Knoop and Another NNO v Gupta (No 2)

The appellants, Kurt Knoop and Johan Klopper, were appointed as business rescue practitioners (BRPs) for Islandsite Investments 180 (Pty) Ltd and Confident Concept (Pty) Ltd on 16 February 2018. Both companies were controlled by the Gupta family and had been placed under voluntary business rescue after becoming "unbanked" due to allegations of state capture. Less than a year later, Mrs Chetali Gupta (a shareholder) brought an application for the removal of the BRPs, alleging: incompetence of staff employed by the BRPs; failure to comply with approved business rescue plans; ignoring competitive third party offers and insisting on auction sales; and improper VAT invoicing instructions. The full court (Ledwaba DJP, Janse van Nieuwenhuizen J and Senyatsi AJ) granted an order removing the BRPs on 13 December 2019. The BRPs appealed this decision. Throughout the business rescue process, the BRPs faced extensive litigation and obstruction from the Gupta-linked companies and their representatives, including Ms Ronica Ragavan (acting CEO of the Oakbay Group).

• What are the grounds upon which a court may order the removal of a business rescue practitioner under section 139(2) of the Companies Act 71 of 2008?
• What standard of proof and evidence is required to establish grounds for removal of a BRP?
• What is the proper interpretation and application of section 140(3)(a) and (b) of the Companies Act (BRP as 'officer of the court' and responsibilities as director)?
• Whether a BRP holding appointments in multiple related companies constitutes a disqualifying conflict of interest?
• What duties do BRPs owe in investigating company affairs and what conduct may justify their removal?

1. The appeal is upheld with costs, including costs of two counsel. 2. The high court order is set aside and replaced with dismissal of the application with costs including two counsel. 3. Mr Tayob (intervening party) must pay the costs he occasioned to the appellants, including costs of two counsel, in his personal capacity.

To remove a business rescue practitioner under section 139(2) of the Companies Act, an applicant must prove specific factual conduct establishing one or more of the statutory grounds on a balance of probabilities. Proof of a ground for removal does not automatically result in removal; the court retains a discretion considering all circumstances. General allegations reciting statutory provisions are insufficient - specific instances of incompetence, failure to perform duties, lack of care, conflicts of interest or lack of independence must be established with evidence. The court of first instance must make clear factual findings on the evidence and may not rely on matters not raised by the parties. The designation of a BRP as an 'officer of the court' in section 140(3)(a) has limited application in voluntary business rescue and adds little to the BRP's statutory duties. The same BRP may be appointed to multiple companies in the same group even where debtor-creditor relationships exist, provided no actual (not merely potential) conflict of interest arises. Commercial decisions made by BRPs in good faith, even if later shown to be erroneous, do not constitute grounds for removal.

The Court made several important observations: (1) In voluntary business rescue, the process is entirely private involving the company, BRP and affected persons, with minimal court involvement, making the 'officer of the court' designation somewhat mystifying. (2) There are no rules of court requiring BRPs to report to the court in voluntary business rescue. (3) It is common practice in financially distressed companies to issue quotations rather than VAT invoices to address cash flow problems, though this may be technically irregular. (4) The court criticized the aggressive and emotive tone of the affidavits, noting that legal professionals bear responsibility for affidavit contents and should not use them to abuse opponents. (5) The extensive litigation faced by the BRPs (detailed across multiple paragraphs) appeared to be a coordinated campaign to disrupt the business rescue process. (6) The complex web of inter-company transactions and transfers of billions of rands between Gupta-linked entities (described as resembling a 'washing machine') legitimately concerned the BRPs and warranted investigation. (7) The failure of the Gupta representatives to explain simple questions about these transactions was notable.

This judgment provides important guidance on the removal of business rescue practitioners under section 139(2) of the Companies Act. It clarifies that: (1) applicants for removal must prove specific factual allegations, not merely recite statutory provisions; (2) courts must make clear factual findings on the evidence presented; (3) the description of BRPs as 'officers of the court' adds little to their statutory duties and has limited application in voluntary business rescue; (4) sections 75-77 (director's duties) have limited practical application to BRPs; (5) appointment of the same BRP to multiple related companies does not per se create a disqualifying conflict of interest; (6) removal is not to be ordered lightly and requires proof of actual prejudice or harm to the business rescue; (7) courts must consider the broader context including any obstruction faced by BRPs. The case also provides important guidance on the standards expected of BRPs and the circumstances in which their commercial decisions will be reviewed. It demonstrates judicial support for BRPs acting independently and in good faith, even when facing opposition from shareholders and management.