African Global Holdings (Pty) Ltd v Lutchman NO. (Commissioner for the South African Revenue Services Party and Fidelity Security Services (Pty) Ltd Intervening Parties)
| Jurisdiction | South Africa |
| Judge | DP de Villiers AJ |
| Judgment Date | 03 September 2020 |
| Court | Gauteng Local Division, Johannesburg |
| Hearing Date | 03 September 2020 |
| Docket Number | 42741/19; 44827/19; 32083/19 |
De Villiers AJ:
Introduction:
The three applications before me are interrelated and were argued over two days as one hearing. This was done by video-conferencing during the Covid-19 lockdown. The papers were more than 7 000 pages and the heads of argument more than 700 pages.
In issue are three applications:
A business rescue application of six companies that are in liquidation [1] ("the business rescue application");
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An application to set aside the sale of the assets of those companies [2] ("the auction application"). One of the sales in issue is of the sale of an immovable property that took place after the public auction by private treaty. The description "auction application" is accordingly a misnomer, as the application pertains to all sales by the provisional liquidators; and
An application to vary a court order pertaining to the sale of an immovable property of one of the companies at the auction [3] ("the Rule 42 application").
The matter first came before me on 11 March 2020 for a two-day hearing. It was not ready to proceed, amongst others due to late additions to the papers and unresolved in limine issues. Some progress was made:
Two intervening parties that had brought three applications for leave to intervene, were allowed to intervene, and those costs were reserved. The first intervening party was the COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICES ("SARS"), and the second intervening party was FIDELITY SECURITY SERVICES (PTY) LTD ("Fidelity"). SARS sought leave to intervene in both the auction and business rescue applications, and Fidelity, in the auction application. SARS is the, or a major, creditor of the six companies seeking to be placed in business rescue. Fidelity would later bring the Rule 42 application as the purchaser of an immovable property, and it also purchased movable assets at the auction;
The applicants in the auction and business rescue applications had not given notice of applications to purchasers at the auction, nor to creditors companies that are in liquidation. Initially they asked for relief in the form of a rule nisi in the auction application. In dispute was the assistance by the provisional liquidators [4] to identify purchasers at the auction and creditors. By the time that the matter
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came before me, the provisional liquidators had provided the applicants with such information as they had. When requested, I made an order that potentially interested parties be joined as respondents and made orders as to the manner of service. Service on purchasers of immovable properties had to be done in the normal manner. Service on purchasers of movable assets could be done by e-mail and/or SMS (where such information was known) and by publication in newspapers. None of those respondents would later deliver answering affidavits; and
I also directed that dates be agreed upon and determined the dates for the exchange of further affidavits and heads of argument.
Two costs orders must be made still, the first is the costs of the postponement. In my view, the postponement was one of those inevitable developments in litigation, and the costs should be costs in the cause. The matter was huge and complex, difficult to manage to trial readiness.
The second costs order pertains to the applications to intervene. It is linked to the non-joinder point taken by the provisional liquidators (and SARS). The standard formulation for the test to be applied, set out in Erasmus, is: [5]
"The rule is that any person is a necessary party and should be joined if such person has a direct and substantial interest in any order the court might make, or if such an order cannot be sustained or carried into effect without prejudicing that party, unless the court is satisfied that he has waived his right to be joined."
When does someone have a "direct and substantial interest" as opposed to a (mere) financial interest? Although every creditor does not have to be joined in every application for winding-up, a creditor is now accepted by the Supreme Court of Appeal ("the SCA") as a person with a "direct and substantial interest" in applications to declare an adopted business rescue plan invalid, and must be joined in those applications. In Golden Dividend 339 (Pty) Ltd and Another v Absa Bank Limited [6] and in Absa Bank Limited v Naude N.O and Others, [7] (both applications to declare adopted business rescue plans invalid) creditors
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were found to have had direct and substantial interests and not mere financial interests.
The law to apply in the case of a business rescue application, is distinguishable on more than a conceptual basis (that it is only the beginning of a process that will involve creditors in its determination). The distinction is brought about in terms of section 131 of the Companies Act, 71 of 2008 ("the 2008 Act"). This section includes, without formal joinder, an automatic right to an "affected person" (a defined term that includes creditors) to participate in a hearing. Creditors therefore need not be joined formally in an application for business rescue under section 131 of the 2008 Act. See Cape Point Vineyards (Pty) Ltd v Pinnacle Point Group Ltd and Another (Advantage Projects Managers (Pty) Ltd Intervening) para 21, [8] a judgment by Rogers AJ. It was quoted with approval by Weiner J in Mhlonipheni v Mezepoli Melrose Arch (Pty) Ltd and Others ; Lwazi v Mezepoli Nicolway (Pty) Ltd and Another; Moto v Plaka Eastgate Restaurant CC and Another; Mohsen and Another v Brand Kitchen Hospitality (Pty) Ltd and Another para 49. [9] (Having defined the 2008 Act, I should add that I refer herein to the Companies Act 61 of 1973 as "the 1973 Act".) Joinder of SARS in the business rescue application was thus unnecessary.
A debate was had in the papers whether the auction applicants ought to have joined more interested parties in the auction application, and whether their version of having had difficulties initially to ascertain identities and particulars of such parties, held water. Any point of non-joinder became moot as a result of the orders made on 11 March 2020. The initial rule nisi sought in the auction application, became unnecessary as a result. Notice of both the business rescue and auction applications has since been given to interested parties, who were joined as respondents. (I point out that none of the further 177 respondents delivered an answering affidavit.)
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De Villiers AJ
In my view, this matter does not warrant more time to be spent on the need to intervene, or not, in the business rescue application as a result of the wording of the 2008 Act, what the Common Law is with regard to the joinder of purchasers (where the seller is already before the court) in the auction application, or on the dividing line between a mere financial interest as opposed to a real and substantial interest to creditors in the auction application.
The non-joinder points do not warrant further costs orders. They took up little time and effort. The applications to intervene did not take up material time either. Fidelity and SARS would have been joined in the order that I made to join parties. On a pragmatic basis, and the costs of intervention being limited costs, the costs of the applications to intervene also should be costs in the cause. In my view, the applicants in the auction and business rescue applications could have taken the pragmatic route and allowed SARS and Fidelity to intervene. They wanted to be heard, and this judgment always would have had some impact on them. Accordingly, if their opposition to the applications to intervene caused wasted costs, they have to pay those costs.
The matters were postponed to 4 and 5 May 2020. A further postponement became necessary due to the unavailability of counsel for the provisional liquidators. He became unavailable due to an unexpected commitment in the SCA. A postponement took some time to be agreed to, as there were seven counsel involved in the matter, and many attorneys too. During this process, the dates 21 and 22 May 2020 appeared to be the most suitable next available dates, but the junior counsel for the applicants in the business rescue and auction applications, had constraints. These constraints were resolved, and the matter was postponed on 22 April 2020 by agreement to 21 and 22 May 2020, and costs reserved. I was managing the hearing. From the start, I reflected the view that the legal representatives should seek to resolve procedural matters, but that I would, if required to do so, make rulings. No one could not have had the impression that I would not facilitate a fair date for the hearing.
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Again, in my view, the postponement was one of those inevitable unforeseen developments in litigation, and the costs of the postponement should be costs in the cause. The provisional liquidators still had launched an application for a postponement on 18 April 2020. It was an unnecessary step that was taken in accordance with the unduly aggressive manner in which the provisional liquidators conducted the litigation. The 38 applicants [10] to the application for a postponement dated 18 April 2020 must to pay their own costs in respect of the application.
Next, I address the role players other than SARS and Fidelity, to whom I have referred already.
Broad overview of the role players:
The three applications relate to the affairs of a group of companies, commonly referred to as the BOSASA group of companies, now largely in liquidation. I refer to this group herein as "the group of companies", "the group", or "the BOSASA/African Global group of companies" (as the group was in a...
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