Standard Bank of South Africa Limited v Gas 2 Liquids (Pty) Limited (45543/2012) [2016] ZAGPJHC 38; 2017 (2) SA 56 (GJ) (10 March 2016)

GAUTENG LOCAL DIVISION, JOHANNESBURG

Not reportable

Not of interest to other judge

Case number: 45543/2012

Date: 10/3/2016

In the matter between:

THE STANDARD BANK OF SOUTH AFRICA LIMITED

Applicant

and

GAS 2 LIQUIDS (PTY) LIMITED

Respondent

SUMMARY: Section 131(6) of the Companies Act 71of 2008 provides that when an application for business rescue is 'made' liquidation proceedings will be suspended. The question arises when is such business rescue application 'made' for purposes of section 131(6) especially in circumstances where a provisional liquidation has already been ordered and a provisional liquidator appointed.

Respondent argued that the liquidation proceedings are suspended once the business rescue application is issued out of court while the applicant argued that service on the company and the Commission and notice to affected parties, required by section 131, must be effected before the business rescue application can be said to be made.

In casu there had been no service upon the registered address of the company or on the provisional liquidator. The court had regard to the powers and duties of a provisional liquidator and was concerned that a provisional liquidator may have no knowledge of the business

rescue application and would not know that he or she is 'suspended' in his or her duties. Disbursements of monies, employment of

employees, continuation of legal proceedings and other duties may continue in ignorance of the business rescue proceedings if there has been no service upon the provisional liquidator. It is undesirable that a provisional liquidator should do anything which might impact upon the business rescue application.

Mere lodgement of papers at court and issue of a case number cannot be sufficient to trigger suspension of liquidation proceedings

particularly where a liquidator has been appointed.

Furthermore, the question arises when, where, why and by whom these actions of a 'suspended' liquidator should be undone and with what consequences to third parties or the company whose liquidation proceedings are held in abeyance pending the outcome of an application for business rescue which may never be granted.

The decisions in Taboo Trading 232 (Pty) ltd v Pro Wreck Scrap Metal CC and others 2013 (6) SA 141 KZP and ABSA Bank Ltd v Summer Lodge {Pty) Ltd 2013 (5) SA 444 GNP followed although for different reasons.

It was ordered that the mere issue alone of the business rescue application does not have the effect of suspending the liquidation

proceedings in the instant matter.

JUDGMENT

SATCHWELL J:

INTRODUCTION

1. At issue in this judgment is the meaning and application of section 131(6) of the Companies Act, 71 of 2008, ('the Act'), which provides that an application to court for an order placing a company under supervision and commencing business rescue proceedings "will suspend those [liquidation] proceedings" at the time that the business rescue application is made.

2. On 21st October 2015 the respondent was placed into provisional liquidation. The return day was 29th February 2016. On that date, the applicant creditor argued for a final order of liquidation. At the end of argument, respondent debtor presented an application which had been brought by a third party for the respondent to be placed under supervision and for business rescue proceedings to commence in terms of the Act.

3. The contended suspension was partially argued and then stood down for both

parties to prepare written argument on whether or not the mere issue out of court of the business rescue application was sufficient to suspend the liquidation proceedings before me.

4. I note that there are three interlinked liquidation proceedings and that business rescue proceedings had apparently been issued out of court in the other two matters. I have not heard or considered those matters and have recommended to the parties that they should have applied for the many thousands of pages of all three applications to be dealt with in a court to which the Deputy Judge President of this division had allocated a special date for exclusive hearing instead of attempting to set all three matters down for hearing in one opposed motion court.

5. As was pointed out in Investec Bank Ltd v Bruyns 2012 (5) SA 430 wee and in Blue Star Holdings Ltd v West Coast Oyster Growers CC 2013(6) SA 540 wee, there is always the possibility that a business rescue application might well be used by an obstructive debtor intent on avoiding the obviously inevitable liquidation as part of its on-going strategy to hinder a creditor from pursuing its lawfully permissible goal of procuring the liquidation of the debtor. It seems to me that these three matters which were attempted to be placed before me, of which I am dealing only with the Gas 2 Liquids liquidation, is one such case.

BUSINESS RESCUE PROCEEDINGS

6. Section 131 of the Act permits an affected person to apply to a court for an order placing the company

under supervision and commencing business rescue

proceedings. The applicant in such proceedings is required to serve a copy of the application on the company and the Commission [1] and to notify each other affected person of the application.

7. In the present case, this application for business rescue was served on the e1pe at 07h00 on the morning of 2nd March 2016, in other words after I had heard applicant argue the application for final liquidation and after the application for business rescue was presented to this court on 29th February 2016 as grounds for suspending the liquidation proceedings.

8. There is no indication of any service[2] of this business rescue application on 'the company' either on the company in liquidation or on the provisional liquidator who was appointed pursuant to the order for provisional liquidation granted by this court on 21st October 2015 .It is trite that the provisional and final liquidators may in certain instances step into the shoes of the company in that he or she is entrusted with the functions to control and administer the property and affairs of the company and to liquidate it. In essence the acts of the provisional liquidator are "the acts of the company itself”.[3] However, in respect of certain of their statutory powers the liquidator does not stand in the place of the company in that he or she may have certain duties to creditors which the erstwhile board of directors would not have had.[4] These details are not of relevance in the present case. It is sufficient that the application for business rescue was served neither on the registered office of the company nor on the provisional liquidator.

9. Affected persons are defined in section 128(1)(a)(i),(ii) and (iii) as a shareholder or creditor of that company and include any registered trade union representing employees or each of the individual employees. Rule 124 requires a copy of the court application to be delivered "to each affected person known to the applicant". In the present case the third party applicant in the business rescue proceedings has stated that it has knowledge of at least 6 named creditors and "other miscellaneous service

providers"[5] and at least 7 full time employees and numerous consultants.[6] It appears that emails to which the application was attached have been sent to some, but not all, of the creditors and employees.

MAKING OF THE BUSINESS RESCUE APPLICATION IN TERMS OF SECTION 131 (6)

10. Section 131(6) of the Act provides that "if liquidation proceedings have already been commenced by or against the company at the time an application is made in terms of subsection (1), the application will suspend those proceedings" until the court has adjudicated upon the business rescue application or the proceedings end.

11. Respondent relies upon the provisions of section 131 (6) to argue that the mere issue out of court of the notice of motion in the business rescue application constitutes that which is required in terms of section 131 (6) and accordingly these liquidation

proceedings are immediately suspended. Applicant argues that, for such application to have been properly 'made', service has to have been effected upon both the company and the Commission and all reasonable steps have been taken to identify affected persons and their addresses and to deliver the application to them.

12. Applicant's counsel referred me to the judgment in Engen Petroleum Ltd Multi Waste (Pty) Ltd and others 2012 (5) SA 596 GSJ. I do not find this judgment of assistance. In that matter, the learned judge was not confronted with the question as to when the business rescue proceedings had been 'made' in terms of section 131

(6) but with the merits of the business rescue application itself of two Multi Waste companies. The learned judge in Multi Waste supra found that the application was "bristling with procedural irregularities" and that it would be prejudicial for persons only interested in one company to be engaged in business rescue proceedings in respect of the other. Accordingly, the application to place the company under supervision and to commence business rescue proceedings was dismissed.

13. Respondent's counsel referred me to Blue Star Holdings (Pty) Ltd v West Coast Oyster Growers CC 2013 (6) SA 540 WCC where a business rescue application lodged with the registrar that very day had been handed up to the court which was to hear a winding-up application. The court found that the operative phrase for consideration was in section 131 (6) "at the time an application is made" and that the word 'made' must be given its ordinary meaning in the context in which it appears in the statutory setting. By reference to a number of compulsory motor vehicle insurance cases, the court found that a functional approach to section 131(6) led to the obvious conclusion that "the lodging of the [business rescue] application with the registrar for the issue thereof constituted the 'making' the application and the commencement of proceedings to place the company under business rescue (as opposed to the commencement of business rescue per se)" (at para 29).

14. However, in Blue Star supra no application for provisional liquidation had been heard, no provisional order granted and no provisional liquidator appointed. To my mind, that is an important distinction from the matter presently before me.

15. I was referred by applicant's counsel to the judgment in Taboo Trading 232 (Pty) Ltd v Pro Wreck Scrap Metal CC and Others 2013 ( 6} SA 141 KZP. Here the question was directly on point - when can an application be said to have been made for purposes of s 131(6) of the Act. The court had regard to the decisions in Bruyns supra and Multi Waste supra. The court based its finding on the consequences which ensue upon commencement of liquidation proceedings which is when the winding-up is deemed to commence, the significant consequences of suspension of liquidation proceedings, and the need for reasonable notification to be given to affected persons which were held to be substantive requirements. The court held that a business-rescue application is only to be regarded as having been made once the application has been lodged with the registrar, has been duly issued, a copy thereof served on the Commission and each affected person has been properly notified of the application.

16. Again a distinction must be drawn between the facts in Taboo Trading supra and the case which is before me. In Taboo Trading supra no application for provisional liquidation had been heard, no provisional order granted and no provisional liquidator appointed.

17. I have had regard to ABSA Bank Ltd v Summer Lodge (Pty) Ltd 2013 (5) SA 444 GNP. At the first hearing[7] when an order was sought for provisional winding-up, the court held that because there was then no liquidation order in existence there was nothing to 'suspend' and accordingly provisional orders were granted. Subsequently, the matter came before Makgoba J [8] who held that 'the mere issue and service of a business rescue application in terms of section 131(1) of the Act would suspend the liquidation process".

18. Again I note the distinction between the present case and that in Summer Lodge. The learned judge required both issue and service [my underlining] for the business rescue application to trigger suspension of the liquidation proceedings. In the present

case, there has been no service upon the company or upon the liquidator.

THE ROLE OF THE PROVISIONAL LIQUIDATOR

19. In the matter presently before me a provisional winding up was ordered over four months past. A provisional liquidator has been

appointed and I was in the process of hearing an application for a final order.

20. There has been no service of this business rescue application on the company or on the provisional liquidator who will presumably then blithely carry on with his or her duties absent any official knowledge of the business rescue application.

21. If I were to find that the mere issue of an application out of the High Court - in the sense of lodgement of papers at court and issue of a case number - without further ado were to immediately trigger the suspension of the provisional liquidation, I would be most concerned as to the impact upon the work of, status of and person of the provisional liquidator and the impact upon the company itself.

22. Provisional liquidators have, in terms of the Act, those powers statutorily granted to them, those which the Master may specially

confer and those which they are granted by the court. They cover a wide range of activities. These may include the carrying on of a business, institution or defence of legal proceedings and the sale (or even the acquisition) of assets. Pursuant to the exercise of such powers, the provisional liquidator may operate on banking accounts, receive and disburse funds, remunerate employees, conclude contracts and generally carry out the duties of the directors of the company in liquidation.

23. Where there is no service upon the provisional liquidator of the application for business rescue, the provisional liquidator may have absolutely no knowledge of that business rescue application. In fact, knowledge alone would be insufficient. The provisional liquidator is entitled to service in terms of section 131 of the Act. Absent such service, the provisional liquidator does not officially know that he or she is 'suspended' in his or her duties and powers if such suspension of the liquidation proceedings were to eventuate solely by reason of lodgement of papers at court and issue of a case number.

24. It may be that service upon the company/liquidator, upon the Commission and notification to affected parties may take quite some time. In fact, respondents counsel informed me that such service and notification need only take place 'in due course'. And while the course of time ebbs and flows, the provisional liquidator is carrying out his or her duties and exercising his or her power in ignorance. Money may go in and out, employees may report for duty or be sacked, and legal proceedings may be commenced or terminated. All this should not be permitted or implemented by a provisional liquidator who is suspended because the liquidation proceedings are suspended. The 'provisional liquidator' is presumably that no longer - he or she is in suspension. He or she should not do anything which may impact upon the business rescue application. But the provisional liquidator would continue to carry out his or her duties and exercise his or her powers where there has been no service of the business rescue application upon the provisional liquidator. Lodgement of papers at court and issue of a case number does not mean that anyone other than the applicant, the messenger and the individual clerk in the office of the registrar has knowledge that the provisional liquidator should do nothing further because the liquidation proceedings are suspended.

25. Such a situation cannot be allowed to eventuate. It cannot be that mere lodgement of papers and issue of a case number is sufficient to trigger a suspension. As I have pointed out, if that were the case, a provisional liquidator may be acting without authority (and perhaps unlawfully) in a multiplicity of respects. That cannot have been the intention of the legislature. The question would then also arise as to when and where and why and by whom these unauthorised actions of a provisional liquidator are to be undone and with what consequences to third parties or to the company whose liquidation is suspended but which is not yet (and may never be) in business rescue.

26. I am thus of the same mind (although for different reasons) as my brothers, Makgoba J, in Summer Lodge supra and Hartzenberg AJ in Taboo Trading supra that there must be service and notification as required in terms of section 131of the Act before it can be said that the business rescue application has been 'made' and that the liquidation proceedings have been suspended.

ORDER

27. On 2nd March 2016 I made an order that :

a. Judgment is reserved on the application to direct that the liquidation proceedings are suspended in terms of section 131(6) of the Companies 71 of 2008.

b. The Rules Nisi in cases number 45543/12, 32795/14 and 34716/13 are extended to the unopposed court roll of 23rd May 2016 pending the decision of the Deputy Judge President on the allocation of a date for a special hearing of these three opposed applications.

c. The costs reserved.

28. In the result an order is made:

a. The launch of the business rescue application on 29th February 2016 does not have the effect of suspending the liquidation proceedings in case no 45543/12.

b. The respondent is to pay the costs of the opposed application on Monday

29th February and Wednesday 2nd March 2016.

DATED AT JOHANNESURG 09th MARCH 2016

_________________

SATCHWELL J

Counsel for Applicant: Adv J Smit

Attorneys for Applicant: Edward Nathan Sonnenbergs Inc.

Counsel for First Respondent: Adv S Van Rensburg Attorneys for

First Respondent: Tintingers Incorporated.

Dates of hearing: 03rd March 2016.

Date of judgment: 09th March 2016.

[1] The Companies and Intellectual Property Commission established by section 185.

[2] In accordance with Rule 4(1)(a) of the Uniform Rules i.e. service by the Sheriff. See Engen Petroleum Ltd v Multi Waste (Pty) Ltd and others 2012 (5) SA 596 GSJ.

[3] AMS Marketing Co (Pty) Ltd v Holzman and Another 983(3) SA 263 W.

[4] Barclays Zimbabwe Nominees (Pvt) v Black 1 990 (4) SA 720 at 726

[5] Paragraph 6.9 of the business rescue application.

[6] Paragraph 8.3 of the business rescue application.

[7] Reported as Absa Bank Ltd v Summer Lodge (Pty) Ltd 2014 (3) SA 90 (GP).

[8] 2013 (5) SA 444 GNP.