Tuning Fork (Pty) Ltd t/a Balanced Audio v Greeff and Another

• Jurisdiction: South Africa
• Judge: Rogers J
• Judgment Date: 28 May 2014
• Citation: 2014 (4) SA 521 (WCC)
• Docket Number: 18136/13
• Hearing Date: 19 May 2014
• Counsel: A Subel SC for the plaintiff. A Ferreira for the defendants.
• Court: Western Cape Division, Cape Town

Rogers J:

Introduction I

[1] The crisp but important issue in this case is whether a creditor loses its claim against a surety if a duly adopted and implemented business rescue plan provides for the creditor's claim against the principal debtor to be compromised in full and final settlement of such claim. A suretyship may stipulate that the claim against the surety will survive a compromise with the principal debtor but this is not such a case. J

Rogers J

The facts A

[2] The question arises here in an opposed application for summary judgment. The facts appearing from the answering affidavit are the following.

B [3] The company which was later to become the subject of the business rescue plan began to purchase audio and visual equipment from the plaintiff during 2000. On 15 November 2011 the defendants, who are and have at all material times been the directors of the company, signed unlimited suretyships for the company's debts, present or future, in C favour of the plaintiff. The terms of the suretyships were identical. The obligation undertaken by each surety was as surety and co-principal debtor and with the renunciation of the usual benefits, including excussion. The suretyship provided that a certificate under the hand of the creditor would be prima facie proof of the amount due and owing by D the company.

[4] The suretyship was a continuing one which was not to be affected by any change in or temporary extinction of the company's obligations. Mr Subel SC, who argued the matter for the plaintiff, accepted that this did not change the accessory nature of the surety's obligation. If the E principal debt was 'changed', the surety would, in terms of the provision I have summarised, be liable for the changed debt. If the company at any time discharged its existing liability to the plaintiff but subsequently incurred a new liability, the surety would be liable for the new liability despite the 'temporary extinction' of the principal debt.

F [5] On 31 July 2013 the company was placed in business rescue pursuant to ch 6 of the Companies Act 71 of 2008 (the Act). The business rescue practitioners prepared a business rescue plan as envisaged by s 150. The plan was considered and adopted by a meeting of the relevant stakeholders on 4 October 2013.

G [6] The purpose of the plan was to allow the company to continue trading. An amount of R6 million was to be paid on account to a particular supplier (an entity named Group Appliance) which had been the company's largest trade creditor by far. This would allow the company to continue receiving stock. Group Appliance's claim was not H to be compromised though it was evidently willing to await a revival of the company's fortunes before demanding payment of the balance of its claim. Two banks with secured claims were to receive a specified amount. The remaining concurrent creditors, including the plaintiff, were to receive a dividend of 28,2 cents in the rand in full and final I settlement of their claims. The business rescue practitioners said that this was an improvement on the anticipated concurrent liquidation dividend of 18 cents in the rand.

[7] The relevant clause in the business rescue plan, insofar as the concurrent creditors are concerned, reads as follows (inclusive of its J heading):

Rogers J

'Section 150(2)(b)(ii) — release from debt A

Should the Creditors approve the Business Rescue Plan, the payment under the Business Rescue Plan to them will be in full and final settlement of their claims against the Company with the exception of Group Appliances. Group Appliance will continue to supply stock to the Company once the Business Rescue Plan has been implemented B and will secure further payments in respect of their pre-commencement date from the Company in the future. The Business Rescue Plan provides for a payment of R6 million to Group Appliance in an attempt to ensure that the balance of the pre-commencement date is kept at a manageable level for trading purposes going forward.'

[8] Clause 7.3 stated that the company would continue in existence and C operate after the implementation of the plan 'with its affairs having been restructured as provided for' in the plan.

[9] Clause 8.1 specified, among the 'special conditions to be satisfied', the adoption of the plan 'as full and final settlement of the Creditors' claims against the Company with the exception of Group Appliances'. D

[10] In the schedule of concurrent claims annexed to the plan the plaintiff's claim was recorded in an amount of R626 375,42.

[11] On 25 November 2013 the business rescue plan was implemented. The plaintiff on that day received its concurrent dividend of E R176 637,87. The business rescue proceedings formally terminated on 5 December 2013 upon the filing of a notice of substantial implementation as contemplated in s 132(2)(c)(ii).

[12] Action in the present case was instituted on 1 November 2013, ie after the adoption of the business plan but before its implementation. F The form of action was a simple summons. The summons did not make mention of the business rescue proceedings. A notice of intention to defend having been delivered, the plaintiff on 2 December 2013 served an application for summary judgment. On 24 January 2014 the defendants filed their opposing affidavit. They raised two grounds of opposition, namely (a) that the compromise with the principal debtor released G them from liability; (b) that they had reason to question the quantification of the plaintiff's claim.

[13] The answering affidavit did not say whether the plaintiff voted for or against the adoption of the plan. I shall revert in a moment to whether H the manner in which a creditor voted affects the position of that particular creditor. I invited counsel during argument to tell me, if they were willing to do so by agreement, how the plaintiff had voted. They were apparently unable to agree. I intend to proceed on the assumption that the plaintiff voted in favour of the scheme. I do so because if such an assumption (which is the most favourable to the defendants) would I be decisive in their favour, I would be inclined, despite the absence of evidence one way or the other, to refuse summary judgment in the exercise of the discretion I have in terms of rule 32(5). I do not think it would be fair to enter summary judgment against the defendants where it might emerge that, because the plaintiff supported the business rescue plan, it lost its claim against the defendants. The defendants may not J

Rogers J

A even know (though this is somewhat unlikely, given their close association and apparent continuing involvement with the company) how the various creditors voted.

Overview of conclusions

B [14] It may be of assistance if I were, at the outset, to state the conclusions at which I have arrived on the main issue:

(i)

Applying the well-established test for implying a term in a statute, one cannot imply a term, in the business rescue provisions of the Act, to the effect that creditors' rights against sureties are or are not unaffected by the adoption of a business rescue plan. The matter has C simply not been addressed.

(ii)

The general principles of our law of suretyship must thus be applied to determine what effect, if any, the provisions contained in any particular business rescue plan have on sureties.

(iii)

One of the general principles is that, if the principal debt is D discharged by a compromise with or release of the principal debtor, the surety is released unless the deed of suretyship provides otherwise (the deeds of suretyship in this case do not provide otherwise).

(iv)

This general principle applies also to a compromise or release pursuant to a statute, regardless of whether the creditor himself E supported the compromise or release (unless, of course, the statute provides otherwise, which is not so here, given the absence of any express or implied term on the matter).

(v)

Accordingly, if a business rescue plan provides for the discharge of the principal debt by way of a release of the principal debtor, and the F claim against the surety is not preserved by such stipulations in the plan as may be legally permissible, the surety is discharged.

(vi)

The plan in the present case is reasonably to be construed as one by which the company, as principal debtor, has been discharged from its liability to the plaintiff. Since the position of sureties for the G company was not addressed in the plan, the defendants have on this construction of the plan been discharged.

(vii)

Summary judgment must thus be refused.

The quantum defence

[15] I can dispose of the defendants' quantum defence in a few words. H They say that, although the business rescue plan lists the plaintiff's claim as R626 375,42, there were mistakes in the quantification of this claim. Following further communication between the business rescue practitioners and the plaintiff, the latter's claim was, they assert, reduced by agreement to R515 650. The defendants add that in their view further credits must be passed but that the credit notes and explanatory I documents are in the plaintiff's possession. They provide no particulars of these further credits.

[16] The amount which the plaintiff claims, and which was certified in the annexure to the particulars of claim, is R515 650, which on the defendants' version is the amount settled upon between the plaintiff and J the business rescue practitioners. In oral argument Mr Subel said that

Rogers J

if I granted summary judgment, the dividend of R176 637,87 would A need to be deducted. As to interest, he said that the plaintiff would be content to claim mora interest as from 26 November 2013, the date following the receipt by the plaintiff of the dividend. I agree with Mr Subel that this is a best-case...