Kransfontein Beleggings (Pty) Ltd v Corlink Twenty Five (624/2016) [2017] ZASCA 131 2017 (3) SA 539

Kransfontein Beleggings (Pty) Ltd v Corlink Twenty Five (624/2016) [2017] ZASCA 131 2017 (3) SA 539 (GJ) Joinder of creditors in application to set aside business rescue plan. When application is made to set aside a business rescue plan, non-joinder of creditors is fatal to the application.

The test whether there has been a non-joinder 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. Absa Bank Limited v Naude NO & others [2015] ZASCA 97; 2016 (6) SA 540 (SCA) para 10; Golden Dividend 399 (Pty) Ltd & another v Absa Bank Ltd (569/2015) ZASCA 78 (30 May 2016). (Par [12])

The amendment to the business rescue plan would inevitably have affected concurrent creditors. If GWK’s secured entitlement under the plan were reduced by R7 217 500, its concurrent claim would increase by the same amount. Since the applicant did not allege any basis on which GWK could be required to forfeit this concurrent claim, the dividend payable to concurrent creditors out of the surplus of R560 000 would have reduced from 1.58 cents to 1.31 cents. While one may speculate that this modest reduction would not have affected how creditors voted, the fact remains that the amendment did affect their rights under the plan. (Par [15])

As stated in Absa v Naude, if the creditors who voted for the business rescue plan are not joined, their position would be prejudicially affected in that a business rescue plan would be set aside, money that they had anticipated they would receive would not be paid and the money that they had received would have to be repaid. It thus follow that the non-joinder creditors was fatal to the amended relief sought by the applicant for non-joinder. Since the question of joinder had been raised at the previous hearing and since the applicant had taken a deliberate decision not to join other creditors, the court a quo was not required to afford the applicant a further opportunity to join the other creditors. (Par [16])

Because the applicant did not persist in the relief originally claimed, it is unnecessary to investigate on what grounds a court may set aside an adopted business rescue plan and whether such relief ceases to be competent once the plan has been implemented. The question is whether a court can partially set aside and amend an adopted plan so as to alter its operation in relation to one or more of the creditors. (Par [17]) A business rescue plan can only be implemented if approved by the prescribed majority of creditors in terms of s 152 of the Companies Act 71 of 2008. The court has no power to foist on creditors a plan which they have not discussed and voted on at such a meeting. This is what the applicant was asking the court a quo to do. Concurrent creditors would receive slightly less than the plan promised them. The creditors have not discussed or voted on such a plan. Quite conceivably GWK would have voted against it. (Par [18]) The court does not have enough information to determine whether GWK on its own could have defeated the plan or whether other creditors might have voted differently and in any event it does not matter. A court cannot be asked to delve into these matters. The simple point is that the only plan which practitioners can implement is one adopted by creditors in accordance with section 152 of the Companies Act. (Par [19])

Extracts

Application to set aside business rescue proceedings – creditors have direct and substantial interests – non-joinder of creditors is fatal to the relief sought in the application. [7] On 9 June 2015, the applicant launched an urgent application in the Free State Division of the High Court, Bloemfontein to interdict the transfer of Corlink’s immovable properties and the implementation of the business rescue plan pending determination of a rule nisi to have the plan declared invalid. The only creditors cited as respondents were Absa and GWK, both of whom opposed the application. GWK delivered a notice of opposition in terms of Uniform Rule 6(5)(d)(iii) and raised, among other points, the non-joinder of Corlink’s other creditors. [12] The test whether there has been a non-joinder 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. [Absa Bank Limited v Naude NO & others [2015] ZASCA 97; 2016 (6) SA 540 (SCA) para 10; Golden Dividend 399 (Pty) Ltd & another v Absa Bank Ltd (569/2015) ZASCA 78 (30 May 2016).] [15] However, the amendment to the plan which the applicant sought would inevitably have affected concurrent creditors. If GWK’s secured entitlement under the plan were reduced by R7 217 500, its concurrent claim would increase by the same amount. Since the applicant did not allege any basis on which GWK could be required to forfeit this concurrent claim, the dividend payable to concurrent creditors out of the surplus of R560 000 would have reduced from 1.58 cents to 1.31 cents. While one may speculate that this modest reduction would not have affected how creditors voted, the fact remains that the amendment did affect their rights under the plan. [16] As stated in Absa v Naude, if the creditors who voted for the business rescue plan are not joined, their position would be prejudicially affected in that a business rescue plan would be set aside, money that they had anticipated they would receive would not be paid and the money that they had received would have to be repaid. It thus follow that the non-joinder of Corlink’s other creditors was fatal to the amended relief sought by the applicant for non-joinder. Since the question of joinder had been raised at the previous hearing and since the applicant had taken a deliberate decision not to join other creditors, I do not think that the court a quo was required to afford the applicant a further opportunity to join the other creditors. [17] However, and even if non-joinder was not a sufficient basis for dismissing the application, the application was in any event doomed to fail for the reasons elaborated below. Because the applicant did not persist in the relief originally claimed, it is unnecessary to investigate on what grounds a court may set aside an adopted business rescue plan and whether such relief ceases to be competent once the plan has been implemented. The question is whether a court can partially set aside and amend an adopted plan so as to alter its operation in relation to one or more of the creditors. In my view the answer is no. [18] A business rescue plan can only be implemented if approved by the prescribed majority of creditors in terms of s 152 of the Companies Act. The court has no power to foist on creditors a plan which they have not discussed and voted on at such a meeting. This is what the applicant was asking the court a quo to do. The plan which the creditors discussed and voted on was one in terms of which the applicant was not reflected as a creditor and a specified amount from the proceeds of the farms was to be paid to GWK in settlement of its secured claims. If the applicant was granted the relief it seeks, the plan would become one in which the applicant receives its full secured claim up to a maximum of the ringfenced amount while GWK receives proportionately less. And as I have explained, concurrent creditors would also receive slightly less than the plan promised them. The creditors have not discussed or voted on such a plan. Quite conceivably GWK would have voted against it. [19] We do not have enough information to determine whether GWK on its own could have defeated the plan or whether other creditors might have voted differently and in any event I do not think it matters. A court cannot be asked to delve into these matters. The simple point is that the only plan which practitioners can implement is one adopted by creditors in accordance with s 152 of the Companies Act. [21] I therefore find that the court a quo was correct in dismissing the application. The applicant has failed to show that there are prospects of success in the appeal.