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REPUBLIC OF SOUTH AFRICA

OFFICE OF THE CHIEF JUSTICE

(GAUTENG DIVISION, PRETORIA)

CASE NO: 20189/14

DATE: 7/10/2015

IN THE EX PARTE APPLICATION OF

BHIDSHI INVESTME NTS CC                                                                               APPLICANT

J U DG ME NT

FOU RI E AJ

1   This is an application i n terms of section 153 of the Companies Act, 71 of 2008, to declare that the result of the vote by the holders of voting interest on 3 M arch 2014, rejecting the proposed business rescue plan, be set aside on the grou nds that it was i n appropriate.

2    The applicant was placed under business rescue on 10 October 2013 in terms of s 129 of the Act. The appointed business rescue practitioner, Mahomed Tayob, published a draft business rescue plan and convened the meeting to be held in terms of s 151(1) on 3 March 2014.

3    At the meeting and subsequent to discussion of the proposed plan and questions from the representative of FirstRand Bank ("FRB" ), who holds 53% of the voting rights, the proposed plan was put to the vote. I interpose to point out that FRB is a proved  creditor of the applicant in an amount of almost R4,3 million, is a secured creditor by virtue of a mortgage bond over the applicant's immovable property, which is also its sole asset, the letting of which comprises the applicant's only business.

4    FRB voted against the proposed plan, and accordingly the plan was rejected. The business rescue practitioner enquired from the representative of FRB whether she suggested an amendment or revision to the plan, and she responded in the negative. Mr Tayob thereupon informed the meeting that he would apply to Court for the vote to be side aside on the basis that it was improper, which he duly did one week later.

5    The application was brought ex parte, but FRB filed an opposing affidavit on the basis that it is an affected party in accordance with s 128(1)(a) of the Act, and the applicant, quite correctly, did not object thereto.

6    Curiously, on receipt of this opposing affidavit, the applicant did not file a replying affidavit, nor did it take any steps to set the application down for hearing. When FRB set the application down on the opposed roll of 3 November 2014, the applicant applied for a postponement in order to file a supplementary affidavit pertaining to facts that Mr Tayob said had emerged subsequent to the launch of the application. FRB set the application down again on the opposed roll of 16 March 2015, when it did not proceed for reasons that are not clear to me. FRB set the application down, yet again, on the opposed roll of 31 August 2015, when counsel for the applicant, who had not filed heads of argument as he had been briefed only a few days earlier, sought to hand up a supplementary affidavit pertaining to new events and wherein application was made for a postponement yet again. Counsel for FRB objected to both the supplementary affidavit and the application for a postponement. It had been 18 months since the proposed plan had been rejected.

7     "It is axiomatic that business rescue proceedings, by their very nature, must be conducted with the maximum possible expedition. In most cases a failure to expeditiously implement rescue measures when a company is in financial distress will lessen or entirely negate the prospect of effective rescue. Legislative recognition of this axiom is reflected in the tight timelines given in terms of the Act for the implementation of business rescue procedures if an order placing a  company  under supervision for that purpose is granted. There is  also  the  consideration  that  the  mere  institution  of  business  rescue proceedings - however dubious might be their prospects of success in a given case - materially affects the rights of third parties to enforce their rights against the subject company." See: Koen and Another v Wedgewood Village Golf & Country Estate (Pty) Ltd and Others 2012 (2) SA 378 (WCC).

8    With this in mind, and in the light of the history of the matter and the absence of a substantive application, I declined to accept the supplementary affidavit and refused the application for a postponement. Argument proceeded on the merits.

9    S 7(k) of the Companies Act stipulates that one of the purposes of the Act is to provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders. The shareholders, creditors  and employees and/or  registered trade unions representing employees are stakeholders in terms of the Act. "Business rescue" is defined in s 128 of the Act as proceedings to facilitate the rehabilitation of a company that  is financially  distressed  by providing for  (1) the temporary supervision of the company, and the management of its affairs, business and property, (2) a temporary moratorium on the rights of claimants against the company or in respect of property in its possession, (3) the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if that is not possible, (4) a plan that would achieve a better a better return for the company's creditors than the payment they would have received if the company had been liquidated immediately.

10    The proposed business rescue plan entailed the following:

10.1   A five year moratorium until March 2019;

10.2   The arrear amounts of the secured and statutory preferent creditors to be expunged during the moratorium period;

10.3   At the successful conclusion of the arrear amount, the secured loan be re-instated with its inaugural conditions;

10.4   The loans of the concurrent creditors be subordinated until the expiry of the moratorium;

10.5 The unsecured creditors be constricted from drawing against any of their loans prior to the monthly payments/instalment of the secured and statutory preferred creditors.

11    FRB understood this to mean that the arrears owed by the applicant to FRB when it was placed under business rescue ( R l,046,323.00) would be paid off during the 5 year moratorium, however, no instalments or current payments would be made to FRB and payment of the instalments would only recommence once the moratorium came to an end. This was not disputed.

12   In the as yet unreported  judgment  of  Shoprite  Checkers  (Pty)  Ltd  v Berryplum Retailers CC and Others (Case no. 47327/2014) (GNP), Tuchten J suggested that a Court considering an attack on a vote under s 1S3(7) must first determine whether the vote was inappropriate. Only if it finds that the vote was inappropriate, can the Court proceed to  consider  whether,  taking this into account, it would be reasonable and just to set the vote aside. This appears to me to be the correct approach.

13   Henochsberg on the Companies Act, 71 of 2008, says in the commentary to s 153(1)(a), that it is not clear what is envisaged by the term "inappropriate" in this section, and that it is difficult to think of circumstances where the

creditors' vote for the rejection of a business plan would  be inappropriate. This view was endorsed by Tuchten J in Shoprite Checkers, already referred to.

14 Mr van Rensburg, who appeared for the applicant, argued that FRB had not explored other avenues, and while it could have come forward to make other proposals, it had not done so. Its approach was simply that it was not interested. The implementation of a business rescue plan is not the  sole responsibility of the business rescue  practitioner.  The  participation  of creditors is required, and yet FRB had not really participated. This conduct, he said,  rendered the vote inappropriate. Mr van Rensburg further  argued that a determination of the reasonableness or appropriateness of the vote involved a balancing of rights, with reference to the rights of all the creditors, and not only the particular creditor that had voted against the plan. As FRB will get its money, no matter what happens, the plan holds no prejudice for FRB.

15    Counsel for FRB, Mr Hollander, submitted that the onus was on the business rescue practitioner to demonstrate that the rejection of the plan had been inappropriate. The rejection of a business rescue plan is only inappropriate if it is self-serving, he argued, which in this case it was not. It was reasonable to reject the proposed plan, not only from the point of view of the bank, but also when having regard to the interests of the other creditors. In this regard he relied on the procedure followed by FRB in evaluating the plan, and the reasons for its rejection thereof, which was set out in detail in the answering affidavit and may be summarised as follows:

15.1   Jeanne Grobler, the Credit Risk Manager for Commercial Credit, considered the proposed business plan and prepared a detailed written recommendation for the dedicated business rescue credit committee;

15.2   Taking into account all the circumstances, including inter a/ia FRB's security, legal proceedings already instituted and  the  expected dividend on liquidation (100%), she recommended that FRB vote against the implementation of the proposed plan, which  the committee  resolved to do;

15.3   Ms Grabler disputes certain aspects of the applicant's version of the events at the meeting. Importantly, when she stated that five years was too long for FRB to wait for the arrears to be paid off, Mr Tayob responded that the applicant's cash flow would not allow for an earlier settlement. FRB was presented with a fait accompli, and for this reason did not propose any suggestions or amendments to the proposed business rescue plan;

15.4   In summary, FRB rejected the proposed plan for the following reasons:

15.4.1   The five year moratorium period proposed, was too long;

15.4.2   During the moratorium the arrears owed to FRB would be paid off, but no instalments would be paid by the applicant, leaving a large accumulation of arrears;

15.4.3   The monthly instalments required to be paid to FRB (R83,869.67), would not be covered by the monthly rental indicated by the business rescue practitioner (R55,000.00);

15.4.4   As a secured creditor, FRB would receive a 100% dividend on liquidation;

15.4.5   The proposed business rescue plan was to FRB unreasonable, proposes no justifiable solution to the applicant's financial distress and is ultimately of no benefit to FRB or the applicant's creditors as a VI/hole.

16    I agree with the views expressed by FRB as set out in the preceding paragraph. It is difficult to reconcile the proposed business rescue plan with the stated purpose of business rescue as set out in s 128 and in paragraph 9 above. A moratorium of five years can hardly be said to be "temporary ", the plan  merely  postpones  the  payment  of  its  debts,  does  not  attempt  to

restructure its affairs or business, there is no indication whether the projected rental income is achievable, or why the position of the applicant will be any different from the present at the end of the moratorium. The plan appears to be aimed at sheltering the applicant from its creditors, rather than achieving the goals of business rescue. There is no good reason why FRB should have voted in favour of the proposed business rescue plan.

17    In my view, the approach of FRB was in compliance with the following dicta in Copper Sunset Trading 220 (Pty) Ltd v Spar Group Ltd and Another 2014 (6) SA 214 (LP) at [32]: "Creditors should participate in good faith and objectively consider the merits and demerits of a proposed business plan" . There is no obligation on a creditor to propose alternative plans as suggested by Mr van Rensburg and in this regard I also refer to s 140(1)(d), which provides that the practitioner is responsible to develop a business rescue plan to be considered by affected persons, and ss 145(1) and (2), which stipulate that each creditor is entitled to make proposals for a business rescue plan, or to propose the development of an alternative plan (my emphasis).

18    As I am unable to find that the vote was inappropriate, I do not deem it necessary to determine whether it would be reasonable and just to set aside the vote.

19    For these reasons the application is dismissed with costs.

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H R FOURIE

ACTING JUDGE OF THE HIGH COURT

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