DH Brothers Industries (Pty) Ltd v Gribnitz NO and Others

• Jurisdiction: South Africa
• Judge: Gorven J
• Judgment Date: 21 October 2013
• Citation: 2014 (1) SA 103 (KZP)
• Docket Number: 3878/2013
• Hearing Date: 26 September 2013
• Counsel: PJ Plsen SC (RM van Rooyen) for the applicant. AM Annandale SC for the first and second respondents.
• Court: KwaZulu-Natal Division, Pietermaritzburg

Gorven J:

[1] Goods and services are the lifeblood of an economy. Business D entities, in providing goods and services, generate this lifeblood. Regulatory provisions are geared to assist the lifeblood to flow as efficiently as possible. Companies are the main business entities which provide the goods and services in the South African economy. The Companies Act 71 of 2008 (the Act) regulates companies. It deals with how they come into existence, how they function, how they can be revived when E distressed and how they demise. How they are revived is regulated by the provisions in ch 6 of the Act concerning business rescue (business rescue proceedings). This is a new feature of South African company law. It replaces the failed system of judicial management which was provided for in the Companies Act 61 of 1973 (the 1973 Act). Unfortunately, a F number of the business rescue provisions in the Act are less than clear. Some of these have surfaced in this application.

[2] A basic history is necessary. A resolution dated 16 November 2012 was filed with the third respondent on 22 November 2012, placing the second respondent (Dowmont) under business rescue. At the time, there G were two directors of Dowmont. The applicant is a creditor of Dowmont arising from sales concluded between September and November 2012 totalling R3 420 696,30. No payment emerged. The directors stood surety for the due performance of Dowmont's obligations to the applicant. In the affidavit by one of the directors furnished in support of H the resolution, it was stated that Dowmont was solvent but illiquid. It owed more than R30 million to its creditors and would not be able to pay them as the amounts became due and payable within the next six months. The current value of the assets exceeded the value of the liabilities 'based on the director's valuation'.

[3] The first respondent (Mr Gribnitz) was appointed as business rescue I practitioner on 16 November 2012. It is common cause that a business rescue plan (a plan or the plan) was not published within 25 business days of his appointment, as is required under s 150(5) of the Act. He sent circular letters by email to creditors on a number of occasions requesting an extension of time to publish a plan. No response was J

Gorven J

A invited or received, either positive or negative. A plan was eventually published on 25 March 2013. A meeting was convened for 3 April 2013 to consider it. On that date, one of the creditors objected to the notice given and the meeting was accordingly adjourned to 10 April 2013.

B [4] Between 3 and 10 April 2013 the applicant launched the present application under s 130(1)(a) to set aside the resolution. At the meeting of 10 April 2013, those present were advised that this had taken place. Mr Gribnitz stated that he would adjourn the meeting so as to table a revised plan which would increase the dividend payable to concurrent creditors. No formal vote was taken for preliminary approval of the plan C or to adjourn the meeting. An amended plan was published by email on 11 April 2013. On 19 April 2013 the plan (as amended) was voted upon. The requisite 75% support of those who voted was not achieved. [1]

[5] After the vote an employee of Dowmont, Ms Eveleigh, indicated that D she was making a binding offer in terms of s 153(1)(b)(ii) of the Act. It was accepted by the applicant that the binding offer was for the voting interests of all creditors who had opposed the adoption of the plan (the opposing creditors). I shall assume that this was the case although the transcript of the meeting does not make this clear. The offer made was 'at the liquidation rate or R100 whichever is the highest'. Mr Gribnitz E purported to accept the offer and advised the meeting that he would adjourn for five business days and request a value independently and expertly determined as to the liquidation dividend which would accrue to the opposing creditors. He thereafter appointed Mr Klein to do so. He also made variations to the plan in a way that he believed appropriately F reflected 'the results of the offer'. [2]

[6] The adjourned meeting was held on 25 April 2013. It was, to say the least, a stormy meeting. Mr Gribnitz reported on the valuation of Mr Klein. The material part of the report stated that 'subject to the information provided to us being accurate . . . no dividend will become G payable to the concurrent creditors' in the event of Dowmont being liquidated. Since R100 was higher than the likely dividend, Mr Gribnitz then offered R100 to each of the seven opposing concurrent creditors whose claims totalled over R12 million. All of them rejected the offer. Mr Gribnitz ruled that Ms Eveleigh now owned the claims of all the opposing concurrent creditors. The revision to the plan made prior to H the meeting reflected Ms Eveleigh as owner of the claims of the opposing creditors. A vote was then taken on the basis that Ms Eveleigh had acquired the voting interests of the opposing creditors. The plan received support from 98% of those who voted. Mr Gribnitz ruled that the plan had been approved. Without the votes of the opposing creditors exercised I by Ms Eveleigh, it is common cause that the plan would not have received the requisite support. The opposing creditors were not allowed to vote.

Gorven J

[7] The founding papers were supplemented after that meeting. The A relief now sought by the applicant is the following: [3]

'(a)

That leave be granted to the applicant to institute this application in terms of s 133(1)(b) of the Companies Act, 2008 (Act 71 of 2008) . . . and to proceed therewith. B

(b)

That the resolution of the board of directors of the second respondent in terms of s 129 of the Companies Act, adopted on 16 November 2012, placing the second respondent under supervision by a business rescue practitioner, which resolution was filed with the third respondent on 22 November 2012, be and is hereby set aside in terms of s 130(1)(a)(ii) read with s 130(5)(a)(i) alternatively (ii) of the Companies Act. C

(c)(i)

That the appointment of the first respondent as a business rescue practitioner for the second respondent be set aside;

(ii)

It is declared that the offer purported to have been made by Trish Wilma Suzanne Eveleigh in terms of s 153(1)(b)(ii) of the Companies Act did not result in the acquisition by her of D the applicant's voting interest, and of the voting interests of the other dissenting and opposing creditors, which she purported to exercise in favour of the business rescue plan proposed in respect of the second respondent by the first respondent.

(iii)

It is declared that the business rescue plan proposed in respect of the second respondent by the first respondent was not one E contemplated by parts A to B of ch 6 of the Companies Act, as it unlawfully incorporated a provision that all creditors, including those who opposed the approval of the plan, must cede a portion of their claims to a third party.

(iv)

It is declared that the offer which the said Eveleigh purported to make in terms of s 153(1)(b)(ii) was not one which fell F within the ambit of the provision as it purported to be made for the acquisition of the affected creditors' claims, as opposed to the voting interests.

(v)

the purported approval by the requisite majority of the creditors of the second respondent, of the business rescue plan G proposed by the first respondent, at the meeting of creditors of the second respondent, on 25 April 2013, be and is hereby reviewed and set aside.

(d)

That the business rescue proceedings in respect of the second respondent be converted to liquidation proceedings in terms of s 132(2)(a)(ii) of the Companies Act.

(e)

That the costs of the application be part of the costs of administration H of the second respondent in the said winding up.'

The usual prayers which accompany a provisional liquidation order relating to service and publication were sought, as was a prayer directing the relevant master to appoint a provisional liquidator forthwith.

[8] The third respondent has not opposed the application. I shall refer to I the first and second respondents simply as the respondents when dealing

Gorven J

A with them together. The respondents oppose the relief referred to in prayer (a) above only on the basis that the balance of the application should be refused. The relief in the rest of the prayers is opposed by the respondents.

[9] The first aspect of the substantive relief sought is the setting-aside of B the resolution. It is sought on the basis of s 130(1)(a) read with s 130(5)(a). The former entitles an affected person [4] to bring an application to set aside a resolution. The latter entitles a court to grant such an application. It is accepted that the procedural requirement that the application be launched before a plan has been adopted was met.

C [10] This, and further points in this application, requires the interpretation of aspects of ch 6 of the Act. This chapter has its own definition section in s 128 concerning terms used relating to business rescue and compromises. Section 5 of the Act enjoins courts to interpret and apply D the Act in a way which gives effect to the purposes set out in s 7. [5] It also entitles courts, to the extent appropriate, to consider foreign company law in interpreting and applying the Act. [6] Section 7, in turn, lists a wide range of purposes, including the promotion of compliance with the Bill of Rights as provided for in the Constitution. [7] I respectfully agree that E the chapter as a whole reflects 'a legislative preference for proceedings

Gorven J

aimed at the restoration of viable companies rather than their destruction' A [8] but only of viable companies, not of all companies placed under business rescue.

[11] Three grounds are...