Land and Agricultural Development Bank of SA v Rainmaker Farms CC; Land and Agricultural Development Bank of SA v Roodepoort Farm (Pty) Ltd (1242/2020; 1247/2020) [2020] ZAFSHC 196 (22 October 2020)

IN THE HIGH COURT OF SOUTH AFRICA,

FREE STATE DIVISION, BLOEMFONTEIN

In the matter between:

Case number 1242/2020 LAND AND AGRICULTURAL DEVELOPMENT BANK OF SA Applicant and RAINMAKER FARMS CC Respondent

Case number: 1247/2020 LAND AND AGRICULTURAL DEVELOPMENT BANK OF SA Applicant and ROODEPOORT FARM (PTY) LTD Respondent

CORAM:

DAFFUE J

HEARD ON: 17 SEPTEMBER 2020

REASONS

[1] On 17 September 2020 I granted final liquidation orders in applications 1242/2020 and 1247/2020 against two respondents, to wit Rainmaker Farms CC and Roodepoort Farm (Pty) Ltd respectively.

[2] I indicated that the reasons for my orders would follow in due course. These are my reasons. For the sake of convenience

one set of reasons is provided as the issue in both applications is exactly the same.

[3] The demise of the Volksblad, an Afrikaans daily newspaper that was distributed in the Free State and Northern Cape for over a century, could not be foreseen when the applicant issued the two liquidation applications on 10 March 2020.

[4] The last edition of Volksblad, in printed or hard-copy format, appeared on Saturday, 8 August 2020. For about a month before this date readers of the newspaper were alerted on a regular basis of the decision to cease publication in printed format.

[5] On 6 August 2020 both applications for provisional liquidation orders were heard by Jordaan J. The applications were fiercely

contested by the two respondents, but eventually the standard orders applicable in this division were issued. The return date in each instance was 17 September 2020.

[6] Publication of the provisional orders had to take place in the Volksblad and the Government Gazette. The publication and

distribution of the erstwhile local English newspaper, the Friend was terminated several decades ago and for at least the past three and a half decades practitioners elected to place advertisements in the Afrikaans daily, even if the documents were in the English language as is the case in casu.

[7] On Friday, 11 September 2020 the files in both matters were allocated to me for adjudication of the applications on the return date, to wit 17 September 2020. I noticed that no further heads of argument or other affidavits had been filed since issuing of the rules nisi, save for the customary affidavits pertaining to service and publication of the orders. I immediately instructed my secretary to contact the legal representatives on both sides to establish whether the applications would be opposed any further. Adv P Zietsman SC and his instructing attorney, Mr Hoffman of Maree and partners who acted for the respondents in both applications,

responded and informed her by email that respondents did not intend to oppose the applications any further.

[8] The day before the hearing I noticed that the provisional orders were not published in the Volksblad as directed, but the Citizen.

Insofar as there was non-compliance with the orders by Jordaan J, I requested Adv A Sander who was briefed to argue the applications on behalf of applicant to present brief written heads of arguments which he did. I am grateful to him.

[9] The matter was dealt with by means of the Webex internet platform and for that reason I directed that an employee of applicant’s firm of attorneys shall attend A court, it being allocated for the hearing, in order to establish if anyone turn up to oppose the

applications. I directed my secretary to contact the general office to inform them of the Webex hearing and that Mr Gertenbach,

who was instructed by applicant’s attorneys to attend A court, be informed immediately in the event of opposition. There was no opposition and this was duly recorded whereupon Mr Sander was allowed to argue the matter.

[10] Chapter 14 of the repealed Companies Act, 61 of 1973 still applies to the liquidation of insolvent companies as provided for in Item 9 of Schedule 5 of the present Companies Act, 71 of 2008. The 1973 Act does not provide for the issue of provisional liquidation orders and consequently it is quiet about the publication of rules nisi in the Government Gazette or any local newspaper. This was also the case in terms of its 1926 predecessor.

[11] Section 346A of the 1973 Act was inserted by s 8 of Act 69 of 2002. This provides for service of a copy of a winding-up order on every registered trade union representing employees of the respondent company, the employees of the respondent company, the South African Revenue Service and the company, unless the application was made by the company. In terms of the definition of “winding-up order” (liquidation order) in s 1(1) of the 1973 Act, a provisional winding-up order was included as long as it remained in force. The practice of issuing provisional liquidation orders are in place for more than a century and is regarded by Henochsberg as “longstanding.”[1] Lichtenburg J (as he then was) provided the historical background in Wolhuter Steel (Welkom) (Pty) Ltd v Jatu Construction.[2] Corbett JA (as he then was) confirmed the established practice in Kalil v Decotex Pty Ltd.[3] The practice in this division has always been to direct publication of the rule nisi in the Government Gazette and at least one local newspaper. As Henochsberg[4] points out, the reason for publication is that over and above the interests of the applicant and the respondent company, the interests of members of the respondent company as well as its creditors are affected when a liquidation order is sought.

[12] Insofar as the 1973 Companies Act does not require a final liquidation order to be preceded by a provisional order, the court may in certain circumstances, given its wide discretion, decide to grant a final order without initially granting a provisional order. The Supreme Court of Appeal confirmed that the court does not have to issue a provisional liquidation order “as a matter of course” and consequently issued a final order in Johnson v Hirotec Pty Ltd[5] where “the issues have been fully ventilated and the respondent has put nothing forward to persuade (the court) that further relevant facts would be forthcoming if a rule nisi were issued.

[13] In casu it is common cause that the respondents received notice in accordance with the court orders. The rules nisi were served in accordance with the court order and the statutory requirements. They were published in the Government Gazette,

but no publication in the Volksblad was effected, but in the Citizen.

[14] Mr Sander submitted that there was substantial compliance with the rules nisi insofar as the provisional orders would on the probabilities become known to creditors who more often than not rather peruse the Government Gazette and not one or other local newspaper. This submission is doubtful, but may be true in respect of large creditors with formal credit divisions which are nowadays centrally based in cities like Johannesburg, Pretoria, Cape Town or Durban. Fact of the matter is that small and concurrent creditors are usually doing business within the area where the respondent company is conducting its business and/or is registered. Publication in a local newspaper is to the benefit of those creditors that may not have access to the Government Gazette.

[15] The Citizen is distributed in the Free State, but on a limited basis only. It appears from the information obtained via applicant’s

attorney that only 5% of its newspapers are distributed in thirty three Free State towns daily. About 615 copies are sold daily in the Bethlehem area. This is a minute number, bearing in mind the overall population in the province and/or in the Bethlehem area in particular.

[16] Joffe et al[6] suggest that provisional liquidation orders should not only be published in the Government Gazette and a local newspaper, but notice

should also be given by registered mail to all known creditors. The authors recognise that the last two requirements depend on the facts and circumstances, the Practice Directives of the different divisions and the discretion of the particular judge.

[17] The standard provisional liquidation order in the Pretoria High Court provides as follows and I quote the last three paragraphs only:

“3. A copy of this order be served on the respondent at its registered office.

4. A copy of this order be published forthwith once in the Government Gazette.

5. A copy of this order be forthwith forwarded to each known creditor by prepaid registered post or by electronically receipted telefax transmission.”[7]

In Johannesburg[8] the standard order provides for service in terms of s 346A in line with the practice in the Free State, whilst provision is made for publication of the order in the Government Gazette and that a copy thereof be forwarded to each known creditor by prepaid registered post or by electronically receipted telefaxed transmission. Publication of the order in a local newspaper is not required. I am not aware of any standard orders in the other divisions as these do not appear in the Practice Directives published in Erasmus.

[18] Since the Volksblad became available in digital format only, publication of legal notices such as court orders has been suspended. When this was ascertained applicant’s attorney should have arranged, in co-operation with his opponent, to request the presiding Judge in chambers for variation of the court orders in terms of rule 42. Publication of the provisional orders after 8 August 2020 was not possible and with the benefit of hindsight the orders were erroneously sought and consequently erroneously granted. The correct approach was not followed, but instead, applicant’s

attorney decided to arrange publication in the Citizen.

[19] I agree with Mr Sander that notwithstanding the fact that the rules nisi were not strictly complied with, there was at least substantial compliance. Publication took place, albeit in a different newspaper circulated within the area where the respondents’ registered addresses are located.

[20] Albeit in a different context, ss 6(8) – 6(11) of the 2008 Companies Act provide for a purposive interpretation insofar as substantial compliance will be effected even though there was a deviation from the prescribed form or notice or manner of delivery of a document. Such an interpretation is in line with the approach of the Constitutional Court in Kubyana v Standard Bank of South Africa Ltd[9] pertaining to notices in terms of s 129 of the National Credit Act.

I decided to make use of a purposive interpretation of the court orders. In casu the director and shareholder of the respondent company and member of the respondent close corporation, Mr A C van Wyk deposed to the answering affidavits in both applications and conceded that the respondents were in financial distress. He would have become fully aware of the granting of the provisional orders, bearing in mind the information received from the legal representatives as set out above. Both respondents, represented by Mr Van Wyk, took a conscious decision not to oppose the applications any further. The only parties that might be affected by final liquidation orders are smaller and unknown creditors, but it is apparent that respondents are in financial distress and unable to pay their debts. In any event, nothing prevents affected parties to institute business rescue proceedings against either or both the respondents.

[21] Having found that applicant substantially complied with the rules nisi there is no reason not to grant final orders of liquidation. I have not dealt with the merits of the applications bearing in mind the respondents’ decision not to oppose the applications any further. Jordaan J did not give reasons for the orders granted, but he was not required to do so as provisional orders were issued. Having studied the papers I am satisfied that proper cases have been made out on the merits.

[22] It is perhaps time that the publication of a provisional liquidation order in a local newspaper be reconsidered. The purpose was always to inform interested parties and creditors in particular of the intention to seek a final liquidation order. Nowadays provision is made for service on employees, relevant trade unions and SARS. Also, affected parties have the right to apply that the liquidated company be placed under business rescue even after a final liquidation order was granted. Insofar as the Pretoria and Johannesburg courts still provide for service on known creditors per registered post or by telefax, I am of the view that telefax procedure is outdated and that registered post should be avoided bearing in mind the reference to such post as “snail mail.” We live in a modern era, during the so-called fourth revolution and the digital age. Almost everyone in this country, creditors in particular, have access to smart phones and/or computers and/or the internet. The question to be asked is whether we should not do away with publication in a local newspaper, but rather direct applicants to electronically notify known members of the respondent company and its creditors on the same basis as provided for in chapter 6 of the 2008 Act. I accept that applicants do not have to prove that liquidation will be to the advantage of creditors (as in the case of insolvency) and therefore the identity of other creditors are often not reflected in founding affidavits. This can be overcome by insisting upon more transparency from applicants in this regard. In conclusion in this regard, it is questionable whether a provisional order should always be issued as a matter of course once the matter was fiercely contested as in casu and considering affected parties’ recourse relating to business rescue proceedings. The bar and sidebar should be invited to submit their views.

___________________

J P DAFFUE J

22 October 2020

On behalf of Applicant: Adv A Sander

Instructed by: Eg Cooper Majiedt Inc

Bloemfontein

[1] Henochsberg on the Companies Act, 71 of 2008, vol 2 at APPI - 88

[2] 1983(3) SA 815 (OPD) at 818 C and further

[3] 1988 (1) SA 945 (A) at 976A and further

[4] Loc cit at APPI - 89

[5] [2000] ZASCA 131; 2000 (4) SA 930 (SCA) par 9

[6] High Court Motion Procedure: A Practical Guide, Service issue 12, a Lexis Nexis publication at 5-19

[7] Published in Erasmus: Superior Court Practice (2nd Edition), vol 3 at H2 – 154. I have reason to believe that the order has been amended to comply with s 346A mentioned above, although the amended order was never brought to the notice of the author

[8] Ibid H3 - 189

[9] 2014 (3) SA 56 (CC) paras 39 and 80. See also Mouritzen v Greystone Enterprises (Pty) Ltd 2012 (5) SA 74 (KZD) at par 27 and Green v Amalgamated Brokers CC 7806/2011 (KZP) delivered on 26 June 2012 pertaining to s 165(2) of the Companies Act