Firstrand Bank Limited v Wolmarans N.O and Others (404/2019) [2020] ZANCHC 16 (26 March 2020)

IN THE HIGH COURT OF SOUTH AFRICA

NORTHERN CAPE DIVISION, KIMBERLEY

Case No: 404/2019

Heard on: 13/03/2020

Delivered on: 26/03/2020

In the matter between:

FIRSTRAND RAND BANK LIMITED

Applicant

And

DR LL WOLMARANS N.O

First Respondent

LYNDOCH 432 CC

Second Respondent

THE COMPANIES AND INTELLECTUAL PROPERTY

COMMISSION

Third Respondent

ALL OTHER AFFECTED PERSONS

Fourth & Further Respondents

JUDGMENT

MAMOSEBO J

[1] Firstrand Bank Limited (the bank), is the applicant in this matter. It is seeking three forms of relief against the second respondent, Lyndoch 432 CC (Lyndoch), to the following effect:

1.1 That leave be granted in terms of s 133(1)(b) of the Companies Act, 71 of 2008, as amended, to commence with legal proceedings against Lyndoch currently in business rescue proceedings;

1.2 That an order be made in terms of s 130(1)(a) setting aside the voluntary resolution adopted by the board of Lyndoch on 15 September 2017 to commence placing it under voluntary business rescue as there are no prospects of Lyndoch being rescued; and

1.3 That an order be granted for the winding up of Lyndoch placing it in the hands of the Master of the Northern Cape High Court, Kimberley as well as punitive costs against the Lyndoch which is opposing the application.

[2] The first respondent, Dr LL Wolmarans, a business rescue practitioner, abides the decision of the Court.

[3] This opposed application was enrolled for argument on Friday, 13 March 2020. On Wednesday 11 March 2020 Lyndoch filed its papers for a postponement of the main application and admission of a supplementary

affidavit to its founding affidavit and that costs be reserved. Mr Coetzee SC appeared for Lyndoch and Mr Tsangarakis for the bank.

Having heard counsel I refused both the postponement and the admission of the supplementary affidavit to Lyndoch's founding affidavit. These are my reasons for the refusal.

Application for a postponement of the main application

[4] In Lekolwane and Another v Minister of Justice and Constitutional Development[1] the Constitutional Court laid down this principle regarding postponements:

"[17] The postponement of a matter set down for hearing on a particular date cannot be claimed as a right. An applicant for a postponement seeks an indulgence from the court. A postponement will not be granted, unless this Court is satisfied that it is in the interests of justice to do so. In this respect the applicant must ordinarily show that there is good cause for the postponement. Whether a postponement will be granted is therefore in the discretion of the court. In exercising that discretion, this Court takes into account a number of factors, including (but not limited to) whether the application has been timeously made, whether the explanation given by the applicant for postponement is full and satisfactory, whether there is prejudice to any of the parties, whether the application is opposed and the broader public interest. All these factors, to the extent appropriate, together with the prospects of success on the merits of the matter, will be weighed by the court to determine

whether it is in the interests of justice to grant the application."

[5] This application was not timeously made. The explanation furnished to substantiate the application were stated to be the following: First, the country is suffering from electricity problems (load shedding) and if this court is to deny Lyndoch a postponement, the scale would tilt towards its liquidation and the solar power plant project

anticipated by Lyndoch will be lost, which will not be in the public interest. There is a bona fide offer on the table for the purchase of Lyndoch shares which lends support to the request for a further two month postponement. Since the bank is the only creditor of Lyndoch it will not suffer any prejudice should a further postponement be granted. Mr Coetzee argued that, in any event, liquidating Lyndoch will not secure the debt owed to the bank immediately.

[6] Mr Tsangarakis, in opposition, contended that the bank has been an unwilling participant in this process for a period of almost four years: since 07 July 2016 when it instituted action against Fynbosland 299 CC, Thomas Knoesen, Liezel-Marie Knoesen and Lyndoch in the Northern Cape High Court under Case Number 1453/2016. Lyndoch signed as surety and co-principal debtor for Fynbosland 299 CC which is indebted to the bank. The parties had entered into a Deed of Settlement in terms of which the defendants undertook to make joint monthly repayments of R50,000.00 with effect from 30 August 2016 and for the full outstanding balance not later than 30 June 2017, but defaulted. Only two payments were made to date: R50,000.00 on 31 August 2016 and R823,940.00 on 14 December 2016 resulting in Lyndoch's indebtedness to increase exponentially to R5.5 million.

[7] The failure by the aforementioned defendants to meet the deadline to settle the outstanding amount in full by 30 June 2017 gave rise to the bank arranging for an auction of the Lyndoch farm described as "vaste eiendom Resterende gedeelte 1 van die Plaas Lyndoch Nr 432, Kuruman Road, Noord Kaap", scheduled to take place on Wednesday, 25 October 2017 at 14:00. However, before the auction could take place Lyndoch was placed under business rescue by resolution of its board of directors taken on 09 September 2017 and filed with the third respondent, The Companies and Intellectual Property Commission of South Africa (the Commission). The Commission issued a Notice of Appointment of Business Rescue Practitioner pertaining to Lyndoch to Dr LL Wolmarans. The placement of Lyndoch under business rescue effectively brought further processes of the bank to a halt in terms of further process. See s 133 of the Companies Act[2] which stipulates:

"133 General moratorium on legal proceedings against company. -

(1) During business rescue proceedings no legal proceeding, 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) ....

(b) with the leave of the court and in accordance with any terms the court considers suitable."

[8] Notwithstanding, Lyndoch having placed itself under voluntary business rescue, 27 months later, there is still no business rescue plan. Dr Wolmarans' explanation for this situation essentially boils down to a lack of cooperation from Lyndoch and its members having no intention to fund the rescue attempt. Despite the fact that Lyndoch was under the supervision of the business rescue practitioner, Thomas Knoesen, and Richard Knoesen, a co­ member of Lyndoch, concluded contracts without involving the business rescue practitioner or seeking his consent. On 27 February 2018 Dr Wolmarans issued a notice to all affected persons in terms of s 141(2)(a)(ii) of the Act that after analysing the financial position of Lyndoch he had reached the conclusion that there is no possibility of rescuing the company. He was in the process of appointing an attorney to approach the court for an order to discontinue the business rescue proceedings and placing Lyndoch under liquidation. What struck me in this submission was Lyndoch's response in its answering affidavit as deposed to by Mr Thomas Knoesen at para 16.8 where he made this startling concession: "In this respect I might have not fully taken the business rescue practitioner into my confidence."

[9] The following extract from a letter by Cloete van Wyk Incorporated dated 17 November 2018 on behalf of Dr Wolmarans addressed to the bank's attorneys, Symington De Kok Attorneys, also militates against good cause shown by Lyndoch:

"While preparing our client's founding affidavit it became evident that the members of Lyndoch 432 CC (Lyndoch) were from the outset intent on delaying the inevitable institution of legal action by creditors. Unfortunately, our client had to contend with the same intentions after his appointment. He had been bombarded with a plethora of empty promises, ostensibly to maintain the illusion that the business could be rescued. To exacerbate the already dire situation, Lyndoch fail to deliver on promises to fund the rescue attempt leaving our client virtually incapable of properly executing his functions. It should be borne in mind that our client is based in Pretoria and that Lyndoch operates from a farm in the vicinity of Kathu."

[10] Undeniably in business rescue proceedings a business rescue practitioner is supposed to be in charge of the rescue process including strategies employed to rescue the business. However, Dr Wolmarans was kept in complete darkness in as far as the following funds were concerned: R17,500.00 derived monthly by Lyndoch from renting out workshops situated on the property for steel construction work or storage space. The contract is valid for one year; R4,000.00 derived monthly from a one year contract of renting out an apartment situated on the property; and there is also R12,000.00 derived bi-annually in respect

of an option agreement concluded with Hyperion Solar Development (Pty) Ltd. The business rescue practitioner was not placed in funds to rescue the business whereas some income derived by Lyndoch was pilfered by its members.

[11] Mr Tsangarakis urged me to find that Lyndoch was a recalcitrant debtor who abused the business rescue process to delay the inevitable. There is also no reason for it to have waited until the day of the hearing to apply for the postponement of the main case. What makes matters worse is that after seeking the indulgence Lyndoch did not even tender costs. The application for a postponement was without merit. The submissions made had not shown any good cause on the part of Lyndoch. Hence the dismissal of the application for a postponement.

Admission of an additional (supplementary) affidavit by Lyndoch

[12] Lyndoch sought leave to file an additional affidavit because it claimed that there was new and crucial information that surfaced after the replying affidavit was filed in May 2019 which would impact materially on the outcome of the application.

[13] Mr Coetzee's submission on behalf of Lyndoch that there was a clear plan to ensure the bank's recovery of its debt is unconvincing. On 05 March 2020 Lyndoch's attorney had directed the following proposal to the bank's attorneys:

13.1 That an amount of R200,000.00 in cash would be paid into the trust account of the bank's attorney on or before 13 March 2020;

13.2 That an amount of R1,800,000.00 would be paid within a period of two months but on or before 30 May 2020; and

13.3 The balance of R3,500,000.00 would be paid in amounts of R40,000.00 over a period of 18 months.

13.4 However, the proposal is silent with regards to compound interest calculated on the capital amount as well what will happen at the expiry of the 18 month period. That amount has to be taken into reckoning.

[14] What was overlooked by Lyndoch's counsel is that Hyperion Solar Development (Pty) Ltd had addressed a letter to Lyndoch dated 29 November 2019 pertaining to the Option to Lease Agreement between Hyperion and Lyndoch which was entered into on 05 May 2016. Of importance is the following statement at para 2:

"We confirm that we are in the process of developing the Projects and intend to submit a bid submission under the Renewable Independent Power Producer Procurement Programme ("REIPPPP''). Should the Projects be successful Hyperion shall exercise its option to lease under the Option to Lease Agreement (the "Option'') after the Project companies are appointed Preferred Bidders. Thereafter, the Landowner will be required to execute enter into special powers of attorney which would allow a conveyancer to notarially execute the resultant lease agreements (the "Lease Agreements'') and have it registered over the Property. "

[15] In addition to para 13 (above) there are conditions precedent to this agreement as appears at para 3 of "LAN 6"which reads:

"3. 1 The whole of this Agreement, subject to the fulfilment, or waiver as the case may be, of the following Conditions Precedent -

……..

3.1.12 that should all the conditions precedent referred to in 3.1.1 to 3.1.11 above be timeously fulfilled or waived, First Rand Bank then withdraws its pending liquidation application as against the corporation and all co-respondents therein, within 7 days from 07 April 2020 and enter into a written settlement agreement with the Corporation (on terms and conditions acceptable to the Purchaser), settling the liquidation application and all its claims against the Corporation."

[16] There is no certainty, in my view, in the offer placed on the table, particularly after the inordinate delay by Lyndoch to place a tangible offer or to settle its indebtedness, the proposal or plan does not make the situation any better.

[17] The Supreme Court of Appeal stated in Hano Trading CC v JR 209 Investments (Ply) Ltd[3] that:

"[10] A litigant in civil proceedings has the option of approaching a court for relief on application as opposed to an action. Should a litigant decide to proceed by way of application, Rule 6 of the Uniform Rules of Court applies. This rule sets out the sequence and timing for the filing of the affidavits by the respective parties. .......... It is accepted that the affidavits are limited to three sets.[4] It follows thus that great care must be taken to fully set out the case of a party on whose behalf an affidavit is filed. It is therefore not surprising that rule 6(5)(e) provides that further affidavits may only be allowed at the discretion of the court."

[18] Lyndoch's explanation for the late filing of this affidavit rs unpersuasive and unmeritorious. The additional affidavit was just another form of exploitation of the situation and an abuse of court process. From the extracts of the information that was argued before me, the evidence sought to be introduced fails the test of being so crucial that, if accepted, would likely change the outcome of the matter.

The provisional liquidation application

[19] As far as the provisional liquidation of a company is concerned it is helpful to have regard to the pronouncements by the Supreme Court of Appeal in Naidoo v Absa Bank[5] where the following was said:

"[4] Mr Reddy's submission, as I understand it, implicitly contains a concession that sequestration proceedings are not in and of themselves 'legal proceedings to enforce the agreement' within the meaning of s 129(1)(b). That his concession is correct is clear from the recent judgment in Investec Bank Ltd v Mutemeri where Trengove AJ concluded that an order for the sequestration of a debtor's estate is not an order for the enforcement of the sequestrating creditor's claim and sequestration is thus not a legal proceeding to enforce an agreement. He did so after carefully considering the authorities which have held that 'sequestration proceedings are instituted by a creditor against a debtor not for the purpose of claiming something from the latter, but for the purpose of setting the machinery of the law in motion to have the debtor declared insolvent' - they are not proceedings 'for the recovery of a debt'. The learned judge's reasoning accords with this court's description of a sequestration order as a species of execution, affecting not only the rights of the two litigants but also of third parties, and involves the distribution of the insolvent's property to various creditors, while restricting those creditors' ordinary remedies and imposing disabilities on the insolvent - it is not an ordinary judgment entitling a creditor to execute against a debtor." (Own emphasis added).

[20] Mr Tsangarakis therefore submitted that even though Mr Coetzee had left the issue of costs in the hands of court, it still does not address the issue of prejudice to the bank. Counsel submitted that members of Lyndoch cannot be trusted with the company money because they have already concealed income derived from leasing the farm or the building on it to get the bank off their back. They have not given the business rescue practitioner any cooperation . The bank still owes its accountability to its shareholders.

[21] Innes CJ made this enunciation in De Waard v Andrews & Thienhaus[6]:

"Now, when a man commits an act of insolvency he must expect his estate to be sequestrated. The matter is not sprung upon him .... of course; the Court has a large discretion in regard to making the rule absolute; and exercising that discretion the condition of a man's assets and his general financial position will be important elements to be considered. Speaking for myself, I always look with great suspicion upon, and examine very narrowly, the position of a debtor who says, 'I am sorry that I cannot pay my creditor, but my assets far exceed my liabilities. 'To my mind the best proof of solvency is that a man should pay his debts; and therefore I always examine in a critical spirit the case of a man who does not pay what he owes."

[22] The following facts are common cause: That Lyndoch is indebted to the bank; and that Lyndoch is commercially insolvent and in a state of financial distress. These remarks by Leveson J in Dunlop Tyres (Pty) Ltd v Brewith[7] are relevant:

"[19] If the debtor is to persuade the court to exercise its discretion in his or her [or its] favour, he or she [or it] must place evidence before the court that clearly establishes that the debts will be paid if a sequestration order is not granted. If that contention is based on a claim that the debtor is in fact solvent then that should be shown by acceptable evidence."

[23] It is inconceivable that Lyndoch can expect the situation to be left as is. The bank should not be deprived from recovering its debt or pursue any form of redress. The business rescue practitioner has issued a notice in terms of s 141(2)(a) of the Act having reached the conclusion that the company must be liquidated. A further postponement prolongs the state of uncertainty and inevitable prejudice to the bank or even a possible concursus of creditors. I am satisfied that It will be in the interests of justice that the provisional order sought be granted at this stage.

[24] There is no evidence before this Court that the liquidators will abandon the solar project. In any event, I will not entertain that issue because it is not an issue before me.

[25] In the result, the following order is made:

1. The applicant, First Rand Bank Limited, is granted leave in terms of s 133(1)(b) of the Companies Act 71 of 2008, as amended, to commence and proceed with the relief sought in prayers 2 and 3 (inclusive of sub-paragraphs thereto) below.

2. The voluntary resolution adopted by the board of the second respondent, Lyndoch 432 CC on 15 September 2017 commencing the business rescue proceedings of the second respondent and placing it under business rescue, is set aside in accordance with the provisions of s 130(1)(a) of the Companies Act.

3.1 The second respondent Is placed under provisional liquidation in the hands of the Master of the Northern Cape High Court, Kimberley.

3.2 A rule nisi is issued calling upon all interested parties to advance reasons, if any, why the Court should not order final liquidation of the second respondent on 08 May 2020.

3.3 Service of this rule nisi, a copy of the Notice of Motion and annexures thereto, be effected on the second respondent at its registered address or its principal

place of business within the Court's jurisdiction.

3.4 This order must, without delay, be published in "Die Volksblad" newspaper and the Government Gazette.

3.5 A copy of the winding-up order be served on:

3.5.1 the first respondent;

3.5.2 every registered trade union that as far as the sheriff can reasonably

ascertain represents any of the employees of the second respondent;

3.5.3 the employees of the second respondent by affixing a copy of the application and provisional order on any notice board to which the employees have access to inside the second respondent's premises or if there is no access to the premises by the employees, by affixing a copy to the front gate of the premises from which the second respondent conducts any business; and

3.5.4 the South African Revenue Service.

3.6 The sheriff must ascertain whether the employees of the second respondent are represented by a trade union and whether there is a notice board on the premises to which the said employees have access.

3.7 That the costs of this application are to be paid from the estate of the second respondent on an attorney and client scale.

MC MAMOSEBO

JUDGE OF THE HIGH COURT

NORTHERN CAPE DIVISION

For the Applicant: Adv S Tsangarakis

Instructed by

Symington & De Kok Attorneys

c/o Mervyn Joel Smith Attorneys

For the 2nd Respondent: Adv W Coetzee SC

Instructed by:

Michca J Van Vuuren Attorneys

c/o Roux Wilgemoed Du Plooy Attorneys

[1] 2000 (4) SA 1110 (CC) at 1112 para 17

[2] 71 of 2008

[3] 2013 (1) SA 161 (SCA) at para 10

[4] Transnet Ltd v Rubenstein 2006 (1) SA 591 (SCA) para 28

[5] 2010 (4) SA 597 (SCA) at para 4

[6] 1907 TS 707 at 733

[7] 1999 (2) SA 580 (W) at 583