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HIGH COURT OF SOUTH AFRICA

(GAUTENG LOCAL DIVISION, JOHANNESBURG)

Case No: 9935/18

In the matter between:

INDUSTRIAL DEVELOPMENT CORPORATION

OF SOUTH AFRICA LTD                                                                                        Applicant

and

PETRUS FRANCOIS VAN DEN STEEN N.O.                                            First Respondent

TREVOR JOHN MURGATROYD N.O.                                                  Second Respondent

HERNIC FERROCHROME (PTY) LTD                                                      Third Respondent

Case Summary:  Companies Act 71 of 2008 – meeting required in terms of s 151(1) for the purpose of considering business rescue plan - application to postpone and stay the holding of the meeting pending the final determination of the application and/or an application for the removal of the practitioners – creditors have direct and substantial interest – non-joinder of creditors fatal to the relief sought in the application.

JUDGMENT

MEYER J

[1] This is an urgent application in which the applicant, Industrial Development Corporation of South Africa Limited (IDC), sought an order inter alia that a meeting required in terms of sections 151 and 152 of the Companies Act 71 of 2008 (the Companies Act) convened by the first respondent, Mr Petrus Francois van den Steen NO, and the second respondent, Mr Trevor John Murgatroyd NO, who are the business rescue practitioners (the practitioners) of the third respondent, Hernic Ferrochrome Proprietary Limited (Hernic), for 11.00 am on Thursday, 29 March 2019, be postponed and stayed pending the final determination of this application and/or an application for the removal of the practitioners, which is to be launched within a certain period of time. 

[2] Hernic was placed in business rescue proceedings on 21 September 2017.  Pursuant to this the practitioners were appointed as business rescue practitioners.  IDC is a 15.7% shareholder and creditor of Hernic in an aggregate amount of R431 million, constituting subordinated shareholders loans.  The practitioners prepared a business rescue plan that was published on 21 March 2018.  On the same day they also gave notice to affected persons that the business rescue plan would be considered at a meeting on Thursday, 29 March 2018 at 11:00 am. The holding of such a meeting is required by s 151 of the Companies Act and s 152 prescribes procedural and substantive requirements for the consideration, approval and rejection of a business rescue plan at such meeting (the s 151 meeting).

[3] Subsection 151(1) of the Companies Act requires that ‘[w]ithin 10 business days after publishing a business rescue plan in terms of section 150, the practitioner must convene and preside over a meeting of creditors and any other holders of a voting interest, called for the purpose of considering the plan.’  Subsection 151(3) allows that the meeting ‘may be adjourned from time to time, as necessary or expedient, until a decision regarding the company’s future has been taken in accordance with sections 152 and 153’. 

[4] Section 152 provides inter alia for the introduction of the proposed business plan for consideration by the creditors and, if applicable, the shareholders;  discussion thereof;  voting on any motions to amend the proposed plan or to direct the practitioner to adjourn the meeting in order to revise the plan for further discussion;  and for voting on the preliminary approval of the proposed plan, unless the meeting has first been adjourned in order to revise the plan.  If the proposed business rescue plan does not alter the rights of the holders of any class of the company’s securities, its preliminary approval also constitutes its final adoption, subject to satisfaction of any conditions on which the plan is contingent. 

[5] IDC requested the practitioners to postpone the holding of the meeting.  It wanted more time ‘to fully consider the business rescue plan and its implications’.  It is stated in the founding affidavit that-

‘. . . the current plan will seriously and detrimentally affect the interests of all shareholders, other than Mitsubishi, and, from the Applicant’s perspective, it will lose its entire investment in [Hernic].  It does not appear that any more viable options have been considered or that there has been any or due consideration to the substantial loss of public funds which the plan will cause.’

[6] The practitioners did not accede to IDC’s request to postpone the holding of the s 151 meeting.  IDC then brought this application by way of extreme urgency; it was served and filed by e-mail around ten o’clock on Wednesday evening, 28 March 2018, for hearing at nine in the morning, 29 March 2018.  I had to give an immediate order - the s 151 meeting was either to proceed or be postponed and stayed by order of this court.  The application was opposed by the practitioners and by two creditors of Hernic, Mitsubishi Corporation (Mitsubishi) and HFSA Investment B.V. (HFSA), the latter being a 53,8% shareholder of Hernic.  They were unable to serve and file opposing affidavits due to the urgency with which the application was brought. 

[7] Mitsubishi and HFSA raised their non-joinder to the application on the grounds that they had a ‘direct and substantial interest’ (a legal interest) in the subject-matter of the application, which might be affected prejudicially by any order this court might make, as a point in limine.  The practitioners made common cause with the objection of non-joinder.  I was satisfied that the non-joinder of creditors, such as Mitsubishi and HFSA, in an application to postpone and stay the holding of a s 151 meeting, was fatal to the granting of the application.  An opportunity to join the creditors could not be afforded to IDC due to the urgency with which the application had been brought.  I accordingly dismissed the application with costs, including those of Mitsubishi and HFSA, and of senior counsel.  These are the reasons for my order.

[8] By analogy, the issue in Absa Bank Ltd v Naude NO and others (20264/2014) [2015] ZASCA 97 (1 June 2015), was whether the non-joinder of creditors in an application to set aside a business rescue plan was fatal to the relief claimed in that application.  The Supreme Court of Appeal held as follows:

‘The test whether there has been non-joinder is whether a party has a direct and substantial interest in the subject matter of the litigation which may prejudice the party that has not been joined.  In Gordon v Department of Health, Kwazulu-Natal [2008] ZASCA 99; 2008 (6) SA 522 (SCA) it was held that if an order or judgment cannot be sustained without necessarily prejudicing the interest of third parties that had not been joined, then those third parties have a legal interest in the matter and must be joined.  That is the position here.  If the creditors are not joined their position would be prejudicially affected:  A business rescue plan that they had voted for would be set aside; money that they had anticipated they would receive for the following ten years to extinguish debts owing to them, would not be paid;  the money that they had received, for a period of thirty months, would have to be repaid; and according to the adopted business rescue plan the benefit that concurrent creditors would have received namely a proposed dividend of 100 per cent of the debts owing to them, might be slashed to a 5,5 per cent dividend if the company is liquidated.’

(Also see Golden Dividend 339 (Pty) Limited and another v ABSA Bank Limited [2016] JOL 36032 (SCA), paras 8-10.)

[9] The issue in Kransfontein Beleggings (Pty) Ltd v Corlink Twenty Five (Pty) Ltd (624/2016) [2017] ZASCA 131 (29 September 2017)), was whether the non-joinder of creditors in an application to partly set aside and to amend a business rescue plan was fatal to the relief claimed in that application.  There the Supreme Court of Appeal endorsed its earlier decision in Naude and held thus:

‘[16] As stated in Absa v Naude, if the creditors who voted for the business rescue plan are not joined, their position would be prejudicially affected in that a business rescue plan would be set aside, money that they had anticipated they would receive would not be paid and the money that they had received would have to be repaid.  It thus follows that the non-joinder of Corlink’s other creditors was fatal to the amended relief sought by the applicant for non-joinder.  Since the question of joinder had been raised at the previous hearing and since the applicant had taken a deliberate decision not to join other creditors, I do not think that the court a quo was required to afford the applicant a further opportunity to join the other creditors.’   

[10] If the creditors who are entitled to consider, debate and vote on the approval of the business rescue plan at the s 151 meeting are not joined, their position would be prejudicially affected if the meeting is postponed and the holding of the meeting is stayed pending the final determination of the application and/or an application for the removal of the practitioners.  A business rescue practitioner, in terms of s 150(5) of the Companies Act, has only 25 business days from the date of his or her appointment to publish the proposed business plan.  This is a very short turnaround period.  If the period needs to be extended, either the court on application by the company or the holders of a majority of the creditors’ voting interests need to consent to the extension.  Once the proposed business rescue plan has been published, there is another short timeframe (10 business days) within which the meeting to determine the future of the company must be convened.  (See Henochsberg on the Companies Act 71 of 2008 LexisNexis Vol 1 at 522 and 522(2).) 

[11] A postponement and stay of the s 151 meeting directly impact on the rights and interests of creditors and shareholders.  The Companies Act recognises that all affected parties have a legal interest in a business rescue plan.  Creditors, in particular, have statutory rights:  to have the s 151 meeting convened and held;  to have it held within the prescribed period of time after publication of the business rescue plan;  to participate in debating the business rescue plan at the s 151 meeting and to vote on it;  to have the outcome as soon as possible; and to participate in the consequences of its approval or rejection.   These are legal rights.  The relief sought by IDC had a direct impact on these rights.

[12] It follows, therefore, that the non-joinder of Hernic’s creditors was fatal to the relief sought by IDC.

 

                                                                                   

P.A.  MEYER

JUDGE OF THE HIGH COURT

 

 

Date of hearing: 29 March 2018

Date of Judgment: 06 April 2018

Counsel for applicant: Adv. F. Dippenaar S.C. (assisted by Adv D Molcale)

Instructed by: Cliffe Dekker Hofmeyr, Sandton

Counsel for respondents: Adv. J. Blou S.C.

Instructed by: Webber Wentzel, Sandton

Counsel for Mitsubishi Corporation

and HFSA Investment B.V.: Adv. A Subel S.C.

Instructed by: Allen & Overy (South Africa) LLP, Sandton

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