SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case No: 734/2015
In the matter between:

FIRSTRAND BANK LTD

APPELLANT

and

KJ FOODS CC (IN BUSINESS RESCUE)
RESPONDENT

Neutral citation:   FirstRand Bank Ltd v KJ Foods CC (In business
rescue) (734/2015) [2015] ZASCA 50(26 April 2017).
Coram:
Mpati AP, Theron, Seriti, Van Der Merwe JJA and
Schoeman AJA
Heard:
7 September 2016
Delivered: 26 April 2017
Summary: Companies Act 71 of 2008 : proposed business rescue plan :
proper interpretation of section 153(1)(a)(ii) and 153(7) : the
determination whether a vote by a creditor against the adoption of a
proposed business rescue plan was inappropriate and ought to be set aside
entails a single enquiry : a court will set aside a vote on the ground that its
result was inappropriate if it is reasonable and just to do so : thus entails a
value judgment : effect of the court setting aside vote : once vote is set
aside, proposed business plan considered to have been adopted ex lege :
no further vote envisaged by the Act.

________
ORDER

___

On appeal from: Gauteng Division of the High Court, Pretoria
(Mavundla J sitting as court of first instance):

1 Paragraph 1 of the order of the court a quo is amended to read:
‗In terms of the provisions of section 157(7) of the Companies Act 71 of
2008 the vote of the respondent against the adoption of the revised
business rescue plan exercised on 2 December 2013 is set aside.‘
2 Paragraph 2 of the order of the court a quo is set aside.
3 The appeal is otherwise dismissed.

___
JUDGMENT

___

Seriti JA (dissenting):

[1] This is an appeal against a judgement and order of the Gauteng
Division of the High Court, Pretoria (Mavundla J) setting aside in terms of
s 153(7) of the Companies Act 71 of 2008 (the Act), a vote against the
adoption of a proposed revised business rescue plan. The court a quo
found that the vote of the appellant against the proposed business rescue
plan was inappropriate and consequently granted an order in terms of
which the voting result of rejection was set aside. The court further
ordered that the proposed revised business rescue plan be adopted by the
affected parties in terms of the Act. Finally, it ordered the respondent to
pay the costs of the application, which costs were to include the

reasonable expenses and disbursements of the joint business rescue
practitioners. The appeal is before this court with leave of the court a quo.

[2] The principal issue in this appeal is the proper interpretation of
section 153(1)(a)(ii) and 153(7) of the Act. In particular, the questions
that arise are (i) whether the court a quo was correct in finding that the
appellant‘s vote against the proposed business rescue plan was
‗inappropriate‘ (ii) whether the court a quo was correct to set aside the
voting result of the rejection of the proposed business rescue plan and (iii)
whether the court a quo had any power to refer the rejected plan to the
affected persons ‗to be adopted‘ by them.

Factual Background
[3] The relevant facts of this case are briefly the following. The main
business of KJ Foods CC is the production and supply of bread to cash
and carries and the informal market. The respondent has been in existence
for a period exceeding 20 years and employs approximately 220
employees. It is managed by its sole member, Mr S C B Tuna who has
managed and maintained the respondent for a period exceeding 20 years.

[4] The respondent started to experience financial distress towards the
end of 2012. On 15 July 2013 the respondent resolved to be placed under
business rescue proceedings in terms of s 129 of the Act. One of the
reasons advanced for the respondent‘s financial distress was that the
respondent was in arrears with its payments towards its account with one
of its major supplier of flour, Pioneer Foods, which negatively affected
the respondent‘s business. The respondent, on the same date approached
two business rescue practitioners (practitioners) namely Messrs W
Cawood and J C Beer and requested them to accept appointments as its

practitioners. They both accepted the appointments, and business rescue
commenced on 17 July 2013. On 24 July 2013 the appointed practitioners
informed the respondent‘s creditors about their appointment.

[5] The practitioners investigated the affairs of the respondent. It was
established that the financial distress was caused by various factors,
which included the down turn in the bread baking industry since
September 2012 due to lower consumer demands and an increase in direct
and indirect input costs. The situation was exacerbated by a persisting
accounting error which occurred in the books of the respondent. This
resulted in an outstanding tax liability of approximately R4 million. At
the beginning of 2013 the respondent paid the tax liability in full and that
placed further pressure on the respondent‘s cash flow.

[6] The first meeting of creditors took place on 6 August 2013.
Various creditors of the respondent attended the meeting. Pioneer Foods
was also represented. Representatives of the appellant arrived at the
meeting after the meeting had been concluded and adjourned. However
they were allowed to provide the practitioners with their claim, which
was subsequently included in the respondent‘s business rescue plan. The
minutes of the said meeting recorded that ‗all affected parties present at
the meeting were in agreement that the respondent‘s business can be
successfully rescued subject to a brief moratorium being put in place in
the proposed business rescue plan‘.

[7] Following the first meeting of creditors a business rescue plan was
published on 28 August 2013. The initial plan was revised in the light of
new claims that had not been included in the initial rescue plan and,
furthermore the existing creditors of the respondent required certain

amendments to be effected.

[8] A second meeting of creditors took place on 10 October 2013. The
purpose of the meeting was to discuss and vote on the revised business
rescue plan. That meeting was adjourned and after certain adjustments
were made, a final business rescue plan was published on 21 November
2013.

[9] The third meeting of creditors (a continuation of the adjourned
meeting of 10 October 2013) took place on 2 December 2013. An
annexure which was prepared by the practitioners and presented to the
meeting indicated that the respondent owed different creditors a total
amount of R40 992 192.42. First National Bank (FNB) and Wesbank,
both secured creditors, were owed R6 337 587.37 in respect of a loan and
R5 645 948.20 for financing a number of vehicles respectively. The
annexure further indicated that Pioneer Foods which was not a secured
creditor was owed an amount of R12 884 850. The combined value of the
concurrent claims against the respondent represented an amount of
approximately R 28 million.

[10] Creditors were invited to make proposals with regard to possible
further amendments to the plan but no proposals for possible further
amendments were made. At the third meeting of creditors the appellant
held a voting interest of 29.81 per cent and the remainder of the creditors
held a voting interest of 70.19 per cent.

[11] When no further amendments were made to the business rescue
plan and no new proposals were made, the creditors proceeded to the
voting stage. All the creditors in attendance at the meeting voted in favour

of the business rescue plan except the appellant who voted against its
adoption. Section 152(2) of the Act requires 75 per cent of the creditors
voting interest to vote in favour of the business rescue plan for it to be
adopted. The requisite 75 per cent of the creditors voting interests was not
obtained with the result that the final business rescue plan was rejected.
The appellant voted against the adoption of the rescue plan because in its
view the plan was vague and that the appellant had no faith in the plan.
The appellant raised various criticisms of the plan. Among others, the
appellant stated that the amended business rescue plan provided no basis
that consumer demands would increase, that the direct and/or indirect
input costs would decrease and/or that the respondent‘s cash flow would
increase. Furthermore, the appellant was of the view that the proposed
plan would not achieve the postulated results due to erroneous arithmetic
and assumptions. The appellant was also of the view that the respondent‘s
revenue will be less and/or its costs of sales will be higher and/or its
monthly expenses would be more – with the consequences that the
predicted figures in the forecasted figures were wrong and not workable.

[12] The amended business rescue plan postulated that if the plan was
adopted, the secured and statutory preferent creditors and concurrent
creditors would receive 100 cents in the rand, but in the event of
immediate liquidation, the secured and statutory preferent creditors would
receive 100 cents in the rand and the concurrent creditors would receive
51 cents in the rand. The business rescue plan also stipulated that ‗all
liabilities in terms of instalment agreements and covering bonds with
Wesbank, FNB and ABSA would be repaid in terms of the original
finance agreements‘.

[13] The final business rescue plan envisaged full payment to all

creditors over certain periods. All creditors (excluding secured creditors)
would be repaid over a period of 52 months, secured creditors would have
to wait slightly longer as their repayments were to be made in the
instalment amounts and time periods reflected in the original financing
agreements.  The appellant as secured creditor of the respondent would
receive 100 cents in the rand in liquidation and in the business rescue
scenario. The appellant would also receive interest on its claim in the
business rescue scenario which interest would not necessarily be received
by the appellant in liquidation. The amended business rescue plan
stipulated that the implementation of the business rescue plan will be
monitored for a period of two to four months subsequent to the adoption
thereof.

[14] As stated earlier, the appellant voted against the adoption of the
proposed business rescue plan. The practitioners regarded the vote of the
appellant as inappropriate and consequently the practitioners issued an
application in terms of s153 of the Act seeking the setting aside of the
vote by the appellant.

[15] As at 18 November 2013 FNB‘s claim was R6 337 587.37. By July
2016 the outstanding amount had been reduced to R5 294 272.57.
Wesbank was one of the secured creditors of the respondent. It had
provided vehicle asset finance to the respondent for the purchase of 56
motor vehicles. Its claim as at 18 November 2013 amounted to
R5 645 948.20. The respondent continued making payments to Wesbank
and as at 13 June 2014, 11 of the 56 vehicles purchased by the respondent
had been paid for in full.

[16] The position by the time of the hearing of the application was that

the respondent had maintained all payments due to the appellant in terms
of the existing agreements between the parties. The monthly payments
were honored as provided for in the business rescue plan. As at 1
February 2016, taking into account the payments made by the respondent
to the appellant, the claims of the appellant had dropped in value, and
they represented a voting interest of approximately 20.73 per cent. The
claim of FNB will be settled in full in terms of the original finance
agreement by November 2022. This claim is secured.

[17] In a report dated 26 July 2016 and prepared by the practitioners at
the request of Mpati AP, it is stated that the business rescue plan has been
implemented. As at 21 July 2016, Absa, which was one of the secured
creditors was paid in full. Wesbank and FNB were also secured creditors
and as at date of business rescue they were owed R5 645 948.20 and
R6 337 587.37 respectively. As at 21 July 2016, Wesbank‘s claim was
reduced to R402 430.30 and FNB‘s claim was reduced to R5 294 272.57.

[18] As at the inception of business rescue the claims of unsecured
creditors were R18 145 448.83 in total and as at 21 July 2016 that amount
had been reduced to R8 933 795. According to the said report as at the
commencement of business rescue the debts of the respondent amounted
to R30 265 457.05 and as at 21 July 2016 the debts had been reduced to
R14 630 498.03. The report further states that the respondent company
was performing in line with the projected income and expenditure levels
as predicted in the business rescue plan.

Legal Framework
[19] Section 152(2) of the Act states that in a vote for the proposed
business rescue plan same will be approved on a preliminary basis if:

‗(a) it was supported by the holders of more than 75% of the creditors‘ voting interest
that were voted; and
(b) the votes in support of the proposed plan included at least 50% of the independent
creditors‘ voting interest, if any, that were voted.‘

[20] As stated earlier the appellant held approximately 29 per cent of
the voting interest and consequently the business rescue plan could not be
approved as the appellant voted against its adoption. The proposed
revised business rescue plan was accordingly rejected.

[21] Section 152(3) provides that:
‗If a proposed business rescue plan -
(a)
is not approved on a preliminary basis . . . the plan is rejected, and may be
considered further only in terms of s 153.‘

[22] Section 153(1)(a) states that:
‗If a business rescue plan has been rejected . . . the practitioner may –
(i)
seek a vote of approval from the holders of voting interests to prepare and
publish a revised plan; or
(ii)
advise the meeting that the company will apply to a court to set aside the result
of the vote by the holders of voting interests or shareholders, as the case may be, on
the ground that it was inappropriate.‘

[23] Section 153(7) provides the following:
(i) ‗ On an application contemplated in subsection (i) (a) (ii), . . ., a court may order
that the vote on a business rescue plan be set aside if the court is satisfied that it is
reasonable and just to do so, having regard to –
(a) the interests represented by the person or persons who voted against the proposed
business rescue plan;
(b) the provision, if any, made in the proposed business rescue plan with respect to
the interests of that person or those persons; and
(c) a fair and reasonable estimate of the return to that person, or those persons, if the

company were to be liquidated.

[24] Section 5(1) stipulates that the Act must be interpreted and applied
in a manner that gives effect to the purposes as set out in s 7.  Section 7(k)
stipulates that the purpose of the Act is to ‗provide for the efficient rescue
and recovery of financially distressed companies, in a manner that
balances the rights and interests of all relevant stakeholders.‘

Discussion
[25]  The remedy of s 153(1) may only be employed when the business
rescue plan has been rejected. The business rescue practitioner invokes
the provisions of s 153(1)(a)(ii) when he or she is of the view that the
result of the vote was inappropriate. The provisions of s 153(1)(a)(ii)
target the result of the vote which a business rescue practitioner considers
to be inappropriate.

[26] The appellant‘s counsel contended that there are two stages in the
enquiry. First, the court must establish whether the vote was inappropriate
(s 153(1)(a)(ii)) and if so, then the court must consider whether it would
be reasonable and just to set aside the result of the vote, taking into
account the factors listed in s 153(7). The respondent‘s counsel submitted
that the principal issue on appeal concerns the meaning and proper
interpretation of s 153(1)(a)(ii) and 153(7) of the Act.

[27] In Shoprite Checkers (Pty) Ltd v Berryplum Retailers CC (Murray
NO, Mitateko, Shirelele NO Intervening Parties)(47327/2014) [2015]
ZAGPPHC 255; 2015 JDR 0558 (GP) para 40 Tuchten J said that ‗a court
considering an attack on a vote under s 153(7) must first determine whether the vote
was inappropriate. Only if it finds that the vote was inappropriate, can the court

proceed to consider whether, taking this into account, it would be reasonable and just
to set the vote aside.‘

[28] In Ex Parte Target Shelf 284 CC (Commissioner for the South
African Revenue Service and Business Partners Ltd Intervening Parties)
(21955/14; 34775/14) [2015] ZAGPPHC 740; 2015 JDR 2219 (GP),
Gauteng Division, Pretoria Kubushi J agreed with Tuchten J on the two
stage enquiry but held that the court should proceed to the second stage
even if it had come to the conclusion that the vote was not inappropriate.
In that case she found the vote of Business Partners against the adoption
of the business rescue plan was not inappropriate and thereafter examined
whether the court can set aside the vote in terms of s 153(7) of the Act.
(See also P Delport & Q Vorster Henochsberg on the Companies Act 71
of 2008 (Service Issue 12, 2016) at 536(2)).

[29] The court a quo followed the same reasoning. It first enquired
whether the vote of the appellant was inappropriate, and after finding that
the vote was inappropriate, it invoked the provisions of          s 153(7). In
my view a court must first determine whether or not the vote was
inappropriate and if so, invoke the provisions of s 153(7). The court‘s
discretionary powers afforded by s 153(7) become applicable once the
jurisdictional fact of inappropriateness has been found or established.

[30] In Natal Joint Municipal Pension Fund v Endumeni Municipality
[2012] ZASCA 13; 2012 (4) SA 593 (SCA) para 18 Wallis JA while
dealing with the approach to interpretation of documents said:
‗The present state of the law can be expressed as follows: Interpretation is the process
of attributing meaning to the words used in a document, be it legislation, some other
statutory instrument, or contract, having regard to the context provided by reading the
particular provision or provisions in the light of the document as a whole and the

circumstances attendant upon its coming into existence. Whatever the nature of the
document, consideration must be given to the language used in the light of the
ordinary rules of grammar and syntax; the context in which the provision appears; the
apparent purpose to which it is directed and the material known to those responsible
for its production. Where more than one meaning is possible each possibility must be
weighed in the light of all these factors. The process is objective, not subjective‘.
(See also Cloete Murray & another NNO v Firstrand Bank Ltd t/a
Wesbank [2015] ZASCA 39; 2015 (3) SA 438 (SCA) para 30).

[31] In the present matter the appellant‘s counsel contended that the test
to be applied in order to determine whether the vote is ‗inappropriate‘ or
not is a subjective test. A vote cannot be held to be inappropriate so it was
argued, if the creditor‘s reasons for voting against adoption of the
proposed business rescue plan reflect a bona fide vote to advance or
protect that creditor‘s interests. Counsel further contended that having
regard to the language used in the relevant section and in its immediate
context, this suggests that an inappropriate vote is a dissenting vote that
does not honestly reflect the creditor‘s perception of its own interests. He
submitted further that the exercise of a right, such as the right to vote
against the adoption of the business rescue plan will be mala fide and
therefore inappropriate, if it is used for a purpose for which it was not
primarily intended, but also intended to achieve an improper result. In his
view, the test to be applied is a subjective test and not an objective test. A
creditor has no duty so the argument, continued to consider the position
of other persons and therefore the vote cannot be inappropriate if it was
intended to advance that specific creditor‘s interests.

[32] On the other hand, the respondent‘s counsel submitted that the
word ‗inappropriate‘ does not mean that something was unlawful or
improper. In the current context, it simply means that the vote gave rise to

a result that is not suitable to the situation at hand. He further contended
that the inappropriateness pertains to the result of the vote having regard
to merits of the matter. The inappropriateness of the vote relates to the
manner in which the company or other creditors perceive the vote against
the plan. An appropriateness of the vote is not viewed at application stage
from the perspective of the dissenting creditor.

[33] In order to determine the meaning of the word ‗inappropriate‘ the
intention of the legislature must be determined by giving the word its
ordinary grammatical meaning which the context dictates. The apparent
purpose of the Act assists in the process of interpreting or ascertaining the
meaning of the word inappropriate. The Shorter Oxford English
Dictionary 6ed (2007) defines the word ‗inappropriate‘ as unsuitable,
improper, wrong, inadvisable, misguided, undesirable, misplaced, etc. As
mentioned, s 7(k) stipulates that the purpose of the Act is to provide for
the efficient rescue and recovery of financially distressed companies in a
manner that balances the rights and interests of all relevant stakeholders.
In my view, the word inappropriate refers to or means an act which
unduly undermines the achievement of the purpose of the Act, which is
stipulated in s 7(k). Any vote which unduly undermines the achievement
of the rescue of a financially distressed company will be inappropriate.

[34] In the present matter, the vote of the appellant resulted in the
rejection of the proposed business rescue plan, which rejection was to the
detriment of the respondent and other affected creditors. The vote of the
appellant had the ability to frustrate the efficient rescue and recovery of
the financially distressed respondent. In my view, the test to be applied is
an objective test and not a subjective test. In this matter the vote against
the adoption of the business rescue plan was inappropriate. The adoption

of the amended business rescue plan would not have prejudiced the
appellant in any manner whatsoever as the business rescue plan stated
that ‗[a]ll liabilities in terms of the instalment agreements and covering
bonds with Wesbank, First National Bank and ABSA will be repaid in
terms of the original finance agreements‘. The provision made in the
proposed business rescue plan for the payments to the appellant does not
deviate from any payment that the appellant stood to receive in terms of
the initial agreement between the parties. The appellant is a secured
creditor and if, for any reason the business rescue plan does not yield the
anticipated results, the appellant can fall back on its security to recover
the balance of the money owed to it. If the proposed business rescue plan
is successfully implemented all the affected creditors will benefit. In my
view the vote of the appellant against the adoption of the proposed
amended business rescue plan was ‗improper‘ or ‗misplaced.‘

[35] As stated earlier s 153(7) of the Act provides that a court may order
that the vote on a business rescue plan be set aside, if the court is satisfied
that it is reasonable and just to do so. The subsection further provides that
when making its decision, the court must have regard to the interests
represented by the person or persons who voted against the business
rescue plan, the provision made in the proposed business rescue plan with
respect to the interests of that person or persons and a fair and reasonable
estimate of the return to that person, or those persons, if the company
were to be liquidated.

[36] The appellant is a secured creditor of the respondent. The
respondent never defaulted on any payments due to the appellant, neither
before nor after the commencement of the business rescue. Provision
made for payments to the appellant in the proposed business rescue plan

does not differ from any payment that the appellant stood to receive in
terms of the initial agreements between the parties. The appellant, as
secured creditor of the respondent, will receive 100 cents in the rand in
liquidation and will also receive 100 cents in the rand in a business
rescue. The interests of the appellant will therefore not be compromised
in the business rescue scenario.

[37] Furthermore the business rescue has certain obvious advantages to
other affected persons. In a business rescue, the concurrent creditors will
receive 100 cents in the rand and in liquidation the concurrent creditors
will receive 51 cents in the rand. The business rescue, as compared to
liquidation benefits both secured and concurrent creditors.

[38] Section 136(1) of the Act provides that during a company‘s rescue
proceedings, employees of the company continue to be so employed on
the same terms and conditions. The only exception to this provision is
where changes to the employee‘s status occur in the ordinary course of
attrition or where the employees and the company agree to different terms
and conditions. On the other hand s 38(1) of the Insolvency Act 24 of
1936 provides that the contracts of service of employees whose employer
has been sequestrated are suspended with effect from the date of the
granting of a sequestration order. The suspended contracts of
employment, depending on certain circumstances, may be terminated
during the sequestration or liquidation process. In the business rescue
scenario, the employees of the company will retain their employment
whereas in the sequestration or liquidation scenario employees may lose
their employment.

[39] The facts of this case clearly indicate that it is reasonable and just

that the vote on the business rescue plan should be set aside.

[40] The appellant‘s counsel contended that s 153 of the Act does not
give the court any power (expressly or impliedly) to order that a rejected
plan be adopted by an affected person. On the other hand the respondent‘s
counsel contended that once the court sets aside the dissenting vote, the
business rescue plan is deemed to have been ‗adopted.‘

[41] I agree with the contention that the court has no powers to refer
back the business rescue plan to the affected parties for adoption thereof.
The vote on the business rescue plan, which was set aside was substituted
by the court order. The business rescue plan was deemed approved and
there was no need to refer the business rescue plan to the affected parties
for adoption.

[42] The respondent has succeeded substantially in this appeal. If there
was no settlement agreement referred to hereunder the respondent would
have been entitled to its cost.

[43] However, after the matter was argued in this court a judgement was
prepared. Before the judgment was ready for delivery the parties
informed the Registrar of this court that the matter had been settled. It
appears that Mr and Ms Tuna were sued by the appellant in their capacity
as sureties for payment of the amounts owed by the respondent to the
appellant. In terms of the settlement agreement, the two sureties
undertook to pay the sum of R12 million on or before 5 December 2016,
in full and final settlement of the respondent‘s indebtedness to the
appellant. However, in paragraph 5 of the settlement agreement it is
stated that –

‗[Appellant] and KJ Foods (in business rescue) agree as follows: (a) (Appellant) does
not withdraw the appeal and judgement will be delivered by the Supreme Court of
Appeal;
(b) This agreement of settlement be noted.‘

The Settlement
[44] The settlement agreement reached between the parties means that
there is no longer a lis between the parties to this appeal. However, in a
letter from Koster Attorneys accompanying the copy of the agreement, it
is argued on behalf of both parties that ‗the industry can greatly benefit
from a judgement dealing with section 153 (1) read with section 153 (7)
of the Act, and the Honourable Court is with the greatest respect
requested to, notwithstanding the settlement reached, deliver judgement
in the matter….‘Although the merits of the case are now no longer
relevant , I agree with the submission that this court‘s interpretation of
section 153(1) and (7) of the Act will benefit the industry. It is for that
reason that judgement will be delivered despite the settlement agreement.

[45] In terms of the settlement reached each party ‗ is liable for payment
of its own costs‘. No costs order will be therefor be made.

[46] Save for paragraph (ii) of the order of the court a quo, which is
hereby set aside, the appeal is otherwise dismissed.

[47] In the result, I would have made the following order:

1 Paragraph 1 and 3 of the order of the court a quo are confirmed.
2 Paragraph 2 of the order of the court a quo is set aside.

__________________
W L SERITI

JUDGE OF APPEAL

Schoeman AJA (Mpati AP, Theron and Van der Merwe JJA
concurring)

[48] This appeal concerns the question whether it was reasonable and
just, in terms of s 153(7) of the Companies Act 71 of 2008 (the Act) for
the Gauteng Division of the High Court, Pretoria (Mavundla J) to set
aside a vote by the appellant, Firstrand Bank Ltd (Firstrand) against the
adoption of a business rescue plan in respect of the respondent, KJ Foods
CC (KJ Foods). Firstrand‘s vote against the adoption of the business
rescue plan had resulted in the rejection of the plan. The ancillary
question is: what are the consequences for business rescue proceedings,
once the result of such a vote had been set aside.

[49] After the matter was argued in this court a judgment was prepared.
Events however overtook the delivery of the judgment: the parties
informed the Registrar of this court that the matter had been settled due to
a settlement that had been reached between Mr and Ms Tuna, who signed
as sureties for KJ Foods‘ indebtedness to Firstrand. KJ Foods and
Firstrand however agreed that Firstrand did not withdraw the appeal and
that a judgment ‗will be delivered by the Supreme Court of Appeal.‘ In an
attorneys‘ letter accompanying a copy of the settlement agreement both

parties expressed a view that ‗. . . the industry can greatly benefit from a
judgement dealing with section 153 (1) read with section 153 (7) of the
Act, and the Honourable Court is with the greatest respect requested to,
notwithstanding the settlement reached, deliver judgement in the matter
. . .‘. I agree.

[50] I have read the judgment of Seriti JA but unfortunately I disagree
with his finding that a two pronged approach is necessary to determine
whether the result of a vote should be set aside. Furthermore, the effect of
the setting aside of the vote has not been addressed with sufficient detail
in my colleague‘s judgment. Due to the view I take in this matter it is
necessary to set out the background facts.

Background
[51] KJ Foods has been a producer and supplier of bread to the informal
sector of the community and cash and carry wholesalers and a customer
of Firstrand for more than 20 years. On 17 July 2013 KJ Foods
commenced business rescue proceedings after it had experienced
financial distress that I will elaborate on later. Messrs Cawood and De
Beer were appointed as the business rescue practitioners (the
practitioners) on 24 July 2013. A first meeting of creditors took place on
6 August 2013 and on 28 August 2013 a business rescue plan was
published. The second meeting of creditors was postponed and after
further claims were proved and claim figures revised, the final revised
business rescue plan was published on 21 November 2013.

[52] In terms of this business rescue plan KJ Foods owed a total amount
of R40 992 192.42. The secured creditors were Absa Bank Ltd and
Firstrand. The latter‘s claim consisted of a secured loan by First National

Bank (FNB) to KJ Foods in an amount of approximately R6 million and
motor vehicle finance agreements between the latter and Wesbank in a
total amount of approximately R5.5 million. Absa‘s claim was for an
amount of R141 541.95. The main concurrent creditor was Pioneer Foods
(commonly known as Sasko) whose claim was in excess of R12 million.
The total claims of the independent concurrent creditors were R17
152 435.30.

[53] The revised business rescue plan, made provision for secured
creditors to be paid in full, in terms of the instalment agreements and
covering bonds in their favour. It was postulated that concurrent creditors
would also be paid in full, but if KJ Foods were to be liquidated, the
secured creditors would be paid in full, while the concurrent creditors
would only receive 51 per cent of the money owing to them.

[54] Firstrand held 29 per cent of the creditors‘ voting interests. It voted
against the adoption of the plan and due to its vote, the business rescue
plan could not be approved on a preliminary basis, as 75 per cent of
creditors‘ voting interests that had voted had to approve the business
rescue plan.1 The practitioners advised the meeting that application will
be made to court in terms of s 152(3)(a) to set aside the result of the vote,
on the grounds that it was inappropriate. Thereafter the meeting was
adjourned.

[55] On 13 December 2013 an application was launched for a
declaratory order that ‗the result of the vote by the holders of voting

1 In terms of s 152 (2) of the Act, a proposed business rescue plan will be approved on a preliminary
basis if, in a vote called for its approval, (a) it was supported by the holders of more than 75 per cent of
the creditors' voting interests that were voted; and (b) the votes in support of the proposed plan
included at least 50 per cent of the independent creditors' voting interests, if any, that were voted.

interests . . . rejecting the revised business rescue plan, be set aside‘ on
the grounds that it was inappropriate and that the business rescue plan be
adopted. On 10 October 2014 the high court ordered that the result of the
vote be set aside ‗on the grounds that the voting against the plan was
inappropriate‘; that the revised business rescue plan be adopted by the
parties and that the costs of the application, including the costs of the
practitioners, be paid by Firstrand. On 23 April 2015 reasons were given
for the mentioned order and subsequently leave to appeal to this court
was granted on 12 August 2015.

The Financial Position of KJ Foods
[56] Before September 2012 KJ Foods sold approximately five million
loaves of bread per month. However, the input costs of the bread baking
industry increased sharply with a concomitant increase in the price of
bread and a downturn in consumer demand. Therefore, in September
2012, due to a sharp decline in market demand, sales volumes decreased
to 2.8 million loaves per month. KJ Foods was also indebted to the South
African Revenue Service in the amount of approximately R4 million due
to an accounting error by a bookkeeper. This amount was paid at the
beginning of 2013 and this resulted in further cash-flow problems.

[57] Prior to the commencement of business rescue proceedings, the
only member of KJ Foods, Mr Tuna, informed representatives of
Firstrand that he contemplated commencing business rescue proceedings
due to difficulties with one of the suppliers, Pioneer Foods. This resulted
in Firstrand immediately freezing KJ Foods‘ trading account, which was
approximately R1 million overdrawn.

The Creditors’ Meetings
[58] At the first creditors‘ meeting the practitioners refused to admit
three further claims totalling R 16 430 923 which included a claim where
KJ Foods bound itself as surety for the obligations of Nancefield
Properties towards Firstrand in the amount of R13 867 281.13. Following
the first meeting of creditors, a rescue plan was duly published.

[59] On 10 October 2013, the second meeting of creditors was held. At
this meeting, the initial rescue plan was considered. Firstrand raised
certain issues with the plan, including the fact that it excluded the surety
liability in respect of Nancefield Properties and that the plan was vague
and provided no basis upon which KJ Foods could be rescued. The
meeting was, thereafter, duly adjourned and a decision taken to publish an
adjusted plan within 21 business days.

[60] Prior to the publishing of the revised business rescue plan the
Department of Trade and Industry (the DTI) deposited an amount of
approximately R2,7 million into K J Foods‘ then frozen account held with
Firstrand. The deposit represented a non-repayable grant by the DTI in
favour of KJ Foods. Firstrand used this amount to pay off the value of
The overdraft held on KJ Foods‘ account. Firstrand retained
R1 006002.17 of the amount paid by the DTI, and refused to release this
amount. A further amount of approximately R20 000 was paid into the
frozen account of the KJ Foods on or during 16 November 2013. A
revised business rescue plan was published incorporating the payment of
the R2.7 million by the DTI. The revised business rescue plan was aimed
at substantially improving the creditors‘ ability to recover their debt and
to rescue the company as opposed to immediate liquidation.

[61] The practitioners envisaged that concurrent creditors would be
repaid over a period of 52 months and that the liabilities in respect of
instalment agreements and covering bonds of Firstrand and ABSA would
be repaid in terms of the original finance agreements.

[62] The amended business rescue plan was voted upon during the
second meeting of creditors on 2 December 2013. It did not include the
approximately R13 million liability for which KJ Foods stood surety for
Nancefield Properties. The business rescue plan stated that the reason for
exclusion of the surety liability was that the obligation of the principal
debtor was up to date. The practitioners opined that the surety claim did
not fall under the definition of ‗affected party‘ for purposes of the alleged
claim.

The Rescue Plan
[63] According to the plan, the elected practitioners were required to get
the cash flow to the optimal level while simultaneously negotiating and
restructuring the repayment terms of the debt. With regards to the
employees, the practitioners did not envisage any changes in their number
or the terms and conditions of employment if the business rescue plan
was adopted. In relation to the benefits of adopting the plan as opposed to
liquidation of the entity, it noted that creditors stood to receive a
substantially better return, while KJ Foods stayed in business and 220
employees retained their jobs.

The Financial Position after Implementation of the Plan
[64] As from the date of the launching of the application, the
practitioners implemented the business rescue plan. The parties were
requested to provide details regarding the implementation of the plan

before the hearing of the appeal. From the information provided on 26
July 2016 it is apparent that (a) the secured debt of Firstrand regarding the
commercial property finance loan had diminished from R6 337 587.37 to
R5 294 272.57 and the business rescue practitioners had kept up with
payments in terms of the original agreements; (b) Wesbank‘s debt in
respect of vehicle financing had been reduced from the disputed amount
of R5 645 948.20 to R402 430.30 with KJ Foods keeping up with
payments in terms of the agreements; (c) ABSA‘s secured debt of
R141 541.95 had been paid in full; and (d) the unsecured debts had been
brought down from R18 145 448.83 in November 2013 to R8 933 795.16
in July 2016.

[65] From the above it is apparent that business rescue has benefitted all
the creditors. The agreements between the company and Firstrand have
been strictly adhered to and payments have been made in compliance
with those agreements.

The Parties’ Contentions
[66] It is apposite at this stage, to set out the parties‘ respective
entrenched positions. Firstrand contended that the decision of the high
court to set aside its vote in the business rescue was wrong. It averred that
the enquiry in relation to the question whether the vote in the business
rescue must be set aside in an application of this nature, is two-pronged.
First, it must be determined whether Firstrand‘s vote was inappropriate,
and second, if so, whether it would be reasonable and just to set aside the
result of the vote. It relied on two high court judgments namely, Shoprite
Checkers (Pty) Limited v Berryplum Retailers CC2 and Ex Parte Bhidshi

2 Shoprite Checkers (Pty) Limited v Berryplum Retailers CC (Murray NO, Mikateko, Shirilele NO
Intervening Parties) 2015 JDR 0558 (GP).

Investments CC3 to support its contentions. It was argued in this court that
the question whether it was reasonable and just to set aside a vote
rejecting the adoption of a rescue plan can only be considered after it had
been found that such a vote was inappropriate. Therefore, if the vote was
appropriate, the application must fail for then there is no need to consider
whether it was just and reasonable to set aside the vote. KJ Foods, on its
part, submitted that the court a quo‘s finding that Firstrand‘s vote against
the rescue plan was inappropriate should be upheld. KJ Foods submitted
that s 153 of the Act allowed the court a quo a discretion which it
exercised around the parameters of what it considered to be ‗reasonable
and just‘. It further contended that the language of s 153(7) did not
support the interpretation propagated by Firstrand.

[67] Before us, Firstrand heavily criticised the rescue plan. It argued
that the plan would fail to achieve the result postulated due to erroneous
arithmetic and assumptions and conditions that will cause one creditor to
be preferred over the others. It submitted that forecasts made in the plan
were not workable, that the plan was vague and erroneous, and that its
failure to deal with the disputed claims exacerbated this. It bemoaned the
fact that the plan allegedly caused preferences and relegated secured
creditors to a subordinate status of concurrent creditors, because they
were paid last and could not rely on their security, as they would have
been entitled to in liquidation proceedings.

The Salient Provisions of the Act
[68] Business rescue is the development and implementation of a plan
to rescue an entity by restructuring its affairs, business, property, debt and
other liabilities in a manner that maximises the likelihood of the entity

3 Ex Parte Bhidshi Investments CC 2015 JDR 2161 (GP).

continuing in existence on a solvent basis. If it is not possible for the
entity to so continue in existence, the plan must be developed and
implemented in a manner that results in a better return for the entity's
creditors or shareholders than would result from its immediate
liquidation.4 The manner in which the plan envisaged in s 128(1)(b)(iii)
must be developed and approved is dealt with in, amongst others, ss 1505
and 151.6 In terms of s 151(1) the plan must be considered at a meeting of
creditors and any other holders of a voting interest.7 Section 152(1)(d)(ii)
of the Act directs the practitioner to adjourn the meeting in order to revise
the plan for further consideration. Approval of the plan occurs in terms of
s 152(2) which reads:
‗In a vote called in terms of subsection (1)(e), the proposed business rescue plan will
be approved on a preliminary basis if-
(a) it was supported by the holders of more than 75% of the creditors' voting interests
that were voted; and
(b) the votes in support of the proposed plan included at least 50% of the independent
creditors' voting interests, if any, that were voted.‘
An independent creditor is defined in s 128(1)(g) as a person who is a creditor of the
company, including an employee of the company who is a creditor in terms of s
144(2) and who is not related to the company, a director, or the practitioner, subject to

4 Section 128(1)(b)(iii) of the Act.
5 In terms of s 150(1) of the Act, the practitioner, after consulting the creditors, other affected persons,
and the management of the company, must prepare a business rescue plan for consideration and
possible adoption at a meeting held in terms of s 151.
6 Section 151 reads:
‗(1) Within 10 business days after publishing a business rescue plan in terms of section 150, the
practitioner must convene and preside over a meeting of creditors and any other holders of a voting
interest, called for the purpose of considering the plan.
(2) At least five business days before the meeting contemplated in subsection (1), the practitioner must
deliver a notice of the meeting to all affected persons, setting out-
(a)   the date, time and place of the meeting;
(b)   the agenda of the meeting; and
(c)   a summary of the rights of affected persons to participate in and vote at the meeting.
(3) The meeting contemplated in this section may be adjourned from time to time, as necessary or
expedient, until a decision regarding the company's future has been taken in accordance with sections
152 and 153.
7 A ‗voting interest‘ means an interest as recognised, appraised and valued in terms of subsecs 145 (4)
to (6) of the Act. These provisions deal with participation by creditors respect of any decision
contemplated in Chapter 6 of the Act.

subsection (2).8

[69] Section 152(3)(a) states that if a proposed business rescue plan is
not approved on a preliminary basis, as contemplated in subsection (2),
the plan is rejected, and may be considered further only in terms of s 153.
Section 153 determines:
‗(1)(a) If a business rescue plan has been rejected as contemplated in section 152 (3)
(a) . . . the practitioner may-
(i)   . . . ;
(ii)   advise the meeting that the company will apply to a court to set aside the result of
the vote by the holders of voting interests or shareholders, as the case may be, on the
grounds that it was inappropriate.‘9

[70] In this instance the business rescue plan was not approved but
rejected in terms of s 152(3)(a) because it could not muster the required
support of holders of more than 75 per cent of the creditors' voting
interests that were voted; and it is not clear from the papers whether there
were independent creditors who voted. The application to set aside the
vote was brought in terms of the provisions of s 153(7) which reads as
follows:
‗(7) On an application contemplated in subsection (1)(a)(ii), or (1)(b)(i)(bb), a court
may order that the vote on a business rescue plan be set aside if the court is satisfied
that it is reasonable and just to do so, having regard to-
(a) the interests represented by the person or persons who voted against the proposed
business rescue plan;
(b) the provision, if any, made in the proposed business rescue plan with respect to the
interests of that person or those persons; and

8 Section 128 (2) states that for the purpose of subsection (1)(g), an employee of a company is not
related to that company solely as a result of being a member of a trade union that holds securities of
that company.
9 Professor Piet Delport et al Henochsberg on the Companies Act 71 of 2008 Companies Act 71 of 2008
and Commentary (eds) (Service issue 10, May 2015) at 530, the provisions of this section amount to a
last-gasp attempt to have a proposed business rescue plan approved by (1) attacking the rejection of the
plan by the holders of the creditors‘ voting interests as ―inappropriate‖.

(c) a fair and reasonable estimate of the return to that person, or those persons, if the
company were to be liquidated.‘

[71] Whilst s 153(1)(a)(ii) makes provision for a company seeking to be
placed under business rescue to apply to a court to set aside ‗the result of
the vote‘, s153(7) confers on that court a discretion to order that ‗the vote
on a business rescue plan be set aside‘ if it is satisfied that it is reasonable
and just to do so, having regard to the factors listed in subsec (7)(a) to (c).
It is clear from a reading of those factors that the vote that may be set
aside is not the entire vote on the business rescue plan, but only the vote
exercised against the approval or adoption of the plan. The factors
referred to apply only in respect of the person or persons ‗who voted
against the proposed business rescue plan‘. It follows that once the vote
against the approval of the plan is set aside the result thereof, namely the
rejection of the plan, will be nullified. The difference in the wording of
subsecs (1)(a)(ii) and (7) of s 153 is, therefore, of no real consequence.

The Different Interpretive Approaches of the High Courts
[72] There are a few cases of the high courts which have dealt with the
interpretation of s 153(1)(a)(ii) and (7) of the Act, with divergent views. I
have mentioned, in para 21, that Firstrand relied on the interpretation
adopted in Shoprite Checkers (Pty) Limited v Berryplum Retailers CC
(Murray NO, Mikateko, Shirilele NO Intervening Parties) and Ex Parte
Bhidshi Investments. Seriti JA has discussed Shoprite Checkers in para 27
of his judgment, thus it is not necessary to deal with again.

[73] In the earlier case of Copper Sunset Trading 220 (Pty) Ltd v Spar
Group Ltd & another10, the Limpopo Division of the High Court,

10 Copper Sunset Trading 220 (Pty) Ltd v Spar Group Ltd & another 2014 (6) SA 214 (LP) para 38.

Polokwane, Makgoba J focused solely on the attitude of the creditors who
voted against the business rescue plan. The first respondent‘s attitude in
voting against the business rescue plan was found to be self-serving and
unreasonable, while the second respondent‘s vote against the business
rescue plan was irrational for, absent such plan, it would receive no
dividend.11

[74] It is clear from the cases referred to above that the provisions of s
153 have given rise to considerable uncertainty. I agree with Leach JA in
African Banking Corporation of Botswana Ltd v Kariba Furniture
Manufacturers (Pty) Ltd & others where he said that it was not unfair to
comment that many of the provisions of the Act relating to business
rescue, and s 153 in particular, ‗were shoddily drafted.‘12I turn to consider
the appropriate approach to the provisions under discussion.

The Correct Interpretation of Section 153(1)(a)(ii) and (7) of the Act
[75] In interpreting the provisions of the Act the principles enunciated
in Natal Joint Municipal Pension Fund v Endumeni Municipality13 and
Novartis SA (Pty) Ltd v Maphil Trading (Pty) Ltd14 find application.
These cases and other earlier ones,15 provide support for the trite
proposition that the interpretive process involves considering the words
used in the Act in the light of all relevant and admissible context,
including the circumstances in which the legislation came into being.

11 See ibid para 37, where the court described the first respondent‘s ‗attitude‘ as unreasonable, and that
of the second respondent as irrational.
12 African Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd & others
[2015] ZASCA 69; 2015 (5) SA 192 (SCA) para 43.
13 Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; 2012 (4) SA 593
(SCA) para 18.
14 Novartis SA (Pty) Ltd v Maphil Trading (Pty) Ltd [2015] ZASCA 111; 2016 (1) SA 518 (SCA) para
27.
15 See for instance, Jaga v Dönges NO & another; Bhana v Dönges NO & another 1950 (4) SA 653
(A) at 662G-H and 664E-H. See also Bastian Financial Services (Pty) Ltd v General Hendrik
Schoeman Primary School 2008 (5) SA 1 (SCA) paras 16-19, and the cases cited therein.

Furthermore, as was said in Endumeni, ‗a sensible meaning is to be
preferred to one that leads to insensible or unbusinesslike results‘. Thus
when a problem such as the present arises the court must consider
whether there is a sensible interpretation that can be given to the relevant
provisions that will avoid anomalies.16 Accordingly, in this instance, the
proper approach in the interpretation of the provisions is one that is in
sync with the objects of the Act, which includes ‗[enabling] the efficient
rescue and recovery of financially distressed companies, in a manner that
balances the rights and interests of all relevant stakeholders.‘17(My
emphasis.)

[76] In interpreting s 153(1) and (7) the words of the Act are taken into
consideration. However, these words must not be considered in isolation,
but in the light of the context of the provision, the Act as a whole and the
purpose for which it was enacted. The interpretation is ‗essentially one
unitary exercise‘.18

[77] In DH Brothers Industries (Pty) Ltd v Gribnitz19 Gorven J said the
following about chapter 6 of the Act, dealing with business rescue:
‗I respectfully agree that the chapter as a whole reflects ―a legislative preference for
proceedings aimed at the restoration of viable companies rather than their destruction‖
but only of viable companies, not of all companies placed under business rescue.‘

[78] It is so that there is no definition of ‗inappropriate‘ in the Act. I do

16 Panamo Properties (Pty) & another v Nel & others NNO [2015] ZASCA 76; 2015 (5) SA 63 (SCA)
para 27.
17 Section 5(1) of the Act directs that its interpretation and application must give effect to the purposes
stated in s 7 of the Act. Section 7(k) states that one of these purposes is to —
'provide for the efficient rescue and recovery of financially distressed companies, in a manner that
balances the rights and interests of all relevant stakeholders;‘
18 Bothma-Batho Transport (Edms) v S Bothma & Seun Transport (Edms) Bpk [2013] ZASCA 176;
2014 (2) SA 494 (SCA) para12.
19 DH Brothers Industries (Pty) v Gribnitz NO & others 2014 (1) SA 103 (KZP) para 10.

not have any issue employing the dictionary meaning to the word, as was
done in the cases highlighted above, in terms of which ‗inappropriate‘ is
described as meaning, ‗not suitable or proper in the circumstances‘.
Despite my acceptance of this definition, I am readily aware that it is still
the court‘s role to ascertain the legal meaning of the word. As G E
Devenish Interpretation of Statutes (1992) said (at 141), this meaning
will normally correspond with the ordinary grammatical meaning of the
word, but this may not always be the case since the meaning of the word
is determined by language and legal context. 20

[79] Firstrand‘s counsel argued that it is the subjective view of Firstrand
in voting against the business rescue plan that determines whether the
vote was inappropriate. This submission is unsustainable in light of the
wording of s 153(1). I agree with the authors of Henochsberg21 that if
‗. . . creditors are to be allowed to exercise their votes freely it has to be
assumed that they would only vote in support of the business rescue plan
if its implementation would be to their benefit.‘ If the issue was to be
approached on the basis as proposed by counsel for Firstrand, the
probabilities are that it would always be appropriate if the plan is to a
creditor‘s advantage as it is difficult to think of circumstances where the
creditors‘ votes for the rejection of a business rescue plan would be
inappropriate.22 However, Henochsberg suggests that the provisions of s
153(7)(a) to (c) provide some insight as to what the court should take into
account when determining whether it would be reasonable and just to set
aside the vote on a business rescue plan on the grounds of the vote being
inappropriate‘.23

20 See in this regard, City of Johannesburg v Engen Petroleum Ltd & another [2009] ZASCA 5; 2009
(4) SA 412 (SCA) para 11.
21 Henochsberg op cit Vol 1at 530.
22 Henochsberg at 530. See, however, Copper Sunset Trading fn 10 above.
23 Henochsberg at 530.

[80] It is clear that s 153(1)(a)(ii) and s 153(1)(b)(i)(bb) are inextricably
linked to s 153(7). On an application to set aside the result of a vote in
terms of any of these subsections, the court is enjoined by s 153(7) to
determine only whether it is reasonable and just to set aside the particular
vote, taking into account the factors set out in s 153(7)(a) to (c) and all
circumstances relevant to the case, including the purpose of business
rescue in terms of the Act. Put differently, the vote would be set aside on
application on the grounds that its result was inappropriate, if it is
reasonable and just to do so in terms of s 153(7). To my mind this entails
a single enquiry and value judgment.

[81] In opposing the application Firstrand averred that its vote against
the business rescue plan was ‗appropriate‘. It argued that the employees
of the company would not lose their employment as the business would
be sold as a going concern. Furthermore, the deponent to the answering
affidavit stated that the creditors would not receive a substantially better
return as compared to liquidation, but that the ‗creditors would be in a far
worse position if the plan is approved and implemented‘.

[82] The argument that liquidation would not negatively affect the
position of the employees is fallacious. The winding-up of a company
results in the suspension of all employee contracts without
remuneration.24 Business rescue, on the other hand, protects employees as
they continue, subject to certain provisions, to be employed by the
company on the same terms and conditions that applied prior to the
company being placed under business rescue. 25

24 Section 38 of the Insolvency Act 24 of 1936.
25 S 136(1)(a) of the Act.

[83] It is clear that the allegation that the creditors would be worse off
with business rescue is wrong. The court a quo mentioned that the
dividend, with liquidation, would be 39 cent in the rand. However, at this
stage, the concurrent creditors have already been paid approximately 70
per cent of their claims, with payments still being made.

[84] The determination that a vote was inappropriate is therefore a value
judgment made after consideration of all the facts and circumstances. The
view held by the practitioners that the result of the vote was inappropriate
in the instant matter was clearly based on the proposition that Firstrand‘s
claim would be paid in full with business rescue and payment would be
on the same terms that Firstrand and KJ Foods had agreed when the
contract or contracts were initially concluded. The only exception in this
regard was the overdraft of KJ Foods, which had already been paid in
full. Furthermore, with business rescue, all the other creditors, both
secured and unsecured, would also be paid in full, whereas with
immediate liquidation, the unsecured creditors would be paid at most 51
per cent of their claims. Liquidation would also have the result that
approximately 200 employees would be rendered unemployed.

[85] It is clear, when taking Firstrand‘s interests into consideration, that
the only negative feature for it would be that it would not be paid its full
claim immediately, but payment would be in terms of the contracts
entered into between the parties. Therefore, it would still be paid in full
albeit, not immediately. Taking all these factors into consideration, being
the interests of Firstrand, the employees of KJ Foods and other creditors,
it is indeed reasonable and just to set aside the vote against the approval
or adoption of the rescue plan in terms of the provisions of s 153(7) of the
Act.

[86] In this instance, it is clear from the implementation of the plan that
Firstrand‘s reservations were unfounded. I am of the view that it was
reasonable and just to set aside Firstrand‘s vote.

What is the Effect of Setting Aside the Result of the Vote?
[87] In terms of the provisions of s 153(2)(b) after the practitioners had
informed the meeting that they intended bringing an application to set
aside the result of the vote, the meeting was adjourned until the court has
disposed of the contemplated application.

[88] Firstrand contended that the business rescue plan must again be put
to the vote at the resumption of the postponed meeting. That, however,
does not result in a businesslike interpretation, for if the creditor who
voted against the adoption of the business rescue plan were to vote once
more against it, the whole process would start all over again, causing a
possible never-ending loop. The Act clearly does not envisage another
round of voting. In my view a businesslike interpretation is that the vote
rejecting the business rescue plan having been set aside, it follows by
operation of law that the business rescue plan would be considered to
have been adopted, for, as stated above, no further voting is envisaged. At
the resumption of the meeting of creditors that had been adjourned in
terms of s153(2)(b), it would only be necessary for the business rescue
practitioner to report on the outcome of the application to court.

[89] Therefore, once the result of the vote is set aside the business
rescue plan is adopted, by the operation of law. That being the position,
the declaratory order of the court a quo that the revised business rescue
plan be adopted by the affected parties is superfluous, as it is a natural
consequence of the setting aside of the result of the vote.

[90] Due to the settlement agreement referred to above, it is appropriate
that no costs order is made in the appeal.

[91] The following order is made:
1 Paragraph 1 of the order of the court a quo is amended to read:
‗In terms of the provisions of section 157(7) of the Companies Act 71 of
2008 the vote of the respondent against the adoption of the revised
business rescue plan exercised on 2 December 2013 is set aside.‘
2 Paragraph 2 of the order of the court a quo is set aside.
3 The appeal is otherwise dismissed.

_______________________

IRMA SCHOEMAN

ACTING JUDGE OF APPEAL

APPEARANCES:

For Appellant:

L Meintjes
Instructed by:

Rorich, Wolmarans & Luderitz Inc
c/o Symington & De Kok Attorneys

For Respondent:

J L Van der Merwe SC with
L K Van der Merwe
Instructed by:

Koster Attorneys, Pretoria

c/o Botha & De Jager Inc., Bloemfontein

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

28 April 2017

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form part of
the judgment.

FirstRand Bank Ltd v KJ Foods CC (In business rescue) (734/2015) [2015] ZASCA
50(26 April 2017)

MEDIA STATEMENT

The Supreme Court of Appeal, on 26 April 2017, dismissed an appeal against a judgment of the
Gauteng Division of the High Court, Pretoria (Mavundla J) concerning the interpretation of sections
153(1)(a)(ii) and 153(7) of the Companies Act 71 of 2008 (the Act).

The main issue in the appeal was whether it was reasonable and just, in terms of s 153(7) of the Act
for the court a quo to set aside a vote by the appellant, Firstrand Bank Ltd (Firstrand) against the
adoption of a business rescue plan in respect of the respondent, KJ Foods CC (KJ Foods).
Firstrand’s vote against the adoption of the business rescue plan had resulted in the rejection of the
plan. Linked to the main issue, was the question of what the consequences for business rescue
proceedings were, once the result of such a vote had been set aside.

KJ Foods has been operating as a supplier of bread to the informal sector of the community and cash
and carry wholesalers and has also been a customer of Firstrand for more than 20 years. It
commenced business rescue proceedings in July 2013 after it had experienced financial distress.
Business rescue practitioners were appointed, and after several contentious creditors’ meetings, a
business rescue plan was proposed. Firstrand took issue with the proposed business rescue plan,
which led to it being revised several times. When the creditors were required to vote on the adoption
of the plan, Firstrand voted against its adoption. As Firstrand held 29 per cent of the creditors’ voting
interests and had voted against the adoption of the plan, the business rescue plan could not be
approved on a preliminary basis. The Act requires 75 per cent of creditors’ voting interests that had
voted to approve the business rescue plan. The practitioners accordingly approached the court a quo

for an order in terms of s 152(3)(a) of the Act, to set aside the result of the vote – on the ground that it
was inappropriate. The court a quo ordered that the result of the vote be set aside ‘on the grounds
that the voting against the plan was inappropriate’ and that the revised business rescue plan be
adopted.

In a majority judgment in the SCA, Schoeman AJA held that in an application to set aside the result of
a vote (in terms of s 153(1)(a)(ii) and s 153(1)(b)(i)(bb) – which the court held are inextricably linked
to s 153(7)), the court is enjoined by s 153(7) to determine only whether it is reasonable and just to
set aside the particular vote, taking into account the factors set out in s 153(7)(a) to (c) and all
circumstances relevant to the case. This includes the purpose of business rescue in terms of the Act.
Put differently, the majority said, the vote would be set aside on the grounds that its result was
inappropriate, if it is reasonable and just to do so in terms of s 153(7). And according to the majority,
this entails a single enquiry and value judgment.

As a consequence, the majority held, once the result of the vote is set aside, the business rescue
plan is adopted – by the operation of law. Therefore, the declaratory order of the court a quo that the
revised business rescue plan be adopted was superfluous. Seriti JA in his minority judgment agreed
that the court a quo could not order the adoption of the rescue plan, but reasoned that the court a quo
had no power to refer back the business rescue plan to the affected parties for adoption thereof.

Seriti JA also agreed that the vote against the adoption of the business rescue plan should be set
aside, however, he differed with the majority that the enquiry was a single one. According to Serirti
JA, the court must first determine whether or not the vote was inappropriate and if so, invoke the
provisions of s 153(7). In other words, the court’s discretionary powers afforded by s 153(7) become
applicable once the jurisdictional fact of inappropriateness is established.

--- ends ---