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REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

1. NOT REPORTABLE

2. NOT OF INTEREST TO OTHER JUDGES

Case Number: 6752/2017

4/5/2018

 

In the matter between:

 

SIYAHLANZA ENGINEERING CC                                                           Applicant

 

and

 

HORNET PROPERTIES PTY LTD (IN LIQUIDATION)                          First Respondent

 

 

ABSA BANK LIMITED                                                                                 Second Respondent

 

JUDGMENT

FISHER J:

 

FACTS

[1]        The applicant which claims that it is a creditor of the first respondent, Hornet, seeks that Hornet be placed under business rescue. This is sought, notwithstanding that Hornet was placed in provisional liquidation on 28 of November 2016 and has since been liquidated and is under the control of duly appointed liquidators. The applicant claims to be a creditor in the liquidation.

[2]        Hornet is a property-owning company. It has no other business.  The basis for seeking that Hornet be placed in business rescue is the assertion that the property is a prime industrial site and could be let out profitably.

[3]        The property was previously let to an entity, Lead Processing (Pty) Ltd (“Lead”), that conducted business from the property as a lead processing concern. Lead is the principal debtor in respect of loan indebtedness to Absa Bank in an amount of approximately R 11 million and Hornet is surety and co-principal debtor for such indebtedness. Lead and Hornet are associated entities in that they have a director, Mr Brand in common.

[4]         Lead was placed in final liquidation on 28 January 2016. Since then, the property has been without a tenant and thus Hornet has received no income.  In relation to the indebtedness of Lead, Absa perfected a notarial bond over the movable property of Lead which the applicant contends comprised the contents of the lead processing plant.

[5]        The applicant maintains that the fact that the property still lends itself to the conduct of such a lead processing enterprise means that the proposed business rescue would have prospects of success, in that the processing plant and equipment can be put to use at the property thus generating a rental income for Hornet.

[6]        Central to the applicant’s case is the contention that an entity, Majestic Filtration Solutions CC (“Majestic”) has the skills and general wherewithal to conduct this proposed business venture. This case is purportedly made out in a supplementary affidavit which the applicant seeks to introduce. This supplementary affidavit introduces a proposal by a business rescue practitioner apparently “nominated “by the applicants to be the appointed the business rescue practitioner in due course.  This proposal seeks to demonstrate that there is viability in the proposed project.  In terms of the proposal the proposed practitioner, Mr. Schickerling seeks to value the property at approximately R 4 million with a forced sale value of R 2.8 million. Somewhat curiously, the “replacement value for the industry specific use of the property” is determined at our 13 million. No basis whatsoever is laid for this valuation and it is not even clear what it means. The further point is made in the proposal that the cost of rehabilitation of the property and its improvements is determined at more than R12 million.  Again, no foundation is laid in respect of this assessment.

[7]        Mr. Schickerling states that he is “advised that majestic has the necessary equipment”. The proposal is that Majestic, in the conduct of this enterprise will pay rental to Hornet an amount of R 40 000 per month with a 5% escalation.  Mr. Schickerling expresses the view that this is a market related rental in the circumstances of the proposal.  The   proposal appears to be that Absa will ultimately be paid the full indebtedness owing to it by means of a profit share arrangement arising out of the conduct of the lead processing concern by Majestic. Both Majestic and the applicant are represented by the same attorney, Mr. Z Omar.

[8]        The true enquiry is however what the business of Hornet can generate. On the applicant’s version this is only R40 000 per month, without deductions.

 

LAW

[9]        The court may make an order placing the company under supervision and commencing business rescue proceedings, if satisfied that it is just and equitable to do so for financial reasons and there is a reasonable prospect of rescuing the company. This can mean not only bringing the company back to commercial viability, but also the bringing about of the situation where the creditors get a better dividend than they would in a liquidation.

[10]         The applicant must place before the court a factual foundation for the existence of a reasonable prospect that the desired object can be achieved. The Court in Oakdene Square Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami) (Pty) Ltd and Others (609/2012) [2013] ZASCA 68; 2013 (4) SA 539 (SCA); [2013] 3 All SA 303 (SCA)  stated as follows in relation to the approach to be applied at [29] (per Brand JA):

“On the other hand, I believe it requires more than a mere prima facie case or an arguable possibility. Of even greater significance, I think, is that it must be a reasonable prospect – with the emphasis on ‘reasonable’ – which means that it must be a prospect based on reasonable grounds. A mere speculative suggestion is not enough. Moreover, because it is the applicant who seeks to satisfy the court of the prospect, it must establish these reasonable grounds in accordance with the rules of motion proceedings which, generally speaking, require that it must do so in its founding papers.”

[11]        The case which the applicant seeks to make out is deficient in a number of respects but primarily it fails dismally in the setting out of any reasonable prospects that the desired objects of rescue of the company or a greater dividend could ever be realised. The business rescue proposal suggests a rental income of no more than R40,000 Rand per month. It is clear when one has regards to the accrued expenses and the requirements of a substantial rehabilitation at a cost exceeding R12 million, that this proposed rental income would be insufficient to meet these costs. It would furthermore be insufficient even to cover less than half of the interest component running on the substantial indebtedness of Hornet to Absa.

[12]        Absa, as the main creditor by far, is opposed to the business proposal and is likely in due course to vote against the approval of a plan along these lines. The proposal relies, in the main, on the viability of Majestic's conduct of the proposed lead processing enterprise. It seems that what is countenanced, is that a profit-sharing arrangement in relation to this enterprise will, in some way eventuate and serve in due course to reduce the principal indebtedness of Lead and thus the accessory indebtedness of Hornet. Scant information is given in relation to this proposed enterprise. The court is not told where the start-up capital will come from and what the business plan is in relation to this enterprise. In the circumstances there is no evidential foundation to support the existence of a reasonable prospect that the desired object can be achieved. The  prospect relied on is dependent on the commercial success of the proposed tenant, not only to the extent that such tenant will be viable enough to generate the rental income proposed, but also to generate sufficient profits to provide a profit share arrangement which has the prospect of reducing the primary indebtedness.

[13]         The applicant's supplementary affidavit relating to the report of the business rescue practitioner suggests a disingenuity which is troubling. In this regard the assertion is made that the business rescuers investigations into Majestic "reveals that the latter entity has necessary equipment, resources, staffing, and acumen to conduct the operations of the lead beneficiation operation." Reference to the report of Mr. Schickerling however, far from revealing such investigations and results, instead states the following "I am advised that Majestic Filtration Solutions CC has the necessary equipment, resources, staffing and acumen to conduct the operations of a lead beneficiation operation” (emphasis added).

[14]        It must also be noted that the bringing of the application was non-compliant with the requirements of the Companies Act in that all interested parties were not notified of the process. Indeed, it was necessary for Absa, as main creditor by a margin of some R 10 million, to bring an application to intervene in the proceedings in order to oppose the application. The liquidators of Hornet were also not notified of this process. This is suggestive of some measure of bad faith. Indeed the allegation is made that Mr Brand, the director of both Hornet and Lead has been obstructive in the manner in which he has caused litigation in the context of the liquidations of these entities. The allegation made is that Mr. Brand has obstructed the liquidation proceedings of both Lead and Hornet on numerous occasions. This has including the bringing of an application to have Lead placed under business rescue which application appears to have been abortive. The contention made by Absa is that the present application is no more than a continuation of these attempts to delay liquidation proceedings in respect of Hornet. Indeed, reference to the way in which the proceedings have been conducted, which includes an attempt to make out a case in a supplementary affidavit, is evidence that the matter is not seriously or responsibly conceived.

[15]        There are further disquieting aspects in relation to central features of the matter. The applicants relies on a valuation of the property by an estate agent who is not a sworn valuer and who indicates that all she did was drive past the property. She values the property at over R 9 million. This is significantly at odds with the business practitioners proposal which values the property at no more than R4 million on the open markets and R2.8 million on a forced sale. A further contradiction which emerges is the assertion that majestic has its own fully fledged and equipped operation. Reference to the business rescue proposal however reveals that what is envisaged is the use of the movables which have been attached by Absa pursuant to its notarial bond over the movables. It is from this model that the idea of possible profit share emerges. This is still further at odds with the fact that in excess of R12 million is stated to be needed to rehabilitate the property. As the majority creditor Absa’s opposition to the proposed process is important if not decisive in the consideration of this matter. To my mind, the stance taken by Absa is, in the circumstances, not unreasonable.

[16]        In all the premises the application falls substantially short of the prescribed mark. There is no basis upon which this court should exercise its discretion in putting the company into business rescue. As set out above, I believe that to be an element of disingenuity and vexatiousness in the manner in which this application has been launched. Accordingly, in my view, it is correct that costs be awarded on a punitive scale.

[17]        In the circumstances I make the following order:

1.     the application for business rescue is dismissed

2.    The applicant is to pay the costs of the application on the scale as between attorney and client.

                  

                                                  FISHER J

                           HIGH COURT JUDGE

                       GAUTENG LOCAL DIVISION

 

Date of Hearing:   24 April 2018

Judgment Delivered:  04 May 2018

APPEARANCES:

 For the Applicant: Mr Z Omar Attorney with the High Court Right of Appearance Instructed by Zehir Omar Attorneys. 

For the Respondents: Adv J Steyn Instructed by De Vries Inc.

 

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