Ex parte Kaplan and Others NNO: In re Robin Consolidated Industries Ltd

• Jurisdiction: South Africa
• Judge: Coetzee DJP, Goldstone J and Leveson J
• Judgment Date: 06 May 1987
• Citation: 1987 (3) SA 413 (W)
• Hearing Date: 21 April 1987
• Court: Witwatersrand Local Division

Coetzee DJP:

This is one of five related applications, which came before me in the Motion Court, for orders under s 311 of the Companies Act 61 of 1973. I directed, in terms of s G 13(1)(a) of the Supreme Court Act 59 of 1959, that all five applications be heard by a Full Court of three judges. As the five proposed schemes of arrangement are virtually identical, only this application is being dealt with pertinently. Counsel are agreed that any judgment in this matter ought to apply to the other four. Because important questions arose for decision, H I invited Mr Kuper (with him Miss Kuper ) to act as amicus curiae. In addition, the Association of Insolvency Practitioners of Southern Africa asked to be heard, as one of the aspects which Mr Kuper proposed to raise, and did raise, concerned the rate of remuneration of the receivers under the schemes. We acceded to this request and Mr S F Burger addressed I argument on this and related issues.

The other four companies, subsidiaries of the company, are Gala Stationery (Eastern Province) (Pty) Ltd ('Company No 2'); Gala Stationery (Eastern Transvaal) (Pty) Ltd ('Company No 3'); Gala Stationery (Natal) (Pty) Ltd ('Company No 4'); and Gala Stationery (Western Province) (Pty) Ltd ('Company No 5'). Together they functioned as a group which conducted business as J manufacturers and suppliers of stationery. They

Coetzee DJP

A operated some 14 retail outlets throughout South Africa. They were placed under provisional liquidation at the same time - on 16 September 1986. The three applicants were appointed provisional liquidators of all five companies and, in this capacity, they bring these applications for the holding of B meetings of creditors to consider the proposed schemes of arrangements which are interlocking.

The group is hopelessly insolvent. The following table shows the total claims of concurrent creditors (in round figures), their expected dividends under liquidation, and the probable dividends (cents in the rand) respectively if the proposed schemes of arrangement are adopted:

	C Total concurrent claims	Dividend on liquidation	Dividend under the arrangement
The company	R12,5 million	9,5	12
Company No 2	R8 million	1,5	3,5
Company No 3	R9,5 million	2,9	5,0
Company No 4	R8,8 million	Nil	2,5
Company No 5	R7,5 million	Nil	2,5

D I should point out that the subsidiaries are individually liable in respect of an intercompany guarantee to the Standard Bank given on behalf of other members of the group, so that the total amount owing to concurrent creditors by the group is less E than the aggregate of the amounts shown in the first column of the above table. Making allowance for these overlapping debts, concurrent creditors of the group are owed some R16 million. The applicants disclose that, although the major creditors favour the scheme, there are certain 'contesting' creditors who consider that the group affairs ought to be investigated as the group traded extensively in 1985 and 1986 in insolvent F circumstances. These creditors contend that steps should be taken to institute proceedings under s 424 of the Companies Act to obtain an order that the persons in control of the group shall be personally responsible for all or some of the liabilities of the group.

The applicants, qua liquidators, have investigated this G position and have come to the conclusion that there is not any credible evidence of fraudulent purpose or reckless conduct which would lead them to believe that any proceedings under s 424 would succeed against any person. The late Wilfred Robin ran the company, its holding company, the group companies and the associated companies virtually single-handed under his own personal supervision. Shortly after his death the companies H were liquidated. They suggest that it will, however, be open to the creditors to instruct them as receivers to take such action as they may be advised to enforce any rights which the creditors may have in law under s 424 of the Act.

Immediately after the issue of their certificate of appointment I as joint liquidators of the company, the applicants came to the conclusion that, in order to avoid further trading losses and to reduce huge administrative claims for the rent of the very substantial premises occupied by the group, and acting upon the instructions of the company and other creditors of the company, they entered into negotiations with certain interested purchasers and/or offerors for the sale of the business of the J company or for the submission of offers of compromise or arrangement.

Coetzee DJP

Early in October 1986 provisional arrangements were entered A into between the provisional liquidators and Sassari Investments (Pty)Ltd ('Sassari') for the purchase of the assets and the business of the company. Sassari wished to conclude the transaction upon the basis of an offer of compromise, but agreed at the request of the applicants to conclude the transaction on the basis of the purchase of the business. The offeror however made it a term of the offer to purchase that it B would be entitled, after the purchase had been concluded, to submit an offer of compromise or arrangement under s 311 of the Companies Act upon terms no less favourable to the creditors than those contained in the purchase offer.

The written offer to purchase the assets was submitted to the liquidators who received authority from the Master to enter C into the sale. The aggregate of the purchase consideration payable under the purchase offer for the assets of the group as a whole is the amount of R7 050 000. These consist of the fixed assets and plant (other than fixed assets and plant subject to any lien, encumbrance, hypothecation or right of ownership in favour of any third party), stock in trade and book debts D (other than bills receivable already then in the possession of the Standard Bank as pledgee thereof and claims by the company against its holding, subsidiary and associate companies, all of which were ceded to the bank), its goodwill, import permits and trade marks.

It is a term of the purchase that

'the allocation of the purchase consideration between each of E the group companies shall be a matter to be determined by the liquidators and the offer or shall not be concerned with such allocation'.

The amount allocated by the liquidators to the purchase of the assets of the company is R2 258 106. This amount is exclusive of the amount to be realised from the ceded book debts and F other secured assets.

The purchaser has now elected to submit an offer of compromise or arrangement 'between the company and its creditors' ('the arrangement'). Under the arrangement the offeror proposes to provide an amount of R310 600 which would yield an additional dividend of 2,5 cents, so that concurrent creditors would receive approximately 12 cents in the rand. Accordingly the G arrangement provides for a cash consideration of R2 568 700, being the aggregate of the above figure and the aforegoing allocated purchase price of the assets. The price component of this aggregate becomes a portion of the funds which are provided by the offeror, which will then be held by the applicants, now qua receivers, 'for creditors under the H arrangement' (in terms of a definition clause) if the arrangement is sanctioned. This appears from clauses 6.1 and 8.2.5 which read as follows:

'6.1 Subject to the provisions of 3.7, 3.8, 6.4, 9 and 10 the consideration payable by the offeror to the receivers under this arrangement shall be the sum of R2 568 700, of which the sum of R2 258 100 has already I been paid to the liquidators by the offeror.

8.2.5 Upon the arrival of the final date the prior sale arising from the acceptance of the purchase offer shall be deemed to have been cancelled and to be pro non scripto ab initio, but upon the arrival of the rejection date the prior sale shall continue of full force and effect as if this arrangement had never been submitted.'

The 'final date' refers to successful acceptance of the arrangement and 'rejection date' to its rejection by the J creditors or the Court. In either case

Coetzee DJP

A Sassari, which has already acquired the share capital of the group, will carry on trading, in the first instance in the name of the companies as if nothing has happened, and in the second instance with their assets, including their goodwill which formed part of the offer of purchase, as the liquidations will then proceed in the ordinary way.

B The essence of the scheme is therefore the acquisition by Sassari of all the claims of the creditors, the vast majority of whom are concurrent creditors. They will receive from Sassari, through the receivers, payments for the cession of their claims which vary between 2,5 and 12 cents in the rand. Clause 22 of the arrangement which makes this clear reads as follows:

C '22 Cession of claims

Subject to the rights of creditors to prove claims under and in terms of 11, 12, 13 and 14 -

22.1 upon the arrival of the final date and upon the due fulfilment by the offeror of its obligations hereunder, in consideration of the payment to be made D by the offeror in terms hereof all creditors shall be deemed to have ceded to the offeror their claims against the company, which ceded claims, including also those referred to in 13, 14.1 and 16.2 shall, after such cession, be deemed to have been further reduced by one cent in each rand;

22.2 the cession and vesting referred to in 22.1 shall be deemed to have taken place on the final date but with retrospective effect to the effective date;

22.3 the creditors shall be confined to the right to obtain E payment in respect of their claims in accordance with and on the terms and conditions contained in...