Borgelt v Millman NO and Another

• Jurisdiction: South Africa
• Judge: Munnik JP, Vivier J and Tebbutt J
• Judgment Date: 05 November 1982
• Citation: 1983 (1) SA 757 (C)
• Court: Cape Provincial Division

Vivier J:

This is an appeal against an order granted by FRIEDMAN J sanctioning a scheme of arrangement in terms of s 311 of the Companies Act 61 of 1973 ("the Act") between a company and its creditors.

Vivier J

The company is ABC Press (Pty) Ltd ("the company"), which is presently under provisional liquidation.

The application for the sanction of the scheme of arrangement was made by the provisional liquidator of the company. The A scheme of arrangement, dated 16 August 1982, was submitted to the creditors of the company by one A A Newman and three others. On 20 August 1982, the liquidator applied for and was granted authority by this Court to convene separate meetings of secured, preferent and concurrent creditors of the company in order to consider the offer. These meetings were held on 14 B September 1982, the results of which were reported by affidavit to the Court a quo by the chairman.

At the meeting of secured creditors the offer was accepted unanimously by creditors whose claims totalled R1 249 830,66. The preferent creditors, whose claims totalled R25 216,02, also unanimously accepted the offer. At the meeting of concurrent C creditors it was contended on behalf of one of the creditors that the rights of one of the concurrent creditors, ie International Shipping Co (Pty) Ltd, hereinafter referred to as International Shipping, were different from the rights of all the remaining concurrent creditors, that International Shipping consequently constituted a different class of creditor from the ordinary concurrent creditors and that, in compliance with s D 311 of the Act, separate meetings of International Shipping and the other concurrent creditors should be held.

The chairman ruled that International Shipping did constitute a separate class of concurrent creditor. He proceeded to put the offer to a meeting of concurrent creditors, excluding International Shipping; then to a separate meeting of E International Shipping; and finally to a meeting of all concurrent creditors including International Shipping. At the meeting of concurrent creditors excluding International Shipping, the offer was not accepted, the voting being as follows:

	No	Value	Percentage
For	34	R157 618,18	72,27
F Against	4	60 476, 17	27,73
Total	38	218 092,35	100,00

At the meeting of all concurrent creditors, including International Shipping, the offer was accepted, the voting being as follows:

	No	Value	Percentage
G For	35	R721 367,56	92,26
Against	4	60 476,17	7,74
Total	39	781 843,73	100,00

At the meeting held separately for International Shipping alone as a concurrent creditor, the latter accepted the offer

H In his report to the Court a quo, the chairman of the meeting drew attention to the fact that subsequent to the meetings he was informed by two concurrent creditors who had voted against the offer, namely Sun General Printing Ink (Pty) Ltd and Kymmene Star (Pty) Ltd, that they had reconsidered the matter and now wished to vote in favour of the offer. The claim of Sun General Printing Ink was for the amount of R12 452,54 and that of Kymmene Star for the amount of R27 191,35, which means that if these two creditors had voted the other way in

Vivier J

accordance with their new attitude to the offer, the offer would have met with the requisite approval of the class of concurrent creditors, even if International Shipping were to be excluded. The voting would then have been as follows:

If International Shipping is included: A

	No	Value	Percentage
For	37	R761 013,00	97,34
Against	2	20 830,00	2,66
B Total	39	781 843,00	100,00

If International Shipping is excluded:

	No	Value	Percentage
For	36	R197 262,00	90,45
Against	2	20 830,00	9,55
C Total	38	218 092,00	100,00

On the results of the vote of the classes as designated in the Court's order the applicant applied to the Court a quo for an order sanctioning the scheme of arrangement, or, alternatively, in the event of the Court holding that the chairman's ruling with regard to the different classes of concurrent creditors D was correct, an order directing fresh meetings of concurrent creditors to be held.

When the matter came before FRIEDMAN J, International Shipping supported the application for the sanction of the scheme of arrangement. The application was opposed by a concurrent creditor, Mr K W Borgelt, who raised a number of objections to the scheme of arrangement. These objections were overruled, and E he now appeals to this Court against the order granted by FRIEDMAN J.

The first objection to the sanction of the scheme of arrangement was that, in order to comply with the provisions of s 311 of the Act, separate meetings of International Shipping and the other concurrent creditors should have been held. F FRIEDMAN J held that International Shipping did not constitute a separate class of concurrent creditors and that, consequently, it was not necessary for it to have met apart from the other concurrent creditors.

In order to deal with this issue, as well as the other issues which have been raised, it is necessary at the outset to refer to the background to the present proceedings.

G According to the statement in terms of s 312 (1) (a) of the Act, the company was incorporated in 1957 to acquire the business which had been carried on since 1945 by Mr B H Borgelt under the style of ABC Press. The company apparently traded at a profit until the beginning of 1980 when it began to H experience cash flow problems. Efforts to improve the position, such as securing all of its previously unencumbered assets in order to obtain bigger and better facilities, were not successful.

On 26 May 1982 International Shipping, which is the company's biggest creditor and which had provided the main source of leasing and bill discount finance, obtained an interim order, which was made final on 30 June 1982, giving it possession of the company's assets in terms

Vivier J

of a general covering notarial bond. On 27 May 1982 the company was placed under provisional liquidation.

The authorised, issued and fully paid-up capital of the company is R20 000 divided into 10 000 ordinary shares of R2 each, held A in the following proportions:

B H Borgelt	2 869
I K E Borgelt	750
K W Borgelt (appellant)	2 006
E Levin	4 375
	B 10 000

Appellant's estate was provisionally sequestrated on 26 August 1982. He is a concurrent creditor of the company for an amount of R2 528.

International Shipping proved secured claims against the company to the satisfaction of the liquidator to a total amount of R1 506 749,38. The chairman of the meeting states in his C affidavit that he accepted, for the purpose of voting, that International Shipping was a secured creditor as a result of the aforesaid possession order. He accordingly held that International Shipping was a secured creditor to the extent of the amount of R943 000 which was the value International D Shipping had placed on its security. With regard to the balance of R563 749,38. International Shipping decided to be treated as a concurrent creditor and accordingly voted as a concurrent creditor.

In terms of the scheme of arrangement, the offerors undertook to pay the amount of R875 000 to the receiver which was to be distributed in the following order of preference after payment of costs, fees and disbursements in connection with the E liquidation and the offer: secured creditors, other than International Shipping, would receive the secured portion of their claims to the extent of the value of the security. Preferent creditors would be paid the preferent portion of their claims, but limited to a total amount of R25 000 to be distributed pro rata to preferent creditors. Concurrent F creditors would receive three cents in the rand, limited, however, to a total of R30 000 being paid to concurrent creditors. The balance of the said amount of R875 000 would be paid to International Shipping, provided that it did not participate with any of the secured or concurrent creditors in terms of the aforesaid distributions to these classes of creditors. The scheme expressly provided that International G Shipping would be entitled to vote at meetings of preferent, secured, concurrent or any class of creditor as if it were participating in any dividends payable and to the extent of its claims.

Under the scheme of arrangement, International Shipping would also be entitled to the proceeds of the realisation of the H "excluded assets" as defined in the scheme of arrangement. The "excluded assets" include book debts, loan levies and other monies due and are available for distribution to creditors of the company, and accordingly to International Shipping.

According to the statement in terms of s 312 (1) (a) of the Act, the "excluded assets" are likely to realise the amount of R340 009. This means that the amount of R1 215 049 would be available to creditors if the scheme of arrangement is accepted. In his judgment FRIEDMAN J

Vivier J

said that, assuming that R50 000 is required for administration fees and legal costs, the balance of R1 165 049 would be distributed as follows:

Secured creditors	R346 000	(100c)
A Preferent creditors	25 000	(39c)
Concurrent creditors	30 000	(3c)
International Shipping (balance)	746 049	(±50c)

In terms of the offer, therefore, International Shipping would receive substantially more than the remaining concurrent creditors.

With regard to the question whether International Shipping B belonged to a class distinct from the other concurrent creditors and should, in compliance with s 311 of the Act, have voted...