Golden Dividend 339 (Pty) Ltd (the company) concluded a loan agreement with Absa Bank Ltd (the bank) for approximately eight million rand to acquire immovable property, secured by a first mortgage bond. The company stopped making regular payments in January 2012, and by July 2013 approximately six million rand was outstanding. In July 2013 the bank served a demand letter under section 345 of the Companies Act 61 of 1973. On 27 August 2013, the company's board passed a resolution placing it under business rescue proceedings under section 129(1)(b) of the Companies Act 71 of 2008, on grounds of financial distress. Mr Etienne Naude was appointed as business rescue practitioner. A business rescue plan was published and adopted on 22 November 2013 by 89% of creditors with voting rights. On 21 November 2013, the bank launched an application to declare the business rescue plan unlawful and invalid. The bank served notice on creditors in terms of section 145(1)(a) of the 2008 Act but did not formally join them as parties. The company raised non-joinder as a point in limine. The court a quo dismissed the non-joinder point and granted the order setting aside the business rescue plan and placing the company in liquidation.
1. The appeal was upheld with costs including costs of two counsel where employed. 2. The order of the court a quo was set aside and replaced with: 'The application is dismissed with costs including the costs consequent upon employment of two counsel.'
Creditors who have voted to adopt a business rescue plan under section 152 of the Companies Act 71 of 2008 have a direct and substantial interest in any application to set aside that plan. The test for whether there has been 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. If an order or judgment cannot be sustained without necessarily prejudicing the interests of third parties that have not been joined, then those third parties have a legal interest in the matter and must be joined. Service of notice on creditors in terms of section 145(1)(a) of the Companies Act 71 of 2008 does not satisfy the common law requirement for joinder where creditors have a direct and substantial interest in the outcome. The non-joinder of creditors with such interests is fatal to an application seeking to set aside a business rescue plan. The right of interested parties to be joined is derived from common law, and the introduction of statutory notice procedures did not purport to afford interested parties lesser rights than they had at common law.
The court noted that although the bank withdrew its opposition to the appeal, it did not abandon the order of the court a quo, and consequently that order still stood. Therefore the company had to approach the court in order to set it aside. The court observed that notwithstanding the fact that the bank elected not to participate in the appeal, it should be held liable for the costs, citing Financial Services Board v Barthram & another (20207/2014) [2015] ZASCA 96.
This case establishes important principles regarding joinder requirements in business rescue proceedings under Chapter 6 of the Companies Act 71 of 2008. It clarifies that creditors who have voted to adopt a business rescue plan have a direct and substantial interest in any application to set aside that plan, and must be formally joined as parties. The judgment confirms that the notice provisions in section 145(1)(a) of the Act, while important for informing affected parties, do not replace the common law requirement for joinder of parties with direct and substantial interests. The case reinforces procedural protections for creditors participating in business rescue proceedings and ensures that their rights under an adopted business rescue plan cannot be affected without them being properly joined as parties to any challenge. This decision is particularly significant as it provides clarity on the interplay between statutory notice requirements and common law joinder principles in the business rescue context.
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