In ABSA Bank Limited v EJ Naude N.O. and Others (20264/2014) [2015] ZASCA 9 (1 June 2015), Absa brought an application against the business rescue practitioner and the company (Louis Pasteur Investments Limited) for a declaratory order that the decision approving the business rescue plan taken at the meeting of creditors convened for the purposes of voting on the business rescue plan was unlawful and invalid. Absa also sought an order removing the practitioner from office.

The practitioner and company filed a counter-application for a declaratory order that in terms of section 226 of the Companies Act 61 of 1973 (the 1973 Companies Act), a cross-suretyship executed by the company and other related companies, in favour of the bank, is void.

The business rescue plan was preliminarily approved in terms of section 152(2) of the Companies Act on 12 October 2012. Absa launched its application on 15 November 2012. In between that period the business rescue plan was implemented and the first payments to creditors, in terms of the business rescue plan, were made.

Absa’s application was dismissed by the court a quo on the basis that Absa had failed to join the creditors of the company and it was precluded by section 133 of the 2008 Companies Act from bringing such an application without the written consent of the practitioner or the leave of the court. The counter-application was dismissed as it was found that the cross-suretyship was valid and not contrary to section 226(1) of the 1973 Companies Act.

The SCA upheld the decision of the court a quo in respect of the dismissal of Absa’s application. Section 130(3)(b) of the 2008 Companies Act is quite clear in that notice to affected persons of an application contemplated in section 130(1) is sufficient only prior to the adoption of the business rescue plan.

Once a business rescue plan has been adopted, creditors have a direct and substantial interest in any application to set aside that plan, for inter alia the following reasons; money that they had received in terms of the plan would have to be repaid, money they anticipated they would receive to reduce or extinguish debts owing, would not be paid, and the dividend to concurrent creditors may reduce substantially if the plan is set aside and the company is liquidated.

Insofar as the counter-application was concerned, the SCA found that it was, in truth, a defence to the main application and to the extent that it was a counter application it was really conditional upon Absa succeeding in its application before the court a quo. As Absa’s application was dismissed the SCA found that the court a quo should not have dealt with the counter-application.

The non-joinder of creditors to an application to set-aside an adopted business rescue plan was again considered in the case of Golden Dividend 339 (Pty) Ltd v Absa Bank (569/2015) [2016] ZASCA 78 (30 May 2016). Absa launched an application for an order declaring the business rescue plan unlawful and invalid. The company raised the non-joinder of creditors to that application as a point in limine.

At the time this matter was heard in the North Gauteng High Court, Pretoria the judgment of the SCA in the Naude matter had not been handed down and the High Court dismissed the point in limine. The High Court distinguished the present matter from the Naude case on the basis that in the Naude case no notice at all appeared to have been given to creditors.
By the time this matter reached the SCA, judgment in the Naude matter had been handed down. Accordingly, the SCA simply re-iterated that the test as to whether there has been non-joinder is not whether creditors had knowledge of the proceedings, but is whether a party has a direct and substantial interest in the subject matter of the litigation which may prejudice the party that has not been joined. Accordingly, the SCA found that court a quo’s finding that it is not necessary to join creditors as a party to the proceedings if they have received notice of the application is flawed and the non-joinder of creditors was fatal to the application to set-aside the business rescue plan.
 

Written by Bianca Masterton, senior associate in Bowman Gilfillan Africa Group's Dispute Resolution Department