The South African business environment is still dealing with factors which makes it challenging for a number of businesses. Evidence of this can be found in the number of liquidations the country faces.
Can a financially distressed company placed into liquidation at the recommendation of the business rescue practitioner be put back into business rescue to stave off a liquidation order brought against it by a major creditor? This was a focus area in the case of Parkers and Others v Atvance Property Holdings (Pty) Ltd (in liquidation) and Others (2023/00336) [2024].
Background
The applicants brought this application seeking an order that the First Respondent (Atvance Property Holdings (PTY) LTD (in liquidation)) be placed under supervision and for business rescue proceedings to commence in terms of the provisions of section 131(1) read with section 131(4)(a) of the Companies Act (71 of 2008), for the appointment of a business rescue practitioner (BRP) and ancillary relief.
First National Bank, a division of Firstrand Bank Limited (hereafter referred to as FNB), applied to intervene in the proceedings and opposed the relief sought by the Applicants. Although the applicants initially opposed the intervening application, their opposition was withdrawn through a notice dated 20 December 2023.
Atvance Property Holdings is a property holding company whose major creditor is FNB. This is a consequence of a written loan agreement under which FNB advanced the First Respondent R20 million in loan funding. Atvance Property Holdings used the proceeds of the loan to acquire a commercial property, which is its only material asset.
Between June and September 2022, the First Respondent defaulted on its monthly loan repayment instalments for a consecutive four-month period. This resulted in an indebtedness to FNB of just under R17 million at that stage.
On 2 November 2022 the directors of Atvance Property Holdings placed the company into business rescue. In mid-December 2022, the BRP concluded that there was no reasonable prospect that the company could be rescued. It brought an application to terminate the business rescue proceedings and to place Atvance Property Holdings into liquidation. Not satisfied with the pace at which that application was progressing, FNB launched an urgent application on 2 February 2023 seeking the liquidation of Atvance Property Holdings. This resulted in a court order (dated 21 February 2023), under which Atvance Property Holdings was finally liquidated.
The Applicants responded by bringing a counter application before the Court to place Atvance Property Holdings back into business rescue.
Backtracking
On 18 April 2023, FNB filed its application as an intervening creditor and simultaneously delivered an answering affidavit opposing the main application.
AJ D’Oliveira (appearing for FNB, submitted that it is apparent from the sequence of events preceding the application, including in particular the fact that the Applicants had elected not to oppose the liquidation application argued on 21 February 2023, and from the manner in which the Applicants subsequently prosecuted the application or, more accurately, failed to prosecute it timeously, that the application had been brought for an ulterior motive as part of a stratagem to delay the liquidation process or to delay the process under which one or more of the Applicants may ultimately be held to account for the affairs of the First Respondent.
Image By: Canva
The Applicants had failed to deliver a replying affidavit when it was initially due, on 4 May 2023, and after that took no further steps to pursue the matter by preparing an index, delivering heads of argument and taking the other steps required under this Court’s Practice Directives to get the matter heard. The Courts indicated that, in consequence, FNB took those steps as an intervenor, delivering a consolidated index, its heads of argument, practice note, chronology and list of authorities on 30 May 2023. The Applicants were required to provide their heads of argument, practice note, chronology and list of authorities by 13 June 2023. After giving an extension of time within which they should do so,
FNB delivered an application to compel the delivery of the Applicants’ heads of argument. This was on 28 June 2023.
When a notice of set down for the application for compel was served on 11 August 2023, the Applicants filed answering affidavits dealing with the application to intervene and the application to compel. This required FNB to prepare for opposed interlocutory applications dealing with its application to intervene and to compel the Applicants to deliver their heads of argument in the main application. During December 2023, the parties’ attorneys agreed to terms of which the Applicants withdrew their opposition to the joinder of FNB as an intervenor and tendered the wasted costs of their opposition. The Applicants undertook to deliver a replying affidavit in the main application by 15 December 2023 and heads of argument in the main application by 16 January 2024.
The Court pointed out that, ultimately, the Applicants delivered a replying affidavit by 16 January 2024 but failed to deliver heads of argument in the main application. Their attorneys of record filed a notice of withdrawal on 21 May 2024, a week before the application’s hearing, and there was no appearance on their behalf when the matter was argued on 28 May 2024.
D’Oliveira submitted that the evidence in the proceedings supported none of the five pillars on which the Applicants founded their contention that there was a reasonable prospect that Atvance Property Holdings could be rescued. He referred to Oakdene Square Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami) (Pty) Ltd and Others where, in paragraphs [29] and [30] of the judgment, the Supreme Court of Appeal made the point that a finding that there is a reasonable prospect for rescuing a company must be based on reasonable grounds established by evidence.
The pillars of the Applicants argument
In the first instance, D’Oliveira submitted, there was no reasonable prospect of rescuing Atvance Property Holdings without its major creditor, FNB, agreeing to some form of leniency or restructuring of the debt due to it. The Court pointed out that it is clear, on the evidence as reflected in the answering affidavit, that the bank has no appetite for revisiting the terms of the debt due to it. There is no case made out in the papers that this stance is unreasonable or male fide (cf Oakdene supra at paragraph [38]). The Court indicated that it agreed that there is no reasonable prospect of rescuing Atvance Property Holdings.
Second, in the founding papers, the Court pointed out that the Applicants suggested the potential for significantly increased rental income from the property, citing various enquiries that they stated were attached to the replying affidavit but were not so attached. Despite the Applicants making a general assertion that in the post-covid era, commercial property rentals were improving, there is no evidence to suggest that this was so in the case of Atvance Property Holdings property which, the evidence in fact shows, requires large-scale renovation before being fit to lease. D’Oliveira further submitted that there was no factual basis for the contention that there were reasonable prospects of rescuing the company, to which the Court agreed.
Next, as the third pillar of their case, the Applicants rely on the possibility of outdoor advertising for which a specified contractor was said to have expressed interest. However, the expression of interest is attached to the founding papers dated back to 2019. There was no evidence of any ongoing interest or opportunity other than the deponent’s assertion in the replying affidavit to suggest otherwise “defies logic”. D’Oliveira pointed out that the revenue which the Applicants contended might possibly be generated by outdoor advertising would not have covered the original repayments due to FNB, even assuming the bank had been interested in restructuring the company’s debt.
Under the fourth pillar of their case, the Applicants contend that the intended business rescue practitioner had already introduced an investor who might be willing to invest in the property. However, in support of this, a letter was put up which, only in the vaguest terms, expressed an interest in a 50% investment in the Atvance Property Holdings. In response to this concern being pertinently raised in the answering affidavit, the Applicants made no reply.
Finally, the Applicants contend that in a liquidation scenario, there is a significantly reduced possibility of realising an appropriate commercial value for the immovable property, which is Atvance Property Holdings’ sole asset, as compared to what might be achieved in a business rescue scenario. However,
D’Oliveira pointed out that the Supreme Court of Appeal (in Oakdene, supra, at paragraph [34]) rejected this argument, which was raised in that case, too, as it rests on no more than speculation.
An elaborate game of hot potato
The Court ultimately agreed with the assertion that there was no viable prospect of saving Atvance Property Holdings.
It begs the question of why the BRP thought it would be appropriate to reconsider his stance after he explicitly stated that there was no viable prospect of saving Atvance Property Holdings in the first place. BRPs have long bemoaned the fact that there is a perception of the business rescue process and profession, which paints a picture that only a handful of professionals are equipped enough and capable of doing a proper job. It may be a case of a few bad apples spoiling the whole barrel, but when examples are made of bad advice from the BRP, what other perception is the profession presenting?
Gareth Cremen is a Partner at Cox Yeats Attorneys
