African Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd and Others

• Jurisdiction: South Africa
• Judge: Kathree-Setiloane J
• Judgment Date: 29 August 2013
• Citation: 2013 (6) SA 471 (GNP)
• Docket Number: 20947/12
• Hearing Date: 29 August 2013
• Counsel: BE Leech SC (with AWT Rowan) for the applicant. CE Puckrin SC (with MA Badenhorst SC) for the first and second respondents. LK van der Merwe for the third and fourth respondents. CE Puckrin SC (with J Janse van Rensburg) for the fifth respondent.
• Court: North Gauteng High Court, Pretoria

Kathree-Setiloane J:

[1] In this application African Banking Corporation of Botswana Ltd H (the Bank) seeks relief pertaining to the business rescue proceedings of the first respondent, Kariba Furniture Manufacturers (Pty) Ltd (the company), and a business rescue plan which was adopted during the course of those business rescue proceedings (the plan).

[2] The business rescue proceedings were undertaken and the plan I ostensibly adopted in terms of the provisions of ch 6 of the Companies Act 71 of 2008 (the Act), subsequent to a binding offer to purchase the voting interests of the Bank in terms of s 153(1)(b)(ii) of the Act. Accordingly, the primary issue for determination relates to the interpretation of the term 'binding offer' in s 153(1)(b)(ii) of the Act.

[3] The second respondent is Jean Pierre Jordaan (Jordaan), the business J rescue practitioner of the company. The third and fourth respondents

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are Baldwin Nchite and Birgitta Svensson Nchite (Birgitta Nchite), the A directors and sole shareholders of the company. The Bank and the Nchites are 'affected persons', as defined in the Act, in the business rescue of the company. Jordaan, on behalf of the company, and the Nchites oppose the relief sought by the Bank in this application. The fifth and sixth respondents are the Companies and Intellectual Property B Commission (the CIPC) and the Minister of Trade and Industry of the Republic of South Africa, respectively. Although no relief is sought against them, the CIPC opposes the application only in respect of the declaratory relief sought in relation to the constitutionality of s 153(1)(b)(ii) of the Act.

Leave to sue in terms of s 133 of the Act C

[4] Before dealing with the principal issues in dispute, I must first consider the in limine objection to the application pertaining to the necessity for the Bank to have obtained leave to institute these proceedings. Section 133(1) of the Act places a general moratorium on legal proceedings against a company under business rescue, subject to certain D limitations. Section 133(1) provides as follows:

'(1) During business rescue proceedings, no legal proceedings, including enforcement action, against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any forum, except —

(a)

with the written consent of the practitioner; E

(b)

with the leave of the court and in accordance with any terms the court considers suitable; . . . .'

[5] Jordaan and the Nchites submit that leave of the court to commence F legal proceedings, including enforcement action against a company in business rescue under s 133(1)(b) of the Act, may only be sought before a business rescue plan is adopted. This contention, in my view, is unsustainable on the plain meaning of the section. On the ordinary wording of the section, the moratorium envisaged by s 133 of the Act is in place for the duration of 'business rescue proceedings'. Although the G term 'business rescue proceedings' is not defined in s 128 of the Act, the term 'business rescue' is defined. Section 128(1)(b) of the Act defines 'business rescue' as, inter alia, 'proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for . . . the development and implementation, if approved, of a plan to rescue the company. . . .' The business rescue proceedings, therefore, clearly H extend beyond the adoption of a business rescue plan. In addition, s 132(2) of the Act expressly lists the circumstances in which business rescue proceedings come to an end. Section 132(2)(c)(ii) provides that once a business rescue plan has been adopted in terms of the Act, and the business rescue practitioner has filed a notice of substantial implementation of the business rescue plan, business rescue proceedings will I come to an end. For as long as the moratorium is in place, s 133(1)(b) of the Act permits a court to grant leave to a person to institute legal proceedings.

[6] Thus, s 133(1) allows the institution of proceedings against the company in business rescue with leave of the court, both before and after J

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A the adoption of a business rescue plan. Leave to institute legal proceedings has, in this regard, been sought by the Bank in prayer one of part B of its notice of motion. On the ordinary wording of s 133 of the Act, the moratorium is in place for the duration of 'business rescue proceedings'. Therefore, if 'business rescue proceedings' extend only up to the date on which the business rescue plan is adopted, s 133 would be B inapplicable, the moratorium would not be in place, and no leave to sue would be required.

[7] However, and to the extent that s 133 is applicable to the business rescue proceedings in this matter, I consider that the facts demonstrate C that this is a proper case in which the court should exercise its discretion in favour of granting the Bank leave to institute these proceedings, since the Bank seeks, in particular, to challenge the conduct of the business rescue practitioner and affected parties during the course of the business rescue proceedings, as well as the constitutional validity of s 153(1)(b)(ii) of the Act. In the circumstances, I am of the view that D there is no merit in the preliminary objection raised on behalf of the first to fourth respondents, that the Bank has been non-suited by operation of s 133 of the Act. I accordingly grant the Bank leave to commence and proceed with the application against the respondents in terms of s 133(1)(b) of the Act.

Background E

[8] The issues in dispute play out against a factual matrix which is largely common cause. During October 2006 the Bank instituted an action in this court against the company and the Nchites. The cause of action against the company was based on moneys lent and advanced by the Bank to the company under a credit-facility agreement. The claims F against the Nchites were based on deeds of surety signed by them in favour of the Bank. The Bank's claims against the company were secured by a general notarial bond executed by the company in favour of the Bank.

G [9] By agreement between the parties to the litigation, the action was removed from the high court and referred to arbitration. On 7 February 2011 the arbitrator handed down an award in which he found in favour of the Bank. The arbitrator ordered that the company and the Nchites (the defendants) were jointly and severally liable to the Bank for payment H of the sum of BWP (Botswana Pula) 5 610 125,38, together with interest at the rate of 13% per annum compounded monthly in arrears from 1 July 2004 to date of payment, save in the case of Birgitta Nchite whose liability was limited to the Botswana Pula equivalent of R1,5 million. The defendants appealed the award to a panel of three arbitrators. On 23 January 2012 the appeal tribunal handed down an appeal award I which confirmed the initial award in favour of the Bank, save in respect of Birgitta Nchite whose liability to the Bank, the appeal tribunal found, had been discharged.

[10] Thus, as matters currently stand, and at the date of the commencement of the business rescue proceedings, the company and Baldwin J Nchite are jointly and severally liable to the Bank in the sum of

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BWP5 610 125,38, together with interest at the rate of 13% per annum A compounded monthly in arrears from 1 July 2004 to date of payment. The total liability owing under the award inclusive of interest, as at 31 January 2012, was an amount of BWP14 966 809,20. During March 2012 the defendants delivered an application in which they sought to have the awards set aside under s 33(1)(b) of the Arbitration B Act 42 of 1965 (the Arbitration Act). The application is opposed by the Bank. The review application challenging the awards of the arbitrator and the appeal tribunal does not suspend the validity of the awards. [1] In the circumstances, the Bank remains a creditor of the company in the sum of BWP14 966 809,20 as at 31 January 2012, and Baldwin Nchite is liable with the company for this full amount under the deed of surety C signed by him.

[11] On 31 January 2012, subsequent to the handing-down of the appeal award but before the defendants delivered the review application, the board of the company resolved voluntarily to begin business rescue D proceedings and place the company under supervision in terms of s 129(3) of the Act (the resolution). Jordaan was appointed as the business rescue practitioner on 6 February 2012. The first statutory meeting of creditors of the company was held on 17 February 2012 (the first meeting of creditors), with the purpose of affording the creditors an opportunity to prove their claims against the company. Jordaan accepted E the Bank's claim against the company on a provisional basis pending the outcome of the application to court to set aside the arbitration awards.

[12] There were various communications, before and after the first meeting of creditors, between the Bank's attorney of record, Mr A F Moosajee of Norton Rose Fulbright South Africa (Moosajee), and Jordaan, in which Moosajee raised queries and concerns. Moosajee was keen to ensure that the right papers were before Jordaan in order to prove the Bank's claim, and that the full extent of the claim, including interest, was proved. He also requested of Jordaan a copy of the company's last set of audited financial statements and, if such were more than six G months old, the company's latest management accounts from the date of the last audit to the end of January 2012. These were necessary for the purpose of advising the Bank of its rights, particularly its rights under s 130 of the Act, which allows for the setting-aside of a company's resolution to commence business rescue...