Du Toit v Azari Wind (Pty) Ltd

• Jurisdiction: http://justis.com/jurisdiction/166,South Africa
• Judge: M Francis J
• Judgment Date: 04 August 2021
• Court: Western Cape High Court, Cape Town
• Hearing Date: 28 July 2021
• Docket Number: 8825/2021

M Francis J:

INTRODUCTION:

[1]

This is an application brought on an urgent basis for relief within the context of a business rescue process. I have already provided an ex tempore judgment together with brief reasons. I now provide the full judgment.

[2]

The first and second applicants are the joint business rescue practitioners of the third applicant, Tsoma Trading CC (In Business Rescue) t/a CC Cranes ("Tsoma"). Depending on the context, the business rescue practitioners will be referred to as the "BRPs" or as "the applicants" when referred together with Tsoma.

[3]

The first respondent is Azari Wind Proprietary Limited ("Azari"), a creditor of Tsoma. Azari engaged Tsoma to provide sub-contracting services on two windfarm projects in which Azari, in turn, was engaged as contractor by the second respondent ("Nordex") and the third respondent ("Vestas").

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[4]

The fourth respondent refers to all the known affected persons of Tsoma, namely the creditors, employees, trade unions representing the employees, and the members of Tsoma.

[5]

The application was two-fold. In Part A, the applicant sought directions from the court on the service of the application on all the affected persons. Directions for service were duly authorised and the papers were served on the affected persons. In Part B, the applicants brought an application in terms of section 136(2)(b) of the Companies Act 71 of 2008 ("the Companies Act") for the cancellation of any and all of Tsoma's obligations in terms of the sub-contracts concluded between Tsoma and Azari in relation to the Oyster Bay project and the Copperton project. In addition, the applicants sought payment from Azari of the amount of R13 857 836 in respect of the Oyster Bay sub-contract and the amount of R2 392 862.50 in respect of the Copperton sub-contract.

[6]

The Copperton and Oyster Bay sub-contracts arise out of windfarm projects in the Northern Cape and the Eastern Cape. Azari was employed as a contractor by Nordex on the Copperton project and by Vestas on the Oyster Bay project.

[7]

As contractor, Azari was involved in various windfarms projects forming part of the government's Renewable Energy Independent Power Producer Programme. The projects included both the mechanical and electrical assembly of wind turbine generators. These generators were supplied by Nordex and Vestas in terms of an engineering and procurement contract or a turbine supply contract with the project companies controlling the projects. Nordex and Vestas, in turn, contracted Azari to erect and install the wind turbine generators.

[8]

Azari sub-contracted Tsoma as a specialist sub-contractor to provide cranage services on both the Oyster Bay and Copperton projects. The services rendered by Tsoma were limited to the erection of cranes operated by its employees which were used to hoist various portions of the towers and the turbine propellors. After

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the services were rendered, the cranes were dismantled and Tsoma left the site. Azari remained responsible for the overall installation and erection of the wind turbine generators.

[9]

The contractual relationship between Azari and Tsoma commenced during 2020 and continued until the Copperton main agreement was cancelled between Nordex and Azari, and the sub-contract between Azari and Tsoma was subsequently cancelled on 14 May 2021. The Oyster Bay project was completed on 31 March 2021 and, as a consequence, the Oyster Bay sub-contract also came to an end.

[10]

It is common cause that Tsoma performed the services it was contracted to perform and that no further services are required to be rendered by Tsoma in terms of either of the sub-contracts.

[11]

Having performed the services in terms of its sub-contracts, Tsoma issued invoices to Azari. However, Azari has not paid certain of these invoices despite Azari having been paid by Nordex and Vestas.

[12]

Tsoma is financially distressed and commenced the business rescue process by virtue of a Members Resolution on 24 February 2021, and the first and second applicants were appointed as BRPs on 25 February 2021.

DISCUSSION OF LEGAL PRINCIPLES AND SUBMISSIONS:

[13]

As noted, the BRPs seek orders for the urgent cancellation of Tsoma's business rescue obligations in relation to the Oyster Bay and Copperton projects as contemplated by section 136(2)(b) of the Companies Act, and for the immediate payment by Azari of Tsoma's unpaid invoices relating to the crane services provided on the projects.

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[14]

In terms of section 136(2) of the Companies Act, business rescue practitioners may apply to court on an urgent basis for the cancellation of pre-business rescue obligations. The opportunity to cancel contractual obligations allows the practitioner to extricate the company, whether temporarily or permanently, from onerous contractual provisions that may prevent the company from becoming a successful concern (see, Delport et al Henochsberg on the Companies Act 71 of 2008 478 (14) – 478 (15).

[15]

Section 136(2) of the Companies Act provides that despite any provision of an agreement to the contrary, during business rescue proceedings, the practitioner may:

"(a)

entirely, partially or conditionally suspend, for the duration of the business rescue proceedings, any obligation of the company that –

(i)

arises under an agreement to which the company was a party at the commencement of the business rescue proceedings; and

(ii)

would otherwise become due during those proceedings; or

(b)

apply urgently to a court to entirely, partially or conditionally cancel, on any terms that are just and reasonable in the circumstances, any obligation of the company contemplated in paragraph (a)" (my underlining).

[16]

It seems to me that in order to succeed, a business rescue practitioner who approaches a court in terms of section 136(2)(b) of the Companies Act will have to provide a legal and/or factual basis that:

[16.1]

the application is indeed urgent;

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[16.2]

the contract giving rise to the obligation that is sought to be cancelled was in existence at the commencement of the business rescue proceedings;

[16.3]

the obligations sought to be cancelled would become due during the business rescue proceedings; and

[16.4]

it would be just and reasonable in the circumstances that the obligation be cancelled, whether entirely, partially or conditionally.

[17]

I now turn to deal with each issue in turn having regard to the pleadings and evidence (as set out in the affidavits) and the arguments proffered during the hearing.

Urgency:

[18]

Section 136(2)(b) of the Companies Act creates a statutory right on the part of the business rescue practitioner to approach the court on an urgent basis to cancel an agreement. However, in my view, the business rescue practitioner is not precluded, or exempted, from following the normal procedure for getting applications into court. The normal court rules apply. In respect of an urgent application, this means that regard must be had to rule 6(12) of the Uniform Rules of Court (the "Rules").

[19]

The effect of rule 6(12) of the Rules is that applicants are, in a certain sense and taking into the account the exigencies of the circumstances of the case, permitted to make their own rules but must do so "as far as practicable" in accordance with the existing rules of court (see, Republikeinse Publikasies (Edms) Bpk v Afrikaanse Pers Publikasies (Edms) 1972 (1) SA 773 (A)). If an applicant informs the respondent that the application is regarded as urgent, the respondent is obliged to provisionally accept the rules which the applicant has adopted. When the matter comes to court, the respondent could object but, in the meantime,

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cannot ignore the rules which the applicant has made for the further conduct of the application proceedings.

[20]

Having regard to the nature of the business rescue process and the requirement that the process be completed expeditiously (within three months unless extended with the leave of the court [1] ), a court would be loathe to insist on a strict adherence to even the more relaxed procedural requirements in terms of rule 6(12) of the Rules. Thus, for example, whether the applicant...