SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy	

IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG DIVISION, PRETORIA

                                                                                                                  	     CASE NUMBER 88079/14

In the matter between:

2001 MANAGEMENT SERVICES (PTY) LIMITED                                                                 1st Applicant

STANDARD BANK OF SOUTH AFRICA LTD                                  Intervening Party and 2nd Applicant 

DELETE WHICHEVER IS NOT APPLICABLE
(1)	REPORTABLE: YES/NO
(2)	OF INTEREST TO OTHERS JUDGES: YES/NO
(3)	REVISED

.........20/5/2016......    ..............................................
         DATE                           SIGNATURE	

and

KUMARVASAN ANAPPA							                  Respondent
_____________________________________________________________________

JUDGMENT
____________________________________________________________________

THULARE AJ

[1] 	The business rescue practitioner, on behalf of the first applicant, applied for an order 	that the business rescue proceedings of the applicant be terminated and that the 	applicant be placed in final liquidation in terms of section 132 (2) of the Companies Act 	71 of 2008 (the Act). As regards costs, it is prayed that the costs of the business rescue 	practitioner in the business rescue proceedings of the applicant including all 	disbursements and legal costs incurred by him, be costs in the winding-up of the 	applicant.

[2] 	The second applicant, the Bank, applied for leave to intervene in the application, and an 	order that the business rescue proceedings of the applicant be terminated and the 	applicant be placed in final liquidation in terms of section 132 of the Act. In the 	alternative, the second applicant seeks an order granting them leave to institute 	liquidation proceedings against the applicant in terms of section 133 of the Act and an 	order placing the applicant into final liquidation in the hands of the Master, and that the 	costs of the application, including costs of intervening, be costs in the liquidation.

[3]	Before me, the business rescue practitioner did not pursue its motion, opting instead to 	support the application by the Bank. His interest and his submissions, only related to the 	costs. His prayer was that the court order, in relation to costs, be that the costs incurred 	by him in employing attorneys and counsel, in either defending or bringing interlocutory 	applications pending the winding-up application, are to be regarded as administration 	costs in the winding up and further that the question of his fees are to be reserved. The 	Bank did not support this stance of the business rescue practitioner. In its view this 	court cannot be asked to deal, in the main with costs related to the application brought 	in the matter before another court in another province, and as regards fees the Bank’s 	view is that this must be left up to the liquidator to decide which claims are to be 	admitted and which are not to be admitted.

[4] 	The Bank only pursued its alternative motion before me.

[5]	In his founding affidavit in support of the application brought by first applicant, Thomas 	Hendrick Samons (Samons) says he deposed to the affidavit in his capacity as the 	business rescue practitioner appointed as such on 11 July 2014 in terms of a resolution 	dated 1 July 2014, passed by the sole director of the applicant, Walter Frederick Stephen 	Ward (Ward), in terms of the provisions of section 129 of the Act. The applicant 	commenced business rescue proceedings on 7 July 2014. He took effective control of 	the applicant on 11 July 2014. 

[6] 	In the sworn affidavit obtained from Ward, it is said that the applicant’s primary 	business activity is that of property investment. Ward confirmed that the applicant is in 	financial distress due to the following factors:

	(a) 	applicant, as part of a group of companies, bound itself as surety for overdraft 			facilities of the group which the banks have called up;
	(b) 	the applicant owns one residential property in La Lucia, Kwa-Zulu Natal;
	(c) 	the property was then vacant and not generating any income but had 				considerable expenses;
	(d) 	Ward subsidized the expenses of applicant from funds borrowed from banks 			which funds were no longer available

[7] 	Ward goes on to indicate that the assets of the applicant were far in excess of its 	liabilities although it is unable to pay its debts as and when they became due. In his 	view, the applicant would be in a position to rectify the problem within six months due 	to the following possibilities:

	(a)	 Samons would be able to find suitable tenants to lease the property.
	(b)	 Samons would be in a position to entertain offers to purchase the property of a 			value much higher than the current covering bond and/or the banks’ exposure
	(c) 	the residual amount generated from the sale of the property would be utilized to 		debts.

	The applicant had 3 employees, nil turnover, two million rands third party liabilities and 	1 individual with an interest.

[8]	 Arising out of meetings that Samons held with the director of the applicant and the 	shareholders, he concluded that the applicant was in distress due to the fact that its 	major creditor, Standard Bank, could not be paid.

[9] 	The property that the applicant owns is situated at 38 Lady Ellen Crescent, Umhlanga 	Rocks, KwaZulu- Natal, more fully described as Erf […] La Lucia Extension 2, Local 	Authority Ethekwini, Registration Division FU, Province of KwaZulu Natal, in extent: 1209 	square metres. It is a coastal house (the property). It is valued at a maximum market 	value of R4 million.

[10] 	Standard Bank Limited (the Bank) is a creditor of the applicant in an amount of not less 	than R5 milllion, which debt is secured by two covering bonds which are registered in its 	favour over the property.

[11] 	After discussions with the Bank, Samons decided to sell the property by means of a 	public auction. His view was that this would have enabled him to conclude the business 	rescue proceedings within the prescribed three months period. Samons instructed 	Aucor Auctioneers to proceed with the auction which was scheduled and advertised to 	take place on 26 September 2014.

[12]	Samons had to cancel the auction in the light of a court order which was obtained by 	Kumarvasan Annappa (Annappa), who was then occupying the property in terms of an 	arrangement between him and the applicant’s director in terms of which Annappa 	allegedly purchased the property, alternatively shares in the applicant. The order 	interdicted Samons from selling the property pending an application to set aside the 	business rescue proceedings which Annappa was yet to institute. The application to set 	aside the business rescue proceedings has not been served on Samons. As a result of the 	obstruction by Annappa, Samons was unable to conclude the business rescue 	proceedings within the prescribed three month period.

[13] 	Samons submits that it would be best for all parties if the applicant is wound up, and 	then the liquidators can investigate the Annappa transaction and set it aside if they 	deem it to be impeachable. The liquidators can still sell the property.

[14] 	Barry Terrence Wenke (Wenke) is the manager in the business support-rescue and 	recoveries, personal and business banking credit division of the bank who brings the 	application by the Bank on the authority granted by the Board of Directors of the Bank. 	The bank gave notice of its intention to participate and intervene in this matter in terms 	of section 145(1)(b) of the Act. The Bank supports the application by Samons to have the 	business rescue of the applicant set aside on the basis that there is no prospect of 	rescuing the applicant and to seek the winding up of the applicant, alternatively, the 	Bank seeks the liquidation of the applicant, in its own right.

[15] 	A copy of the electronic print-out from the records of the Companies and Intellectual 	Property Commission in respect of the applicant, attached to the Bank’s application, 	dated 16 March 2015, indicates that Ward had resigned as a Director and that Annappa 	is the sole active director with an appointment date of 23 July 2013.

[16]	 According to Wenke, applicant is a property owning company and does not trade. It is 	the registered owner of the property, and this is the applicant’s only immovable 	property. The property is mortgaged to the Bank. The mortgage bonds were registered 	over the property by the applicant in favour of the Bank on 1 August 2005 and 14 	August 2006 respectively under Bond numbers B43084/2005 and B48579/2006. The 	bonds were registered as continuing covering security, for amongst others, the 	obligations of the applicant to the Bank as surety for amounts owing by Ward to the 	Bank, which suretyships were limited to R4 million and R1 million respectively, R5 	million in aggregate.

[17] 	The Bank afforded Ward a facility known as a “Liberator Facility” in terms of which a line 	credit of R12 million was made available to him. Ward availed himself of the facility, but 	fell in arrears with his payments and as at 12 April 2012 the aggregate arrears amount 	was R862 066-89. The Bank instituted action against Ward for the full amount owing. As 	at date of the affidavit, Ward is indebted to the Bank in respect of the facility in the sum 	of R13 638 352-43 together with interest on the aforesaid amount at the prime rate 	from time to time, then 9.25% less a concession of 2.25% i.e. 7% per annum, which 	interest is calculated daily and compounded monthly in arrears from March 2015.

[18] 	The applicant was cited as third respondent to the action pursuant its obligations to the 	Bank as surety. Against the background of the two suretyships referred to earlier and 	the limitation thereon, the Bank claimed payment in the amount of R5 million together 	with interest thereon at the prime rate as at 12 April 2012, which was 9% less 2.25% i.e. 	6.75% per annum, calculated from 12 April 2012 to date of payment. The applicant, 	according to Wenke, is indebted to the Bank, jointly and severally with Ward’s insolvent 	estate, as Ward has subsequently been sequestrated, for payment of that amount.

[19] 	On 23 June 2013 Ward informed the Bank’s attorneys that he was selling the shares he 	held with the applicant to Annappa. A copy of the sale of shares agreement in terms of 	which Ward sold the shares he owns in the applicant to Annappa for the consideration 	of R5 million was availed to the Bank’s attorneys on 15 July 2013 by Ward, and  he 	requested the attorneys to confirm that the bonds registered in the Bank’s favour would 	be cancelled. Ms Aphsana Yusuph (Yusuph) also engaged with the Banks’s attorneys 	regarding the sale of shares agreement and the requirements of the Bank for the 	cancellation of the bonds registered in its favour.

[20] 	The sale of shares agreement was concluded on the basis that the property formed part 	of the assets of the applicant and that same was encumbered to the Bank to the capital 	amount of R5 million and this is the reason both Ward and Annappa were advised of the 	Bank’s requirement for it to consent to the cancellation of the bonds registered in its 	favour.

[21] 	The Bank agreed to the cancellation of the bonds registered in its favour, subject to 	conditions, mainly that the cancellation would only take place upon payment of the 	amount of R4 715 000-00 to the Bank, which amount had to be secured by an 	acceptable guarantee by not later than 16 August 2016. These were communicated to 	both Ward and Yusuph. The bank agreed to the delay in the furnishing of the 	guarantees. The Bank received payments of R200 000-00 on 21 and 23 October 2013 	respectively from Annappa, which amounts were taken on account of Ward’s 	indebtedness at the time to the Bank, pursuant to the sale of shares agreement. No 	further payments were forthcoming, despite some commitments made and not 	honoured. The Bank communicated to Annappa, through his attorneys that the 	indulgences granted to him had fallen away due to the fact that the conditions for the 	Bank to consent to the cancellation of the bonds and the release of the company as 	surety had not been fulfilled. This was also communicated to Ward, and also that that 	the Bank was proceeding with its action.

[22] 	On the 7th of July 2014, prior to his provisional sequestration, Ward passed a resolution, 	referred to earlier in this judgment, to enter business rescue in terms of section 129 of 	the Companies Act. Ward was provisionally sequestrated on 22 July 2014 pursuant an 	application brought by ABSA Bank. The provisional order was made final on 1 October 	2014. Due to Ward’s sequestration, the Bank was unable to pursue the action against 	him. The bank was also unable to continue its action against the applicant as a result of 	the business rescue proceedings. 

[23] 	The Bank’s view is that applicant is unable to pay its debts when they become due and 	payable, and stands to be liquidated. The amount of at least R5 million is due and 	payable to the Bank. Its view is that it is just and equitable for a liquidator to be 	appointed, as he or she would investigate the affairs of the company and subpoena 	witnesses in order to ascertain what the true position regarding the affairs of the 	company are, and he or she may also engage with the trustees appointed in Ward’s 	insolvent estate in order to investigate the sale of shares transaction and any payments 	made pursuant thereto.

[24] 	The Bank’s application as an intervening party was served on the applicant. Annappa 	filed an intention to oppose the Bank’s application. In his affidavit, he indicates that he 	is the sole director and shareholder of the applicant. The shareholding and directorship 	of the company has changed and passed through to him.

[25] 	He is aware that the Bank held a mortgage bond over the property and that he had 	purchased the shares of the applicant for the sum of R5 million. Ward had agreed to 	settle any indebtedness owed by the applicant to the Bank. His arrangement with Ward 	was that he would pay Ward R5 million and Ward would in turn pay the Bank. In terms 	of the agreement and arrangement with Ward, he paid the sum of R2 698 750-00 for 	the shares, which was used to partly release the applicant from the limited suretyships 	agreement with the Bank. This amount of R2 698 750-00 was paid to Ward. Ward 	transferred the shares to him in terms of his arrangement with Ward. Ward had 	informed him that he (Ward) was selling other properties and that would also have the 	effect of settling the indebtedness to the Bank. The applicant had given limited 	suretyship in favour of the Bank for the indebtedness of Ward. He believed that the 	property was not encumbered. He believed that the applicant has stood surety for Ward 	and that at the time that he took transfer of the shares he believed that the company 	had been released from the suretyship. For this reasons he holds the view that the 	applicant’s indebtedness to the Bank is in dispute. As a result, his view is that the Bank 	cannot utilize the mechanism of liquidation as an instrument in terrorem to compel the 	applicant to pay a disputed debt.

[26] 	His view is that the cancellation of the bonds had nothing to do with the sale of the 	shares. The Bank can easily rely on its mortgage bond which affords the Bank security so 	there can be no concern that the Bank is prejudiced or compromised in any way. The 	change of ownership of the shares will have no impact on the security held by the Bank. 	The sale of the shares in the company will not affect its indebtedness to third parties.

[27]	 When he became aware of the  of the business rescue proceedings against the 	applicant, he brought an application in the KwaZulu-Natal High Court in respect of which 	he sought to set aside the business rescue proceedings. Samons opposed the 	application. Samons failed to provide a report to the KwaZulu-Natal High Court and 	instead he brought this application in the North Gauteng High Court for the liquidation 	of the applicant. His view is that Samons is working in cahoots with the Bank and that 	they are attempting to prevent matters from being dealt with in due course and 	following due process, in respect of the action which is still pending and his application 	which is due to be set down and argued on the opposed roll.

[28] 	Furthermore, aside from the claim by the Bank, the applicant has no other major 	creditors and in the circumstances the Bank standing alone as a single creditor must 	satisfy the court that it will not obtain the redress required through simple execution 	rather than the expensive route of liquidation.
	
	Furthermore, according to him, Samons has failed to file any report to establish what 	enquiries he has conducted on the financial ability of the applicant. Because of his 	inadequate conduct, his conclusions must be disregarded by the court.

[29]	 He denies that the applicant is indebted to the Bank in the amount claimed as pleaded. 	He also denies that the applicant is insolvent. As the director and shareholder, upon any 	proven claim, he will be liable on behalf of the applicant to the Bank. The amount owing 	in terms of the sale agreement is R2 301 250.00 and he undertakes to pay this amount 	to the Bank in the event that the Bank obtains judgment for its claimed indebtedness. 	The property is valued at approximately R4 750 000-00. If the claim of the Bank is intact 	and sound in spite of his payment, then the Bank has the security of the bond over the 	property. 

[30] 	The Bank will be levying interests on all amounts it alleges are owed to it, and as a result 	will not suffer any prejudice if it waits for due process and allows the action and 	application to be determined. In the event of the applicant being liquidated, he will have 	no recourse to obtain repayment of the sum of R2 698 750-00 from Ward, who is now 	sequestrated. The Bank has the security of a mortgage bond over the property, which 	means that he cannot dispose of the property to anyone, so the Bank shall have security 	until the rights of all parties are fully determined.

[31] 	The issue is whether the Bank, as the intervening creditor, should be granted leave to 	institute liquidation proceedings against the applicant in respect of a debt that is subject 	to business rescue proceedings.

[32] 	Section 133(1)(b) of the Companies Act, 2008 (Act No. 71 of 2008) provides as follows:

“133. General moratorium on legal proceedings against company.- (1) During business rescue proceedings, no legal proceeding, including enforcement action, against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any forum, except - …
(b) with the leave of the court and in accordance with any terms the court considers suitable;”

[33] 	Henochsberg on the Companies Act, 71 of 2008, in his discussion of section 133, under 	General Note, comments as follows:

“The moratorium granted by this section is designed to provide the company with a breathing space while the business rescue practitioner attempts to rescue the company by designing and implementing a business rescue plan. This is a crucial element of any corporate rescue mechanism, as it allows the company sufficient breathing space to be able to find a solution to the financial problems it is experiencing at that time.”

[34] 	Samons, the business rescue practitioner delivered an application to this court to have 	the business rescue proceedings terminated. The Bank also delivered such an 	application to this court. Annappa does not want the business rescue proceedings 	either. In his effort to stop them, he filed an application in the High Court in KwaZulu-	Natal. All three parties with an interest before me, have one thing in common, and that 	is, they do not support the business rescue proceedings and do not want that to go 	ahead. It is of course for different reasons. The attitude and approach of the interested 	parties to the business rescue proceedings, is a factor to be taken into account, when 	leave is sought to allow legal proceedings to commence against a company under 	business rescue proceedings. 

[35] 	Against that background, Ward signed a resolution, as a sole director, passed by the 	applicant, to place the applicant under voluntary business rescue and to appoint 	Samons as the business rescue practitioner on 1 July 2014. Ward filed for the applicant’s 	business rescue on 6 July 2014. Ward purportedly sold his shares to Annappa. Annappa 	is purportedly registered as the only active director of the applicant. 

[36] 	The extracts of the records from the Companies and Intellectual Property Commission 	are not very helpful to the court as regards to who was the director of the applicant at 	the time that Ward filed for the business rescue of the applicant. Samons was able to 	retrieve what appears to be a company report on the applicant, with the date of request 	being 14 November 2014. In terms of that extract, Ward was the only active director of 	the applicant. Annappa’s name does not feature at all on that extract. The Bank did its 	own search of the company report on the applicant on 16 March 2015. According to 	that extract, Annappa is registered as the sole director of the applicant, with his 	appointment date being 23 July 2013. According to that report, Ward already 	purportedly resigned as the director of the applicant on 27 July 2013. Ward sought to 	transfer shares in the applicant to Annappa, and Annappa sought to receive those 	shares, when both were aware that the condition set by the Bank for the cancellation of 	the bonds in its favour were not satisfied.

[37] 	Where an applicant did not file for business rescue because there was a reasonable 	prospect of a successful business rescue which existed at that time, but instituted the 	business rescue proceedings for an ulterior and improper motive, that is a factor to be 	considered, which in my view weighs in favour of the court granting leave for legal 	proceedings to commence against a company which was under business rescue 	proceedings. The bona fides of the initiator of business rescue proceedings, Ward, or 	any other relevant person, in this case Annappa, when leave is sought to lift the 	moratorium, in my view, is an important consideration.

 [38] 	Both Ward and Annappa were aware that the Bank held a mortgage bond over the 	property. Both were aware that the Bank agreed to the cancellation of the bond 	registered in its favour, subject to conditions, in the main, that cancellation would only 	take place upon payment of the amount of R4 715 000-000 to the Bank, which amount 	had to be secured by an acceptable guarantee. The condition was not met, and both are 	aware of this fact.

[39] 	Annappa’s bare denial of the applicant’s indebtedness, beyond the common cause 	payment of R200 000-00 twice, is not supported by any evidence presented to prove 	that the debt of the Bank was or is being met. The reasons upon which he relies to say 	that the Bank has been paid are flimsy. He does not make full disclosure of the material 	facts on which his claim that the Bank has been paid, rests. On the papers, Annappa 	does not raise a real and bona fide dispute of fact. On the papers, the applicant is not 	only indebted to the Bank. It is also unable to pay its debts and is in consequence, 	commercially insolvent. (ABSA Bank v Hammerle Group 2015 (5) SA 215 (SCA) at 	paragraph 12).

[39] 	In Chetty v Hart 2015 (6) SA 424 (SCA) at paragraphs 40 and 45 the following is said 	respectively:

“[40] … Thus s 133 (1)(b), which is to be read disjunctively with s 133(1)(a) because of the use of the word ‘or’ in exceptions (a) – (e), permits a creditor to seek the court’s imprimatur to initiate or continue legal proceedings against the company in the event of a practitioner’s refusal to give consent, or directly, even without the permission of the practitioner having been sought. …
[45] … So, as I have pointed out earlier, during the moratorium there is no absolute bar against legal proceedings. A creditor may ask for the practitioner’s written consent and, if refused, approach the court under s 133(1)(b). In addition a creditor may approach the court directly under this provision for leave to institute legal proceedings, without having asked for the practitioner’s consent.”

[40] 	Section 133(1)(b) allows the Bank to approach the court directly, to seek the court’s 	leave, to initiate legal proceedings against the company that is under business rescue, 	even without the permission of the business rescue practitioner having been sought. 	The Bank, in its alternative motion, upon which it relied and proceeded before me, is 	well within its right to seek such leave.

[41] 	The Bank seeks leave to institute liquidation proceedings. In Richter v ABSA Bank 2015 	(5) SA 57 (SCA) Dambuza AJA gave the meaning of liquidation proceedings as follows at 	paragraph 9:

“[9] … Generally, in law and in business, liquidation is the exhaustive process by which a company is brought to an end and the assets thereof, if any, are redistributed. The authors of Cilliers & Benade Corporate Law describe liquidation as follows:
‘The process of dealing with or administering a company’s affairs prior to its dissolution by ascertaining and realizing its assets and applying them firstly in the payment of creditors of the company according to their order of preference and then by distributing the residue (if any) among the shareholders of the company in accordance with their rights, is known as the winding-up or liquidation of the company.”

[42] 	In my view, to position the court to exercise its discretion judiciously, in considering the 	leave sought, it is incumbent upon an applicant who seeks such leave of the court, to 	take the court into his/her confidence and disclose to the court the legal proceedings 	which he or she intends initiating. This is to allow the court to determine whether the 	facts as set out may stand as valid grounds to sustain such recourse. It will also assist the 	court to ensure that the process of seeking leave is not abused for ulterior purposes.
	This will also assist the court to determine whether it is just and equitable, under the 	circumstances, to exercise its discretion in favour of the leave sought. In my view, 	liquidation is an appropriate recourse, and it is just and equitable in this case, that it be 	engaged as a process to deal with the affairs of the applicant.

	For these reasons I make the following order:

1.	The intervening creditor, The Standard Bank of South Africa Limited, is granted 	leave to institute liquidation proceedings against the applicant, 2001 	Management Services (Pty) Limited.
2.	The costs of the application, including the costs of intervening, are costs in the 	liquidation.

D.M. THULARE
ACTING JUDGE OF THE HIGH COURT 
Date of hearing:			12 May 2016
Counsel for the First Applicant:	Adv MH van Twisk
Attorney for the First Applicant:	K Maharaj Attorneys
Counsel for the Second Applicant
and Intervening Party:		Adv X Stylianou		
Attorney for the Second Applicant
and Intervening Party:		RamsayWebber Attorneys
Counsel for the Respondent:
Attorney for the Respondent:
Date of Judgment:			20 May 2016