IN THE HIGH COURT OF SOUTH AFRICA
(GAUTENG DIVISION, PRETORIA)
REPUBLIC OF SOUTH AFRICA

Case Number: 97406/2016

NOT REPORTABLE

NOT OF INTEREST TO OTHER JUDGES

REVISED

In the matter between:

PHILIP RIEKERT	Applicant

and

GRANITE SLAB SALES (PTY) LTD	First Respondent

[Registration Number: 1992/003096/07 ] (in liquidation)

PETRUS JOHANNES CORNE VAN STADEN N.O. 	Second Respondent

CHERYL ANN JONES N.O.	Third Respondent

THE COMPANIES AND INTELLECTUAL	Fourth Respondent

PROPERTY COMMISSION
REGISTRAR OF DEEDS	Fifth Respondent

GRANITE CUTTING WORKS (PTY) LTD	Sixth Respondent
[Registration Number: 2016/486499/07]

and

FIRSTRAND BANK LIMITED 	First Intervening

STEPHEN DIKELEDI BADIMELA 	Second Intervening Party

THABO MAETLA	Third Intervening Party

ELIAS TEBU MOKGOKONG 	 Fourth Intervening Party

STEYN BHUTA KHUDUUGE	Fifth Intervening Party

JUDGMENT

JANSE VAN NIEUWENHUIZEN J

[1]	This is an application, in terms of the provisions of section 131 of the Companies Act, 71 of 2008 ("the Act"), to place the first respondent, Granite Slab (Pty) Ltd (Registration No. 1992/003096/07) (in liquidation) ("the company") in business rescue.

The parties

[2]	The applicant is a director of the company and has a loan account in the company.

[3]	The second and third respondents are the duly appointed liquidators of the company ("the liquidators").

[4]	The fourth and fifth respondents are cited in their respective statutory capacities.

[5]	The sixth respondent, Granite Cutting Works (Pty) Ltd, is cited in its capacity as the purchaser of the business of the company.

[6]	The first intervening party is Firstrand Bank Limited trading inter alia as Rand Merchant Bank ("RMB").RMB is a creditor of the company and opposes the application.

[7]	The second to fifth intervening parties are senior employees of the company ("intervening employees"). They similarly oppose the application.

INTRODUCTION .

[8]	A brief summary of the business of the company, the events preceding its liquidation and the facts underlying the application will for present purposes suffice.

[9]	The company produces and sell tombstones and granite surfaces that are utilised in the building industry, for example, kitchen tops.

[10]	To this end the company purchases large granite blocks. The production process is reliant on specific equipment for instance, overhead cranes, electric saws, polishers, etc.

[11]	The applicant explains the cause of the financial difficulties experienced by the company as follows:

"7.8 As a result of various factors in the market, but most importantly, the closure of the first respondent's banking facilities with Rand Merchant Bank ('RMB'J, the first respondent during the course of the latter part of 2015 found itself in financial difficulties. '

[12]	In its application to intervene, RMB pointed out that it did not "close the first respondent's banking facilities. The financial difficulties of the first respondent, inter alia, arose as a result of the inability of its sister company Orcom, to repay its debts to RMB. Orcom was also liquidated on 23 June 2016.

[13]	The relevant portion of the affidavit reads as follows:

''25. During or about January 2015 the first respondent was in breach of the terms of the agreements concluded with RMB on account of having failed to comply with inter alia its liability and surety and co-principle debtor for the liabilities of Orcom. As alluded to above upon Orcoms breach, a letter of demand was also despatched to its sureties, including the first respondent. Despite this demand, the first respondent failed and/or refused to make payment to RMB.

26.	As a result of the breach, RMB became entitled to withdraw all credit facilities extended to the first respondent and to claim immediately repayment of all amounts due, owning and payable.

27.	On 11 January 2016 the credit facility on the first respondents cheque account which should not have exceeded R 400 000, 00 was overdrawn with an amount of R 406 725, 89. This constituted a further breach of the terms and conditions governing the relationship between the applicant and the first respondent.

28.	As a result of the breaches committed by the first respondent, RMB demanded immediate repayment of all credit facilities extended to the first respondent.... "

[14]	After referring to various certificates of balance dated 9 February 2017 in respect of the debt owed to it, RMB states the following:

''34.   The first respondent is therefore indebted to RMB in a capital amount of R 3,544,296,66, which amount continues to increase as a result of further interest accruing. This amount is substantially higher than the amount quoted by the applicant in his business rescue proposal. "

[15]	The applicant alleged that the company is only indebted to RMB in the amount R 2 150 000, 00.

[16]	In respect of the financial viability of the company, the applicant stated the following:

"7.5 The abovementioned business is a lucrative business and the first respondent conducts a service which is focused predominantly on the local market and specifically the niche market relating to tombstones. "

[17]	The intervening employees do not agree with this assertion. Mr Badimela, who deposed to the affidavit on behalf of the intervening employees, stated that he has been in the employment of the company since 1979. The company was at that stage run by the applicant's father.

[18]	The following excerpt from the affidavit is incisive:

''4.6   In the years in which the Intervening Parties were employed at the premises, we have seen people come and go, witnessed management changes, company structure changes and saw the business run from a very profitable, incredibly busy business to one in which the assets were cut-up, stripped and sold in a purported attempt to pay our salaries and other debt. "

[19]	The company owes its employees in the region of R 500 000, 00. The problem with the non-payment of salaries and related problems is explained by Mr Badimela as follows:

"5.16 The First Respondent's employees were not paid what they were entitled to. The practical problem was however that we were (and are) all at such an age that alternative employment was simply not feasible and we could not afford to resign and seek alternative employment. Moreover, Mr Riekert deducted provident fund and UIF contributions but never paid it over, therefore, we would not be able to claim from the provident fund or UIF for unemployment. This resulted in us continuing in the employ of Mr Riekert (under Granite Slabs Sales (Pty) ltd, the First Respondent) and we had to endure the battering that would come. Some of the employees never returned after they were not paid and others, like us, had no alternative and had to continue working."

[20]	The applicant does not state what "the other factors in the market" that caused the applicant's financial difficulties are. According to the version of the intervening employees the difficulties were caused by the mismanagement of the company.

[21]	The intervening employees are currently employed by the sixth respondent and receive their full salaries and benefits.

[22]	The business rescue proposal put forward by the applicant envisages post commencement financing of R 350 000, 00 as well as R 1,8 million worth of granite to be supplied over a six month period. The granite, according to the applicant "can be used to start producing products and which products can be

sold to the various clients of the first respondent The R 350 000, 00 will be used as business capital ''in order to get production started and to cover all associated costs'

[23]	The problem with this statement is the fact that the machinery used in the production process was, at the time of liquidation, in serious need of repair and maintenance. According to the intervening employees, the neglected state of the machinery hampered production. Mr Badimela stated the following in respect of the machinery at the premises prior to liquidation:

" 5.5 When the First Respondent was liquidated on 23 June 2016, the only machines that were working on the factory floor were block saw number 3, the bridge saw (that was converted from a polisher to a bridge saw) and the one Genelyn polisher outside next to the bridge saw. Thabo operated the bridge saw and still does. All other machines and equipment were dysfunctional and in most cases very badly neglected. There are two overhead cranes on the premises, only one was barely functional, the other has not been in operation for a number of years.

5.6	The factory was effectively close to a standstill as no proper maintenance was done on any of the machinery, no cutting blades were replaced, motors were burned out and none of the pumps pumping the water through the affluent water system were functioning. More so, the affluent water system was blocked because the waste dust trapped in the system which becomes a slurry was not pumped out to ensure that the system worked. The overhead crane in the yard barely functioned and gave the consistent problems. Granite was piled all over the yard and you could not easily walk through the rubble from the one side of the yard to the other.

5.7	Neither Mr. Riekert nor Mr Koekemoer ever took the time or spent the money to have the yard cleaned, (i.e. to remove all the waste granite situated upon the premises) or to maintain the machinery. Mr. Koekemoer was at the premises quite often and Mr. Riekert less so.

5.8	Since the Sixth Respondent commenced trading from the premises, the yard has been cleaned up and it is now possible to walk from one side to the other without climbing over heaps of waste material. In fact, there is no waste lying around and the waste emanating from production is removed weekly. The clean-up process took approximately three months to complete and involved the removal of up to ten 28-ton truck-loads of workless waste material per day. Previously, before 2014, the yard was tidy and old waste was removed but this had stopped shortly after 2014.

5.10 It is also necessary to mention that since the involvement of the Sixth Respondent, virtually all of the machines in the factory have now been fixed or are on the brink of being functional."

[24]	The proposal put forward by the applicant, consists of a suggested model and cash flow prepared by Mr PM van Rensburg, the provider of the R 1,8 million worth of granite and the post commencement finance. The first months' operational expenses amounts to R 389 272, 00 which is more than the post commencement finance of R 350 000, 00. The suggested model includes only R 20 000, 00 per month in respect of maintenance and does not make provision for the cost of the extensive repairs that need to be done in order for the company to function optimally. The model runs over a three year period with a potential income in 2017 of R 2 500 000 in 2018 of R 3 000 000 and in 2019 R 3 000 000. According to the applicant the total income in the three year period, to wit R 8,5 million, will be sufficient to pay all the creditors of the company, which creditors are, allegedly only owed an amount of R 9 250 000, 00. As alluded to supra the debt owed to RMB amounts to R3,5 million. The business rescue proposal accordingly is premised on incorrect information.

[25]	Due to the dilapidated state of the machinery at the time of liquidation, the projection is doubtful. The state of the machinery at the time of liquidation is further evidenced by the fact that the sixth respondent had, at the time of deposing to the answering affidavit on 6 February 2017, already expended an amount of R 952 442, 85 on repairs and maintenance.

TIME DELAY

Sequence of events preceding the application

[26]	The company was, at the behest of RMB, provisionally liquidated on 21 April 2016. The applicant, notwithstanding being aware of the provisional order, did not oppose the liquidation application and the final winding up order was obtained on an unopposed basis on 23 June 2016.

[27]	The liquidators were provisionally appointed to administer the affairs of the company. In pursuance of their appointment, the liquidators:

i.	obtained an order on 11 October 2016 to extend their powers in terms of the provisions of sections 386(4)(a) to (i) and (5) of the previous Companies Act, 69 of 1973;

ii.	convened an enquiry in terms of the provisions of sections 417 and 418 of the Act on 18 October 2016. The applicant appeared at the enquiry and was questioned at length in respect of the financial position of the company;

iii.	obtained a valuation report on 20 October 2016 from Van's Valuation Services in respect of both the immovable property and movable assets of the company. The report indicated that the market value of the immovable property was R 3 150 000, 00 whilst the auction/forced sale value is set at R 2 300 000, 00. The movable assets' market value was determined to be R 1 300 000, 00 with a forced sale/auction value of R 775 000, 00.

iv.	entered into a written agreement with the sixth respondent on 11 November 2016 in terms of which the immovable property and the movable assets of the company was sold as a going concern. The purchase price was R 2 500 000, 00, payable by way of a deposit in the amount of R 250 000, 00 and the balance by way of twelve equal instalments of R 187 500, 00 commencing on 31 January 2017.

The application and subsequent events

[28]	 Upon obtaining knowledge of the sale, the applicant launched the present application on an urgent basis on 15 December 2016. The application comprises a Part A, dealing with interim relief and a Part B, being the relief under consideration.

[29]	Part A of the application was set down on the urgent roll of 17 January 2017. By agreement between the parties an interim order prohibiting the transfer of the immovable property to the sixth respondent pending the finalisation of Part B was granted.

[30]	 Rather curiously and no doubt in anticipation of the present application, the liquidators and the sixth respondent entered into a lease agreement on 8 December 2016. The agreement contains the following recordals and clauses:

"1.	RECORDAL

1.1	WHEREAS the parties have entered into an Agreement of Sale on 10 November 2016;

1.2	AND WHEREAS transfer of the Business' movable and immovable assets to the Lessee has taken place on the date of signature of the Agreement of Sale bar for the physical transfer of the property which is yet to be effected;

1.3	AND WHEREAS the Lessee has taken control and/or possession of the movable and immovable assets of the Business,·

1.4	AND WHEREAS the parties agree that the Lessee will pay rental to the Lessor in occurrence of an adverse or occurrence event, which event is more fully described in clause 2 (two below)·,

2.1.2	''occurrence date"	means the date upon which the application to commence business rescue proceedings the application to set aside the liquidation of the Business, date upon which a compromise is made and/or in any other similar event or application having been launched,·

1.6	''the adverse Event" means any proceedings launched against

the Business by the Lessor including but not limited to a Business Rescue Application,·an Application to Set aside the liquidation of the  Business, any compromise made and/or any other similar event launched against or for the company;

2. 1.13	"the Rental Amount"	means the consideration payable by the

Lessee to the Lessor in respect of all movable and immovable assets referred to in clause 9 of the Sale Agreement dated 10 November 2016, which monthly rental would only become payable in the event of the occurrence of an adverse event and will entail the reduction of the purchase price paid by the Lessee;

2.	RENTAL AND PAYMENT

The parties agree that on the occurrence of an adverse event the Lessee will pay to the Lessor an amount of R30,000.00 (thirty thousand Rand) per month towards rental of the property, which amount will consist of a reduction of the purchase price paid by the Lessee until such time as when the adverse event has reached finality which payment will be made instead of the monthly instalment as set out in the sale
agreement. "

[31]	Returning to the progress of the present application, the following transpired:

i.	the liquidators and the sixth respondent filed their answering affidavit on or about 8 February 2017;

ii.	on 22 February 2017 RMB launched its Intervention application;

iii.	the applicant filed its replying affidavit in the main application and answer to the intervention application on 7 July 2017;

iv.	on 28 July 2017 RMB filed its replying affidavit in the intervention application;

v.	on   21 December   2017   the   intervening   employees   served their

application to intervene;

vi.	on 12 April 2018 the applicant filed his answer to the intervention application of the employees;

vii.	during the end of May 2018 the intervening employees served their replying affidavit; and

viii.	the matter was set down for hearing on 10 and 11 September 2018.

[32]	In the premises, the sixth respondent has been conducting the business of the company from November 2016 to date, being a period of almost two years. Mr Vorster, counsel on behalf of the sixth respondent, submitted that the sixth respondent has a lien over the property in lieu of the money expended on necessary repairs and maintenance. It appears that the sixth respondent, understandably, is not prepared to simply hand the business back to the applicant without receiving some form of compensation for the monies expended to date.

[33]	To complicate matters further the business of the sixth respondent was placed in business rescue on 6 June 2018 and the appointed business rescue practitioner is presently attending to the rescue of the business. This development must surely have an impact on the relief claimed in the present application.

Discussion

[34]	The fact that business rescue proceedings are by its very nature urgent, is amply illustrated by the facts in casu. Had the applicant brought the application immediately after the company was placed in liquidation, the sale of the company's business to the sixth respondent could have been avoided.

[35]	The success of the application would, to my mind, still have been questionable, due to, inter alia, the following facts:

35.1	the applicant did not reflect the correct amount of the company's indebtedness to RMB in the list of creditors;

35.2	no provision is made in the cash flow projection for the extensive cost associated with the repair of the machinery;

35.3	RMB, the major creditor, opposes the application and indicated that it will vote against a business rescue plan. I do not deem RMB's stance to be unreasonable;

35.4	four of the senior employees of the company opposes the application on good grounds;

35.5	the applicant did not explain the demise of the company in a satisfactory manner or at all. This is evidenced by the fact that no mention is made of the state of the machinery in the founding affidavit.

35.6	the applicant failed to indicate from where all the proposed customers will suddenly emerge. One should also bear in mind that optimal operations and sales are necessary to sustain the proposed rescue of the business.

[36]	Be that as it may, the largest factor mitigating against the granting of the application at this stage, is the time delay in launching the application coupled with the events that transpired after the launching of the application.

[37]	When the issue of the time delay was raised with Mr Lauw, counsel on behalf of the applicant, he submitted that a "new" business rescue practitioner could "unscramble the egg" by cancelling the sale agreement with the sixth respondent and taking possession of the business. This aspect was not dealt with in the papers.

[38]	Without knowing what the implication of the "unscrambling of the egg" will be, I am not in a position to determine if a reasonable prospect for the rescue of the business of the company exists. I do not know what the impact of the cancellation of the sale agreement with the sixth respondent will have on the company's financial situation. If one takes into account that interest has accrued from 9 February 2017 to date on the debt owed to RMB, the amount owing to RMB has undoubtedly increased substantially.

[39]	The fact of the matter is that the information relied upon by the applicant in December 2016 in support of his submission that there is a reasonable prospect that the company can be rescued, is outdated and has been overtaken by the events of the past two years.

CONCLUSION

[40]	In the premises and due to the reasons supra the application must fail.

Order

[41]	In the result, the following order is granted:

1.	The application is dismissed.

2.	The applicant is ordered to pay the costs of the first, second and sixth respondents as well as the costs of the first to fifth intervening parties.

N. JANSE VAN NIEUWENHUIZEN J

JUDGE OF THE HIGH COURT OF SOUTH AFRICA 

GAUTENG DIVISION, PRETORIA

DATE HEARD 	10 September 2018

JUDGMENT DELIVERED	19 September 2018

APPEARANCES

Counsel for the Applicant: 	Advocate M. Lauw 

Instructed by:	Lourens Attorneys 

(012 252 0693)

Ref: CJA LOURENS/RIE003

Counsel for the Second, Third and 

Sixth Respondents:	Advocate J. Vorster
(012 452 8700/082 904 0997)

Instructed by:	MacRobert Incorporated 

(012 425 3451)

Ref: As van Niekerk/31008

Counsel for the First (RMB) 
Intervening Party		Advocate H. Marais

(012 942 2105/083 265 2173)

Instructed by:				Rorich Wolmarans Luderitz Inc 

(012 362 8990)

Ref: F312356.B1/MR.vd Burg/LVDW