Unemployment Insurance Fund and Another v Johnson and Others (134443/2023) [2024] ZAGPPHC 1336 (13 December 2024)

HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

CASE NO: 134443/2023

(1) REPORTABLE: NO.

(2) OF INTEREST TO OTHER JUDGES: NO

(3) REVISED.

DATE: 13 DECEMBER 2024

SIGNATURE

In the matter between:

UNEMPLOYMENT INSURANCE FUND First Applicant

PUBLIC INVESTMENT CORPORATION SOC LTD Second Applicant

and

PATRICIA CATHERINE JOHNSON

First Respondent

HOMII LIFESTYLE (PTY) LIMITED

Second Respondent

URBAN LIFESTYLE INVESTMENT

HOLDINGS (PTY) LIMITED

Third Respondent

Summary: Application in terms of Section 18(3) to implement a court order while an appeal is pending. The second respondent is a debtor

of the State in respect of public funds lent and advanced to it. The actual lender, the Unemployment Insurance Fund, sought to secure the indebtedness by placing directors of its choice in control of the debtor, pending payment. This was done in pursuance of an undisputed Cession and Pledge agreement with the debtor’s holding company. Such a measure is out of the ordinary, constituting “exceptional circumstances”. There can be no irreparable harm suffered by the debtor if this security measure remains in place pending the appeal. On the other hand, the applicants may suffer irreparable harm if the already delinquent debtor is allowed to operate unchecked. Other companies in the same group as the debtor have already been liquidated and no information regarding the debtor’s financial position has been forthcoming. Despite leave to appeal having been granted, it is on tenuous and highly technical grounds and detracts nothing from the undisputed indebtedness and default of the respondents. Order granted, with costs, including the costs of two counsel.

ORDER

1. Paragraphs 1 and 2 of the order of this court granted on 30 July 2024 shall remain effective and enforceable despite the respondents’ pending appeal to the Supreme Court of Appeal.

2. The respondents are ordered to pay the applicants’ costs of the application, including the costs of two counsel.

JUDGMENT

The matter was heard in open court and the judgment was prepared and authored by the judge whose name is reflected herein and was handed down in open court and electronically by circulation to the parties’ legal representatives by email and by uploading it to the electronic file of this matter on Caselines. The date of handing-down is deemed to be 13 December 2024.

DAVIS, J

Introduction

[1] On 30 July 2024 this court granted an order in the following terms:

“1. It is declared that the Unemployment Insurance Fund is entitled to exercise all voting rights attached to the shares held by Urban Lifestyle Investment Holdings (Pty) Limited in Homii Lifestyle (Pty) Limited, for so long as the latter remains in default of its obligations under and in terms of the Mezzanine Facility Agreement, it concluded with the Unemployment Insurance Fund on 7 March 2019.

2. The first respondent is directed to comply with the demand in terms of section 61(3) of the Companies Act 71 2008, to convene a general meeting of the shareholders of Homii Lifestyle (Pty) Limited, which is to be held within 14 days of the grating of this application, for inter alia the purpose of appointing new directors to the company.

3. The respondents are jointly and severally ordered to pay the costs of the application on a scale as between attorney and client, such costs to include the costs of two counsel”.

[2] On 18 September 2024 an application for leave to appeal the above order was refused but on 3 December 2024 the Supreme Court of Appeal granted leave to appeal the order to itself (hereafter the SCA).

[3] The applicants sought an order in terms of Section 18(3) of the Supreme Courts Act[1] for the implementation of this Court’s order of 30 July 2024, pending the finalization of the appeal.

Contextual background

[4] The first applicant is a public fund, the Unemployment Insurance Fund, (the UIF). Its funds are managed by another organ of State, the Public Investment Corporation Ltd (the PIC), who featured as the second applicant.

[5] In terms of a Mezzanine Facility Agreement, the UIF lent and advanced R410 million of public funds to the second respondent Homii Lifestyle (Pty) Ltd (Homii), a private property holding company. Homii is a wholly owned subsidiary of yet another private company, Urban Lifestyle Investment Holdings (Pty) Ltd (Urban), which featured as the third respondent.

[6] In terms of the Mezzanine Facility Agreement Homii became obliged to make six-monthly interest payments. It is common cause that it had defaulted in its obligation to do so, despite even at one stage having requested an extension to pay. According to the UIF’s calculations, the arrears interest amounted to R239 134 295, 10 on 30 October 2023.

[7] In clause 18 of the Mezzanine Facility Agreement, Homii had further undertaken to supply the UIF with its financial statements from time to time, including “each approved budget”. This obligation extended to the group of companies of which Homii forms part of. Homii has defaulted on these obligations as well, leaving the applicants in the dark as to the financial status and viability of its defaulting debtor.

[8] None of the above facts have been disputed on any reasonable grounds, neither in the main application, nor in the application in terms of section 18(3).

[9] The grounds of the pending appeal have nothing to do with the above undisputed facts. The respondents have in the main application

successfully argued that the applicants have not sufficiently “pleaded and proved” in their founding papers in the

urgent application, that this Court had jurisdiction to hear the application. Strydom J consequently struck the matter from the urgent court roll.

[10] The applicants thereafter amended their papers by repeating the averments made in their replying affidavit, in a supplementary founding affidavit, thereby enabling the respondents to deal with those averments, which they did. The matter was then re-enrolled on the urgent court roll from whence it was struck by Collis J, who directed that the Deputy Judge President be approached for an expedited hearing.

[11] In was pursuant to a consequential expedited hearing, that the order of 30 July 2024 had been granted. The applicants argued that, whatever the SCA might find in respect of the orders of Strydom J or Collis J or the issue of jurisdiction, it needs to protect its interests in the meantime and to secure repayment of public funds.

[12] The security relied on is this: In a Cession and Pledge Agreement (the Cession) furnished to the UIF by Urban as security for Homii’s

obligations, Urban ceded and pledged the voting rights attached to the shares it held in Homii. The exercise of these rights are catered for in paragraphs 1 and 2 of the order of 30 July 2024, which the applicant now seeks to enforce, pending either payment or the appeal.

The section 18(3) requirements

[13] It is trite that a pending appeal suspends the operation of the order appealed against.[2]

[14] A court may order “otherwise” that the aforementioned suspension should not apply, but may only do so in terms of Section

18(3)[3].

[15] The requirements have been summarized by Wallis JA in Knoop NO and Another v Gupta (Execution)[4] as follows: “The effect of these is that an applicant for an execution order must prove three things, namely exceptional circumstances; that they will suffer irreparable harm if the order is not made; and that the party against whom the order is sought will not suffer irreparable harm if the order is made”.

Exceptional circumstances

[16] The applicants correctly argued that the relief sought was not ordinary in nature. It was neither a money judgment or the customary order for execution against property by way of a sale. It is not even in the customary nature of perfection of a notarial bond.

[17] The Cession agreement, apart from the customary cession in securitatem debiti, provides for an extraordinary remedy, that is the taking over of the voting rights that a holding company has in respect of the shares it owns in its subsidiary.

[18] One can readily understand why this was agreed on between the parties. When the PIC lends out public funds belonging to state entities, to a property holding private company, it needs to keep track of the utilization of those funds and the viability of its debtor. Failure to do so, might compromise the recovery of funds which needed to be kept safe for later use by the State. When a debtor fails in its obligations, the UIF as lender needs to secure the debtor’s indebtedness by taking control thereof. This is done by exercising shareholders’ voting rights and thereby appointing new directors for the debtor. Although these rights are only exercisable until due debts (such as in this case, interest) have been paid, the relief securing these rights, can only be described as “exceptional”.

[19] I therefore find that the first of the aforementioned three requirements has been met.

Irreparable harm for the applicants?

[20] The nature of the relief described above, already illustrate that, if no control is taken of a delinquent debtor, there is a real risk that funds which would be needed to pay unemployment insurance claims (and which had been lent to Homii) might never be recovered.

[21] In the main judgment, I referred in paragraph [18] thereof to the aspect of insolvency or liquidation risks. The PIC had lent and advanced funds belonging to other state entities in a similar position as the UIF (such as the Government Employees Pension Fund (the GEPF) and the Compensation Commissioner Fund (the CCF)) to sister-companies of Homii in the A1 Group of Companies. The monies so advanced is in excess of R2 trillion. Since then, the majority of the Companies in the A1 Group, have placed themselves in voluntary liquidation or are being liquidated.

[22] In the main application, the applicants have provided the court with a list of these companies. This list indicates that Nedbank has issued winding-up applications against eight companies, that Bowwood and Main No 131 (RF) (Pty) Ltd and Standard Bank have issued wingding-up applications against another ten companies in the group.

[23] In yet another instance where the PIC had lent public funds to a sister company of Homii, Educor Property Holdings (Pty) Ltd, the repayment was guaranteed by 21 other sister-companies in the A1 Group of Companies. When these guarantees were called up, it led to “a cascading chain of resolutions adopted by a majority of these companies to place themselves into liquidation”.

[24] The PIC had also found that, in a large number of instances, the interrelated companies fund their respective expenses by inter-company loans and by utilising the funds lent to it by the PIC for purposes other than intended in the loan agreements. The applicants fear that, should Homii go the same way as its sister-companies or resolve to go into business rescue, the UIF would lose its security and as a concurrent creditor, run the real risk of suffering irreparable harm. This might also happen, should the order of 30 July 2024 not be implemented.

[25] I have referred to the above aspect in more detail than in the main judgment, not only because it is more relevant to the section 18(3) application than to the prior attempt at enforcement of the UIF’s contractual rights, but also because, when this issue was again raised in the applicant’s founding affidavit, Ms Nair, who as an erstwhile director of Homii had deposed to the answering affidavit, simply denied this issue by stating “No proof has been provided by the applicants to substantiate these allegations. This is mere speculation and conjecture”.

[26] This bald denial is too glibly made by someone who should have all the facts (Ms Nair’s involvement in the affairs of Homii had already been canvassed in the main judgment). In circumstances where the UIF has previously acquired 42% of the shares in Urban it became a co-shareholder thereof with A1 Capital (Pty) Ltd. In these circumstances and in the circumstances where the PIC had lent funds to other companies in the A1 Group, it should come as no surprise that the applicants (that is, inclusive of the PIC) were in a position to make these allegations. They are weighty and required a response.

[27] Should these allegations not be true, then one would have expected Ms Nair to have provided a detailed response. A failure to “seriously and unambiguously address” such alarming allegations, has been held by the SCA to mean that the facts alleged by the applicants are not genuinely and on bona fide grounds disputed[5]. That is the case here.

[28] On a conspectus of all the facts, I therefore find that the applicants had proven on a balance of probabilities that it will suffer irreparable harm, at least in the form of risk to public funds, should paragraphs 1 and 2 of the order of 30 July 2024 not be implemented forthwith (par 3 of that order relates to costs and there is no case made out that non-execution thereof should also lead to irreparable harm pending the appeal).

[29] I therefore find that the second of the aforementioned three requirements have been satisfied.

Irreparable harm for the second and third respondents?

[30] Adv De Beer SC vehemently argued on behalf of Homii (and Urban) that the mere loss of control of Homii by the appointment of new directors by the UIF, would per se result in irreparable harm.

[31] The fact that new directors are appointed to a corporate entity does not in itself create any harm for such an entity. Such newly appointed directors would be bound by the provisions of the Companies Act[6] and their fiduciary duties as directors.

[32] Notably, none of the director/s of Homii or Urban had deposed to any affidavit wherein it was contended that their possible future replacement would result in any irreparable harm for Homii.

[33] The highwater-mark on behalf of the respondents was Ms Nair’s contentions that “… if the current management structure is swiftly replaced … it will leave its operations in a state of disarray vis-a-vis its employees and clients” and “… the uncertainty and instability that will be created …” will create harm.

[34] The abovequoted generalised statements were not substantiated by any facts or particularity but more importantly, suffer from the

following deficiency: there is absolutely no conceivable reason why the UIF would, through any new directors appointed by it, do anything which might kill or even impair the proverbial goose that lays the golden eggs (Homii).

[35] The contrary is actually the position. The applicants have stated that their express intention is to obtain insight into their debtor’s financial situation (which they have contractually in any event been entitled to) and to “… prevent a winding-up of Homii, if possible, [and] to assess the extent to which the debt may be discharged without crippling the company financially …”.

[36] There is therefore no evidence that the respondents would suffer irreparable harm. The evidence is rather the opposite, namely that the intention is to prevent Homii from suffering any harm.

[37] The contention by Adv De Beer SC made from the bar, that, should the order be implemented, then by the time the appeal is heard (which may only be in a year’s time or even longer), “there would be nothing left …” of Homii, is, with respect to him, without foundation.

[38] Should the respondents be successful on appeal (and I have already in the judgment refusing leave to appeal expressed my doubts as to the prospect of that happening), then the directors voted in by the UIF would simply be removed and Homii would be placed back under the control of a director or directors of Urban’s choosing, as a going concern. In the meantime the company would have been managed as prudently as possible, without any harm.

[39] I therefore find, on a balance of probabilities, that the respondents would not suffer any irreparable harm should paragraphs 1 and 2 of the order of 30 July 2024 be implemented pending finalisation of the appeal.

Conclusion

[40] I therefore find that the three requirements for an order as contemplated in Section 18(3) have been satisfied and that the applicants are entitled to the order sought.

Costs

[41] I find no reason to deviate from the customary rule that costs follow the event.

Order

[42] Consequently, the following order is made:

1. Paragraphs 1 and 2 of the order of this court granted on 30 July 2024 shall remain effective and enforceable despite the respondents’ pending appeal to the Supreme Court of Appeal.

2. The respondents are ordered to pay the applicants’ costs of the application, including the costs of two counsel.

N DAVIS

Judge of the High Court

Gauteng Division, Pretoria

Date of Hearing: 11 December 2024

Judgment delivered: 13 November 2024

APPEARANCES:

For the Applicants: Advocate J Wasserman SC together with Adv M Msomi Attorney for the Applicants: Lusenga Attorneys Inc., Pretoria. For the 2nd & 3rd Respondents: Adv J de Beer SC together with Adv F van der Merwe Attorney for the 2nd & 3rd Respondents: Mooney Ford Attorneys, Umhlanga c/o Damelin Menlyn, Pretoria

[1] 10 of 2013.

[2] Section 18(1).

[3] “A court may only order otherwise as contemplated in subsection (1) … if the party who applied to the court to order otherwise, in addition proves on a balance of probabilities that he or she will suffer irreparable harm if the court does not so order and that the other party will not suffer irreparable harm if the court so orders”.

[4] 2021 (3) SA 135 (SCA) at [45] with reference to UFS v Afriforum 2018 (3) SA 428 (SCA) and Ntlemeza v Helen Suzman Foundation 2017 (5) SA 402 (SCA).

[5] Wightman t/a JW Construction v Headfour (Pty) Ltd [2008] ZASCA 6; 2008 (3) SA 371 (SCA) at [13].

[6] 71 of 2008.