Duatlet Investments (Pvt) Ltd and Probadek Investments (Pvt) Ltd v Knowledge Hofisi and Redwing Mining Company (Pvt) Ltd and Betterbrands Mining (Pvt) Ltd and Master of High Court

The second respondent (Redwing Mining Company) was placed under corporate rescue on 13 July 2020. The first applicant was a special purpose vehicle formed by three entities with competing mining interests. On 29 November 2021, the first applicant and second respondent entered into a joint venture mining agreement. The agreement required the first applicant to provide proof of funding within two weeks. The first respondent (interim corporate rescue practitioner) cancelled the agreement on 17 December 2021 for alleged failure to provide proof of funding. The applicants filed an urgent chamber application on 31 December 2021 seeking leave to sue the second respondent in terms of Section 126(1)(b) of the Insolvency Act [Chapter 6:07]. At the time of the application, the first applicant was still a shelf company whose board had not been regularized, though Ms. Mutombgwera was recognized as a representative in the joint venture agreement. The joint venture agreement contained arbitration clauses (clauses 5.2, 10.1 and 10.2) for dispute resolution.

• Whether the application was urgent
• Whether the correct procedure was followed in seeking leave to sue under Section 126(1)(b) of the Insolvency Act
• Whether the deponent of the founding affidavit had authority to represent the first applicant (a shelf company)
• Whether the draft order was defective
• Whether the third respondent was properly joined
• Whether the matter should proceed to court or be referred to arbitration in terms of the joint venture agreement

The application was struck off the roll. Each party was ordered to bear its own costs.

The binding legal principles established are: (1) Section 126(1)(a) and (b) of the Insolvency Act provide disjunctive alternatives - a party may seek either written consent of the practitioner or leave of the court to sue a company under corporate rescue, but need not pursue both; (2) Applications for leave to sue under Section 126(1)(b) may be brought by way of urgent chamber application where urgency exists, as the provision is substantive and specifies jurisdiction rather than procedure; (3) Where parties to a contract have agreed to a dispute resolution mechanism (such as arbitration), the court will require them to exhaust that mechanism before granting leave to sue, in accordance with the principle of sanctity of contract (pacta sunt servanda); (4) Representatives of shelf companies who are recognized as such in contracts may have standing to represent the company in legal proceedings where the board has not been regularized, particularly to protect the company's constitutional right to a fair hearing under Section 69 of the Constitution; (5) The purpose of the moratorium in Section 126 is to provide breathing space for companies under corporate rescue, and courts should make orders that minimize disruption to the rescue plan and conserve the company's limited resources.

The court made several non-binding observations: (1) A delay of 13-18 days does not constitute inordinate delay in urgent applications; (2) Applications for leave to sue need not be structured with interim and final orders on a return day, as once leave is granted there is no need for further process; (3) Directors of shelf companies are best described as "promoters" who have no further business with the company after incorporation and whose names appear only for compliance purposes; (4) The court noted that in the absence of an arbitration clause, it would have granted leave to sue as the dispute might help resuscitate the second respondent; (5) The court observed that both parties were at fault for failing to utilize the available dispute resolution mechanism in the contract; (6) The court emphasized that referral to arbitration would be less costly and would better serve the corporate rescue process by conserving the company's limited resources.

This case provides important guidance on: (1) Applications for leave to sue companies under corporate rescue in terms of Section 126(1)(b) of the Insolvency Act; (2) The interpretation of Section 126(1) - that the written consent and court leave options are disjunctive alternatives; (3) The representation of shelf companies in legal proceedings where the board has not been regularized; (4) The court's approach to balancing access to justice for creditors against the need to protect companies under corporate rescue; (5) The primacy of contractual dispute resolution mechanisms (particularly arbitration clauses) even in the context of corporate rescue proceedings; (6) The principle of sanctity of contract and the court's reluctance to override agreed dispute resolution procedures. The case demonstrates judicial respect for alternative dispute resolution and the protection of companies under corporate rescue from potentially costly litigation.