THE HIGH COURT OF SOUTH AFRICA

							CASE NO.: 15155/2011

And

MIDNIGHT STORM INVESTMENTS 386 LTD

And 

ELOFF, AJ:

The commencement of the Companies Act, no 71 of 2008 ("the new Act") introduced profound changes to the legislation governing companies in this country. One such change is a new remedy available to ailing companies, being a business rescue. It constitutes a major theme of the new Act, and is amplified in section 7 (k) thereof, which states that one of the purposes of the Act is "to provide for the efficient rescue and recovery of financially distressed companies, in a manner

7. The Registrar of Banks featured as the first intervening party in the business rescue application, and Zoneska became the second intervening party. Each of these intervening parties delivered a detailed factual response on affidavit to the business rescue application. Neither of them supported the application.

8. The following facts served as background to the business rescue application:
8.1. Midnight Storm is one of several companies in the so-called Realcor group, most of which find themselves in (voluntary) business rescue or in provisional liquidation.
8.2. These companies include Purple Rain Properties 15 (Pty) Ltd ("Purple Rain") and Africa's Best 258 (Pty) Ltd ("Africa's Best"). At the instance of creditors of these two companies, I made orders on 27 October 2011 placing them in provisional windingup.

10. The funding of the operations of the companies in the Realcor group, including Africa's Best, Purple Rain and Midnight Storm occurred as follows:

10.2. In this manner, an amount in excess of R616 million was collected over a period of time from subscribing members of the public. These funds were principally used for the construction of the hotel of Midnight Storm in Blaauwberg. Members of the public were led to believe that they had acquired interests in the company owning the hotel itself.

13. The consequence of the actions of the Registrar of Banks in requiring the repayment of funds unlawfully received by companies in the Realcor group from members of the public, was that Purple Rain was unable to complete the construction of the respondent's hotel in Blaauwberg, and such construction activities came to a rapid halt. Purple Rain ceased conducting any further business.

15.5. If the new rescue plan was allowed to continue, all investors would benefit, the hotel would be completed and an income would be generated by the respondent through the operation thereof.

15.7. The business rescue pian depended on co-operation between all the entities within the Realcor group and with Mr Hassim.

16. Zoneska responded to the business rescue application by way of an affidavit deposed to by Mr Duvenage. He pointed out trenchantly that:
16.1. the respondent was indebted to the investment companies in an amount of approximately R415 million;
16.2. the respondent was bereft of any income and the construction work in respect of the hotel had already been suspended for many months;
16.3. a further amount of approximately R200 million would be required to complete the construction of the hotel and to render it ready for business;
16.4. an amount of R52 million was owed by the respondent to its bondholder, being First National Bank;
16.5. there was no reason to believe that the proposed new rescue plan which Mr Hassim was about to offer would result in the respondent becoming a successful concern.

17. As at the date of the hearing of the application for business rescue, being 26 October 2011, no new business rescue offer or agreement from Mr Hassim or Southern Palace had come about. Mr Saint, counsel for Southern Palace, nonetheless sought to impress upon me that Mr Hassim, who had, as has been pointed out, already contributed vast sums towards companies in the Realcor group in order to save them from winding-up, was prepared to commit a further amount of R120 million to that end. He was apparently prepared to provide a guarantee in respect thereof to the various creditors of the respondent. These creditors included the twelve month debenture holders, to whom an aggregate of approximately R27 million was owed.

19. In terms of section 131(4) of the new Act, a Court may make an order placing a company under supervision and commencing business rescue proceedings if the Court is satisfied that:
19.1. the company is financially distressed;
19.2. 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; or
19.3. it is otherwise just and equitable to do so for financial reasons,

"427(1)    When any company by reason of mismanagement or for any other cause -
(a) is unable to pay its debts or is probably unable to meet its obligations; and
(b) has not become or is prevented from becoming a successful concern,
and there is a reasonable probability that, if it is placed under judicial management, it will be enabled to pay its debts or to meet its obligations and become a successful concern, the Court may, if it appears just and equitable, grant a judicial management order in respect of that company."

24.1. the likely costs of rendering the company able to commence with its intended business, or to resume the conduct of its core business;
24.2. the likely availability of the necessary cash resource in order to enable the ailing company to meet its day-to-day expenditure, once its trading operations commence or are resumed. If the company will be reliant on loan capital or other facilities, one would expect to be given some concrete indication of the extent thereof and the basis or terms upon which it will be available;
24.3. the availability of any other necessary resource, such as raw materials and human capital;
24.4. the reasons why it is suggested that the proposed business plan will have a reasonable prospect of success.

emerged from the papers or during the hearing.
27. It was not sought, in the business rescue application, to pursue the second aim highlighted in section 128(1)(b)(ii) of the new Act, namely to implement a business plan that would result in a better return for the respondent's creditors or shareholders than would result from the immediate liquidation thereof.
28. In the circumstances, I was not prepared to exercise the discretion provided for in terms of section 131(4) and I dismissed the application for business rescue with costs on 28 October 2011, and placed the respondent in provisional winding-up.

ELOFF AJ

Counsel for Southern Palace Investments 265 (Pty) Ltd: FA Saint
Attorneys for Southern Palace investments 265 (Pty) Ltd: Gattoo Attorneys
Inc, Johannesburg; Ince Wood & Raubenheimer, Cape Town
Counsel for Zoneska Investments (Pty) Ltd: AS de Villiers, with him Mr JT Benade
Attorneys for Zoneska Investments (Pty) Ltd: Duvenage & de Villiers Attorneys, Wellington
Counsel for Registrar of Banks: LS Kuschke SC
Attorneys for Registrar of Banks: Webber Wentzei