Cloete Murray and Another NNO v FirstRand Bank Ltd t/a Wesbank

• Jurisdiction: South Africa
• Judge: Navsa ADP, Ponnan JA, Zondi JA, Schoeman AJA and Fourie AJA
• Judgment Date: 26 March 2014
• Citation: 2015 (3) SA 438 (SCA)
• Docket Number: 20104/2014 [2015] ZASCA 39
• Hearing Date: 09 March 2014
• Counsel: FH Terblanche SC (with J Hershensohn) for the appellants. C van der Spuy (with L Meintjes) for the respondent.
• Court: Supreme Court of Appeal

Fourie AJA (Navsa ADP, Ponnan JA, Zondi JA and Schoeman AJA concurring):

[1] This appeal deals with the provisions of ch 6 of the Companies Act 71 of 2008 E (the Act) relating to business rescue proceedings but, in reality, it has to do with competing claims in liquidation. Be that as it may, the issue to be decided is whether, once business rescue proceedings under the Act have commenced, the creditor of a company under business rescue can unilaterally cancel an extant instalment sale agreement that it had concluded with the company prior to the latter being F placed under business rescue.

Background

[2] On 22 July 2010 the respondent, FirstRand Bank Ltd t/a Wesbank G (Wesbank), concluded a written Master Instalment Sale Agreement (the MISA) with Skyline Crane Hire (Pty) Ltd (Skyline), in terms of which Wesbank sold and delivered movable goods (the goods) to Skyline, with Wesbank retaining ownership in the goods until the purchase price had been paid in full.

[3] On 29 May 2012 the board of Skyline voluntarily resolved that H Skyline be placed under business rescue in terms of the provisions of s 129 of the Act. The resolution was filed with the Companies and Intellectual Property Commission on 30 May 2012, which date, in terms of s 132(1)(a)(i) of the Act, is the date upon which the business rescue proceedings commenced. Skyline had by then already fallen into arrears I in respect of the monthly instalments payable to Wesbank under the MISA.

[4] On 30 May 2012 Wesbank dispatched a letter to Skyline cancelling the MISA due to Skyline's failure to pay the monthly instalments due in terms thereof. The letter was addressed to Skyline at its chosen J

Fourie AJA (Navsa ADP, Ponnan JA, Zondi JA and Schoeman AJA concurring)

A domicilium, and in terms of clause 27 of the MISA it was deemed to have been received by Skyline three days later, ie on 3 June 2012.

[5] In the letter of cancellation Wesbank advised Skyline that the MISA was cancelled with immediate effect, while reserving Wesbank's right to repossess the goods, to value and sell same, to credit the proceeds to the B relevant accounts and to claim damages.

[6] During the first week of July 2012, while the business rescue proceedings relating to Skyline were still in progress, the business rescue practitioner (the practitioner), appointed in terms of the Act to oversee the proceedings, consented to Wesbank repossessing and selling the C goods forming the subject-matter of the MISA. The proceeds realised from the sale were sufficient to discharge the debt owing by Skyline to Wesbank under the MISA, leaving a surplus of some R800 000. Wesbank retained the surplus, relying on set-off in respect of other amounts allegedly owing to it by Skyline.

D [7] On 17 July 2012 the practitioner obtained an order from the North Gauteng High Court, Pretoria, discontinuing the business rescue proceedings and placing Skyline in provisional liquidation. On 10 September 2012 a final order of liquidation was granted. The appellants were subsequently appointed by the Master of the High Court as the E co-liquidators (the liquidators) of Skyline.

[8] The liquidators took the view that Wesbank's cancellation of the MISA was contrary to the provisions of s 133(1) of the Act and accordingly of no force or effect. I will in due course return to the provisions of s 133(1). The liquidators contended that the full proceeds of the sale of the goods F were to be paid over to them to be dealt with under ss 83 and 84 of the Insolvency Act 24 of 1936 (the Insolvency Act). These sections of the Insolvency Act regulate the manner in which the claims of creditors under instalment sale transactions are to be dealt with upon sequestration or liquidation.

G [9] Wesbank, on the other hand, maintained that it had lawfully cancelled the MISA and was entitled to the full proceeds of the goods. In particular, Wesbank denied that s 133(1) of the Act precluded it from cancelling the MISA and dealing with the goods in the manner that it did.

[10] The liquidators then approached the North Gauteng High Court, H Pretoria, for an order declaring that Wesbank's letter of cancellation of the MISA was contrary to s 133(1) of the Act and therefore invalid, that the MISA was to be administered by the liquidators in terms of the provisions of ss 83 and 84 of the Insolvency Act and that Wesbank was to pay over the full proceeds of the sale of the goods to the liquidators.

I [11] Wesbank opposed the application. In the event, the matter was heard by Jordaan J, who dismissed the application but granted the liquidators leave to appeal to this court.

Business rescue proceedings

J [12] One of the declared purposes of the Act is to provide for the efficient rescue and recovery of financially distressed companies, in a manner that

Fourie AJA (Navsa ADP, Ponnan JA, Zondi JA and Schoeman AJA concurring)

balances the rights and interests of relevant stakeholders (s 7(k)). A Chapter 6 of the Act (ss 128 – 154) introduces the concept of business rescue proceedings, with s 128(1)(b) defining 'business rescue' as —

'proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for —

(i)

the temporary supervision of the company, and of the management B of its affairs, business and property;

(ii)

a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and

(iii)

the development and implementation, if approved, of a plan to rescue the company. . . .'

[13] The temporary moratorium envisaged in s 128(1)(b)(ii) has been C enacted by means of s 133 of the Act, which reads as follows:

'General moratorium on legal proceedings against company

(1) During business rescue proceedings, no legal proceeding, 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 — D

(a)

with the written consent of the practitioner;

(b)

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

(c)

as a set-off against any claim made by the company in any legal proceedings, irrespective of whether those proceedings E commenced before or after the business rescue proceedings began;

(d)

criminal proceedings against the company or any of its directors or officers;

(e)

proceedings concerning any property or right over which the company exercises the powers of a trustee; or F

(f)

proceedings by a regulatory authority in the execution of its duties after written notification to the business rescue practitioner.

(2) During business rescue proceedings, a guarantee or surety by a company in favour of any other person may not be enforced by any person against the company except with leave of the court and in accordance with any terms the court considers just and equitable in the G circumstances.

(3) If any right to commence proceedings or otherwise assert a claim against a company is subject to a time limit, the measurement of that time must be suspended during the company's business rescue proceedings.' H

[14] It is generally accepted that a moratorium on legal proceedings against a company under business rescue is of cardinal importance since it provides the crucial breathing space or a period of respite to enable the company to restructure its affairs. This allows the practitioner, in conjunction with the creditors and other affected parties, to formulate a I business rescue plan designed to achieve the purpose of the process. See in general, FHI Cassim et al Contemporary Company Law 2 ed (2012) at 878 – 9; P Delport et al Henochsberg on the Companies Act 71 of 2008 service issue 9 vol 1 at 478(5); and HL van Huyssteen in his unpublished LLM thesis An Overview of the Business Rescue Moratorium Contained in Section 133 of the Companies Act 71 of 2008 (University of J

Fourie AJA (Navsa ADP, Ponnan JA, Zondi JA and Schoeman AJA...