Ex parte: Target Shelf 284 CC; Commissioner, South African Revenue Service and Another v Cawood N.O. and Others (21955/14; 34775/14) [2015] ZAGPPHC 740 (13 October 2015)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

CASE NO: 21955/14

In the ex parte application of:

TARGET SHELF 284 CC

APPLICANT

(in business rescue)

CASE NO:34775/14

And in the counter-application between:

THE COMMISSIONER, SOUTH

AFRICAN REVENUE SERVICE

1stAPPLICANT/I NTERVENING PARTY

BUSINESS PARTNERS LTD

2nd APPLICANT/I NTERVENING PARTY

And

WERNER CAWOOD N.O

1st RESPONDENT

JOHAN CHRISTIAAN BEER N.O

2nd RESPONDENT

TARGET SHELF 284 CC

3rd RESPONDENT

THE COMPANIES AND INTELLECTUAL 4th RESPONDENT

PROPERTY COMMISSION

J U D G M E N T

KUBUSHI, J

INTRODUCTION

[1] The matter before me comprises two applications: an ex parte application instituted by Target Shelf 284 CC (in business rescue) ("Target Shelf'), herein referred to as 'the ex parte application'; and, counter-applications instituted by the Commissioner for the South African Revenue Service ("SARS") and Business Partners Ltd ("Business Partners"), respectively, against Target Shelf and the duly appointed business rescue practitioners of Target Shelf ("the practitioners") - herein referred to as 'the counter-application' for purposes of this judgment.

[2] In the ex parte application, the practitioners, on behalf of Target Shelf, have approached court in terms of s 153 (1) (a) (ii) of the Companies Act 71 of 2008 ("the Act"), for an order to set aside Business Partners' vote to refuse to adopt

the proposed amended business rescue plan for Target Shelf on the ground that the vote is inappropriate, and ordering that the amended plan be finally adopted.

[3] SARS and Business Partners are resisting the ex parte application and in their respective counter-applications are pursuing the discontinuance and/or termination of the business rescue

proceedings, that is, they seek the conversion of the business rescue proceedings into liquidation proceedings, and the winding up of Target Shelf in the hands of the Master of the High Court. SARS and Business Partners filed combined affidavits in their respective counter-applications, which, firstly, set out facts in support of the counter-application; secondly, set out the basis of the opposition to the ex parte application.

[4] SARS and Business Partners, pursuant to the ex parte application, launched separate applications for leave to intervene which also included counter-applications. I am informed that the applications for intervention as well as the counter­ applications were proceeded with by the intervening parties on 21 May 2014, on an urgent basis, on the unopposed roll. The applications were postponed sine die and the costs occasioned thereby reserved for later determination. As of now, Target Shelf is not opposing the intervening applications and I, as a result, grant SARS and Business Partners leave to intervene as applied for.

[5] By agreement between the parties and it appears by order of the Deputy Judge President who allocated this matter to be placed on the special civil court roll, both the ex parte application and the counter-application are to be heard simultaneously. I, as a result, hereby grant an order to consolidate all the applications and to deal with them under the case number allocated to the ex parte application. For convenience, I shall deal first with the ex parte application and depending on the outcome thereof, deal with the counter-application. I shall, also, for convenience, refer to the two counter-applications as 'the counter-application'; the parties will be referred to in their respective names; and, I shall refer to Target Shelf and the practitioners interchangeably. I shall deal with SARS and Business Partners' cases, where the issues are the same, as one case, since they were represented by the same counsel.

[6] SARS in its affidavit for the service of its counter-application requests condonation for the late filing of that affidavit (the service affidavit). The contents of the service affidavit are purely procedural in nature and there being no opposition thereto, the late filing of the service affidavit is hereby condoned.

THE PARTIES

Target Shelf CC

[7] Target Shelf is a property owning entity and earns income through the rental of residential and commercial properties. It owns three immovable properties in Hout Bay, Cape Town ("the immovable properties"), being: a commercial building and two residential units in a sectional title scheme known as Panorama Hills. Mr Konstantinos Tsakiroglou ("Mr Tsakiroglou") is the sole member and director of Target Shelf.

[8] At the time of launching the ex parte application, the two units at Panorama Hills were unoccupied. As regards the commercial building, which consists of a two storey building, with four separate units on the ground level and a further four units on the second level - only two units were occupied on the ground level and two units occupied on the upper level.

[9] Mortgage bonds are registered over the property in favour of Business Partners. On 15 June 2009, Mr Tsakiroglou, being the sole member of Target Shelf, executed a suretyship agreement in favour of Business Partners for the performance of Target Shelf's payment obligations to Business Partners. Mr Tsakiroglou's estate was sequestrated on 13 May 2015.

Business Partners (Pty) Ltd:

[10] In terms of a loan facility concluded on 22 June 2009 Business Partners loaned and advanced an amount of R10 000 000 to Target

Shelf. Target Shelf was to pay interest for the first year and make a bullet payment of the capital amount in 2010. Certain interest

payments were received, but the bullet payment was not. As at 25 November 2013 the full amount currently owing by Target Shelf to Business

Partners on the loan facility was the amount of R11 504 302, 04. As already said, the loan was secured by a first mortgage bond over Target Shelf's immovable properties.

[11] Business Partners and Target Shelf also concluded a royalty agreement on 22 June 2009. Business Partners' claim in respect of the royalty agreement was, as at 25 November 2013, in the amount of R1 140 000. Business Partners has additional claims against Target Shelf in terms of two invoices, in the amounts of R302 146, 57 and R20 419, 40, respectively.

[12] Consequently, Business Partners has a claim against Target Shelf in excess of R11,5 million. Business Partners is the biggest creditor of Target Shelf and holds 95, 45% of the available voting interests.

South African Revenue Service

[13] SARS became involved as a creditor of Target Shelf because Target Shelf failed to submit certain of its tax returns and the

corresponding payments in respect of Income Tax, Value-Added Tax ("VAT"), Skills Development Levies ("SDL"), Pay­ As-You-Earn ("PAYE") and Unemployment Insurance Contributions ("UIC"), herein referred to as the outstanding tax liability. As at 5 December 2013, SARS' total claim against Target Shelf in respect of tax returns that had been rendered at that date but not yet paid amounted to R133 338, 80 including penalties and interest thereon. In addition, tax returns for Income Tax, SDL and VAT for various periods ranging from 2008 to 2013 were also outstanding. The outstanding tax returns relate to tax periods to and post-commencement of the business rescue proceedings. In the light of the outstanding tax returns, SARS' claim, though admitted, has not been finally determined.

BACKGROUND

[14] Before I deal with the parties' submissions, I find it appropriate that I provide a short background of the facts which led to the applications before me.

[15] As a result of Target Shelf's default in its payment obligations, on 20 May 2011 Business Partners issued summons against Target Shelf and Mr Tsakiroglou, in his capacity as surety and co-principal debtor, for the performance of Target Shelf's obligations to Business Partners. The action was defended and Business Partners applied for Summary Judgment which was postponed sine die. This action is still pending. Business Partners also applied for the liquidation of Target Shelf but the application was withdrawn.

[16] Pursuant to the aforesaid action between Business Partners and Target Shelf, and on 20 August 2013, Mr Tsakiroglou, in his capacity as sole member and director of Target Shelf resolved in terms of s 129 of the Act that Target Shelf voluntarily commence business rescue proceedings on the ground that it is financially distressed and that there are reasonable prospects of it being rescued. The resolution was filed with the Companies and Intellectual Property Commission ("CIPC") on 27 November 2013, thereby commencing the business rescue proceedings. On 3 December 2013 Mr Wener Cawood ("Mr Cawood") and Mr Johan Christian Beer ("Mr Beer") were appointed as business rescue practitioners to Target Shelf ("the practitioners").

Both Mr Beer and Mr Cawood practice as accountants and as business rescue practitioners under the name and style of Turning SA (Pty) Ltd in Pretoria.

[17] Three meetings of creditors were held which produced two business rescue plans, namely, the first business rescue plan published on 10 January 2014 and the amended business rescue plan published on 13 February 2014. On 21 February 2014, the amended business rescue plan was put to a vote, and, Business Partners, which holds 95, 45% voting interests, voted against the amended business rescue plan. In order to avoid confusion, I refer in this judgment to the meeting of 21 February 2014 as the third meeting of creditors. The practitioners indicated at that meeting that they intend to apply to court for an order in terms of s 153 (1) (a) (ii) of the Act, to set aside the vote on the ground that the vote is inappropriate. The meeting was accordingly adjourned and on 14 March 2014 Target Shelf, rather the practitioners, instituted the ex parte application.

[18] Besides, SARS and Business Partners, there are other creditors of Target Shelf that have lodged their claims with the practitioners but they are not involved in this matter, namely, Panorama Hills Body Corporate ("the Body Corporate"), Europa Trust ("the Trust") and the City of Cape Town. Neither of these creditors could prove their claims.

[19] The Body Corporate is said to hold 3. 54% of the voting interest in the business rescue proceedings.

[20] Mr Tsakiroglou alleged that he holds his assets in the Trust which he controls. According to Mr Tsakiroglou, Target Shelf is indebted to the Trust. The claim of the Trust was, however, not accepted by the practitioners because it is not clear on what basis the Trust could have a claim against Target Shelf, as such, the Trust holds no voting interest in Target Shelf.

[21] It is common cause that during the erection of the commercial building certain problems arose as far as the infringement on the building regulations applicable to the premises concerned. The building encroached on the prescribed building lines with as little as 1cm. As a result of this infringement, Target Shelf entered into a lengthy litigation with the City of Cape Town. On accepting the work, the practitioners immediately investigated the possibility of rezoning the eight commercial units in order to allow for the units to be sold separately so that the selling price would be optimised. The units were rezoned. It is Target Shelf s submission that at the time the ex parte application was launched, Target Shelf was in the process of rectifying the encroachment. It is alleged that all the building discrepancies, regarding the commercial building, have now been addressed and the City of Cape Town has indicated that the registration process may be proceeded with. A local firm of architects has now been appointed to submit the amended building plans for the Sectional Title Register. It is also averred that at the commencement of the business rescue process, Target Shelf was battling to make good on the legal costs incurred in respect of the litigation between it and the City of Cape Town. Hence the claim lodged by the City of Cape Town with the practitioners.

THE EX PARTE APPLICATION

The issue to be determined

[22] The parties, in the papers before me, raised various technical points. These points sought to dismiss each other's application out of hand.

[23] When it comes to business rescue proceedings, the Act envisages a short term approach. This is so for self-evident reasons.

There must be a measure of

certainty in the commercial world. Creditors should not be left in a state of flux for an indefinite period.[1] It is on that basis that I find it apposite that, due to the lengthy time it has already taken to finalise the business rescue proceedings, this matter should not be decided on technicalities but on the merits in order to reach finality.

[24] In that vein, the crux of the issue to be determined, in the ex parte application, is whether the vote of Business Partners rejecting the amended business rescue plan of Target Shelf is inappropriate or not.

Applicable Jaw

[25] Before I deal with the merits and the demerits of the submissions by the parties before me, I find it apposite that I set out the process followed in the business rescue proceedings leading to the rejection or acceptance of a business rescue plan by the creditors.

[26] In terms of s 128 (1) (b) of the Act, business rescue is defined as proceedings to facilitate the rehabilitation of a company that is financially distressed. Provision, in accordance with s 128 (1) (b) (iii) of the Act, is made during the business rescue proceedings for the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company's creditors or shareholders than would result from the immediate liquidation of the company.

[27] The practitioner(s), after consulting the creditors and other affected persons, and the management of the company, must prepare a business rescue plan for consideration and possible adoption at a meeting of creditors. The business rescue plan must contain all the information reasonably required to facilitate affected persons in deciding whether or not to accept or reject the plan. The business rescue plan must be published by the company within 25 business days after the date on which the practitioner(s) was appointed, or such longer time as may be allowed by a court on application or the holders of a majority of the creditors' voting interests.[2]

[28] Within 10 business days after publishing a business rescue plan, the practitioner(s) must convene and preside over a meeting of creditors and any other holders of a voting interest, called for the purpose of considering the plan. At such a meeting, the practitioner(s) must introduce the proposed business plan for consideration by the creditors, and if applicable by the shareholders; inform the meeting whether the practitioner(s) continues to believe that there is a reasonable prospect of the company being rescued; invite discussion, and entertain and conduct a vote on any motions to amend the proposed plan or direct that the meeting be adjourned in order to revise the plan for further consideration; and call for a vote for the preliminary approval of the proposed plan, as amended, if applicable. A plan will be approved on a preliminary basis only if, amongst other things, it is supported at the meeting by the holders of more than 75% of creditors' voting interests that were

voted.[3]

[29] If the plan is not approved, a number of options, as to how to proceed further with the business rescue, are provided for in terms of s 153 of the Act. Two of the options require the approval of creditors and the other two options provide for an application to court by the practitioner(s) or an affected person present at the meeting, to set aside the result of the vote on the grounds that it (the vote) was inappropriate.

Application of the law to facts

[30] The jurisdictional facts which must be established in order to set aside a vote taken in terms of s 152 (1) of the Act are that (i) there must be a rejection of the business rescue plan [s 152 (3) (a)]; (ii) there must be grounds that satisfy the court that the rejection of the vote was inappropriate [s 153 (1) (a) (ii)]; and, (iii) the court must be satisfied that it is reasonable and just to set the vote aside [s 153 (7)].

[31] It is common cause that the vote, in this instance, was rejected by Business Partners representing the majority of the creditors. What remains in issue is whether the vote was inappropriate and whether it is reasonable and just to set the vote aside.

[32] The court in Shoprite Checkers (Pty) Ltd and Another v Ne/ N.O. and Others (47327/2014) [2015] ZAGPPHC 255 (11 March 2015) para 40 adopted a two stage approach to be followed by a court when considering an attack on a vote under s 153 (7): firstly, the court must determine whether the vote is inappropriate; and, only if it finds that the vote is inappropriate can it consider whether, taking this into account, it would be reasonable and just to set the vote aside.

[33] Much as I am in alignment with the said two stage approach adopted in the Shoprite Checkers-judgment above, I am not in agreement with its conclusion that only if a court finds that the vote is inappropriate can it consider whether it would be reasonable and just to set the vote aside. To my mind, a court is enjoined to consider whether it is reasonable and just to set the vote aside even where it made a finding that the vote is appropriate. This is the approach I intend to follow in this judgment.

Is the vote inappropriate?

[34] The term 'inappropriate' is not defined in the Act. It is thus not clear what is envisaged by the term as stated in s 153 (1) (a) (ii) of the Act. The court in Shoprite Checkers-judgment above para 37, when analysing the meaning of the term 'inappropriate', gave it its ordinary dictionary meaning of 'unsuitable, unfitting or improper', which is the meaning I intend to use for purposes of this judgment.

[35] The issue of the appropriateness of Business Partners' vote was not specifically addressed in Target Shelf's founding papers. Target Shelf instead opted to deal with the requirements of s 153 (7) of the Act, that is, whether it is reasonable and just for the court to set the vote aside. However, when addressing me in court, counsel for Target Shelf submitted on its behalf that the vote was inappropriate because Business Partners had at all material times hereto been involved in the development of the business rescue plan and had at all times agreed to the strategy adopted in the business rescue plan by the practitioners, and did not indicate its intention to deviate from the proposed business rescue plan, until when the amended business rescue plan was put to the vote. The contention is that Business Partner should, as such, not have voted against the proposed amended business rescue plan, and having done so, its vote is, thus, inappropriate. According to Target Shelf, Business Partners rejected the plan only because the practitioners rejected its legal costs in respect of the City of Cape Town litigation. Business Partners also refused to consider any further amendments to the proposed business rescue plan or to accommodate SARS who was the main creditor who moved a motion to adjourn the meeting in order to consider further amendments. Business Partners insisted on casting the vote on the existing plan and proceeded to vote against the amended business rescue plan, so it is argued.

[36] Chapter 6 of the Act makes it clear that creditors have the strongest right to consultation regarding the development of a business rescue plan. They have the biggest financial interest in the outcome of the proposed business rescue. As such practitioner(s) must prepare a business plan after consultation with the creditors. [4] In terms of s 145 (1) (c) and (d) of the Act, creditors have a right inter alia to:

- Formally participate in the business rescue proceedings; and

- Informally participate in the proceedings by making proposals for business rescue plan to the practitioner{s).

[37] It is indeed so that Business Partners has from inception of the business rescue proceedings been involved in the development of the business rescue plan. In answer to Target Shelf's submission in this regard, Business Partners contends that it was not opposed to the process, provided its concerns were dealt with in the business rescue plan. Business Partners' list of concerns was provided to the practitioners by Business Partners' attorney, but, the concerns were not attended to in the business rescue plan, so the argument goes.

[38] It is common cause that on 7 January 2014 the practitioners called for proposals for inclusion in the proposed business rescue plan, and, in an email dated 8 January 2014 Business Partners, through its attorney Mr PJ Veldhuizen, proposed various topics that it required to be included in the business rescue plan. The contents of the said email read as follows:

"Dear Johan

The above matter refers.

I would suggest that the following areas/issues be canvassed in the proposed business rescue plan, if Business Partners is to vote responsibly and appropriately.

• What is the business of the close corporation? Is it simply an asset owning company with no real business?

• Why do the business rescue practitioners believe the creditors will get a better return on their claims than in an immediate liquidation, in the light of the fact that our courts have firmly rejected this view and pointed out that there is no reason to assume that a liquidator would not be able to sell an asset at its real market value or would get a lower price than a business rescue practitioner would? (see Oakdene Square Properties (Ply) Ltd v Farm Bothasfontein (Kyalami) (Pty) Ltd).

• What are the business rescue practitioners' comments on the view that this business rescue procedure may just really be another, albeit longer and more expensive route to liquidation?

• What fees do the business rescue practitioners propose charging and will be [sic] company be expected to pay for travel expenses?

• What oversight and transparency measures will be put in place when assessing the reasonability of the fees charged and the hours worked by the business rescue practitioners?

• Will the member be earning or accruing a salary from the close corporation during business rescue as this is assumed to be post commencement financing and will effectively be paid by the creditors?

• What investigation will be conducted into the affairs of the close corporation in particular such investigation as envisaged in section 141 (2) (c) - (i.e. whether there is evidence of voidable transactions, the failure of the member to conduct himself appropriately, reckless trading, fraud or any other applicable contravention.

• Control of banking accounts;

• Collection of rentals and were these funds will be paid in the light of the agreement to make payment of these funds to Business Partners;

• Dates by which:

o Statutory SARS returns will be filed;

o Financial records will be up-to-date;

o It will be confirmed that the building plans have been regularised;

o Authorisation will be given by the city that the property can be sold by public auction or private treaty;

o A private treaty sale must be received and when suspensive conditions must be met;

o An auction route should be followed;

o Conversion to liquidation should take place. These are just my preliminary points, and I may add to them. Kind regards"

[39] When the first business rescue plan was produced, Business Partners' proposals, as stated in the email of 8 January 2014, were not encapsulated in the business rescue plan. The reason provided by the practitioners is that the proposals were provided only two days before the publication of the first business rescue plan. The practitioners undertook to deal with Business Partners' concerns in an addendum.

[40] Business Partners sent another email to the practitioners on 16 January 2014 reminding the practitioners about the addendum dealing with Business Partners' issues. It is evident from the reading of the email of 8 January 2014 that when the addendum was eventually produced it did not deal with the concerns raised by Business Partners. The addendum dealt mostly with paragraph 8 and paragraph 12 of the business rescue plan. Paragraph 8 of the business rescue plan dealt with the strategy of the practitioners and paragraph 12 dealt with the benefits of adopting the business rescue versus benefits in liquidation.

[41] The addendum to paragraph 12 partly dealt with Business Partners' concern as to the question why the business rescue practitioners

believe the creditors will get a better return on their claims than in an immediate liquidation. But the addendum did not satisfy

Business Partners as will more fully appear hereunder. Attached to the said addendum was the distribution and liquidation account

prepared by an independent expert/liquidator. The liquidation and distribution account was intended to show the projected calculations

of benefits due to creditors in the event of a rescue process as against benefits due in a liquidation process. Business Partners was not happy with the projected calculations. In its papers before me Business Partners' concern is that the comparative figures have been manipulated.

[42] Business Partners' concerns having been addressed neither in the first business rescue plan nor in the addendum were taken forward at the second meeting of creditors, which meeting was also adjourned to give the practitioners an opportunity to address Business Partners' concerns. It appears from the minutes of that meeting that Mr Veldhuizen on behalf of Business Partners requested that the following points be attended to in the plan:

- Compliance with SARS;

- Cut-off-date for marketing the property will be the end of March 2014. If no sale agreement for the property's [sic] by the end of April 2014 then auction properties. The timeframe can be adjusted if enough progress made to property market and sell properties at market related values.

- What attempt made to recover money from the member.

- Need breakdown of the practitioners' fees. This will be published in the BR plan.

- Tabled motion to postpone meeting and voting on the BR plan."

As can be noted, all these concerns were also raised by Business Partners in the email of 8 January 2014 and were not addressed in the first business rescue plan or in the addendum to the first business rescue plan.

[43] When the amended business rescue plan was produced on 13 February 2014, most of the issues raised in the email of 8 January 2014 and the concerns raised at the second meeting of creditors were still not addressed. And, on 19 February 2014 Mr Veldhuizen on behalf of Business Partners indicated in an email to the practitioners that it was a precondition of Business Partners' approval of any business rescue plan that the liability of the surety (Mr Tsakiroglou) would remain in respect of any shortfall. On the same day, the practitioners produced an amended liquidation and distribution account, which still did not address the concerns raised. To my mind, at this stage of the process, the practitioners should have been aware of Business Partners' intention to deviate from the strategy proposed by the practitioners should its concerns as raised in the emails of 8 January 2014 and 19 February 2014, not be attended to. Consequently, at the third meeting of creditors, convened for voting, Business Partners voted against the adoption of the amended business rescue plan.

[44] I do not think that Business Partners' requirements were unreasonable. The concerns were raised in order to safeguard Business

Partners' interests. The practitioners were given time to amend the business rescue plan, but failed in the amended business

rescue plan to address Business Partners' concerns. Mr

Veldhuizen specifically informed the practitioners of a precondition of Business Partners' approval of the business rescue plan. This was ignored by the practitioners. Despite being clearly apprised of Business Partners position, the practitioners proceeded in formulating a plan contrary to the concerns raised. It is, as such, not surprising that, even though Business Partners had participated

in the development of the plan from its inception, in the end it voted against the adoption of the amended business rescue plan. It is, thus, evident from the aforesaid that Business Partners voted in good faith and in its best interest under the circumstances.

[45] Target Shelf's argument that Business Partners rejected the business rescue plan only because the practitioners failed to include Business Partners' legal costs in respect of the City of Cape Town litigation falls flat as a result. It is evident from what is stated above that there were numerous other issues that were not attended to by the practitioners which, until the business rescue plan was rejected, remained concerns for Business Partners. Moreover, Business Partners was entitled to reject the amended business rescue plan on the basis that its legal costs were not catered for in the amended business rescue plan. It is Business Partners' submission that the legal costs were due and owing and only required to be taxed. The legal costs were accepted by the practitioners with a proviso that they will be dealt with outside the amended business rescue plan.

[46] SARS' submission against Target Shelf, in this regard, is more or less similar to that of Business Partners. SARS cannot quantify its claim because of failure by the practitioners to submit the outstanding tax returns. As early as 4 December 2013 SARS had a meeting with the practitioners where the issue of the outstanding tax returns was discussed. And, on 12 December 2013 SARS sent a letter to the practitioners demanding the submission of all outstanding returns before 7 January 2014. This was not done. Between the 13 January 2014 and 24 January 2014, Target Shelf's accountant tried to finalise the outstanding tax returns without success. It is common knowledge that the first business rescue plan and the amended business rescue plan were published without the tax returns having been submitted to SARS and to date of these proceedings SARS had not received the tax returns.

[47] The issue of SARS outstanding tax returns was also a concern raised by Business Partners in its emails of 8 January 2014 and 19 February 2014, to the practitioners. This issue remained outstanding even when the amended business rescue plan was published. As such, the issue was discussed in all the meetings of creditors convened by the practitioners. The practitioners failed to render the necessary returns to SARS as they undertook to do and stated in the amended business rescue plan that SARS' claim will be dealt with outside the business rescue proceedings. This is the same approach taken by the practitioners in respect of the legal costs incurred by Business Partners relating to the City of Cape Town litigation. No explanation is given as to how these claims were eventually to be dealt with. The amended business rescue plan does not point to any particular provision in the Act which allows for such a process. In fact, the Act does not provide for such a process, at all, and it is not known how the practitioners meant to deal with the claims once the business rescue plan was adopted.

[48] I do not, therefore, believe Business Partners' vote could be regarded as inappropriate under the circumstances. Actually, there is nothing improper or inappropriate about the vote and Target Shelf was not able in its papers or in argument to establish same. The amended business rescue plan did not deal with most of the concerns raised by Mr Veldhuizen in his emails of 8 January 2014 and 19 February 2014 and as discussed in the various meetings of creditors convened by the practitioners, which includes SARS' outstanding tax returns, as well.

Is it Reasonable and Just to set aside the vote?

[49] Having found the vote to be appropriate, I have to consider whether it is reasonable and just to set it aside.

[50] In terms of s 128 (1) (b) of the Act, the primary goal of business rescue is to facilitate the continued existence of the company in a solvent state. A secondary goal, which is provided for in the alternative, that is, in the event the achievement of the primary goal proves not to be viable, is to facilitate a better return than would result from immediate liquidation. Consequently, in order to succeed in an application for business rescue, the applicant must establish grounds for a reasonable prospect of achieving one of the two goals mentioned in s 128 (1) (b) of the Act.

[51] It is common cause that, in this instance, the achievement of the primary goal is not viable, and as such, the aim of the practitioners, as alleged in the papers, is to facilitate a better return than would result from immediate liquidation. Target

Shelf is dominus litis in the ex parte application, the practitioners must, therefore, satisfy the court that there are reasonable prospects of achieving a better return for creditors than would result from immediate liquidation.

[52] The requirement of 'reasonable prospect' has been held to be more than a mere prima facie case or an arguable possibility. It must be a prospect based on reasonable grounds; a speculative suggestion is not enough.[5] The prospect must consist of cogent evidential foundation to support the existence of a reasonable prospect that the desired object can be achieved.

[53] Section 153 (7) of the Act provides that 'on an application contemplated in subsection (1) (a) (ii), a court may order that the vote on a business rescue plan be set aside if the court is satisfied that it is reasonable and just to do so, having regard to -

(a) The interests represented by the person or persons who voted against the proposed business rescue plan;

(b) The provisions, if any, made in the proposed business rescue plan with respect to the interests of that person or those persons; and

(c) A fair and reasonable estimate of the return to that person, or those persons, if the company were to be liquidated.'

(a) The interests of Business Partners

[54] It is common cause that, in this instance, a third meeting of creditors, where the proposed amended business rescue plan was put to a vote, was held on 21 February 2014. In terms of s 152 (2) (a) of the Act, any business rescue plan must be approved by the holders of more than 75% of the creditors' voting interests. It is common cause that the amended business rescue plan, in this instance, was rejected by Business Partners, a creditor who holds 95, 45% of the voting interests which is in excess of 75%. In fact, since no other creditors voted at that meeting, it follows that Business Partners exercised 100% of the voting interest at that meeting.

[55] Target Shelf has in its papers before me conceded that Business Partners is the major creditor of Target Shelf. It is, also, common cause that Business Partners was the only creditor that voted at the meeting of creditors convened for the purpose of voting. As such, at that meeting of creditors, as per its vote rejecting the adoption of the amended business rescue plan, Business Partners had 100% voting interests. In that regard only, Business Partners was entitled to vote against the amended business rescue plan, as it did. It is, also, common knowledge that SARS was not allowed to vote at that meeting because its interests in the vote had not been determined. But, it is not in dispute that should it have been allowed to vote it would have voted against the adoption of the plan.

[56] Despite Business Partners being the majority creditor when it voted, Target Shelf submits that it would be reasonable and just for this court to set aside the vote pertaining to the amended business rescue plan in light of the following grounds:

56.1 The interests of Business Partners are reserved in the amended business rescue plan. The amended business rescue plan provides for a scenario where the properties of Target Shelf are to be aggressively

marketed within a period of 120 days and should the sale materialise within that time period the full claim of Business Partners amounting to R11 504 302, 04 will be paid. Should the properties be sold by way of public auction, Business Partners will have a final say as far as proceedings with such sale are concerned, so the argument goes.

56.2 A further ground is that a fair and reasonable return to Business Partners has been provided for in the amended business rescue plan. The provision made in the amended business rescue plan is the amount of R11 504 302, 04, however, should the applicant be liquidated the amount will be R6 255 999, 08.

56.3 Target Shelf also submits that Business Partners cannot be prejudiced under the circumstances where the vote is set aside, in light of the fact that the amended business rescue plan stands to be implemented

within a very short period of time, with no additional risk to Business Partners. All building discrepancies regarding the commercial building have now been addressed with the City of Cape Town. Target Shelf is in the process of submitting the building plans for approval of the Sectional Title Register; and, an estate agent has been appointed to aggressively market

the rental and/or sale of the immovable properties.

[57] SARS and Business Partners' submission is that Target Shelf has failed to make out a proper case for the continuation of the business rescue proceedings and argue that the ex parte applications ought to be dismissed. I agree.

(b) Provisions made in the proposed business rescue plan with respect to the interests of Business Partners

[58] In its founding papers the practitioners state that the provision made for the claim of Business Partners in the amended business

rescue plan represents provision in the amount of R R11 765 610, 76. That is, creditors stand to receive an increased return to the value of R5 854 008, 58 versus the immediate liquidation of the Close Corporation. This amount is explained in the amended business rescue plan as follows: 'Distributable reserve (after Business Rescue Fees) in the event properties are not sold in the initial 60 business days and are marketed for a further 60 business days: R11 765 610, 76 (R12 015 610, 76 - R250 000 = R11 765 610,76).'

[59] The plan fails to take into account that every day that passes Business Partners is at risk in that its claim is accumulating due to the unpaid interest. It has been estimated that the interest runs into R100 000 each month the debt is not paid. No provision has been made for the interest and is indicative of the fact that the provision made for Business Partners' claim in the proposed business rescue plan is, indeed, inadequate. There is also no evidence that the amended rescue plan stands to be implemented within a very short period of time, with no additional risk to Business Partners. There is uncontested evidence that these properties have been on the market since 2010 and they have, to date, not been sold.

[60] It is, therefore, my view that the provision made for Business Partners in the amended business rescue plan is inadequate to satisfy Business Partners' claim.

(c) Fair and reasonable estimate of return if the company were to be liquidated

[61] Target Shelf contends that the fair and reasonable return to Business Partners, should Target Shelf be liquidated, represents an amount of R6 255 999,08. The benefits of adopting business rescue process versus benefit in liquidation are explained in the amended business rescue plan as follows: 'Distributable reserve (after Business Rescue Fees) in the event of an immediate liquidation: R6 255 999, 08. Refer to the attached pro forma Liquidation and Distribution Account prepared by an independent expert/liquidator, namely Mr Gert De Wet from Kaap­ Vaal Trust.'

[62] The contention by both SARS and Business Partners is that there are no such prospects that a better return for the creditors under business rescue will be achieved than if the properties were sold under liquidation. The contention is based on the ground that a higher selling price of the properties in business rescue has been postulated by the practitioners. According to them the comparison is disingenuous as the figures have been manipulated in order to attempt to show a better return for creditors under business rescue than would receive on liquidation. And, I agree.

[63] There is insurmountable evidence that the postulated selling price has indeed been manipulated to show a better return for creditors under business rescue. One would note that a higher selling price of the properties has been postulated to give an impression that a higher price will be realised if the property is sold under business rescue. The assumed figures are unsubstantiated. It is not said why the selling price of the properties under business rescue would be better than in liquidation since the properties will, under both regimes, most probably, be sold by way of public auction. There is no evidence of how the postulated selling price was arrived at - there being no proof of valuation of the properties. As a result it creates doubt as to whether the properties would be sold at that price. The selling price stated in the former liquidation and distribution account is reflected as RB 245 614, 03, a lesser amount than the postulated price. It's a wonder where this price came from. The valuation certificate, which shows the most recent valuation of the properties, filed of record as annexure "FA24", also reflects a far lesser valuation amount than the postulated figure.

[64] There is, therefore no adequate evidence to support Target Shelf's submission that the provisions made in the proposed business rescue plan with respect to the interests of Business Partners is enough to satisfy Business Partners' claim; or a fair and reasonable estimate of the return to Business Partners, if Target Shelf were to be liquidated.

[65] Since Business Partners is a secured creditor in respect of the immovable properties and a major creditor at that, it was entitled,

in my view, to exercise its vote against the adoption of the amended business rescue plan if the plan did not satisfy it.

[66] A further hurdle for Target Shelf and the practitioners is that, in accordance with s 134 (3) (a) of the Act, a secured creditor must consent to the disposal of property over which it holds security. The section provides that if during a company's business rescue proceedings, the company wishes to dispose of any property over which another person has any security or title interest, the company must obtain the prior consent of that person, unless the proceeds of the disposal would be sufficient to fully discharge the indebtedness protected by that person's security or title interest. Under the circumstances, the practitioners are not entitled and will not be able to dispose of the properties without the prior consent of Business Partners unless the proceeds of the disposal would be sufficient to fully discharge its indebtedness. I have already made a finding that the provision made in the amended business rescue plan is not sufficient to cover Business Partners' claim against Target Shelf. Business Partners is, also, not convinced that the provision in the amended business rescue plan will cover its indebtedness. The

possibility of Business Partners being paid its full claim is, therefore, non-existent. From the reading of the papers it does not appear that Business Partners will consent to the disposal of the properties where the proceeds thereof will not discharge its indebtedness fully. Even if the vote was inappropriate, Business Partners' consent would hold the process back.

[67] In the circumstances, I have to decide in favour of Business Partners and SARS and find that it is not reasonable and just to set the vote aside.

COUNTER-APPLICATION

[68] In the counter-application, SARS and Business Partners, on more or less the same grounds raised in opposition to the ex parte application, seek an order declaring Target Shelf's business recue proceedings to have terminated in terms of s 132 (2) (c) (i) of the Act and the conversion of the business rescue proceeding into liquidation proceedings. [s 132 (2) (a) (ii)] Target Shelf is opposing the counter­ application and relying on the judgment in The Commissioner of South African Revenue Service v Primrose Gold Mines (Pty) Ltd & 2 Others (56581/2014) [2014] ZAGPPHC (12 September 2014), submits that, before the business rescue proceedings can be converted into liquidation proceedings, a further step needs to be taken. It being contended that the practitioners, and not the creditors, should apply for the conversion of the business rescue proceedings to liquidation proceedings.

[69] Section 132 (2) (a) (ii) and (c) (i) stipulates that

'Business rescue proceedings end when -

(a) The court -

(i)

(ii) has converted the proceedings to liquidation proceedings;

(b)

(c) a business rescue plan has been -

(i) proposed and rejected in terms of Part D of this Chapter, and no affected person has acted to extend the proceedings in any manner contemplated in section 153; or

(ii)

[70] It is common cause, in this instance, that the practitioners acted in terms of subsection 153 (1) (a) (ii) and its application was dismissed by the court. In dismissing the application I found the vote by Business Partners to be appropriate and concluded that it is not reasonable and just to set it aside. It follows that the proposed amended business rescue plan was not adopted. No other steps were taken at the meeting of 21 February 2014 to invoke the provisions of s 153 of the Act. Consequently, the amended business rescue plan stands rejected.

[71] I do not understand Target Shelf's argument to be opposed to the conversion of the business rescue proceedings to liquidation

proceedings once it has been determined that Business Partners' vote is appropriate. The objection is only aimed at the conversion

to liquidation being applied for by the creditors instead of the practitioners.

[72] The Act does not allow for an automatic termination of business rescue proceedings. Even though s 132 provides for circumstances

under which business rescue proceedings end, there is still a process which must ensue in order for the business rescue process to be finalised. When business rescue proceedings come to an end, either a court shall have set aside the resolution or order that began the proceedings; or converted the proceedings to liquidation proceedings; or the business rescue plan was proposed and rejected and the practitioner(s) subsequently filed a notice of termination with the ICIC; or the business rescue plan was adopted and the practitioner(s) subsequently filed a notice of substantial implementation of that plan. SARS and Business Partners are aware of this, they have as such approached this court in terms of s 132 (2) (c) (i) for a declaratory order to terminate the business rescue proceedings and in the same breath seek an order in terms of s 132 (2) (a) (ii) to convert the business rescue proceedings to liquidation proceedings.

[73] In the Primrose-judgment above, I took a view that the practitioner in that judgment was the person suited to apply to court for the discontinuance of the business rescue proceedings, however, on a proper reading of s 132 (2) (a) it is not specifically stated who must apply to have the business rescue proceedings set aside or converted to liquidation proceedings. I am, therefore, of the view that in the circumstances of this matter, the creditors are entitled to apply for conversion of the business rescue proceedings to liquidation proceedings and such application ought to be granted.

[74] Even though I may be wrong in coming to such a conclusion, I, however, take cognizance of the delay that has been occasioned in finalising the business rescue process. The business rescue process was initiated as far back as November 2013, nearly two years ago. This was most definitely not the idea of the legislature that creditors should be held to ransom and be prevented from exercising their normal contractual rights for such an extraordinary long period of time. If the process is allowed to go back for the practitioners to commence the liquidation procedure, it would be highly prejudicial to the creditors. In order to fast track the process I have to immediately grant an order for conversion to liquidation proceedings.

COSTS

[75] There remains a question of costs which was hotly debated before me. The crux of the matter being that SARS and Business Partners seek an order that the practitioners pay the costs of the ex parte application and the counter-application de bonis propriis on an attorney and own client scale. Their submission being that, during the business rescue proceedings, the practitioners did not act objectively and impartially in the conduct of the business rescue proceedings but acted in a manner which ignored or was hostile to the reasonable enquiries of Business Partners and SARS. In this regard, I was referred to the judgment in African Banking Corporation of Botswana v Kariba Furniture Manufacturers & Others (228/2014) [2015] ZASCA 69 (20 May 2015) para 37 of the majority judgment.

[76] In the Kar ba-judgment above, the court granted a de bonis propiis cost order against the business rescue practitioner by virtue of the grossly improper conduct of the latter. I cannot find as such in this instance. The conduct of the practitioners complained of by SARS and Business Partners is not grossly improper. In fact, it is not even improper.

[77] The question whether a vote is inappropriate or not can only be decided by a court. The practitioners were entitled, in terms of the Act, to launch the ex parte application. Section 153 (1) (a) enjoins the business rescue practitioner(s) to approach court to have a vote set aside on the grounds that it is inappropriate. The counter-application was opposed based on the practitioners' understanding of the findings in the Prmrose-judgment above. In that Judgment, as I have already lluded, I took a view that the practitioners are the persons entitled to apply for the liquidation of the company in terms of the Act.

[78] Under the circumstances, I have to conclude that the practitioners should not be mulcted with costs as they were not acting in their own self-interest when they launched the ex parte application. In coming to this conclusion, I take cognisance of the speed at which the practitioners completed the business rescue plan and the punctuality at which the meetings of creditors were adhered to. The practitioners wasted no time in developing the business rescue plan and the meetings of creditors were held on the days agreed to by the parties concerned. Even though the practitioners failed to include the issues raised by Business Partners or the claim by SARS in the business rescue plan, but, the business rescue plan was completed within the time periods set out in the Act and as agreed to between the parties. They also addressed the building infringements regarding the commercial building as soon as reasonably possible.

[79] I have, therefore, to order that the costs of the two applications before me be costs in the winding-up of Target Shelf.

[80] I, as a result, make the following order:

1. To the extent that it may be necessary, any non-compliance with the time limits and provisions for service contained in the Uniform Rules of Court by the South African Revenue Service ("SARS") and Business Partners Limited ("Business Partners") is condoned.

2. To the extent that it may be necessary, SARS and Business Partners are granted leave to intervene as parties in the ex parte application instituted by Target Shelf 284 CC (in business rescue) ("Target Shelf') under case number 21955/2014 ("the

ex parte application").

3. The ex parte application is dismissed.

4. Target Shelf is placed under final liquidation in the hands of the Master in terms of section 66 to 69 of the Close Corporations Act, 69 of 1984, read with sections 344 and 345 of the Companies Act, 61 of 1973.

5. The costs of the ex parte application and the costs incurred by SARS and Business Partners in their respective counter-applications shall be costs in the winding-up of Target Shelf, such costs to include the costs of two counsel.

6. Service of this order shall be effected on Target Shelf's registered office.

_____________________

E. M. KUBUSHI

JUDGE OF THE HIGH COURT

APPEARANCES

HEARD ON THE :

11 AUGUST 2015

DATE OF JUDGMENT : 13 OCTOBER 2015

(EX PARTE APLICATION)

APPLICANT'S COUNSEL : ADV. L KONSTANT SC

: ADV. L.K VAN DER MERWE

APPLICANT'S ATTORNEY : KOSTER ATTORNEYS

(1st COUNTER APPLICATI ON)

APPLICANT :

ADV. G W WOODLAND SC

: ADV.C A CUTTER

RESPONDENT :

ADV. L VAN DER MERWE

(2nd COUNTER APPLICATION)

APPLICANT :ADV.

G.W WOODLAND SC

: ADV. S.K WITTEN

RESPONDANT'S COUNSEL : ADV. L VAN DER WERWE

RESPONDANT'S ATTORNEY : KOSTER ATTORNEYS

[1] See Gormley v West City Precinct Properties (Ply) Ltd and Another; Anglo Irish Bank Corporation Limited v West City Precinct (Ply) Ltd and Another (19075/11, 15584/11) [2012] ZAWCHC 33 (18 April 2012) para 11.

[2] See s 150 of the Act

[3] See s 152 of the Act

[4] See Gormley v West City Precinct Properties (Ply) Ltd and Another; Anglo Irish Bank Corporation Limited v West City Precinct Properties (Ply) Ltd and Another (19075/11, 15584/11) [2012] ZAWCHC 33 (18 April 2012) para 8.

[5] See Oakdene Square Properties (Ply) Ltd & Others v Farm Bothasfontein (Kyalami) (Ply) Ltd & Others 2013 (4) SA 539 (SCA) para 29.