The Western Cape High Court in the case of South African Bank of Athens Limited v Zennies Fresh Fruit CC 2018 (3) SA 278 (WCC) essentially had to determine two main issues: (i) whether the fact that no vote was taken to approve a business rescue plan at a second meeting convened in terms of s151(1) of the Companies Act, no 71 of 2008 to consider the plan justified a conclusion that the plan was rejected; and (ii) whether business rescue proceedings can simply continue indefinitely.
The brief facts of the case are as follows:
- Zennies Fresh Fruit CC (Zennies) commenced with business rescue proceedings on 1 February 2017;
- On 9 March 2017, the Business Rescue Practitioner (BRP) published a plan;
- On 20 March 2017, one of the applicants, being Business Partners Limited (Business Partners) advised the BRP that it had concerns regarding the plan as it did not comply with the requirements of the Act and as a result it would raise a motion which would allow the BRP to amend the plan with the consent of the majority creditors or adjourn the meeting in order to revise a plan for further consideration;
- On 23 March 2017, the second meeting of creditors took place at which the plan was tabled for credits to discuss and vote on;
- According to Business Partners, the meeting was adjourned in order to prepare and publish a revised plan and the voting on the plan was adjourned until certain information and facts were more firmly established by the BRP;
- Business Partners further alleged that the BRP was required to prepare and publish a new/revised plan within 10 business days from the date of the second creditors meeting, that that period had lapsed and neither it nor the other applicant, being the South African Bank of Athens (Bank) (as majority creditors) had agreed to any extension to prepare and publish a new/revised plan;
- The Bank averred that Zennies was no longer under business rescue, as there was no agreement to extend the time period to file a new/revised plan. The Bank argued that the effect of this was that the plan was dismissed as contemplated in s152(3)(a) of the Act; and
- As a result of the aforementioned, Business Partners sought to proceed with its judgment against Zennies in respect of monies loaned and advanced including execution of properties and the Bank instituted an application for the liquidation of Zennies.
The crisp issue which the court had to determine was whether the fact that no vote was taken to approve the plan at the second meeting justified a conclusion that the plan was rejected as envisaged by s152(3)(a) of the Act.
This section provides that if a proposed plan is not approved on a preliminary basis, as contemplated in subsection 2, the plan is rejected and may only be considered further in terms of s153.
Section 153 provides for the remedies in the event that the plan has not been adopted. These include seeking a vote of approval by the BRP from holders of a voting interest to prepare and publish a revised plan and to apply to court set aside the result of the vote. Section 153 therefore only kicks in when a business rescue plan has not been approved and subsequently rejected. In terms of s153(5), if no person takes any action contemplated in subsection 1, the BRP must properly file a notice of termination of the business rescue proceedings.
It was common cause that the plan was presented to the creditors in terms of s151 of the Act and that the meeting was adjourned. On Zennie’s version, the meeting was adjourned for the BRP to obtain more information. Zennies argued that there was no evidence that the vote had taken place.
Both Business Partners and the Bank placed reliance on s152(3) of the Act on the proposition that because the plan was not approved on a preliminary basis as envisaged in s152(1)(e) and s152(1)(d)(ii) of the Act, which meant that it was automatically rejected.
The court held that this argument presupposes that there was a vote on a preliminary basis of the plan as contemplated in subsection 2. In this case, there was no evidence to suggest that this had happened and accordingly the court found that both Business Partners and the Bank’s reliance on s152(3)(a) and s132(2)(c)(i) was misplaced. The court accordingly found that there was no evidence to suggest that the plan was not approved.
The court, however, held that the enquiry did not end there. The court questioned whether a company can enjoy the protection of business rescue proceedings indefinitely to the detriment of creditors. In arriving at its conclusion, the court considered, among other things,the purpose of business rescue and stated that while such purpose is noble, it cannot lead to a situation where an extraordinary amount of time is taken to achieve the result at the expense of creditors’ rights. The balancing of these rights should always be paramount in the ambit of fairness.
Based on the facts, the court held that in the absence of specific information received to finalise an amended plan, a BRP is under a statutory duty to file a notice of termination. Accordingly, the court held that the mechanisms of business rescue proceedings were not designed to protect the company indefinitely to the detriment of creditors. The delay in finalisation of the business rescue proceedings in these circumstances were found to be unreasonable and the court ordered that such proceedings be terminated.