Ferrostaal GmbH and Another v Transnet SOC Ltd t/a Transnet National Ports Authority and Another

Ferromarine Africa (Pty) Ltd (FMA) leased property at the Port of Saldanha from Transnet under a head lease agreement commencing 1 November 2006 and expiring 30 September 2022, with an option to renew. FMA's shareholders were Ferrostaal GmbH (first appellant) and Atlantis Marine Projects (Pty) Ltd (second appellant). FMA had two directors and no employees. Its business was subletting the premises to tenants in the marine industry. On 2 December 2016, FMA was placed under business rescue. The business rescue practitioner suspended FMA's rental obligations to Transnet, resulting in arrear rental of approximately R40 million. Transnet was FMA's only independent creditor. The practitioner published three business rescue plans, all rejected by Transnet. The final revised BRP published on 29 July 2019 proposed: (i) Transnet approve a sublease to ArcelorMittal for three years, (ii) Transnet receive full rental for six months, (iii) arrear rentals be deferred and only repaid if a 15-year lease extension was negotiated after the head lease expired. On 31 July 2019, Transnet voted against the revised BRP. The appellants, as FMA's shareholders, applied to set aside Transnet's vote as inappropriate under s 153 of the Companies Act.

• Whether it was reasonable and just to set aside Transnet's vote against the business rescue plan under s 153(7) of the Companies Act 71 of 2008
• What constitutes an 'inappropriate' vote against a business rescue plan
• Whether the revised business rescue plan adequately balanced the interests of all stakeholders
• Whether the business rescue plan made adequate provision for the creditor's interests
• The applicability of s 56(5) of the National Ports Act 12 of 2005 requiring fair, equitable, transparent, competitive and cost-effective procurement procedures
• Whether the business rescue plan complied with the temporary nature of business rescue proceedings under s 128(1)(b) of the Companies Act

The appeal was dismissed with costs, including costs of two counsel.

When determining whether to set aside a creditor's vote rejecting a business rescue plan under s 153(7) of the Companies Act 71 of 2008, a court must consider: (a) the interests represented by those voting against the plan; (b) the provision made in the plan for those interests; (c) the estimated return on liquidation; and (d) all relevant circumstances including whether the plan is commercially viable and balances all stakeholders' interests. A vote against a business rescue plan is not inappropriate where: (1) the plan makes inadequate provision for the creditor's substantial claims; (2) the plan depends on multiple future contingencies beyond the parties' control; (3) the plan would require the creditor to act contrary to statutory obligations (such as public procurement requirements); (4) the plan does not genuinely balance stakeholder interests but favors shareholders; and (5) the company has not demonstrated ability to meet its obligations under the plan. Business rescue plans must comply with the temporary nature of business rescue under s 128(1)(b) and cannot impose indefinite or extended moratoria on creditors' rights that extend beyond what is reasonably necessary for rescue and rehabilitation. Courts should not interfere with the commercial judgment of creditors to reject business rescue plans unless the rejection is genuinely inappropriate in all the circumstances, and the exercise of discretion by a lower court will not be interfered with on appeal absent misdirection.

The Court made several non-binding observations: 1. On lease renewal options: An option to renew a lease that requires future negotiation of terms without a deadlock-breaking mechanism merely constitutes an unenforceable agreement to negotiate, following the principle in Roazar CC v The Falls Supermarket CC. 2. On procurement law: The Court noted that s 56(5) of the National Ports Act largely echoes s 217 of the Constitution, whose purpose is to prevent patronage and corruption and promote fairness and impartiality in public procurement contracts. The Court emphasized that compliance with constitutional and legislative procurement frameworks are not mere internal prescripts that can be disregarded at whim. 3. On disclosure obligations: The Court criticized the inadequate disclosure by the appellants and practitioner, noting that material information including the purchase price for shares and source of cash contributions should have been disclosed, particularly where such information falls within the applicants' knowledge. 4. On distinguishing FirstRand Bank v KJ Foods: The Court noted this case was distinguishable because: (a) FMA had no employees whose jobs needed protection; (b) FMA's only asset was the lease itself; (c) the company's business was merely subletting property; and (d) other creditors were not receiving better returns than on liquidation. 5. The Court suggested that the vague provisions regarding when business rescue would end and when the practitioner's functions would terminate indicated non-compliance with the statutory scheme requiring temporary supervision.

This case provides important guidance on the proper interpretation and application of s 153 of the Companies Act 71 of 2008 regarding when courts should set aside creditor votes rejecting business rescue plans. It clarifies that: 1. Business rescue is designed to save viable companies, not to provide indefinite protection for insolvent entities at creditors' expense. 2. Business rescue plans must balance all stakeholders' interests, not just benefit shareholders or the company in distress. 3. Plans based primarily on future contingencies and uncertain events may be inappropriate, particularly where they fail to provide for substantial creditor claims. 4. The temporary nature of business rescue proceedings under s 128(1)(b) must be respected - plans cannot impose indefinite moratoria on creditors' rights. 5. Public procurement principles under the Constitution and enabling legislation (such as the National Ports Act) cannot be circumvented through business rescue proceedings. 6. Courts should not interfere with a creditor's commercial judgment to reject a plan unless it is genuinely inappropriate considering all circumstances. 7. While liquidation returns are relevant, they must be weighed against other factors including the creditor's ability to realize value through alternative means. The case reinforces that business rescue is not a mechanism to impose unfair arrangements on creditors or to avoid statutory obligations, and that creditors' legitimate commercial concerns will be respected by courts.