Kgoro Consortium (Pty) Ltd and Another v Cedar Park Properties 39 (Pty) Ltd and Others

Cedar Park Properties 39 (Pty) Ltd (in liquidation) was a wholly owned subsidiary of Kgoro Consortium (Pty) Ltd, which was used as a special purpose vehicle to purchase and develop property in Sandown, Gauteng for R280 million. Regiments Capital (Pty) Ltd (in liquidation) was the majority shareholder in Kgoro. In June 2013, Cedar Park secured a R150 million loan facility from Vantage Mezzanine Fund II Partnership for the development, which became due on 30 June 2018. Kgoro guaranteed Cedar Park's debt and pledged its shares in Cedar Park as security. Cedar Park failed to meet its obligations and did not meaningfully commence the development. On 6 December 2018, Vantage applied to wind up Cedar Park for non-payment of over R300 million. Three days before the unopposed hearing on 18 February 2019, Kgoro applied on 15 February 2019 to place Cedar Park under business rescue supervision. Vantage opposed the application. Regiments intervened to support the business rescue application. Kgoro's attorneys were Smit Sewgoolam Incorporated.

• Whether there were reasonable prospects of rescuing Cedar Park as required by section 131(4)(a) of the Companies Act 71 of 2008
• Whether Kgoro established grounds for achieving either the primary goal (continued existence as a solvent company) or secondary goal (better return for creditors/shareholders than immediate liquidation) under section 128(1)(b)(iii) of the Companies Act
• Whether a costs order de bonis propriis against attorneys can be made without affording them an opportunity to respond

In the Kgoro appeal: (1) Vantage's application for leave to file supplementary heads of argument dismissed with costs; (2) Appeal dismissed with costs. In the Smit Sewgoolam appeal: (1) Appeal upheld with costs; (2) Paragraph 3 of the high court order (costs de bonis propriis against the attorneys) set aside.

An applicant for business rescue under section 131(4) of the Companies Act 71 of 2008 bears the onus to establish on reasonable grounds a reasonable prospect of achieving one of the two goals contemplated in section 128(1)(b)(iii): either facilitating the continued existence of the company in a state of solvency (primary goal) or facilitating a better return for creditors or shareholders than would result from immediate liquidation (secondary goal). The development of a rescue plan cannot be a goal in itself but only a means to achieve one of these ends. An applicant relying on the secondary goal cannot simply offer an alternative, informal winding-up but must demonstrate that business rescue would achieve a better return than immediate liquidation. Vague and speculative suggestions will not suffice; a factual foundation must be laid in the founding affidavit. An order for costs de bonis propriis against attorneys requires that they be afforded a proper opportunity to respond to the allegations and state their case before such an order is made.

The Court noted that it would be impermissible to draw negative inferences based on selective passages from the Judicial Commission of Inquiry into State Capture report that were not introduced into evidence and did not relate to the parties in question. The Court found it unnecessary to determine whether Kgoro had locus standi given the failure to establish reasonable prospects of rescue. While finding prima facie reasons existed for investigation into the attorney's conduct (justifying referral to the Legal Practice Council under paragraph 5 of the order), the Court noted that costs de bonis propriis should only be ordered in exceptional circumstances involving egregious conduct amounting to negligence in a serious degree warranting the court's displeasure.

This judgment clarifies the evidentiary requirements for business rescue applications under the Companies Act 71 of 2008. It reaffirms that applicants must establish reasonable prospects of achieving either the primary goal (continued existence as a solvent concern) or the secondary goal (better return for creditors than liquidation), and cannot merely propose business rescue as an alternative, informal winding-up mechanism. The judgment endorses the Oakdene and Newcity Group precedents on the standard of proof, requiring more than a prima facie case but less than a reasonable probability. It confirms that vague and speculative suggestions will not suffice. The judgment also reinforces procedural fairness principles regarding special costs orders, holding that attorneys cannot be subjected to punitive costs orders de bonis propriis without being given an opportunity to state their case, even where prima facie misconduct exists.