Commissioner of the South African Revenue Services v Cross Atlantic Properties (Pty) Ltd and Others (43580/2015) [2017] ZAGPPHC 554 (4 August 2017)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE NO: 43580/2015

DATE: 04/08/2017

In the matter between:

THE COMMISSIONER OF THE SOUTH AFRICAN

REVENUE SERVICES

APPLICANT

and

CROSS ATLANTIC PROPERTIES (PTY) LTD FIRST

RESPONDENT

Registration No. 2011/010885/07

ANTON CAREL GREYLING SECOND

RESPONDENT

MONUMENT TRUSTEES (PTY) LTD

THIRD RESPONDENT

Regist ration No. 2011/007856/07

CATHERINA ELIZABETH OOSTHUIZEN

FOURTH RESPONDENT

WILLEM VAN RENSBURG ATTORNEYS

FIFTH RESPONDENT

COMPANIES AND INTELLECTUAL PROPERTY COMMISSION SIXTH RESPONDENT

JUDGMENT

RAULINGA J,

1. This is an application for rescission of a sanction order of compromise granted by Jansen J in terms of section 155 of the Compromise Act, 73 of 2008 ("the Act"), in which the applicant seeks the following relief :

Part A

1.1 That a rule nisi returnable on 30 October 2017, issued calling upon the respondent and all persons who were on 28 August 2015, or are at a time of service of the order secured or preferent or concurrent creditors of the first respondent, to show cause why an order should not be made in the following terms:

(a) The order of this Court in Case No.43586/ 2015, made by Jansen J, sanctioning the proposed offer of compromise marked by her (for the identification purposes) "D" is rescinded;

(b) Declaring that the aforesaid order is not final and binding on the persons who were preferent and concurrent creditors of the first respondent as at 28 August 2015, and in particular is not binding upon the applicant;

(c) That the first and fifth respondents are jointly and severally liable to the applicant on an attorney and own client scale for the costs of this application including the costs of two Counsel.

1.2 The first, second, third and fourth respondents are ordered to furnish (against payment of the reasonable cost of furnishing the same) to the applicant the names and postal or email addresses of the persons who were secured, preferent, or concurrent creditors of the first respondent on 28 August 2015;

1.3 The first and second respondents are ordered to furnish (against payment of the reasonable cost of furnishing the same) to the applicant the names and postal or email addresses of the persons who are at the time of service of this order, secured, preferent or concurrent creditors of the first respondent;

1.4 The rule nisi referred to above is to be served on the respondents according to the Rules of Court; and is to be served on the creditors of the first respondent referred to in 1.2 above by email or registered post.

2. The rule nisi be made final on the return day or any extended return day thereof .

3. The first respondent and second respondent are joined as respondents by reason of them having a direct and substantial interest in, and because their legal rights obligation would be affected by the relief sought by the applicant in this application.

4. The third, fourth and fifth respondents are joined as respondents by reason thereof that they acted together and in consent with the first and second respondents and with each other and were parties to the steps taken by the first and second respondents to effect the purported compromise. Save for the relief sought in prayer 1.2, no relief is, in this application sought against the third or fourth respondent, but an order for costs is sought against the fifth respondent.

5. On 6 July 2015 the first respondent, represented by the second respondent(its sole director) purported to give written notice of a meeting to be held on 21 July 2015 at the offices of the fourth respondent (the sole director of the third respondent) in Pretoria, where the board of the first respondent would propose a compromise bet ween the first respondent, on the one hand and its preferent creditors (to receive 20 cents in a rand).

6. The meeting was not attended by any creditors in person; it was attended by the fourth respondent (as chair, holding a proxy for the second respondent as concurrent creditor). At the meeting a 100% vote in favour of the proposed compromise was brought on behalf of concurrent creditors. The second respondent was not personally at the meeting or by proxy, so the applicant argues, there was no vote in favour of (or against) the proposed compromise with preferent creditors. The statement by the second respondent, so the argument continues, that there was "a majority in number representing 75% in value of preferent creditors voting in favour of the proposed compromise is factually incorrect.

7. On 10 June 2015, the first respondent filed an ex parte application in this Court for the Court's sanction of the compromise in terms of section 155 of the Act.

8. On 28 August 2015 the sanction application was moved before Jansen J who granted the sanction order of compromise.

9. The cause of the applicant's case for rescission in terms of the Uniform Rule 42(1)(a) of the order granted by Jansen J, are the following alleged errors:

9.1 There was no attendance and no vote by the preferent creditors at the compromise meeting with alleged results that:

9.1.1 The jurisdictional requirements of section 155 of the Act were not met; and

9.1.2 This "fact" was not drawn to the attention of Jansen J with the further result that Jansen J did not consider whether it would be just and equitable to sanction the compromise;

9.2 The application in terms of section 155 of the Act was brought ex part e, while it should have been brought on notice to the applicant.

10. The first and second respondents refute the allegations of the applicant contending inter alia, that in its founding affidavit the applicant merely speculates that the circumstances referred to in paragraph 20.S.2(a) of the founding affidavit would prima facie appear not to have happened (par 20.5.2(c)). In my view this is not speculation but a statement of fact on its face value that it did not happen.

11. The first and second respondents submit correctly that an applicant cannot make out his case, only in his replying affidavit. Shephard v Tuckers Law and Development Corporate (Pty) Ltd (1) 1978 (1) SA 173 (W) at 177. They also correctly refer to Bowman NO v De Souza Roldao 1988(4) SA 326 (TPD) in which it was held that:

“It lies, of cause in the discretion of the Court in each particular case to decide whether the applicant's founding affidavit contains

sufficient allegations for the establishment of his case. Courts do not normally countenance a mere sketch of a case in the founding

affidavit, which skeleton is then sought to be covered in flesh in the replying affidavit.”

12. In my view, the last sentence in the above dicta is not meant to take away the discretion bestowed on the court regarding the reception of new evidence raised in the replying affidavit. That discretion remains as long as it is exercised judicially in the circumstances of a particular case.

13. The circumstances referred to in paragraphs 20.S.2(a) and (c) are properly ventilated and well placed. Because the respondents raised these issues again, in the answering affidavit, the applicant was entitled to amplify them in the replying affidavit. In the exercise of my discretion, I find nothing wrong with that approach.

14. Concerning the number of meetings held on the 21 July 2015 for concurrent and preferent creditors, the first and second respondents

submit that there were two separate meetings, whereas the applicant avers that only one meeting was held. As such, the first and second respondents are of the view that a dispute of fact arises and the matter must be dealt according to the principle laid down in Plascon-Evans

v Van Riebeeck Paints [1984] ZASCA 51; 1984 (3) SA 623 (A) at 634 - 635.

15. I must right at the outset state that this is merely a difference of opinion and interpretation not supported by facts. To declare that there is a dispute of fact will amount to an attempt to comprise the proceedings in this case. The first and second respondents are merely clutching at straws.

16. Section 155 of the Act provides:

"155 Compromise between Company and Creditors:

(1) This section applies to a company, irrespective of whether or not it is financially distressed as defined in section 128(1)(f), unless it is engaged in business rescue proceedings in terms of this Chapter.

(2) The board of a company, or the liquidator of such a company if it is being wound up, may propose an arrangement or a compromise of its financial obligations to all of its creditors, or to all of the members of any class of its creditors, by delivering a copy of the proposal, and notice of meeting to consider the proposal, to-

(a)every creditor of the company, or every member of the relevant class of creditors whose name or address is known to, or can reasonably be obtained by, the company; and

(b) the Commission.

(5) A proposal must conclude with a certificate by an authorised director or prescribed officer of the company stating that any-

(a) factual information provided appears to be accurate, complete, and up to the date; and

(b) projections provided are estimates made in good faith on the basis of factual information and assumptions as set out in the statement. A proposal contemplated in this section will have been adopted by the creditors of the company,

or the members of a relevant class of creditors, if it is supported by a majority in number, representing at least 75% in value of the creditors or class, as the case may be, present and voting in person by proxy, at a meeting called for that purpose.

(7) If a proposal is adopted as contemplated in subsection (6)-

(a) the company may apply to the court for an order approving the proposal; and

(b) the court, on an application in terms of paragraph (a) may sanction the compromise as set out in the adopted proposal, if it considers it just and equitable to do so, having regard to-

(i) the number of creditors of any affected class of creditors, who were present or represented at the meeting, and who voted in favour of the proposal; and

(ii) in the case of a compromise in respect of a company being wound up, the report of the Master required in terms of the laws contemplated in item 9 of Schedule 5.

(8) A copy of an order of the court sanctioning a compromise­

(a) must be filed by the company within five business days;

(b) must be attached to each copy of the company's Memorandum of Incorporation that is kept at the company's registered office, or elsewhere as contemplated in section 25; and

(c) is final and binding on all of the company's creditors or all of members of the relevant class of creditors, as the case may be, as of the date on which it is filed".

17. It is apparent from the record that the offer is for the first respondent to compromise with the two classes of creditors,

namely preferent creditors (20 cents in the rand) and concurrent creditors (12 cents in the rand) no compromise between the first

respondent and its secured creditors was proposed .

18. It is common cause that section 155(6) provides that such a compromise proposal will have been adopted by members of a relevant

class of creditors if it is supported by a majority number representing at least 75% in value of the class present and voting in

person or by proxy at a meeting called for that purpose.

19. As it appears from the report of the fourth respondent who chaired the meeting:

19.1

no creditors were present in person at the meeting;

19.2

no preferent creditors were represented by proxy at the meeting;

19.3

one concurrent creditor was represented by proxy at the meeting, namely the second respondent;

19.4

one concurrent creditor's (the second respondent) vote in favour of the compromise was cast by proxy of the chair; and

19.5

no preferent creditor's vote in favour of (or against) the compromise was cast.

20. Therefore, as the applicant correctly submits, the requisite for applying to court for an order approving the proposal of compromise

(namely "if a proposal is adopted as contemplated in section (6)" with preferent creditors, had not been met, and no sanction of a compromise with preferent creditors in terms of section 155(7)(b) was competent .

21. A further requisite, so the applicant further submits, under section 155 that has to be met is that the Court may only sanction a compromise adopted by the requisite majority of the relevant class members:

"if it considers it just and equitable to do so having regard to:

(i) the number of creditors of any affected class of creditors, who were present or represented at the meeting, and who voted in favour of the proposal".

22. I agree with the submission of the applicant that it was not possible for Jansen J to have considered a sanction of the compromise as just and equitable in the face of the following:

22.1

No preferent creditors were present or represented at the compromise meeting, and hence none voted in favour of it;

22.2

There were only two categories of preferent creditors; the applicant (whose claim was R 7 232 013.00) and a class described as " salaries", which presumably comprises employees of the first respondent (whose claim was R 90 000.00); a ratio of 80:1

22.3

The court was not furnished with any information about -

(a) To whom the "salaries" of R 90 000.00 was allegedly owing including any information whether all or some of the R 90 000.00 was allegedly owing to the second respondent;

(b) How the amount of R 90 000.00 is made up;

(c) When over what period and how the amount of R 90 000.00 came to be in arrears; and whether the alleged falling into arrears of "salaries" was deliberate or otherwise;

(d) The outstanding tax debt of R 7 232 013.00 compromise a VAT debt, consisting of moneys which the first respondent has or ought to have recovered from third parties on behalf of the applicant, but failed to pay over to it.

23. Consequently the court could not have considered that it was just and equitable to reduce the applicant's claim which was more than 80 times the alleged claim of unknown employees, by 80% on the strength of a vote by these unidentified employees.

24. Moreover, the first and second respondents failed to obtain evidence from their then attorney, the fifth respondent, to establish what was and what was not; presented to Jansen J. The evidence of the absence of preferent creditors at the compromise meeting in person or by proxy is evident in the transcript of the relevant proceedings before Jansen J at pages 123- 130 of the record.

25. Sanction orders under section 155 of the Act should not be moved or granted ex parte. It is a basic principle that a court does not ordinarily grant orders affecting the right of third parties without them being joined as parties to the proceedings. Herbstein & Van Winsen, The Civil Practice of the High Courts of South Africa 5th Ed pages 289/9. In Bowing NO v Vrededorp Properties CC and Another 2007{5) SA 391(SCA) at 21, the Court held:

"The substantial test is whether the party that alleged to be a necessary party for purposes of joinder has a legal interest in the subject matter of the litigation which may be affected prejudicially by the judgment of the Court in the proceedings concerned". In view of the fact that the applicant has a claim for over 7 million rands and is purported to be compromised to 20c in the rand by virtue of a court order which under section 155(8) purports to be final and binding on the applicant from the date of filing of the order with the first respondent, therefore the applicant had a legal interest which would ordinarily require it to be joined as a party in the sanction application. The fact that the applicant was not joined ought to have prompted the court not to entertain the sanction application.

26. In section 311 applications under the 1973 Companies Act, the courts required that notice be given to all interested parties of the date on which the application for sanction will be moved before the court, because such parties must have the opportunity to be heard and to persuade the court not to sanction the proposed compromise. Ex parte Federate Nywerhede Bepade 1975 (1) SA 826(W) at 835 C- F. There was therefore no good reason why the applicant was not given notice, by electronic means or registered post. Had the applicant been given notice, it would have opposed the application given the fact that it was owed an amount in excess of R7 million.

27. The applicant and the employees of the first respondent could not have formed one class of creditors, and could not validly have met and voted as one class of creditors under section 155 of the Act. The procedure under section 155 cannot be invoked if the first respondent would have achieved the same objective of a compromise between the first respondent, its employees and the applicant without the court's intervention. Moreover, the applicant was precluded by sections 201and 203 of the Tax Administration Act, 28 of 2001, from entering into the alleged compromise; it thus was not a valid compromise under the section 155 of the Act.

28. Rule 42(1)(a) provides further ground for rescission of the sanction order, which is that the order was erroneously granted because there was a mistake in the proceedings. Consequently, the court could not have known whether it would be just and equitable to sanction the compromise. In the absence of the aforesaid jurisdictional requirements, it was not competent for the court to have granted the sanction order.

29. The first and second respondents in paragraphs 6 to 11 of the answering affidavit, rely on the judgment of the Supreme Court of Appeal in Lodhi Properties Investments CC v Bonder Developments(Pty)Ltd 2007 (6) SA 87 at 94E and 950-F. I am with the applicants that this judgment does not support the case for those respondents.

30. Lodhi dealt with a case where the applicant a quo disclosed a cause of action in its application and had complied with the procedural

requirements for applications, and had obtained a default judgment, which the respondents attempted to rescind on the basis that they would have raised substantive defences of which because the default judgment was entered by default - the court granting the judgment was unaware. Clearly, as the applicant correctly submits was not granted "erroneously''.

31. Thus, the first ground for distinguishing Lodhi is that, in the present case notice of the sanction application should have been, but was not given to the applicant. As was held per Streicher JA in Lodhi:

"Where notice of proceedings to a party is required and judgement is granted against such party in his absence without notice of the proceedings having been given to him such judgement is granted erroneously''

32. The third ground of distinction is that Lodhi of course does not assist the respondents to resist an application to rescind an order granted ex parte and material jurisdictional facts, and the facts bearing on the discretion of the court, were not drawn to Jansen J who granted the order.

33. In the circumstances, I am convinced that the applicant has met all the requirements for the granting of an order for rescission in terms of Rule 42(1)(a) of the Rules of this Court.

34. The following order is made:

34.1

That a rule nisi, returnable on 30 October 2016 hereby issues, calling upon the respondents and all persons who were on 28 August 2015, or are at the time of service of this order, secured or preferent or concurrent creditors of the first respondent, to show cause why an order should not be made in the following terms:

(a) The order of this Court in Case No. 43586/2015, made by Jansen J, sanctioning the proposed offer of compromise marked by her (for the identification purposes) as "D", is rescinded;

(b) Declaring that the aforesaid order is not final and binding on the persons who were preferent and concurrent creditors of the first respondent as at 28 August 2015, and in particular is not binding upon the applicant; and

(c) That the first and fifth respondents are jointly and severally liable to the applicant on an attorney and own client scale for the costs of this application including the costs of two Counsel.

34.2

The first, second, third and fourth respondents are ordered to furnish (against payment of the reasonable cost of furnishing the

same) to the applicant the names and postal or email addresses of the persons who were secured, preferent, or concurrent creditors of the first respondent on 28 August 2015;

34.3 The first and second respondents are ordered to furnish (against payment of the reasonable cost of furnishing the same) to the applicant the names and postal or email addresses of the persons who are at the time of service of this order, secured, preferent or concurrent creditors of the first respondent;

34.4

The rule nisi referred to above in 34.1 be served on the respondents according to the Rules of Court; and is to be served on the creditors of the first respondent referred to in 34.2 above by email or registered post.

____________________

TJ RAULINGA

JUDGE OF THE GAUTENG DIVISION, PRETORIA