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IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

 

CASE NUMBER: 21766/21

 

REPORTABLE: NO

OF INTEREST TO OTHER JUDGES: NO

REVISED

24 NOVEMBER 2021

 

In the matter between:

 

BLACK SHEEP CAPITAL (PTY)LTD                                    FIRST APPLICANT

SUPERIOR RUBBER (PTY) LTD                                          SECOND APPLICANT

 

And

 

H AND H SPECIALISED SERVICES (PTY) LTD                  FIRST RESPONDENT

COMPANIES AND INTELLECTUAL PROPERTY

COMMISSION                                                                       SECOND RESPONDENT

 

 

JUDGMENT

 

 

TLHAPI J

 

[1]          This is an application brought on urgency on behalf of the applicants as creditors, that the first respondent be placed under supervision and business rescue in terms of section 131(4)(a) of the Companies Act 71 of 2008 ("the Act"). It is proposed that Mr Wayne Robert Clark be appointed as interim business rescue practitioner and, the application is opposed by the first respondent.

 

[2]          The application is based on the contention that the first respondent is unable to pay the salaries of its employees timeously and often relying for such salaries from monies recovered from its debtors, consequently, there being the potential of losing its work force and substantial purchase orders in the region of R90 000 000.00.

 

[3]          The first respondent raised points in limine in relation to urgency, the applicants' failure to comply with the Practice Directive, the applicants lack of locus standi and, it was contended that this court did not have jurisdiction to hear the application.

 

BACKGROUND

 

[4]          The business of the first respondent is that of providing specialized crane services. Mr Bezuidenhout ("Bezuidenhout"), stated that he was a director and sole shareholder in the first applicant and he deposed to the founding affidavit. He stated that due to the first respondent not operating on a profitable basis, resulting in cash flow problems towards the end of 2019, he contended that as a businessman with the knowledge of running a business to profitability he decided to enter as an investor. An acquisition and restructuring process was engaged during February 2020 whereby Ms Lucy Matsakane Human acquired a 100% of the shareholding in the first respondent for the beneficial interest of the first applicant in terms of section 56 of the Act. The purpose of this application was to allow a temporary moratorium on claimants to allow the restructuring process to proceed. Mr Bezuidenhout was appointed Chief Executive Officer ("CEO"), Mr Wener Du Toit ("Du Toit") sole director shareholder of the first respondent before restructuring as the international Sales and Operations Manager, and fiance of the latter Ms Marichka Schoultz retained her position as Financial Manager.

 

[5]          Bezuidenhout contended that the applicants had the necessary locus standi as affected persons as contemplated in terms of sections 131(1) and 128(a)(ii) of the Act, the first respondent being financially distressed, it was just and equitable that the respondent be given an opportunity to trade itself out of the present financial distress.

 

[6]          Thirteen months prior to the application being launched monies were advanced by one of Mr Bezuidenhout's companies to meet payments for salaries rental and purchasing of spares and, monies so advanced would be repaid by the first respondent as an when funds were available. However, not all of the loans were repaid. An amount of R65 000.00 was advanced by the first applicant and R734 748/59 by the second applicant as seen in annexures FA3.1 and FA3.2 respectively. The said amounts remain due and payable.

 

[7]          Bezuidenhout avers that as a result of a fall out between himself, Du Toit and Schoulttz during March 2021:

 

1.        He was suspended as CEO and subjected to a disciplinary hearing which is pending and Du Toit and Schoultz purported in his absence to act as de facto managers and directors of the First respondent; A copy of the charge sheet is attached as FA4;

2.        The first respondent approached the Labour Court and obtained an order against him, the order is annexed as "FS5"

3.         They had declined to give copies of the financial records of the first respondent in order for him to prepare for his disciplinary hearing

 

The disciplinary charges were meant to discredit him and to allow Du Toit and them to hijack the company.

 

[8]          Bezuidenhout contends that the financial distress in the first respondent was as a result of the following incidents:

 

1.        Receipt of a demand for payment of a debt which remained due and payable, dispatched by the attorneys for JZA Advisory and Tax (Pty) in the amount of R273 542.80. On enquiry he was informed that it was sent by by Schoultz and based on a written and signed undertaking by the first applicant and they provided annexures as FA7.1, FA7.2, and FA7.3. As sole shareholder and director of the first applicant, Bezuidenhout denied knowledge of the of the undertaking and denied that the signature was his. He alleged that it was forged. He blamed Du Toit and Schuoltz. It was evident to him that his H & H Specialised Services email was accessed by them and he concluded that Schoultz was the author. Also, the personal surety under Human's signature which he knew was a forgery. He lay criminal charges against them.

 

[9]          The following creditors had made demand for payment and it was unlikely that they would be paid in the next six months which meant that the first respondent was in financial distress a situation caused by Du Toit and Schoultz:

 

1.         Pro African Freight (Pty) Ltd has instituted legal proceedings for R246 693.84;

2.        Polokeho Lifting and Testing Services (Pty) Ltd issued a demand in terms of section 345 of the Companies Act 61 of 1973, for R67 131.25, FA8.1

3.        ABE Construction Chemicals (Pty) Ltd demanded payment and requested that an acknowledgement of debts be signed, FA8.2

4.         Pollen Finance (Pty) Ltd demanded R1 200 000.00, FA8.3

5.        Bearing Man Group (Pty) Ltd instituted legal proceedings where a payment arrangement was made but reneged, FA8,5

6.        Concord Cranes (Pty) Ltd the account outstanding being with pre-legal department, FA8.4·

7.        Kredcor (Pty)Ltd A demand for R587 964.94 in terms of section 345 Act 61 of 1973, FA8.6

8.         The Nut Hut (Pty) Ltd a demand for R30 621.18, FA8.8

9.       Annexure FA8.9 demand for R582 713 in terms of section 345 of Act 61 of 1973

10.    lnvertek Southern Africa (Pty) Ltd demanded payment or listing on ITC, FA8.7

 

[10]       Bezuidenhout contended that there were purchase orders and or projects in the pipeline worth R90 000 000.00 before his suspension, which were contingent on the first respondent's cash flow and which required proper management for the first respondent's survival. Further, the first respondent was reliant on vehicles put at its disposal by one Morne Van der Linde, which had been withdrawn due to the first respondent's inability to pay for their usage. He had reliably been informed by the latter that Human, Du Toit and Schoultz had invited investors with the intention of securing funds to relieve the first respondent's cash flow problems and the fear was that such investments if materialized were likely to be abused if not managed properly by them and that any investment obtained should be managed under business rescue.

 

[11]       The first respondent published an internal memo moving payment of salaries to 3 May 2021 because not enough was accumulated from monies received from clients in order to meet the salary bill. Further, there was an internal memo to address fuel usage. Bezuidenhout contended that it had been necessary to allow the business to be managed by someone who had experience to manage for the advantage of the creditors and the business. During his time as CEO the running expenses per month amount to about R1 500 000.00 and with an existing book debt of about R4 000 000.00. The potential purchase orders would generate a profit of about R15 000 000.00 and he was in a better position to opine that business rescue was a better option than the first respondent being liquidated. A business rescue would be for the benefit of the business of the company, its shareholders and creditors. An added advantage was to avoid loss of employment which was a rife occurrence during the COVID-19 pandemic.

 

[12]       In answer Du Toit confirmed the liabilities of the first respondent were as stated in the founding affidavit except for those claimed by applicants. He was introduced to Bezuidenhout as·a prospective investor and this resulted in the conclusion of two agreements. The first was for the purchase of the shareholding in the first respondent for R16 500 000 and the second related to a suspensive condition whereby Du Toit would buy back 40% of the shareholding in the first respondent and annexures HH1 and HH2. These agreements were on legal advice later cancelled on account of alleged irregularities and misrepresentations on the part of Bezuidenhout and as a result of the failure to pay the purchase price and the cancellation letter addressed to Bezuidenhout and first applicant is annexed, HH4.

 

[13]       Du Tait contends that Bezuidenhout was suspended as Acting CEO and subjected to a disciplinary hearing, HH6 and HH7. Bezuidenhout was also denied access to the workplace. On 22 March 2021 at Bezuidenhout's instructions to security guards and members of off duty police gained access to the First respondent's business premises which was locked and instructions were given to block anyone entering. A demand was made by Bezuidenhout's attorneys for the first respondent's banking log details and this was denied. As a result, Du Tait and Schoultz approached the Labour Court to interdict Bezuidenhout and he was ordered to restore the business premises to the first respondent.

 

[14]       It was alleged that during his tenure as CEO Bezuidenhout had allegedly been draining the first respondent of millions of rands, that he committed misrepresentations through his companies one being H & H Staffing Solutions (Pty) Ltd (H&H Solutions). The staff were transferred to H & H Staffing Solutions which was responsible for paying their monthly salaries. The first respondent was then invoiced for mar. The salaries and the claim would be calculated to include UIF, PAYE, 3% commission and VAT at 15%, The amount owing by the respondent was increased by the commission and VAT. The VAT number was for a company which had been deregistered. It was also discovered that H&H Solutions was not registered for VAT and the VAT, UIF and PAYE were not transmitted to SARS.

 

[15]       Further as and when the first applicant or Bezuidenhout paid rent on behalf of the first respondent, double VAT would be charged being the VAT by the landlord and, VAT which the first applicant would charge applicant and. HHS was annexed as an example. It also transpired that where Bezuidenhout invoiced the first respondent for payment to a creditor VAT would be charged on the amount and, then Bezuidenhout would retain the amount without making payment to the creditor. The first respondent annexed an email from a creditor seeking payment where such payment had already been made, annexure HH9 and HH10. This conduct by Bezuidenhout has been reported to SARS by way of affidavit and an investigation is envisaged.

 

[16]      During April 2021 Bezuidenhout demanded payment of R1 500 000.00 to end the relationship which was not acceptable to the first respondent as Bezuidenhout was not an employee and, the first respondent had terminated their relationship. It was also denied that the first respondent was indebted to the applicants or that it entered into any loan agreements or that authorisation was given to Bezuidenhout or his entities to pay creditors, be made on its behalf. Instead after an investigation it was uncovered that the Bezuidenhout and entities were indebted to the first respondent to the tune of the R5 000 000.00 and a copy of summons to be served was annexed, HH14. It was contended that the aim of this application was to place a business practitioner in charge so as to enable Bezuidenhout to have control over the first respondent.

 

[17]      Du Toit denied that the first respondent was financially distressed. It was denied that there was an inability to pay employee's salaries and a copy of the latest payroll including UIF and PAYE had been transmitted to SARS. The first respondent is managing payment with its creditors and arrangements have been made with the creditors mentioned in the founding affidavit

 

THE LAW

 

 

Jurisdiction

 

[18]      At commencement of the hearing both counsel made submissions on the points in limine and I dismissed the point on jurisdiction on the basis that this Court had concurrent jurisdiction with the High Court in Johannesburg.

 

Locus Standi

 

[19]      Then there was the point on locus standi of the applicants who contended that they were affected persons in that they were creditors of the first respondent and therefore affected persons as defined by the Act. The first respondent denies that they are creditors of the first respondent in that both applicants were accused of fraudulent activities where they had by fraudulent means drained the first respondent of millions of rand. The first respondent contended that it denied having entered into any loan agreements with the applicants or authorised them to make payment on its behalf from its coffers and that this was 'an extension of Bezuidenhout's modus operandi' of enriching himself. The first respondent challenged the applicant to issue summons instead. Counsel for the applicant argued that the denial of liability was without merit in that the financial statements relied upon by the first respondent at HH18 reflected the contrary being a liability to the first respondent of R70 000.00 from a SSC Facility of the first applicant.

 

[20]       Counsel for the first respondent argued that the financial statements were those compiled on the instructions of Bezuidenhout at the end of the financial year 28 February 2021 while he was acting CEO, that this did not detract from the first respondent's contention that the liability was clouded with fraud and therefore denied. In my view, whether or not the applicants are creditors, is a factor to be determined by another court dealing with the action for damages and is not an issue to be determined in this application. The first respondent has already indicated that it intends to sue the applicants. The issue here is whether the applicants have made out a case for business rescue and whether the first respondent is in distress. For now, from the financial statements relied upon by the first respondent it would seem the first applicant is a creditor. In as far as the second applicant is concerned monies owing are not reflected in the financial statements as they were all issued after 28 February 2021. From the content of the documents I do not find that it has been established that the applicants lacked locus standi.

 

Urgency/ Failure to comply with the practice directives

[21]       Urgency was based on the fact that the first respondent had informed its employees of the likelihood of it being unable to pay their salaries timeously at the end of April 2021 and that such payment was contingent on them being paid by debtors. Further, the applicant contended there was the potential of losing not only the work­ force as a result of non-payment of salaries, but also the prospect of losing on the purchase orders to the value of about of R90 000 000.00. The first respondent disputed the urgency and sought a dismissal of the application on that ground, contending that there were no grounds for bringing the application on urgency during lock-down. There were allegations of fraud on the part of Bezuidenhout which were being investigated. Further, that there was proof that the employees had not been paid. In my view applications for business rescue being urgent in nature I ruled that on that ground alone the matter was urgent. I also do not find that non-compliance with the practice directive should result in the matter being dismissed and that in as far as the applicant has not complied, this is condoned. What is important is that the version of both parties has been dealt with in such a manner that I am in a position to adjudicate the matter.

 

Sections 128 (1)(a); 128(1)(f) and 131(4)

 

[22]       In terms of Section 128(1)(a) of the Act, an application for business rescue may be brought by any of the following persons who are referred to as affected persons, a creditor or shareholder of a company, an employee represented by a registered registered trade union or a representative of any employee who is not a member of a trade union. In this instance the applicants contend that they are creditors, therefore affected persons as defined by the Act. In terms of section 131(4) the applicants now seek an order to have the first respondent placed under supervision.

 

[23]       A business rescue application should be brought in circumstances where the company is financially distressed within the meaning of section 128 (1)(f) of the Act, which provides that, being financially distressed is where it appears the company to be 'reasonably unlikely that it would be able to pay all of its debts as they become due and payable within the immediate ensuing six months or the company will become insolvent within the immediate ensuing six months. In terms of the Act, the court will in exercising its discretion, grant an order which is in the form of a final relief only if it is satisfied "that the company is in financial distress, or where the company has failed to pay over any amount in terms of an obligation under or in terms of a public regulation or contract, with respect to employment related matters and if it is just and equitable in the circumstance to do so".

 

Financial Distress

 

[24]       The applicants seek final relief. It is contended on behalf of the first respondent that massive disputes of fact have arisen especially, in that no proof is provided to support the allegations in the founding papers and in reply their responses consisted of a bare denial alternatively were not dealt with or were vaguely denied. Having regard to the versions of the applicant and first respondent it is apparent that there are disputes of fact which should be resolved as stated in Plascon Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984(3) SA 623 (A) at 634H-635C:

 

"It is correct that, where in proceedings on Notice of Motion disputes of fact have arisen on the affidavits, a final order, whether it be and interdict or some other form of relief, may be granted if those facts averred in the applicant's affidavits which have been admitted by the respondent, together with the facts alleged by the respondent, justify such an order. The power of the Court to give such final relief on the papers before it is, however, not confined to such a situation. In certain instances the denial by the respondent of a fact alleged by the applicant may not be such as to raise a real, genuine dispute or bona fide dispute of fact... If in such a case the respondent has not availed himself of his right to apply for the deponents concerned to be called for cross-examination under Rule 6(5)(g) of the Uniform Rules of Court…… and the Court is satisfied as to the inherent credibility of the applicant's factual averment, it may proceed on the basis of the correctness thereof and include this fact among those which it determines whether the applicant is entitled to the final relief which he seeks….Moreover, there may be exceptions to this general rule, as, for example, where the allegations or denial of the respondent are so far- fetched or clearly untenable that the Court is justified in rejecting them merely on the papers….."

 

[25]      Except for denying liability in respect of what the applicant alleged was owing to them, the first respondent admitted the existence of the other creditors mentioned in the founding affidavit. The first respondent states that it is not in financial distress because it is paying its debts and salaries of its employees, the applicants contended that the application was brought on the basis that the first respondent was in financial distress and from paragraph 23 thereof the applicants endeavour to show that the first respondent would be unable to pay creditors in the ensuing six (6) months, as and when their debts became due. In my view the ensuing six months relates to an assessment of the first respondent's financial position going forwards from the time that the application is launched, as provided in terms of section 128(1)(f) or from the time Bezuidenhout no longer played an active role in the affairs of the first respondent, or an assessment going forward from the time the agreement with Bezuidenhout was cancelled going forward or going forward on a consideration of the prevailing difficulties in the company.

 

[26]      If one has regard to the R65 000.00 Bezuidenhout alleges is owing to the first applicant (BSC), as shown in the voucher annexed and emanating from Marichka, FA31 as seemingly requested by Bezuidenhout with no date stated, the said document indicates that the loan/liability was reduced by payment from the first respondent. Counsel for the applicants contends that the R70 000.00 in the financial statements was proof of indebtedness. Only one payment in the FNB statements annexed relates to a period before the end of the financial year being that in the amount of R203 000.00 made on 19 February 2021, the rest related to payments to the first respondent between 2 and 10 March 2021. Below the entry on liabilities in the financial statements for the period ending 28 February 2021 it is indicated that the loans were interest bearing and that the debts were being reduced by monthly instalment. The first applicant has not indicated when the entire amount relating to BSC and reflected in the financial statements or the founding affidavit would become due and payable, It is only in reply where it seems there is indication that a demand was made but no proof is given. I must mention that there seems to be a dispute relating to the authenticity of the Financial Statements which were not compiled by the auditor appointed in terms of the Act. They have not been signed and it seems they were compiled for the year ending 28 February 2021. The compilation of financial statements relies on many source documents that emanated from the time Bezuidenhout joined the first respondent in February of 2020. The statements were compiled at least two months before this application was launched and as a result of the urgency with which the application was brought, I do not find that there is prejudice to any of the parties in respect of those aspects dealt with in the reports.

 

[27]      In as the invoices from Superior Rubber (Pty) are concerned two relate to a period before end of the financial year and the rest are invoices generated during March 2021 with due date stated 31 March 2021. The first respondent stated there was no allegation in the founding affidavit that demand had been made for payment, further that it would have refused to pay because no basis for the loan or terms of repayment of such loan had been set out. I observed that is some the invoice was generated on a specific date 28 March 2021 with due date for payment 31 March 2021, there is no demand for payment or an explanation why such invoice had to be paid within two days. The applicants put up these invoices to prove that the first respondent was in distress but gives no explanation why those invoices would justify a finding that the first respondent was in distress for failing to pay.

 

[28]      Stemming from the memorandum circulated by the first respondent to its employees, Counsel for the applicants contended that payroll sheets with proof that PAYE and UIF have been paid to SARS for the month ending April 2021, was not indication that the first respondent was not in distress. Bank statements which had been requested were required to prove payment. Counsel for the first respondent contended that salaries were paid end of April and what was due to SARS was paid in on 7^th May as required. In my view, there is no merit in the argument that proof of payment was required. If SARS has been paid fully what was owed as PAYE and UIF there is no reason to suggest that salaries from which the deductions were made, were not paid.

 

[29]      As I see it, the applicants in reply have not dealt with the projections in the cash flow as provided for the months of March and April 2021. As seen from the annexures HH22 onwards the first respondent has engaged with its creditors regarding payment of debts since Bezuidenhout was suspended, being the very creditors which the first respondent admitted existed. It seemed that the creditors were amenable to the payment schedule arranged. In my view the applicants could have engaged in reply with the content of these emails and letters especially where it related to him, his knowledge of the debt and his engagement with some of the creditors before the application was launched. He could have explained why he persisted with the application despite such explanation. A letter presumably in response to one from the first respondent suggesting that the applicant would consider removing or withdrawing the application if it has sight of the bank statements did not suffice in my view, to address the applicant's duty to prove its case.

 

[30]  A serious allegation is made that where Bezuidenhout was paid monies due to some of the creditors mentioned in the founding affidavit such payments never reached the creditors. In reply he states that some of the creditors support the placing of the first respondent under business rescue, which is a fact which should have been mentioned in the founding affidavit, supported by confirmatory affidavits.

 

[31]       In reply Bezuidenhout contended that some employees had complained to him about non-payment of their salaries. The same goes for those employees who complained to him for not being paid like Mr Morne van der Linde. These complaints could only have arisen after payment of salaries was taken over from HH Solutions, there is not detail provided. There is also a complaint of fuel restrictions by Mr van der Linde. The applicant has not challenged the first respondent that as a result of abuse by the employees, restriction of fuel usage was introduced as a cost cutting measure.

 

[32]       According to Du Toit there were challenges initially but that since suspension of Bezuidenhout the salaries had been paid. While Bezuidenhout introduces Mr van der Linde as source of the dire situation with the first respondent and on the other hand the first respondent suspects that he is in cahoots with Bezuidenhout, it does not seem that Mr van der Linde complained in his letter of resignation dated 6 May 2021, which had appreciation for the time in the first respondent's employment. If he had complaints regarding his salary, or his work situation, these must have been resolved when he left because no adverse comment that is work related is mentioned.

 

[33]       In as far as the lucrative project/purchase orders worth approximately R90 000 000.00 was concerned, the applicants have not dealt in reply to the fact that the majority of these projects were maintenance projects having a lifespan of between 3 and 5 years and, that payment arrangements had been made of between 14 and 30 days. Examples of Eskom and De Beers have been given. The latter is said to have employees of the first respondent who are permanently on site.

 

Allegations of impropriety against Bezuidenhout; Du Toit and Schoultz / The Business Rescue Practitioner

 

[34]       I am of the view that these must be dealt with in another forum, however, I need to mention that for purposes of properly exercising my discretion in terms of section 131(4) of the Act, I need to consider such allegations, not as the truth but as forming an inference that the Court should not come to the rescue of those who approach it with unclean hands. Bezuidenhout who is the deponent to the founding affidavit has not dealt with the allegations of not remitting employees PAYE and UIF contributions to SARS. The first respondent has made an attempt to correct the situation by remitting such deductions on 7 May 2021. Neither has Bezuidenhout dealt with the allegations that VAT would be charged and not remitted to SARS and where a company of Bezuidenhout which allegedly collected or paid monies on behalf of the first respondent was not registered for VAT. This conduct alone would invite severe sanction by SARS and where the employees are concerned that penalties would be imposed by SARS for not complying with the law. On the other hand Du Toit and Schuoltz have not dealt with the allegation of impropriety where the issue of shares is concerned.

 

[35]      Further, while the Act does not prescribe what credentials a business practitioner should hold, the founding affidavit does not give detail of who the suggested Business Practitioner is and how he will proceed to profitably manage the company. Even if a proper detailed business plan is not up for consideration in this application, a duty rests on the applicants to show how the process would unfold, especially with the management of the R90 million worth of projects/ purchase orders and to appease the creditors and ensuring survival of the business to the benefit of all. It is my view that the applicants could also have dealt with the participation of the business practitioner in the management of these projects to make out a case that there are reasonable prospects of the company surviving, and that it was just and equitable in the circumstance. In conclusion I am not satisfied that the applicants have made out a case for business rescue.

 

[36]       In the result the following order is granted:

1.         The application is dismissed with costs.

 

 

TLHAPI VV

(JUDGE OF THE HIGH COURT)

 

 

MATTER HEARD ON                                        11 MAY 2021

JUDGMENT RESERVED ON                            13 MAY 2021

ATTORNEYS FOR THE APPLICANTS            BAILIE JANKE SNYMAN ATT

ATTORNEYS FOR THE RESPONDENTS        PRETORIUS DAVIES INC

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