Oakdene Square Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami) (Pty) Ltd and Others

• Jurisdiction: South Africa
• Judge: Brand JA, Cachalia JA, Van der Merwe AJA, Zondi AJA and Meyer AJA
• Judgment Date: 27 May 2013
• Citation: 2013 (4) SA 539 (SCA)
• Hearing Date: 08 May 2013
• Docket Number: 609/2012 [2013] ZASCA 68
• Counsel: D Mahon for the appellants. A Subel SC (with AC Botha) for the second respondent. JJ Brett SC (with E Kromhout) for the third respondent.
• Court: Supreme Court of Appeal

Brand JA (Cachalia JA, Van der Merwe AJA, Zondi AJA and Meyer AJA concurring):

[1] This appeal has its origin in an application by the four appellants in E the South Gauteng High Court, Johannesburg, for an order placing the first respondent, Farm Bothasfontein (Kyalami) (Pty) Ltd (the company), under supervision and commencing business rescue proceedings as contemplated in ch 6 of the Companies Act 71 of 2008. The second and third respondents not only opposed the main application, but sought the liquidation of the company instead. When the matter came before F Claassen J it was plain that, unless the business rescue application was successful, the winding-up of the company would inevitably follow. In the event Claassen J refused the business rescue application with costs and granted the liquidation order sought. The appeal against that judgment, which has since been reported sub nom Oakdene Square Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami) (Pty) Ltd and Others G 2012 (3) SA 273 (GSJ), is with the leave of this court.

The parties

[2] I find it convenient to start with an introduction of the appellants and the capacities in which they were cited. The first appellant is Oakdene H Square Properties (Pty) Ltd (Oakdene). The second appellant is Educated Risk Investments 54 (Pty) Ltd (Educated Risk), while the third and fourth appellants are Mr Dimetrys Theodosiou and his brother Antonys. Oakdene alleges that it is a creditor of the company, while Educated Risk contends that it is a 40% shareholder of the company. I The two Theodosiou brothers have an interest in both Oakdene and Educated Risk. But for their locus standi they rely on the allegation that they are the trustees of the MJF Trust which, so they say, previously owned the 40% shares in the company now held by Educated Risk.

[3] The reason why the capacities of the appellants are couched in such guarded terms is because they are clouded by some of the numerous J

Brand JA (Cachalia JA, Van der Merwe AJA, Zondi AJA and Meyer AJA concurring)

A disputes of fact that arose on the papers. Small wonder therefore that the court a quo commenced its judgment with a reference to the observation by Harms DP in National Director of Public Prosecutions v Zuma 2009 (2) SA 277 (SCA) (2009 (1) SACR 361; 2009 (4) BCLR 393; [2008] 1 All SA 197) para 26 to the effect that motion proceedings such as these are B aimed at 'the resolution of legal issues based on common cause facts'. They are simply not geared toward the decision of factual disputes. In consequence, so Harms DP reminded us, it is well established that, where in motion proceedings disputes of fact arise on the papers, the matter can only be decided on the respondent's version of the disputed facts, unless that version is so far-fetched or clearly untenable that it can C justifiably be rejected merely on the papers. What is more, it makes no difference to this approach that, as in this case, motion proceedings have been dictated by the legislature. Neither does it make any difference where the legal or evidential onus lies. That approach was rightly adopted by the court a quo in dealing with the disputes of fact that proved to be pertinent in this case and it goes without saying that that is D also the course I intend to pursue.

[4] But, to complete the introduction of the parties: the first respondent, as I have said, is the company. The second respondent is Nedbank Ltd (Nedbank) and the third respondent is Imperial Holdings Ltd (Imperial). E Unlike those of the appellants, the interests of Nedbank and Imperial in the matter are not in dispute. These interests include the following: Nedbank and Imperial each holds 30% of the shares in the company and they are each owed R7,5 million by the company in the form of a shareholder's loan. Moreover, Nedbank is a secured creditor and has in fact obtained summary judgment against the company in the F sum of R31 247 099; together with interest at 12% per annum (which runs in excess of R320 000 per month) from 1 June 2011; and costs.

The application

[5] The concept of 'business rescue' had been introduced into our law for the first time in ch 6 of the 2008 Companies Act which came into G operation on 1 May 2011. There have been several decisions in the high court dealing with these provisions. But this is the first time that this court has been called upon to interpret and apply some of them. From the nature of things, a more detailed analysis of the relevant provisions is therefore bound to follow. Yet I find it helpful, for introductory purposes, to state the essential requirements for an application of this H kind. These are essentially to be found in s 131 of the Act, which provides in relevant part:

'131(1) Unless a company has adopted a resolution contemplated in section 129 [which provides for voluntary business rescue proceedings], I an affected person may apply to a court at any time for an order placing the company under supervision and commencing business rescue proceedings.

. . .

(4) After considering an application in terms of subsection (1), the court may —

(a)

make an order placing the company under supervision and commencing J business rescue proceedings, if the court is satisfied that —

Brand JA (Cachalia JA, Van der Merwe AJA, Zondi AJA and Meyer AJA concurring)

(i)

the company is financially distressed; A

(ii)

the company has failed to pay over any amount in terms of an obligation under or in terms of a public regulation, or contract, with respect to employment-related matters; or

(iii)

it is otherwise just and equitable to do so for financial reasons,

and there is a reasonable prospect for rescuing the company; or B

(b)

dismissing the application, together with any further necessary and appropriate order, including an order placing the company under liquidation.'

[6] With reference to s 131(1), the definition of 'affected person' in s 128(1) — which is the definition section for purposes of ch 6 — includes a shareholder or creditor of the company. On the face of it, Educated C Risk is the registered holder of 40% of the shares in the company. Although its entitlement to those shares is disputed, it therefore appears to qualify as an 'affected person'. In these circumstances the court a quo found it unnecessary (in para 13 of its judgment) to resolve the disputes surrounding the locus standi of the other three applicants. I agree with this approach. 'Financially distressed' is also defined, in s 128(1)(f), to D mean:

'. . . that —

(i)

it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months; or E

(ii)

it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months.'

[7] It is common cause that, although the company appears to be factually solvent in that the value of its assets, at least on the face of it, exceeds its debts, it is unable to satisfy the judgment debt in favour of F Nedbank. This means that it is both commercially insolvent — for liquidation purposes — and 'financially distressed' within the contemplation of s 131(4)(a)(i). More problematic is the further requirement imposed by the section; that is, whether or not there was 'a reasonable prospect of rescuing the company'. This question, I believe, can only be resolved with reference to the background facts. G

Background

[8] The company owns three immovable properties adjoining one another which are held under separate title deeds, namely, (a) portion 169 of the farm Bothasfontein, measuring about 69 ha in extent, which H constitutes what is known as the Kyalami Racetrack; (b) erf 5 Kyalami measuring about 2,3 ha; and (c) erf 6 Kyalami, measuring about 1,3 ha. On the papers these properties are jointly referred to as the 'immovable property' and I find it convenient to follow the same description.

[9] All the shares in the company were previously held by the Automobile I Association of South Africa (the AA). During March 2004 the AA sold these shares to Mr Michael Fogg, acting on behalf of the MJF Trust. A suspensive condition of the sale provided that the company would repay its debt of R42 million to the AA. In order to do so, the company obtained a loan of R28 million from Nedbank against registration of a mortgage bond over the immovable property. To raise the J

Brand JA (Cachalia JA, Van der Merwe AJA, Zondi AJA and Meyer AJA concurring)

A shortfall which, together with expenses, amounted to R15 million, the MJF Trust, represented by Fogg, entered into a memorandum of understanding (the MOU), dated 29 June 2004, with Imperial and a predecessor of Nedbank, known as Imperial Bank Ltd. Since nothing turns on the difference in the roles played by Nedbank, on the one hand, B and its predecessor, on the other, I shall refer to them both as Nedbank.

[10] For present purposes, the main features of the MOU were the following:

(a)

Nedbank and Imperial undertook to put up a bank guarantee for R15 million and each became entitled to 30% of the shares in the C company.

(b)

The MJF Trust, Imperial and Nedbank would each nominate a director to the board of the company with a chairman and a fifth director to be jointly nominated by all three.

(c)

The MJF Trust undertook to transfer the shares to Imperial and D Nedbank; to appoint their nominees as directors; and to sign all documents necessary for the appointment of the remaining directors. All this was to happen upon registration of the mortgage bond in favour of Nedbank.

[11] Nedbank and Imperial advanced the R15 million in the form of E shareholders' loans of R7,5 million each and the Nedbank mortgage bond was registered. Despite all this, the MJF Trust failed to comply with...