The Supreme Court of Appeal (SCA) on Monday upheld an appeal brought by the appointed business rescue practitioners (BRPs) of Tegeta Exploration and Resources and three other companies.
The court held that directors of a company in business rescue did not have powers to remove BRPs.
Tegeta, Koornfontein Mines, Optimum Coal Mine and Optimum Coal Terminal are linked to the Gupta family. In 2016, after several questionable transactions that were uncovered by the commission of inquiry into allegations of state capture, banks closed all the accounts linked to these companies.
As a result, the companies were placed in voluntary business rescue at the beginning of 2018 by their boards of directors as their unbanked position amounted to financial distress.
The board of directors appointed Kurt Robert Knoop and Johan Louis Klopper as BRPs for the companies with the hope that the appointed BRPs could open bank accounts for the companies and payments could be made and received to enable them to trade.
However, on October 21 2022, Ronica Ragavan, a director of Tegeta and Koornfontein, and Dhanasegaran Archery, a director of Optimum Coal Mine, purporting to act on behalf of the companies, launched an application for the removal of Knoop and Klopper as BRPs of the companies.
They also sought a declarator that Juanito Martin Damons and Kgashane Christopher Monyela were not properly appointed as BRPs. Purporting to exercise their powers as directors of the companies, Ragavan and Archery appointed Van der Merwe and Van der Merwe Attorneys (VDM) to act for the companies in the court application to remove the BRPs.
The BRPs disputed the authority of VDM to act for the companies. In November 2022, the two directors filed resolutions and powers of attorney from Ragavan as the director of the companies, purportedly authorising VDM to act for the companies.
The BRPs disputed these documents and the authority of VDM.
The Pretoria high court found in November 2023 that VDM was not authorised to represent Tegeta, Optimum Coal Mine and Optimum Coal Terminal, but was authorised to represent Koornfontein.
The BRPs applied for leave to appeal against the order in relation to Koornfontein.
In its judgment, the SCA said when a company, by resolution, places itself under voluntary business rescue, its board has the power — in terms of section 139(3) of the Companies Act — to appoint a substitute practitioner in the event of the practitioner's death, resignation or removal.
“But section 139(2) does not permit the company, the board or a director to bring an application to remove a practitioner. It only permits an ‘affected person’ to bring such application.
“The definition of ‘affected person’ specifically excludes the company and directors which therefore do not have the authority to make the application referred to under section 139(2),” said judge Sharise Weiner in the unanimous decision of the full bench.
The SCA also clarified that in business rescue proceedings, especially those initiated by court order (non-voluntary), directors did not have the authority to remove a BRP.
While directors may appoint BRPs in voluntary rescue proceedings, the act limited their powers once the rescue process began.
“Contrary to the reasoning of the high court, in essence, the act provides that even if a director has appointed the BRPs, such director does not have the right to remove them. A director might have the right to replace them if one of them dies, resigns or is removed for another reason, but only where the business rescue was voluntary.”
Weiner said directors had limited rights in their capacity as directors. They can apply in their capacity as director for interdictory or declaratory remedies. The court can remove a practitioner if the case for an interdict brought by a director makes a case for removal.
“But section 139 specifically precludes a director or the company from removing a practitioner.”
In upholding the appeal by the practitioners, the court ordered Ragavan and Archery to pay the costs of the appeal, including the costs of two counsel.
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