IN THE CONSTITUTIONAL COURT OF SOUTH AFRICA
CASE NUMBER: CCT 03/18 SCA CASE NO: 926/2016 GP CASE NO: 30123/2015
In the matter between:
LUDWIG WILHELM DIENER N.O. Applicant
and
THE MINISTER OF JUSTICE 1st Respondent
AND NINE OTHER RESPONDENTS
APPELLANT’S PRACTICE NOTE
____________________________________________________________________________
1. NATURE OF PROCEEDINGS
1.1 Application for leave to Appeal against the judgement of the Supreme court of Appeal dated 01 December 2017 under case number 926/2016, and if granted, the hearing of the appeal against the said judgement.
2. ISSUES TO BE ARGUED:
A. Leave to appeal:
There are legal issues involved, namely interpretation of statutory provisions.
Arguability will appear from argument on the merits.
What should thus first be dealt with is whether the issues are of general public importance. This issue is as follows:
2.1. Section 143 (5) provides for the claims of a business rescue practitioner (“BRP”) to “..rank in priority before the claims of all other secured and unsecured creditors.”
2.2. The SCA said it only relates to post- rescue secured creditors.
2.3. The applicant says then able and experienced practitioners will be unwilling accept the risks and exposure and will in many instances refuse appointments.
2.4. This will lead to many deserving entities being liquidated instead of being saved, to the prejudice of employees, creditors and other, i.e. many members of the public.
B. The prospects of the success. In this regard the following:
2.5. The interpretation of a section 143(5)(2) and 135(4) of the Companies Act 71 of 2008;
2.6. In the process of interpretation of the above the Applicant will refer to Section 7(k) of the Companies Act, that sets out the purpose of business rescue. Reference will also be made to Section 5 of the Companies Act which provides how a conflict between the provisions of the Companies Act and the Insolvency Act No. 24 of 1936 should be dealt with: the Companies Act has preference.
2.7. During interpretation of the above, Sections 89(1), 95, 97 and 106 of the Insolvency Act will also be referred to.
2.8. Some principles of interpretation is at stake: When can words of a statutory provision be rectified, and how should an exception to a statutory provision be dealt with.
3. ESTIMATED TIME OF ARGUMENT
Applicant’s argument should take about one and a half hour.
4. SUMMARY OF ARGUMENT ON BEHALF OF THE APPLICANT:
A. Leave to appeal;
4.1. This matter clearly concerns a legal issue namely the interpretation of certain sections of the Companies Act No 71 of 2008.
4.2. The general public importance of the correct interpretation of the sections in question appears from the following: if the business rescue practitioners do not enjoy adequate security for their remuneration and expenses, practitioners will in many instances refuse to accept appointments as they would be exposed to risks and will have to incur expenses
and spend time without being reasonably sure of receiving compensation.
4.3. The aforesaid will mean that in some deserving cases the companies will not be able to employ suitably qualified and experienced practitioners to act as business rescue practitioners.
4.4. As there is a fine line between success and failure to rescue a company, the aforesaid situation will cause many a deserving company or close corporation to be liquidated instead of being saved as a going concern.
4.5. Such will inevitably have a severe prejudicial effect on employees, certain creditors, business associates of the entity, and will also negatively affect sometimes certain consumers.
4.6. In the result the legal issue is of high general public importance.
B. Merits: the correct interpretation of Section 143(5);
4.7. The wording of Section 143(5) of the Companies Act is clear and provides for a preference of the business rescue
practitioners’ claims in a priority before inter alia the claims of all secured creditors.
4.8. However the SCA adopted a value namely a perceived intention of the legislature not to undermine securities.
Therefore the words were held to be qualified by implication and had to be read subject to section 135 of the act, also by implication. Applicant submits there are no grounds for such implied qualifications.
4.9. This according to the SCA the said qualifications result in the preference of the BRP to be only before post rescue secured creditors.
4.10. Applicant submits that even if section 143 should be read subject to section 135 (contrary to applicant’s contention), it still does not follow that only post- rescue creditors were intended, contrary to the phrase “all other” secured creditors which applicant submits allows for no exclusions, and at least no implied exclusions.
4.11. The SCA interpreted section 134(4) of the Companies Act as providing support for the notion that pre-secured creditors position would not be “undermined” by the rescue process.
4.12. Applicant submits that section 134 (3) is only temporary, it is stated to apply during rescue, thus not in liquidation, and procedural. It thus does not affect the preference, which can, unhindered by section 134 (3), be enforced after business rescue has ended, i.e. for example in liquidation when it is needed most.
4.13. The interpretation of the exception section in section 135(4), contrary to the finding of the SCA, is not a substantial provision that provides that the BRP’s claims can only be paid out of the free residue in liquidation. This provision is only an exception, not a ranking. See Mphosi v Central Board of So-Operative Insurance Ltd 1974 (4) SA 633 (A) at 645 C to E as to how an exception should be interpreted.
4.14. Nothing in sections 89 (1), 95, 97 or 106 of the Insolvency Act prevents the above preference to be implemented, just as the security of the BRP as well as that of the employees before post – rescue securities can be implemented despite these sections.
4.15. In any event section 5 of the Companies Act provides that if there would be a conflict with inter alia the Insolvency Act,
the provisions of the Companies Act should be given preference.
4.16. The court should thus have interpreted section 135(4) as meaning that the practitioner’s claim would be paid out of either the free residue or if that is not possible out of the proceeds of secured assets but only after the section 89(1) of the Insolvency Act costs in respect of pro rata liquidation cost have been paid.
4.17. In the result there are good prospects of a success and in fact it will be submitted that the SCA interpreted the provisions incorrectly and that a declaratory order along the lines of the applicant’s proposed interpretation should be issued. That appears at the end of the applicants heads of argument.
4.18. No costs order will be sought, as was the case in the SCA appeal, because this matter is about the principle involved.
5. LIST OF AUTHORITIES ON WHICH PARTICULAR RELIANCE WILL BE PLACED DURING ORAL ARGUMENT:
5.1 Kubyana v Standard Bank of South Africa 2014 (3) SA 56 CC;
5.2 Mphosi v Central Board of Co-Operative Insurance Ltd 1974 (4) SA 633 (A);
5.3 Oakdene Square Properties (Pty) Ltd v Farm Bothasfontein (Kyalami) (Pty) Ltd 2013 (4) SA 539 (SCA);
5.4 The Companies Act, Act 71 of 2008:
Section 7(b) to (g) and 7(k);
Section 135;
Section 143;
5.5 Insolvency Act, Act 24 of 1936:
Section 89;
Section 95.
