Cawood N.O and Others v Swanepoel t/a Reaan Swanepoel Attorneys and Others (69041/2015) [2015] ZAGPPHC 1042 (29 September 2015)

SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION. PRETORIA)

Case No.: 69041/2015

DATE: 29 SEPTEMBER 2015

In the matter between:

WERNER CAWOOD N.O..................................................................................................1st Applicant

JOHAN CHRISTIAAN BEER N.O..................................................................................2nd Applicant

LEBAKA CONSTRUCTION (PTY) LTD........................................................................3rd Applicant

(Reg No: 2013/055692/07)

(in business rescue)

And

REAAN SWANEPOEL t/a Reaan Swanepoel Attorneys..............................................1st Respondent

NUMAN INVESTMENTS CC.......................................................................................2nd Respondent

(Reg No: 2002/074922/23)

THE SHERIFF, GROBLERSDAL................................................................................3rd Respondent

JUDGMENT

MNGQIBISA-THUSI, J

[1]The first and second applicants, on an urgent basis, are seeking the following relief:

"1.1 an order declaring that the payment made by the third respondent to first represents an unlawful payment in contravention of section 133 of the Act;

1.2 an order declaring that, under circumstances where a payment was made by first respondent to the second respondent (which payment will represent payment of the funds paid from the Sheriff to the first respondent), such payment represents unlawful payment:

1.2.1 in contravention of section 133 of the Act; and

1.2.2in contravention of an undertaking by the first respondent to the first and second applicants;

1.3 that the first respondent, alternatively the second respondent, further alternatively the first and second respondents jointly and severalty, the one paying the other to be absolved, be ordered to pay to the first and second applicant the amount received from the Sheriff in terms of the unlawful payment(s) referred to in prayers 16.1 and 16.2 above, into the trust account of Koster Attorneys, with the following details:

Koster Attorneys Trust Account Bank: Standard Bank Account number: [O……….] Branch: [B………..]

1.4 that the first and second respondents be ordered to pay the remuneration and expenses of the first and second applicants, in relation to this application, as set out in regulation 128 of the Act, with reference to a medium enterprise, which expenses shall specifically include the account of Koster Attorneys, on an attorney and client scale, jointly and severally, the one paying the other to be absolved".

[2]The salient background facts are as follows. On 7 July 2015, a court order was granted placing Lebaka, Lebaka Construction (Pty) Ltd ("Lebaka"), under business rescue proceedings in terms of section 131 of the Companies Act 71 of 2008 ("the Act")- The court order also directed for the appointment of the first and second applicants as business rescue practitioners ("BPRs") for Lebaka.

[3]The second respondent is not opposing the application and has elected to abide by the court's decision. I addition, the first respondent has undertaken to keep the funds received from the municipality in a trust account pending the finalisation of these proceedings.

[4]Section 128(l)(b) of the Companies Act, 71 of 2008 ("the Act") defines "business rescue" as -

"proceedings to facilitate the rehabilitation of a company that is financially distressed by providing for -

(i) the temporary supervision of the company, and of the management of its affairs, business and property;

(ii) a temporary moratorium on the rights of the claimants against the company or in respect of property in its possession; and

(iii) the development and implementation, if approved, of a plan to rescue the company ..."

[5]Lebaka, a construction company, rendered services to the Sekhukhune District Municipality ("the Municipality"), in terms of tenders awarded to it. The Municipality became indebted to Lebaka in the sum of R1 711 418,48. In turn Lebaka was also indebted to the second respondent, Numan Investments CC ("Numan") in the sum of R1 110 149.08. As a result of Lebaka’s failure to pay its debt to Numan, Numan obtained judgment against Lebaka during April 2015 and on 15 May 2015, Numan issued a writ of execution against the movable property of Lebaka, out of the Gauteng Local Division. In terms of the writ of execution, the Sheriff, the Sheriff, Groblersdal ("the Sheriff") was directed to -

"attach and take into execution ail rights, title and interest in and to:

(i) Contractors Payment Certificate No 12: Moutse East and Moutse West Bulk Water Supply: Phase 2 contract no LPR019; and

(ii) Contractors Payment Certificate No 16: Moutse East and Moutse West Water Supply: Installation of Pumping Main Phase 4 contract no SK8/3/1/25/2012/2013 and/or any other outstanding certificates in respect whereof the Execution Debtor may have monetary interest due to by SEKHUKHUNE DISTRICT MUNICIPALITY

and of same to cause to be realised the sum of R1 110 149,08 together with interest thereon at the rate of 15% per annum compounded monthly in arrears from 31 December 2014 to date of final payment which plaintiff recovered by judgment of this Court dated 15 April 2015 ..."

[6]The warrant of execution also directed for its service on the Municipality.

[7]The Municipality issued the payment certificates referred to in the writ of execution in favour of Lebaka for services rendered.

[8]On 30 June 2015, Reaan Swanepoel ("Swanepoel"), Numan's attorney of record, wrote a letter to the Municipality alluding to the fact that the two payment certificates issued in favour of Lebaka were due for payment and demanded payment thereof in the amount of R831 134,35 plus interest at the rate of 15% per annum compounded monthly, calculated from 31 December 2014 to date of payment.

[9]On 9 July 2015, the BPRs wrote a letter to Swanepoel informing him that:

9.1 Lebaka has been placed under business rescue on 7 July 2015;

9.2 the first and second applicants have been appointed as BPRs of Lebaka;

9.3 the BPRs are aware of attempts by Swanepoel to execute against the two payment certificates issued in favour of Lebaka by the Municipality,

which attempts are contrary to the provisions of section 133 of the Act;

9.4 alerting Swanepoel of their knowledge of Swanepoel's letter to the Municipality dated 30 June 2015 and informed him that a moratorium

has been placed on any legal proceedings, including enforcement action, against Lebaka, during the period of business rescue proceedings; and

9.5 they do not give consent to Numan's execution steps, which in their view are suspended.

[10] The BRPs' also requested Swanepoel to give an undertaking that he will not proceed with the execution process.

[11] On the same date, the BPRs also wrote a letter to the Municipality, attaching the letter written to Swanepoel and requesting that the money due to Lebaka in terms of the two payment certificates be paid into Lebaka’s designated account.

[12] On the same day, Swanepoel responded to the BPRs’ letter and undertook to "abide by the statutory provisions".

[13] On 11 August 2015 and in spite of the BPRs’ letter to the Municipality, dated 9 July 2015, the Municipality made payment, in terms of the two payment certificates, to the Sheriff in the amount of R1 711 418,48, in accordance with the writ of execution issued on 9 May 2015. As a result, the BPRs' attorneys of record wrote a letter (dated 11 August 2015) to Swanepoel reminding of the undertaking he gave in his letter dated 9 July 2015. The BPRs also requested Swanepoel to direct the sheriff not to proceed with the execution steps and to deposit the funds received into the attorneys' account whose details were provided.

[14] Subsequent to the above communication the BPRs established that:

14.1 an amount of R1 109 941,52 was paid by the municipality to the first respondent;

14.2 an amount of R601 476,96 was paid by the municipality to the third respondent who in turn paid it to the first respondent.

[15] On 21 August 2015, the BPRs' attorneys wrote a letter to Swanepoel informing his actions were contrary to the undertaking he had given not to proceed with the execution steps and that his conduct was in contravention of section 133 of the Act.

[16] On 25 August 2015, Swanepoel responded and indicated that in his view his actions were not act in contravention of section 133. Swanepoel further informed the BPRs' attorneys that an amount of R300 000,00, a balance remaining from the funds received from the Municipality, had been deposited into the BPRs' attorneys' trust account.

[17] The issue to be determined is whether, payment made by the Municipality to Swanepoel whilst Lebaka is under business rescue proceedings in accordance with a writ of execution issued before Lebaka was placed under business rescue proceedings, was in contravention of the of the moratorium contemplated in section 133(1) of the Act against 'legal proceedings, including enforcement action' against a company under business rescue.

[18] Section 133(1) of the Act reads as follows:

"During business rescue proceedings, no legal proceedings, including enforcement action, against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any forum, except -

(a) with the written consent of the practitioner;

(b) with the leave of the court and in accordance with any

terms the court considers suitable;

ft

[19] It is common cause that before Lebaka was placed under business rescue proceedings, the second respondent had obtained judgment against Lebaka and subsequently issued a writ of execution against the two payment certificates held by the Municipality in favour of Lebaka. Further, that on 27 May 2015, the Sheriff had 'executed' the writ by attaching the payment certificates and drawing an inventory of the certificates. Furthermore, that when Lebaka was placed under business rescue, the Municipality had not paid out the two payment certificates to Numan.

[20] At the hearing of the matter, the parties agreed that the act of executing a writ constitutes enforcement action. What is in dispute

is whether, when Lebaka was placed under business rescue proceedings, the execution of the writ had been finalised or not.

[21] On behalf of the applicants it was submitted that the steps taken by Swanepoel in order to secure payment of the payment certificates

amounts to 'enforcement action7 in terms of section 133(1) of the Act. It was further submitted that Numan could not rely on the fact that in terms of the writ of execution a judicial attachment of the assets of Lebaka had already taken place before Lebaka went under business rescue proceedings. Mr Van der Merwe, counsel for the applicants, argued that 'execution' is a process, from attachment until the proceeds of the execution are paid to the judgment debtor. Therefore, counsel argued, by the time the monies became available in terms of the writ of execution, Lebaka was already under business rescue proceedings and those monies had to be treated in terms of a business rescue plan.

[22] Applicants’ counsel further submitted that the actions of Swanepoel elevated the interest of Numan above Lebaka's other creditors in circumstances where Lebaka's creditors had to be treated on an equal footing. Furthermore, counsel submitted that, bearing in mind one of the purposes of business rescue regime[1], Swanepoel’s actions prejudiced not only the interests of Lebaka's creditors but also a contract concluded with an entity named Oceana, post business rescue proceedings, for the supply of certain machinery needed for the conduct of Lebaka's business. It was further argued that Lebaka's existing employees were also prejudiced in that they received their August salaries late and there was no money for subsequent salary payments.

[23] On behalf of Numan it was submitted that by the time Lebaka went under business rescue, the execution process had already been completed.

Counsel argued that the actions of Swanepoel, after Lebaka was placed under business rescue proceedings, amounted only to an administrative

act of collecting the money due as enforcement of Numan's debt had been finalised. In this regard, reference is made to a letter written by Swanepoel to the Municipality, dated 30 June 2015, in which Swanepoel demanded payment of the payment certificates from the Municipality. Furthermore, it was argued on behalf of Numan that the post attachment actions of Swanepoel in recovering the funds held by the Municipality do not constitute enforcement within the provisions of section 133(1) in that no legal proceedings were necessary in order for the money to be paid to Swanepoel.

[24] With regard to the last point raised on behalf of Numan, in Cloete N.O and Another v Firstrand Bank Ltd t/a Wesbank[2], the Supreme Court of Appeal stated that:

"[32] As to the meaning of the phrase 'enforcement action', in my view Wesbank correctly submitted that, in our legal parlance, 'enforce' or 'enforcement', usually refers to the enforcement of obligations. In the context of s 133(1) of the Act, it is significant that reference is made to 'no legal proceedings, including enforcement action'... The inclusion of the term 'enforcement action' under the generic phrase 'legal proceedings', seems to me to indicate that 'enforcement action' is considered to be a species of 'legal proceedings' or, at least, is meant to have its origin in legal proceedings. This conclusion is strengthened by the fact that s 133(1) provides that no legal proceedings, including enforcement action, 'may be commenced or proceeded with in any forum'. ...A 'forum' is normally defined as a court or tribunal ... and its employment in s 133(1) conveys the notion that 'enforcement action' relates to formal proceedings ancillary to legal proceedings, such as the enforcement or execution of court orders by means of writs of execution or attachment."

[25] In the light of the dicta in Cloete (supra), the submission on behalf of Numan that the letter written by Swanepoel to the Municipality, dated 30 June 2015, seeking payment from the proceeds of the payment certificates is not formal proceedings does not hold water. The Cloete judgment makes it clear that enforcement 'relates to formal proceedings, such as the enforcement or execution of court orders by means of writs of execution or attachment'.

[26] With reference to the interpretation of the word 'execution' (of a warrant) the Supreme Court of appeal in Firstrand Bank Ltd v

Nkata[3], stated that:

"[31] I am fortified in my opinion that civil execution is a 'process- oriented' concept rather than one which refers to a single event but that the event of a sale in execution denotes finality and a point of no return, by reference to English cases...."

[33] In summary then, there is an almost across-the - board judicial consensus not only in South Africa but also in England, from which so much of our law of procedure (our 'adjectival law' in contrast to our 'substantive law') derives, that 'execution' refers to a process. It is also clear that the precise meaning given to 'execution' in a particular statute depends very much on context."

[27] Furthermore, in Simpson v Klein NO and Others[4], the court, relying on Liquidators Union and Rhodesia Wholesale Ltd y Brown & Co[5], held that an arrest effected on property in execution of judgment, as when the sheriff attaches property and draws an inventory, places the property in the hands of the sheriff although ownership remains with the judgment debtor. The court also concluded that 'execution' was a process entailing a number of successive steps, which include the issue of a writ of execution; the attachment of the judgment debtor's property; the sale by public auction by the sheriff of the property attached and payment to the judgment creditor. In this regard the court relied on Pols v R Pols-Bouers en Ingeneurs (Edms) Bpk[6], where the court stated that:

"I come to the conclusion, therefore, but almost entirely on sections and cases which have not been referred to in argument, that if the money is still under attachment the creditor is not entitled to it, but is entitled only to a preference for his costs of execution, but if the money had passed to the creditor before winding up commenced, the liquidator has no claim to it."

[28] Bearing in mind the purposes of business rescue proceedings[7] and the fact that business rescue is meant to give breathing space to a company which is financially distressed[8], I am of the view that the alleged administrative acts of Swanepoel in order to secure payment for Numan after Lebaka was placed under business rescue proceedings, falls squarely within the contemplation of "enforcement action' as envisaged in section 133(1) of the Act. Until payment was made to Numan, the payment certificates still belonged[9] to Lebaka and it could have reclaimed them at any stage from the Municipality before the funds were made available to Swanepoel, by paying the debt it owed to Numan.

[29] With regard to costs, I see no reason why the first and second respondents should not pay the costs of this application. However, despite the fact that the first respondent had acted contrary to the undertaking he had given to the business rescue practitioners, a punitive cost order would not be appropriate as I am of the view that it was reasonable for the second respondent to oppose the application.

[30] Accordingly, the following order is made:

30.1 that the payment made by the third respondent to the first respondent represents an unlawful payment in contravention of section 133 of the Act and in contravention of an undertaking by Swanepoel to the first and second applicants;

30.2 that the first respondents is ordered to pay to the first and second applicant the amount received from the third respondent in terms of the unlawful payment(s) referred to in paragraph 27.1 above, into the trust account of Koster Attorneys, with the following details:

Koster Attorneys Trust Account Bank: Standard Bank Account number: [O……….] Branch: [B………….]

30.3 that the first and second respondents are ordered to pay remuneration and expenses of the first and second applicants, in relation to this application, as set out in regulation 128 of the Act, with reference to a medium enterprise, which expenses shall specifically include the account of Koster Attorneys, on a party and party scale, jointly and severally, the one paying the other to be absolved.

NP MNGQIBISA-THUSI

Judge of the Gauteng High Court Division

Appearances

For the applicants: Adv LK Van der Merwe

Instructed by: Koster Attorneys

For the second respondent: Adv 3 Roux

Represented by: Reaan Swanepoel Attorneys

[1] In terms of section 7(k) of the Act, one of the purposes of chapter 6 of the Act is to provide for the efficient rescue and recovery of financially distressed companies in a manner that balances the rights and interests of all relevant stakeholders.

[2] 2015 (3) SA 438 (SCA).

[3] 2015 (4) SA 417 (SCA).

[4] 1987 (1) SA 405 (W).

[5] 1922 AD 549.

[6] 1953 (3) SA 107 (T) at 112D-E.

[7] Section 5 (1) directs that its interpretation and application must give effect to the purposes sated in section 7. Furthermore, in Shamlo Chetty t/a Nationwide Electrical i/ Hart NO and Another*, the court held that: "[35]... The language employed in s 133(1) itself suggests that a broader interpretation commends itself, an approach with which academic commentators concur.

[7] Section 5 (1) directs that its interpretation and application must give effect to the purposes sated in section

7. Furthermore, in Shamlo Chetty t/a Nationwide Electrical i/ Hart NO and Another*, the court held that:

"[35]... The language employed in s 133(1) itself suggests that a broader interpretation commends itself, an approach with which academic commentators concur.

[8] Investec Bank Ltd v Bruyns 2012 (5) SA 430 (WCC).

[9] See in this regard Madodza (Pty)Ltd vABSA Bank Ltd and Others (38906/2012) [2012] ZAGPPHC 165 (ISAugust 2012.

[9] See in this regard Madodza (Pty)Ltd vABSA Bank Ltd and Others (38906/2012) [2012] ZAGPPHC 165

(ISAugust 2012.