R213 544. It has let out a portion of its workshop at R40 000 per month, and it was negotiating in June 2015 to let out further space at R62 000 per month. It is unknown whether this materialised, although one rather suspects that if it had, an affidavit would have been forthcoming.

[7] The expert valuator put up by the applicant says that, going forward, the company ought to realise net rental income of about R181 000 per month.  If ABSA were not prepared to agree to reduced monthly payments, and if an accord with the Bank of Athens, to whom about R7,5m was owed, could not similarly be reached, the inevitable result would be that the property would have to be sold to pay the creditors.

[8] The value of the property is about R31m. Only sixty per cent of that value would be realised in a forced sale, such as would be the case in winding-up.

[9] The company is currently commercially insolvent in that it cannot pay its debts as and when they fall due for payment. It is also probably factually insolvent according to its balance sheet, because the liabilities as of February 2015 do not include the approximately R7.5m owed to the Bank of Athens. It included, that would result in a negative shareholder’s equity of about R7m.

[10]  If one assumes that ABSA would not agree to receive its debt repayment in instalments, and insisted on the full outstanding balance being paid immediately, the only way would be to liquidate the property. That could occur either in liquidation or in business rescue. On the applicant’s case, in business rescue it would return R31m, meaning that all the creditors would receive full payment, or in liquidation, in which event only R18,6m would be realised. Then the city council, SARS and ABSA would likely receive full payment of their claims, but not the other creditors, who would likely lose out completely.

[11]  On this basis, the applicant submitted, business rescue was still a better option that liquidation, because creditors would receive greater dividends that they would in liquidation.

The Bank of Athens argued that a prima facie case was not good enough. It relied on NEWCITY GROUP V ALLAN DAVID PELLOW NO (577/2013)[2014]ZASCA 162 (1 October 2014), at [16]. It submitted that in any event the application was not bona fide and should on that account fail. Here it relied on RICHTER v ABSA BANK LTD, 2015 (5) SA 57 (SCA) at [16].

[14]  It argued that the proposed business rescue plan was not bona fide, because there was no suggestion as to how to repay the ABSA instalments. On its own case, it could not afford it. It submitted that the valuation of R31m was fatally flawed, as it relied for part of the value on the failed tenancy. It pointed to the absence of the information that ought to have been provided by way of notes to the income statement and balance sheet attached to the founding papers. It bemoaned the fact that no detail was furnished of the debt to the city council. The Bank of Athens argued too that the company had done nothing in the past year to sell the property.

[15]  ABSA made common cause with the Bank of Athens. But it also attacked the applicant’s locus standi, the issue of reasonable prospects as envisaged in s.131(4) of the Act, and generally whether the requirements of the Act had been met.

[16]  In view of the issues that the parties traversed, I propose dealing with the following: the question of locus standi; the appropriate test to be applied under s.131(4); and finally the factors that weigh in this case.

Locus standi

[17]  The applicant relied on his being a creditor, a representative of the shareholder, and a director, of the company. His directorship is irrelevant, since it is not included in the definition of an “affected person” for purposes of s.128 (1)(a) of the Act. ABSA argued that the applicant had not shown he had authority to represent the trust because not all the trustees have joined in the application. The applicant referred to the resolution passed by the trustees and submitted that it was clear that the applicant had been authorised by all the trustees to act in the litigation.

[18]  But the question is of course whether the trust deed gives the trustees the power to appoint one of them to represent the other in the litigation.[2] And in this case we have no evidence at all about the trust deed. On the face of it, we have trustees and a trust. And on the face of it, since a trust is in law not a separate juristic person, all the trustees should have joined. As a fact, they did not. In the result, in my view, the point is well-taken.

[19]  But the applicant does say he is a creditor, on the basis that he had lent and advanced R21000 to the company. He refers in support to the attachment that has the appearance of a simplified balance sheet, a document that he himself affirms as being correct. This is thus potentially a classic case of self-corroboration and it is usually not admissible. But there was no objection to it, and ABSA’s attack was on the contents of the document which refers to “Loans from Directors”, referring as it does to more than one director. Also, ABSA says it challenged the applicant on this issue, and the challenge remained unanswered, since no replying affidavit had been filed.

[20]  The challenge is at p56 para 14 in these terms: “It is not said how, where and on what terms that indebtedness arose.” The applicant submitted that there was nothing more to say. I do not accept that that is a satisfactory answer. The amount concerned raises at least an eye-brow, since it is large and rounded off. The applicant could have explained how it came about and for what purpose the loan was.

[21]  However, I am not sure that these questions are so serious as would entitle me to reject the evidence out of hand as being untruthful. Also, balance sheets often refer generically to “loans from directors” in the plural, without intending to suggest thereby that it was impossible that only one director had advanced the money. I will thus accept that the applicant has established his locus standi on this score.

The appropriate test to be applied

[22]  This issue was authoritatively discussed by Brand, JA in OAKDENE SQUARE PROPERTIES (PTY) LTD AND OTHERS v FARM BOTHASFONTEIN (KYALAMI)(PTY)LTD AND OTHERS, 2013. The learned judge there said, amongst other things, that a “reasonable prospect” means: something less than a reasonable probability; something more than a prima facie case; something more than an arguable possibility; a prospect based on reasonable grounds; and mere speculative suggestion is not enough.

[23]  He said too that the plan which the applicant is required to show must be either to restore the company to a solvent going concern, or at least to facilitate a better deal for creditors and shareholders than they would secure from the liquidation process.

[24]  But importantly, he also the following (at [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 H which had, incidentally, been preserved, for the time being, by item 9 of sch 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.”

[25]  Against this background I proceed now to consider those factors that weigh in the present case.

The factors that weigh in this case

[26]  The first factor is that I cannot find that the prospect of restoring the company to commercial solvency is based on reasonable grounds. The figures do not wash; the anticipated net rental income is nowhere near what would be required to liquidate the monthly instalments due on ABSA’s first bond.[3] That does not take into account servicing the liability owed to the Bank of Athens and to the city council; or even SARS.

[27]  The answer offered by the applicant is to say that that is a matter for negotiation between the business rescue practitioner and the creditor concerned. But that is in my view no answer; it is merely stating an axiom.  It does not yet suggest why it is that these creditors would on a somehow or other basis take less by way of monthly repayment; nor when and how the indebtedness to them will then finally be paid.

[28]  The second factor is then where that takes one. If the company cannot be restored to commercial solvency, it must perforce liquidate its asset, the property, to pay its debts. Where that leads one is straight into the debate about whether what the applicant is proposing is not simply an informal type of winding-up process, a scenario expressly frowned upon, even dismissed, by Brand, JA in the paragraph quoted above.

[29]  I have difficulty understanding why that result is not inevitable. It does not seem to me to matter whether in the informal winding up the body of creditors will be better off; that will always be the result if one’s postulate is that a business rescue practitioner will sell fixed property at a better price than a liquidator. It will also be the inevitable result if one accepts that, as a matter of course, the business rescue practitioner comes cheaper than the liquidator.

[30]  But self-evidently, if that type of argument were valid, most liquidations should systemically be business rescues, because on that basis the business rescue system will always render a better dividend than liquidation.

[31]  The third factor that weighs with me is that one is not dealing here with potential job losses in the event of a liquidation. If jobs and family incomes were at issue, one looks differently at these things.

[32]  The forth factor that weighs with me is that this building is not a residential complex or a school. Again, if relocating families or educational facilities were involved, one would think twice.

[33]  The fifth factor that weighs with me is that the two largest creditors, both banks, are supportive of the liquidation route. Of the other creditors, the city council and SARS enjoy preferent positions. The R9.5m owed to group companies are potentially at risk; so too the concurrent debt owed to the Bank of Athens. But the latter supports the liquidation, as I have said, and the claims of associated companies will have to enjoy less protection than that of the bond holder.

[34]  The sixth factor is the position of the major creditor, ABSA. In traditional liquidation, the driver is the winding up of the company by the liquidation of its assets. That is the liquidator’s remit. In business rescue, the very objective, whether actually attainable or not, is different. The focus is first and foremost the rehabilitation of the company. Applied to the facts here, one envisages a business rescue practitioner who potentially seeks to serve also the interests of all concurrent creditors, including the other companies in the group, whose claims aggregate a sizable amount.

[35]  That suggests a potential conflict of interests between the bondholder and the debtor’s associated companies; or put differently, between the bondholder’s interests and the debtor’s interests. If such a conflict has to be resolved one way or the other, I suggest it is the bondholder who, by dint of the security it enjoys, ought to be preferred.

[36]  Finally, winding-up is not the end of the road for the company. As appears from s.131(7) quoted above, the court may make a business rescue order at any time during liquidation proceedings. It is not inconceivable that the up-to-date financial position of the company is actually different from what it was last year when the applications were launched, good or bad. Interested parties will be free then to reassess their positions.

Conclusion

[35]  It follows from these considerations that in my view the business rescue application ought not to succeed. ABSA argued that I should disallow the costs of opposition to the liquidation application, on the basis of KNIPE v KAMEELHOEK, 2014 (1) SA 52 (FB) at [51]. It was there said, with reference to s.342(1) of the 1973 Act, read with s.97(3)of the Insolvency Act 24 of 1936, that special circumstances need be shown before the court would order that the costs of opposition to a winding-up order would be allowed.

[36]  I have found the submissions on behalf of the applicant helpful and pertinent, and to the extent necessary will make an appropriate order in this regard.

[37]  In view of the parties’ agreement, I thus make the following order:

(a) The application under case number 20370/2015 is dismissed with costs.

(b) In the application under case number 3852/2015 I issue a provisional winding-up order, returnable on 18 April 2016, in terms of the draft I have amended, initialled, dated, and marked “X”.

(c) I direct that the costs of the opposition to the provisional winding-up order under case number 3852/2015 shall be included in the costs of winding-up.

Van Der Merwe and Others v Zonnekus Mansion (Pty) Ltd and Others (4653/2015B) [2016] ZAWCHC 11 (18 February 2016)

Business rescue-s 131-opposed-liquidation order was granted prior to application-liquidation in progress

This is an application for an order placing the first respondent, Zonnekus Mansion (Pty) Ltd (“Zonnekus”), under supervision and commencing business rescue proceedings as contemplated by section 131 (1) of the Companies Act 71 of 2008 (“the Act”).

[2] There are five applicants. The first and second applicants are Mr Gary Van Der Merwe and his daughter Candice Van Der Merwe. The third applicant is the Eagles Trust (“the Trust”). Bank on Assets Global (Pty) Ltd and Helibase Swaziland (Pty) Ltd are the fourth and fifth applicants, respectively.

[3] The respondents who oppose this application are the Standard Bank of South Africa Ltd (“the Bank”) and The Commissioner for the South African Revenue Service (“SARS”).

[4] Because SARS denied that any of the applicants had locus standi to bring this application it is necessary, to commence with, to establish whether at least one of the applicants is an “affected person”, as defined in the Act.

[5] In terms of section 128 (1) of the Act a shareholder of Zonnekus is an affected person and has standing to bring this application in terms of section 131 (1) of the Act. The allegation is made in the founding affidavit that the Trust is the sole shareholder of Zonnekus. Mr Van Der Merwe attached to his founding affidavit a document purporting to evidence the fact that the Trust had resolved to bring this application. The document did not do that. It related to different litigation between different parties, and was signed by only two of the trustees. However, all of the trustees have filed affidavits in support of this application. Counsel for SARS, with whose submissions in regard to locus standi the Bank aligned itself, submitted that the affidavits were not evidence of the Trust having resolved to bring this application. Mr Van Der Merwe’s affidavit stated that the trustees brought this application in their representative capacities, and the confirmatory affidavits deposed to by the other trustees confirm that allegation. In my view that is evidence enough of the Trust having resolved to make this application.

[6] In argument SARS also placed in dispute the allegation that the Trust was the sole shareholder of Zonnekus. The answering affidavit filed on behalf of SARS does not bear this out. It refers the reader to paragraph 20 of the particulars of claim in an action SARS has instituted against Mr Van Der Merwe, his daughter Candice, Zonnekus, the Trust and others. In paragraph 20 of the particulars of claim the following allegation is made by SARS: “The Eagles Trust is the registered owner of 100% of the issued share capital…” in Zonnekus. This allegation, I think, puts an end to the question whether the Trust is the sole shareholder of Zonnekus. In the circumstances I am satisfied that the Trust, at least, is an “affected person” within the meaning of section 131 of the Act, and that it has standing to make this application. It is not necessary, therefore, to deal with the standing of the other applicants.

[7] Having found that the Trust has standing to bring this application it is necessary to turn back the clock. On 20 June 2014 the Bank instituted proceedings for the winding up of Zonnekus on the basis that Zonnekus was commercially insolvent. Zonnekus opposed the liquidation application and, by agreement between the parties, the liquidation application was postponed to 11 September 2014 for hearing on the semi-urgent roll. Zonnekus was ordered to file its answering affidavit by 8 August 2014.

[8] Notwithstanding various demands by the Bank no answering affidavit was filed. However, on 9 September 2014, just two days before the hearing, Zonnekus launched an application for the postponement of the liquidation application. On 11 September 2014, the postponement application was dismissed after the Court had heard argument on behalf of the parties. Zonnekus was placed in provisional liquidation, with the return day being 28 October 2014.

[9] Zonnekus did not oppose the application for liquidation on the return date. Accordingly, on 28 October 2014, the provisional liquidation order was made final.

[10] The first meeting of creditors was convened by the Master of the High Court on 2 December 2014. At this meeting the Bank proved three claims against Zonnekus. It bears mentioning, at this juncture, that none of the Bank’s claims are in dispute. The Bank’s claims against Zonnekus arise as a result of two mortgage loan agreements and a building loan agreement concluded between it and Zonnekus. It is evident, therefore, that the Bank is a secured creditor by way of the three mortgage bonds referred to above.

[11] The second meeting of creditors took place on 24 February 2015. Certain of the applicants sought to prove claims in the insolvent estate at this meeting but they were unsuccessful. This was followed, on 25 March 2015, by an application issued by the liquidators in terms of section 417 of the Companies Act for the purposes of convening an enquiry into the affairs and business dealings of Zonnekus. The first session of the enquiry was scheduled to take place on 20 and 21 April 2015.

[12] On 13 April 2015, that is about ten months after the liquidation application had been issued, and approximately one week prior to the enquiry in terms of section 417 commencing, this application for business rescue was issued.

[13] In response to this application a preliminary point was taken by the Bank and SARS that a business rescue application was not competent in respect of a company which was in final liquidation. The preliminary point was argued before this court on 28 May 2015. On 10 June 2015 the preliminary point was resolved in favour of the applicants and it was held that business rescue proceedings could be brought in respect of a company in final liquidation. An order was made postponing the application to the semi-urgent roll on the earliest date which the parties were able to agree, alternatively a date to be determined by the Judge President of this Court with further directions relating to the filing of answering affidavits, replying affidavits and heads of argument.

[14] The matter then came to be set down for hearing on 1 December 2015. That this had occurred came to the knowledge of the applicants on, or very shortly after, 20 October 2015. However, the set down of the matter for hearing on 1 December 2015 had not occurred in accordance with an agreement between the parties, nor was it a date determined by the Judge President of this Court as contemplated in the order which had been made on 10 June 2015. Binns-Ward J had been allocated the matter on 1 December 2015. A reading of the transcript of the judgment delivered by him on that day reveals that the applicants had taken the point that the matter could not proceed in view of the fact that the set down of the matter had occurred improperly. The learned judge held that the point was well taken and in the course of his judgment criticised the applicants for their inertia when confronted with the fact of the set down of the matter for hearing on 1 December 2015. In the result he made an order, the material terms of which provided that the business rescue application was postponed for hearing in the fourth division on the semi-urgent roll on 4 February 2016; the applicants were directed to deliver replying affidavits by not later than 20 December 2015; and heads of argument were to be delivered by the applicants not later than ten days before the postponed hearing date. It is to be noted that the order recorded that the timetable which it incorporated had been proposed by the applicants themselves.

[15] The applicants did not comply with any of the requirements imposed upon them by the order made on 1 December 2015. Time went by, however, and in view of the voluminous record an early allocation of the matter took place. The papers were thus given to me several days in advance of the allocated hearing date.

[16] Included in the Court file was a practice note which had been filed by the applicants on 14 January 2016. The practice note indicated that the matter would not be able to proceed on 4 February 2016 due to the fact that replying affidavits had not been finalised. The practice note went on to say that the first applicant, Mr Gary Van Der Merwe, who was the accused in a criminal trial relating to alleged tax fraud had been engaged in the preparation of heads of argument which were to be submitted by 10 December 2015 and that considerable time and effort had been expended by him in this task as a consequence of which it had been impossible for the replying affidavits to be finalised before 20 December 2015. According to the practice note, this fact had been communicated to the representatives of the Bank and SARS on 21 December 2015. It was further stated that Mr Van Der Merwe had had to travel to Australia to join his wife on 24 December 2015 because it had been necessary for her to undergo emergency surgery there. In conclusion, the practice note contained the submission that the matter could not proceed on 4 February 2016 and that the applicants would request a postponement of the matter to a date to be agreed upon by the parties.

[17] Less than two days before the matter was due to be argued I was advised by my registrar that a set of replying affidavits were to be delivered to my chambers. After making enquiries I ascertained that the papers which were sought to be handed to me were not accompanied by a written application for condonation. I accordingly advised my registrar not to accept delivery of the papers which I noted extended to almost two hundred pages.

[18] At the commencement of the hearing on 4 February 2016 counsel for the applicants handed up a written application for condonation of the late filing of the replying affidavits. The application was dated 3 February 2016 and had been delivered to the Bank and SARS only hours previously. Counsel for the Bank and SARS indicated that the condonation application would be opposed and that wished to argue the matter without filing any answering affidavits.

[19] Shorn of unnecessary verbiage the basis for the condonation application boiled down to the following uncontroverted facts. Mr Van Der Merwe had been ordered on 30 November 2015 by Le Grange J, who had presided in the criminal trial adverted to above, to submit comprehensive heads of argument by 10 December 2015. The criminal trial had run for two years and the record was in excess of seven thousand pages. In the result Mr Van Der Merwe had been engaged in the preparation of the heads of argument required in the criminal matter until 18 December 2015. On 21 December 2015 the Bank and SARS had been requested to afford for an extension of time for filing of the replying affidavits until 11 January 2016. The request had been refused. Mr Van Der Merwe then had to travel to Australia on 24 December 2015 because his wife had undergone emergency surgery there. He returned to South Africa on 15 January 2016.

[20] In summary, then, the failure on the part of the applicants to file a replying affidavit by 20 December 2015 was attributed to the fact that Mr Van Der Merwe had been otherwise engaged in attending to the criminal proceedings against him. His absence overseas until 15 January 2016 is only relevant in so far as it relates to the delay which occurred in relation to the launching of the condonation application.

[21] Does this form a basis for the granting of condonation for the delivery of replying affidavits almost seven weeks after the date which the applicants themselves had proposed they should be filed, and only a day or so before the postponed date of the hearing? In CSARS v Van Der Merwe 2016 (1) SA 599 (SCA), a case co-incidentally involving both Mr Van Der Merwe and his daughter, the Court had occasion to repeat the well-known rules relating to condonation. The case emphasised the factors that are relevant, namely, the degree of non-compliance, the nature of the explanation given for the delay, the effect of the delay, the importance of the case, the convenience of the court, the avoidance of unnecessary delay in the administration of justice and the interest of all in the finality of litigation. The case also stressed the importance of applying for condonation without delay.

[22] I do not think that it can be said that the applicants have made out a case for the condonation of the late filing of replying affidavits. It was they who proposed the terms of the order made by Binns-Ward J on 1 December 2015. Having been ordered by Le Grange J the day before to file heads of argument they were fully cognisant of the fact that further work was to be done in the criminal trial of Mr Van Der Merwe and what that work would entail. They did nothing to alert any of the respondents to the possibility that they might not be able to comply with the court order they had proposed until after the time for compliance had expired. And when respondents refused to consent to the late filing of replying affidavits the condonation application was not launched immediately. Nor was it launched immediately after Mr Van Der Merwe’s return from Australia on 15 January 2016. Instead, the applicant sought to defer the matter by requesting the Judge President, in a practice note, not to allocate a judge for the hearing of the matter on 4 February 2016. That is not a permissible way to avoid the consequences of an order directing that papers be filed according to a given timetable. In fact, I consider it to have been an entirely improper attempt to defer the hearing.

[23] Having heard argument in relation to the application for condonation, and for the reasons briefly set forth above, I refused it with costs including the cost of two counsel where two were employed.

[24] Counsel for the applicants then sought to move the application for the order sought in the main application and to hand up heads of argument in relation to thereto. These ought to have been filed by 20 January 2016 in terms of the order which had been made on 1 December 2015. There was no written application for the late filing of the heads of argument but an application for condonation was orally made from the bar. The reason for the late filing of the heads was that counsel who had been briefed to prepare them had been engaged in assisting in the preparation of the written argument which was required in Mr Van Der Merwe’s criminal trial and then in the preparation of the replying affidavits. He had been too busy, it was said, to draft the heads of argument. An apology was tendered.

[25] It is, of course, quite undesirable that the Court and the respondents should be deprived of the benefit of written heads of argument in advance of the hearing. Be that as it may, not to have proceeded with hearing would have prejudiced not only the respondents but also the proper and efficient administration of justice to an even more undesirable extent. Confronted with two unsatisfactory alternatives I chose that which I considered to be the least unsatisfactory, condoned the late filing of the heads of argument, and heard argument in the main application.

[26] It is regrettably necessary to observe that it is unacceptable that the Court and the respondents were held to ransom, as it were, in the manner described above. Litigants and their legal representatives have a responsibility to facilitate the efficient administration of justice by adhering to the rules of Court, and to Court orders which regulate process. That responsibility is even greater when the process is regulated by an order proposed by the defaulting party. The time will come when an apology will not suffice.

[27] I turn now to consider the merits of the main application. Zonnekus is a property owning company which owns five immovable properties. These are erf 13898 Milnerton (“Zonnekus Mansion”) which is unencumbered, erven 8666, 901 and 902 Milnerton, and erf 13421 Somerset West. Zonnekus is indebted to the Bank in an amount just exceeding R5.3 million. The Bank holds security in the form of three continuing covering mortgage bonds registered over two of the Milnerton properties and a bond registered over the Somerset West property. The remaining Milnerton property is bonded to Absa Bank Ltd. Zonnekus allegedly owns movable property in the form of certain aircraft. It has no employees and conducts no business in the accepted sense of the word, at least not a business which can be said to be ongoing. I am mindful of the fact that it was submitted on behalf of the applicants that Zonnekus held the immovable properties it owned with a view to later developing them, and that this was its business. However, it is only in respect of the Somerset West property that there is any evidence of the business of property development being conducted by Zonnekus, and this development ground to halt some time ago as a result of inadequate funding.

[28] It is also necessary to mention that Zonnekus is no stranger to financial difficulty. It was indebted to Nedbank Ltd for an amount of approximately R 7 million in respect of a mortgage loan. Nedbank had brought a winding-up application against it during August 2013 on account of it having defaulted in respect of the mortgage loan. That winding up application was withdrawn when Zonnekus managed to raise the funds to pay Nedbank. It is thus apparent that from at least August 2013 Zonnekus had been experiencing financial problems. If the business of Zonnekus was property development, it is apparent that for some time it has struggled.

[29] SARS allege that Zonnekus is indebted to it in the amounts of R 30 million and R 12 million, respectively. It caused proceedings to be instituted during May 2015 in this Court against Zonnekus for recovery of these amounts. In the same action SARS claims various declaratory orders and the payment of amounts of money against Mr Van Der Merwe, his daughter and the Trust. The action is defended by Zonnekus and the others and it is almost impossible to predict when it will finally be determined. It is not impossible, however, to predict that it is very likely that the action will take some time before it is finalised.

[30] It is also relevant to note that during April 2013 SARS sought and obtained a provisional preservation order in terms of section 163 of the Tax Administration Act, 28 of 2011, against, amongst others, Mr Van Der Merwe and Zonnekus. In terms of the preservation order Zonnekus was interdicted from dealing with, disposing of, encumbering or removing from South Africa any assets of which it is the owner. The preservation order was made final during March 2014 and has the effect that as matters presently stand Zonnekus cannot deal with any of its assets.

[31] Much was made in the papers, and in argument, of the running battle between SARS and Mr Van Der Merwe. This battle relates not only to allegedly unpaid taxes but also to the criminal trial presently pending in which Mr Van Der Merwe is accused of tax fraud. These disputes, however, do not seem to impact upon Zonnekus as much as they do upon Mr Van Der Merwe. I do not propose to canvass the full extent of the disputes. To do so would not materially assist in a determination of whether the proposed business rescue, which relates only to Zonnekus, would be viable. What the disputes do illustrate, however, is that the disputes between SARS, on the one hand, and Mr Van Der Merwe and Zonnekus, on the other, are wide-ranging and factually complex. It is overwhelmingly unlikely that they will be resolved in the short to medium term.

[32] Before going further it is necessary to deal briefly with the submission made by counsel for SARS to the effect that Zonnekus is not “financially distressed” but hopelessly factually and commercially insolvent. The argument was to the effect that Zonnekus was “dead”, not merely distressed, and could not be brought back to life through the implementation of any business rescue plan.

[33] The starting point is section 128 (1) (f) of the Act. It states that “ ‘financially distressed’, in reference to a particular company at a particular time, means that (i) it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months…”. The Act thus gives its own meaning to the expression “financially distressed”.

[34] It is safe to say that it is common cause between the parties that Zonnekus will not be able to pay all of its debts as they become due and payable within the immediately ensuing six month period. In my view, then, a purely physiological metaphor is inapposite and it must be held that Zonnekus is financially distressed as contemplated by the provisions of the above quoted section of the Act.

[35] To turn now to the proposed business rescue bearing in mind that all that is required of the applicants at this stage is that they “place before the court a factual foundation for the existence of a reasonable prospect” that a business rescue can be achieved (see Propsec Investments (Pty) Ltd v Pacific Coast Investments 97 Ltd and Another 2013 (1) SA 542 (FB) para 11). It must also be borne in mind that in Propsec it was also stated that “… To require, as a minimum, concrete and objectively ascertainable details of the likely costs of rendering the company able to commence or resume its business, and the likely availability of the necessary cash resource in order to enable the company to meet its day-to-day expenditure, or concrete factual details of the source, nature and extent of the resources that are likely to be available to the company, as well as the basis and terms on which such resources will be available, is tantamount to requiring proof of probability, and unjustifiably limits the availability of business rescue proceedings.” That statement was approved of in Oakdene Square Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami) (Pty) Ltd and Others 2013 (4) SA 539 (SCA) at paragraph 31.

[36] In the first rescue plan postulated by the applicants in the founding affidavit Zonnekus Mansion, being erf 13898, Milnerton, which is unencumbered, is to be sold by the proposed business rescue practitioner for the sum of R 30 million. The claims of secured creditors will then be settled. The remaining immovable properties are to be developed by Zonnekus. A second rescue plan postulated in the founding affidavit envisages the sale of the movable assets allegedly belonging to Zonnekus and the use of the cash obtained thereby to develop the immovable properties.

[37] A third proposal is annexed to the founding affidavit. It envisages a different rescue plan. In terms of a so-called short-term proposal, all claims and loan accounts against Zonnekus are to be converted to share capital. The proposal goes on to postulate the reinstatement of the bond accounts of the banks. In the medium term it is envisaged that Zonnekus Mansion is to be developed into a “50 unit luxury retirement resort”. The funding necessary to undertake this development is estimated in the draft business rescue plan to be R 50 million. It is envisaged, then, that the three remaining Milnerton properties will be developed as a retirement complex requiring funding of some R 75 million. And finally, it is proposed that the partly completed structure on the Somerset West property will be completed and sold.

[38] In the light of the proposed rescue plans can it be said that there is a reasonable prospect for rescuing Zonnekus?  By this I mean has it been shown that there is a reasonable prospect that Zonnekus can be restored to a solvent going concern, or will creditors or shareholders be better off than they would under the liquidation (see Oakdene Square Properties at paragraph [26]). It is also necessary, in my view, in considering these questions, to take account of the fact that the Act contemplates that a return to solvency, or the attainment of a better deal for creditors or shareholders, will be the product of the “temporary supervision” of Zonnekus, and a “temporary moratorium on the rights of claimants against the company or in respect of property in its possession” (see sections 128 (1) (b) (i) and (ii) of the Act).

[39] There can obviously not be an inflexible rule as to how long it should be before a rescue can be said to have been successful. But it is clear, I think, that the legislature intended by its use of the word “temporary” that any rescue plan should not be of indeterminable duration. Indeed,  that fact that section 132 (3) of the Act requires reports on progress to be filed if the rescue proceedings are not complete within a period of three months, is a strong indication of the legislature’s intention that the implementation of a plan should be of short duration.

[40] The resolution of the disputes between Zonnekus and Mr Van Der Merwe, on the one hand, and SARS on the other is central to the success of the business rescue. SARS makes it clear that it does not support the proposed rescue plan. There is no reason to think that until the disputes are resolved SARS will permit the assets of Zonnekus in respect of which the preservation order applies to be disposed of in order to facilitate the rescue. How long it will take for these disputes to be resolved is, of course, impossible to say. But it is clear that the issues in dispute are wide-ranging and the amounts involved are substantial, running into tens of millions of Rand. It appears to be unlikely that a resolution will be reached, through the Courts or otherwise, in the short to medium term. It is much more likely that a resolution of the disputes will take years.

[41] The Bank has also made it clear that it does not support the rescue plans. There is no reason to think that it will be prepared to revive its lending arrangements with Zonnekus, as postulated in the proposed rescue plans, in order to facilitate any of the various rescue proposals suggested by the applicants.

[42] What Mr Van Der Merwe describes in the founding affidavit as a business rescue boils down, in my view, to no more than the sale of the immovable property of Zonnekus and the payment of secured creditors. The draft business rescue plan annexed to the founding affidavit assumes that the banks will continue to fund Zonnekus by the reinstatement of their bonds. On the applicants version in excess of R 125 million for the development of the properties which are to be developed is required. Zonnekus does not have these funds and does not appear to be in a position to raise working capital against the security of its assets given that certain of its assets are mortgaged and especially in the light of the preservation order which has been obtained by SARS. These factors weigh heavily against the submissions made on behalf of the applicants that the applicants have established grounds for the reasonable prospect of achieving one of the two goals in section 128(1) (b) of the Act.

[43] Moreover, the selling of the assets of Zonnekus in order to pay creditors as is proposed by the applicants’ amounts to an informal liquidation of the kind expressly disapproved of inOakdene Square Properties (see paragraphs [33] to [35]). Business rescue was not intended to enable a company to liquidate its assets in its own time and its own pace as the applicants apparently intend.

[44] A further factor which I think is relevant is that Zonnekus has been in liquidation for a considerable period. This application was launched some four months after a final liquidation order was made, and has come to be heard almost two years after liquidation proceedings commenced. The passage of so much time, during which Zonnekus has been financially paralysed, and lacking in management and leadership, does not enhance the prospects of there being a successful business rescue.

[45] In African Banking Corporation of Botswana v Kariba Furniture 2015 (5) SA 192 (SCA) Leach JA observed as follows: “Suffice it to say that the company was clearly hopelessly insolvent and effectively dormant in that it had not traded for years and had no business contracts in place. This is not a case in which an ongoing business was likely to be rescued. It is a matter in which there was at best a forlorn hope, unsupported by any objective facts, that the company might rise from the dead. Consequently, I agree that there was no reasonable prospect of achieving the ends of business rescue…” (at paragraph [55]). In this context a physiological metaphor is, I think, apposite.

[46] In the circumstances I find that the applicants have not made out a case for the relief sought in the notice of motion.

[47] As to costs there is no reason why the usual rule, being that costs follow the result, should be departed from.

[48] I therefore make the following order:

The application is dismissed with costs, including the costs of two counsel where two have been employed.