Knoop NO v Gupta (Tayob Intervening)

SCA confirmed two general principles that apply to removal of business rescue practitioners (BRPs) and confirmed that it is not something to be ordered lightly and that the primary reason justifying removal will be actual or potential prejudice or harm to the interests of the estate, trust or company, and those in whose interests the administration was established, such as heirs in an estate or creditors in circumstances of insolvency. Legal practitioners also chastised regarding the correspondence between the attorneys and commented that it was ‘marked by aggression, hostility and accusations but little of great relevance to the case and little that reflected well on the authors’.

Essence

Business rescue practitioners reinstated on appeal to SCA after careful analysis of power of court to remove them and relevant factors that need to be considered.

Decision

(SCA 116/2020) [2020] ZASCA 163 (9 December 2020)

Order:

Allowed appeal from judgment of Gauteng Division of the High Court, Pretoria (Ledwaba DJP, Janse van Nieuwenhuizen J and Senyatsi AJ concurring, sitting as court of first instance) reported sub nom Gupta v Knoop NO and Others 2020 (4) SA 218 (GP); [2019] ZAGPHC 960.

Judges

Wallis JA (Mbha and Mocumie JJA and Eksteen and Mabindla Boqwana AJJA concurring)

Heard: 6 November 2020
Delivered: 9 December 2020

Reasons

“[18] Before turning to the various grounds upon which the full court ordered the removal of the BRPs, it may be helpful to make some general remarks, as this is not a question that has previously engaged the attention of this court. The power now given to the court is not novel.

Under our common law the court has always had and exercised the power to remove trustees and administrators of deceased estates on the ground that their continuation in office would prejudicially affect the proper administration of the estate entrusted to them and prejudice the beneficiaries of that estate.

That power extends to the removal of executors, liquidators of companies and trustees in insolvency. Cases dealing with these situations will be instructive in regard to the approach to be adopted to removing BRPs. Two general principles will be that removal is not something to be ordered lightly and that the primary reason justifying removal will be actual or potential prejudice or harm to the interests of the estate, trust or company, and those in whose interests the administration was established, such as heirs in an estate or creditors in circumstances of insolvency.”

Quotations from judgment

Note: Footnotes omitted and emphasis added

[1] The respondent, Mrs Chetali Gupta, her husband, Mr Atul Gupta, and his brothers Messrs Rajesh and Arti Gupta (collectively ‘the Guptas’), are the sole shareholders in equal shares, in two companies, Islandsite Investments One Hundred and Eighty (Pty) Ltd (Islandsite) and Confident Concept (Pty) Ltd (Confident Concept). On 16 February 2018 Islandsite and Confident Concept were both placed under voluntary business rescue in terms of resolutions taken by their respective boards of directors under s 129(1), read with s 129(2), of the Companies Act 71 of 2008 (the Act). Acting on the recommendation of their attorneys, the board of directors of Islandsite appointed the appellants, Messrs Kurt Knoop and Johan Klopper, as business rescue practitioners (BRPs) and the board of Confident Concept appointed Mr Knoop as BRP.

[2] Less than a year later, in November 2018, Mrs Gupta launched an application in the Gauteng Division of the High Court, for the removal of Messrs Knoop and Klopper as BRPs of these two companies. A full court (Ledwaba DJP, Janse van Nieuwenhuizen J and Senyatsi AJ) was specially constituted to hear the application. On 13 December 2019, in a judgment by Ledwaba DJP concurred in by his colleagues, it granted an order for the removal of the BRPs. An application for leave to appeal against that order was lodged and leave to appeal to this court was granted on 7 February 2020.

[3] On the same day that it granted leave to appeal the full court granted an order that the noting of an appeal would not suspend the operation of the removal order (‘the execution order’). The execution order was itself the subject of an extremely urgent appeal in terms of s 18(4)(ii) of the Superior Courts Act 10 of 2013. Both appeals were set down for hearing in this court on 6 November 2020. The circumstances in which that occurred are set out in the judgment already delivered upholding the urgent appeal. In this appeal Mr Tayob, the intervening party, applied for leave to intervene and submit evidence to the court. That application was abandoned, but we need to deal with the costs it occasioned. The issues it raised were disposed of in the judgment in the urgent appeal.

[4] That judgment also dealt with and disposed of issues raised in this appeal concerning the purported withdrawal of this appeal, the locus standi of Messrs Knoop and Klopper to pursue the appeal and whether it had been rendered moot by the actions of persons purportedly appointed to replace them as BRPs. For the reasons there given the contentions on behalf of Mrs Gupta in regard to these issues in this appeal are rejected. This appeal has not been withdrawn; Messrs Knoop and Klopper have locus standi to pursue it; and, it has not been rendered moot. The only issue we now need to deal with is whether the order for their removal as BRPs was correct.

. . . . .

[13] It is unfortunately necessary to restate these basic propositions because the judgment under appeal contains no analysis of the factual case made by Mrs Gupta and no factual findings in respect of the alleged conduct of the BRPs. There are no findings of fact:

(a) in regard to the competence of their staff;
(b) that they ignored and undermined the approved business rescue plans;
(c) that they ignored very competitive third party offers in respect of various valuable assets or that they insisted across the board on sales by way of auction;
(d) in regard to alleged breaches of the Value-Added Tax Act 89 of 1991 (the VAT Act).

The absence of factual findings on these issues necessitates a fuller treatment of the facts than would ordinarily be necessary. It is not possible to determine from the full court’s judgment whether it thought that these factual allegations had been established and justified removal of the BRPs, or whether its judgment rests on a wholly different factual foundation. Both possibilities must therefore be addressed.

A court of first instance is obliged to set out clearly in its judgment the factual findings and reasons upon which the judgment rests, in order for the appeal court to perform its functions, which is to examine whether on those facts and for those reasons the claim for relief was correctly determined. Regrettably that was not done in this case.

[14] An application for the removal from office of a BRP requires the facts relied on by the applicant to be measured against the circumstances in which the court is empowered to remove the BRP. It is therefore helpful to deal at the outset with the provisions of s 139(2) of the Act and the circumstances in which a court may order the removal of a practitioner. As the full court laid great stress on the provisions of ss 140(3)(a) and (b) the proper application of those sections in business rescue and the duties they impose on BRPs will also be addressed.

Section 139(2) of the Act

[15] In a voluntary business rescue the BRPs are appointed by the board of directors of the company, but they can only be removed by a court order under s 130 of the Act, or under the provisions of s 139. The relevant provision for present purposes is s 139(2), which provides:

‘Upon request of an affected person, or on its own motion, the court may remove a practitioner from office on any of the following grounds:
(a) Incompetence or failure to perform the duties of a business rescue practitioner of the particular company;
(b) failure to exercise the proper degree of care in the performance of the practitioner’s functions;
(c) engaging in illegal acts or conduct;
(d) if the practitioner no longer satisfies the requirements set out in section 138(1);
(e) conflict of interest or lack of independence; or
(f) the practitioner is incapacitated and unable to perform the functions of that office, and is unlikely to regain that capacity within a reasonable time.’

The full court relied on subsecs (a) and (e), although potentially sub secs (b) and (c) might be thought to have been engaged. The focus is therefore on these provisions.

[16] Proceedings under s 139(2) may be brought by affected persons. That expression is defined in s 128 as meaning a shareholder or creditor of the company; a registered trade union representing employees of the company; and, if any employees are not so represented, each of those employees or their representatives.

Mrs Gupta is a shareholder of both Islandsite and Confident Concept, so she has locus standi to bring an application under s 139(2). She did so in her own right. The papers do not indicate the attitude of her co-shareholders to the application, although it seems inevitable that they are aware of it.

Not only the familial relationship, but also the fact that the principal affidavits on behalf of Mrs Gupta were executed by Ms Ragavan, whose position as acting CEO of the Oakbay Group means that she is responsible to the shareholders of Islandsite for her actions in that capcaity, make it apparent that the three Gupta brothers must be aware of this litigation. However, they were not joined and have not sought to intervene or depose to affidavits.

Their silence is puzzling, but no inference can be drawn from it. What is before us is an appeal against an order granted at the instance of someone to whom the Act gives locus standi to bring this type of application.

[17] The court has a discretion either to grant or to refuse an order for the removal of a BRP. The discretion is exercisable if one or more of the grounds for removal set out in s 139(2) has been established on a balance of probabilities. However, proof of a ground for removal alone does not dictate that an order for removal must follow. The power of removal is not combined with a duty to exercise that power, of the type referred to in Schwartz v Schwartz.

The range of actions by BRPs that might fall within these sub-sections and the degree of seriousness and varying implications they may have for the business rescue process, is such that it cannot be said that proof of one or more of these grounds will necessitate removal, or even give rise to a presumption or inclination to order removal. Whether they do is a matter for judgment on the facts of the particular case. In that sense it involves what is loosely called a discretion, meaning only that the court must take into account a number of disparate and incommensurable features.

However, that does not afford the decision any special immunity on appeal, where the appeal court is in as good a position as the high court to determine the case. The question before the court of first instance was whether the BRPs should be removed. It was not choosing among two or more different but permissible options, as a court does on questions of sentence, or costs, procedural issues, or the quantum of general damages. It was providing the correct or incorrect answer to the question of removal. On appeal this court is therefore free to interfere if it concludes that the high court erred.

[18] Before turning to the various grounds upon which the full court ordered the removal of the BRPs, it may be helpful to make some general remarks, as this is not a question that has previously engaged the attention of this court.

The power now given to the court is not novel. Under our common law the court has always had and exercised the power to remove trustees and administrators of deceased estates on the ground that their continuation in office would prejudicially affect the proper administration of the estate entrusted to them and prejudice the beneficiaries of that estate.

That power extends to the removal of executors, liquidators of companies and trustees in insolvency. Cases dealing with these situations will be instructive in regard to the approach to be adopted to removing BRPs.

Two general principles will be that removal is not something to be ordered lightly and that the primary reason justifying removal will be actual or potential prejudice or harm to the interests of the estate, trust or company, and those in whose interests the administration was established, such as heirs in an estate or creditors in circumstances of insolvency.

[19] The general nature of the grounds for removal is such that they cannot be established directly. They are factual conclusions or inferences drawn from other proven facts. It is necessary for the applicant for removal to specify and establish by evidence the conduct on the part of the BRP that they say justifies an order for removal. Only if there is proper proof of the primary facts can the question of drawing an inference properly arise. The drawing of inferences from the facts must be based on proven facts and not matters of speculation.

As Lord Wright said in his speech in Caswell v Powell Duffryn Associated Collieries Ltd:

‘Inference must be carefully distinguished from conjecture or speculation. There can be no inference unless there are objective facts from which to infer the other facts which it is sought to establish … But if there are no positive proved facts from which the inference can be made, the method of inference fails and what is left is mere speculation or conjecture.’

[20] The first ground relied on in this case was incompetence or a failure to perform the duties of a BRP of the particular company. Reliance on this ground required evidence of specific instances of incompetence, or failure to perform the BRPs duties, in relation to the company under business rescue.

Incompetence suggests that the BRP lacked the necessary skills to perform their duties. It may be established by proof that the BRP is ‘of inadequate ability or fitness; lacking the requisite capacity or qualifications’. That is a reasonably high bar. Merely moderate ability does not amount to incompetence. Nor does the failure to meet the standards that the affected party would like to see achieved, whether that relates to the time taken to complete the business rescue process, or the prices at which assets are sold, or the manner in which the BRP approaches their task.

The alleged incompetence must relate directly to the performance of the task of a BRP. An inability to perform the role of BRP properly in relation to the circumstances of the particular company must be demonstrated.

[21] Where a failure to perform the duties of a BRP is relied on it is essential to identify the duties that the affected party says should have been performed and to show the respects in which they were not performed.

A failure to convene meetings as required by the statute and the business rescue plan, or a failure to report to the creditors and other affected parties, come to mind as fairly obvious examples. A general neglect of the duties of a BRP, where the BRP simply fails to deal with matters requiring attention in a regular and timeous fashion, may suffice, but a BRP who is attending to matters in a manner which the affected party does not approve of is not failing to perform their duties.

[22] A failure to exercise a proper degree of care in the performance of their functions will in most instances require proof of negligence.

It is difficult to see how that could be shown by way of general allegations without reference to specific instances of negligence. While proof of harm to the company, whether in the implementation of an approved business plan or from the perspective of its future operations after business rescue is terminated, may not be a prerequisite to proof of a failure to exercise a proper degree of care, in the absence of harm it may be difficult for a court to conclude that the BRP has not exercised a proper degree of care.

At the very least the potential for harm to have been caused by the actions of the BRP must be considered even if that harm was averted or did not materialise.

[23] Lastly, a conflict of interest or a lack of independence are also reasons for the removal of a BRP. There is little difficulty with the notion of a conflict of interest, a concept that has over many years received the attention of our courts. The classic statement of the principle is in the judgment of Innes CJ in Robinson v Randfontein Estates:

‘Where one man stands to another in a position of confidence involving a duty to protect the interests of that other, he is not allowed to make a secret profit at the other’s expense or place himself in a position where his interests conflict with his duty.’

Examples of the principle in action are provided by cases such as Barnett v Estate Beattie and Grobbelaar v Grobbelaar, which involved the removal of executors who had claims against the estate that were disputed.

In the latter case Van Blerk JA said:

‘It is clear that a substantial conflict arises between the personal interests of the respondent and those of the estate, in consequence of which a situation is created where the respondent’s position as executor is rendered intolerable. He finds himself in the impossible position that on the one hand, as a creditor of the estate, he must fight for his claim, and on the other hand, in his capacity as executor of the estate, he must defend against the same claim. In this role he would be compelled to choose sides. He cannot remain neutral or impartial.’ (My translation.).

In Van Niekerk v Van Niekerk the conflict arose because the executrix and sole heir to the estate had a substantial interest in excluding or diminishing the claim by the widow to half the estate or substantial maintenance and acted accordingly.

[24] The requirement that the BRP be independent is likewise well-established in related contexts such as the appointment of liquidators, where the general rule is that the liquidator should be independent of the company in liquidation.

That has been held to disqualify from appointment as liquidators shareholders, directors, creditors and the attorney acting for the company.

Once appointed they are required to be independent and to carry out their duties without partiality. Independence requires that they do not have a relationship, direct or indirect with the company, its management or any person concerned in its affairs that may place them in a position of conflict of interest, or prevent them from exercising an independent judgment on the affairs under their control.

Whilst in a voluntary business rescue the BRP owes their appointment to the directors of the company, they must not allow themselves to be dictated to by the directors or shareholders or any third party. They must at all times exercise an independent judgment taking into account the potentially conflicting interests of different affected parties.

[25] An extreme case of the absence of independence on the part of the BRP came before this court in African Bank of Botswana v Kariba Furniture.

The board, consisting of its only two shareholders, a husband and wife, appointed an attorney as BRP. The company had not been operational for some five years, yet the BRP presented a business rescue plan without the benefit of any current financial statements. An amount of R5 million that the shareholder had said on oath was available to fund the business rescue was not included or accounted for.

The BRP said it had been consumed in the costs of certain litigation, but was unable to furnish details of those costs. The money simply vanished. The bank that was the principal creditor objected to the business rescue, but the BRP ignored their objections.

The business rescue plan presented to the creditors fell ‘woefully short’ of compliance with the requirements of s 150 of the Act and did not provide information from which an assessment of reasonable prospects of the business rescue succeeding could be made. The BRP relied entirely on information furnished to him by the shareholders and his own unsubstantiated assessment. The justified impression gained by the bank was that he was acting as a representative of the company.

[26] Matters came to a head at the meeting where the business rescue plan was rejected by the creditors. An offer was presented on behalf of the shareholders in terms of s 153(1)(b)(ii) of the Act and the BRP ruled that it was not open to the bank to respond to the offer because it was binding.

In terms of the offer he transferred the bank’s voting interest to the shareholders, thereby giving the latter a 95 percent interest. They then voted to approve the rescue plan. The offer did not disclose who was making it, the price, or where, when and how payment was to be made.

This court held that it was not an offer at all. In the ensuing litigation the BRP acted as attorney for both the company and himself, and deposed to the principal answering affidavit for himself and the shareholders. At the appeal he sought to represent himself and the company, until the manifest impropriety of this was pointed out.

[27] This court was faced not only with the appeal, in which the bank sought to set aside the BRP’s acceptance of the ‘binding offer’, but also with an appeal against the high court’s refusal to set aside the resolution placing the company in business rescue and to set aside the appointment of the BRP.

Having upheld the appeal on the merits and set aside the resolution placing the company under business rescue, it held that it was unnecessary to deal with the BRPs appointment, but went on to make certain comments about his conduct preparatory to ordering him to pay the costs jointly and severally with the shareholders.

These comments were relied on by the full court in this case to justify the removal of the BRPs, so it is necessary to deal briefly with them.

[28] There are three passages appearing in para 35 and paras 37 and 38 of the judgment of Dambuza JA that are relevant.

They read as follows:

‘[35] … However, the conduct of the practitioner in this case raises serious concerns. This is because of the responsibility he had, as a business practitioner under the Act, which he does not seem to have appreciated. A business rescue practitioner must be held to a high professional and ethical standard. In addition to the powers and duties specifically conferred on business rescue practitioners by ch 6, they are also officers of the court (s 140(3)(a)) and have the responsibilities, duties and liabilities of a director as set out in ss 75 – 77 (s 140(3)(b)). It was the duty of the practitioner in this case to conduct a careful assessment of Kariba’s affairs and to prepare a plan that adequately reflected the prospects of Kariba’s rescue. Against this standard, and the standard expected of the practitioner as an attorney, the attitude displayed by the practitioner, in regard to serious concerns expressed by the bank regarding what it considered to be the shortcomings in Kariba’s affairs and the rescue plan, is disturbing.
[37] … He ignored, and was even hostile to, inquiries by the bank’s representatives when such inquiries related to aspects which were the core of his function as a business rescue practitioner. The impression gained by the bank’s representatives that he acted as a representative of Kariba, rather than as an independent practitioner, was justified. The apparent lack of appreciation, by the practitioner, of the seriousness of the office he held is unacceptable.
[38] In addition the practitioner was expected to act objectively and impartially in the conduct of the business rescue proceedings. So too, when it came to the institution of legal proceedings, was an objective and impartial attitude to be expected. This was lacking in the extreme.’ (Footnotes omitted.)

[29] Against the background of the facts of that case it will be apparent that these comments were directed very specifically at the particular conduct of the BRP. They did not state any new principle of law, but criticised the BRP’s conduct against the background of established principle.

As Leach JA said in his concurrence, it was no surprise that the bank applied for his removal. Whether they have any relevance to the conduct of Messrs Knoop and Klopper depends upon the proven conduct in this case. However, the full court stressed the references to ss 140(3)(a) and (b) of the Act and much play was made in Ms Ragavan’s affidavit of alleged failures to meet the standards of officers of the court and directors of companies, so it is necessary to consider the implications of these provisions for BRPs.

Section 140(3)(a) and (b) of the Act

[30] Section 140(3)(a) of the Act, says that during the business rescue proceedings the practitioner:

‘is an officer of the court, and must report to the court in accordance with any applicable rules of, or orders made by, the court’.

This is a somewhat mystifying provision. In Gupta 1 it was pointed out that a voluntary business rescue

‘is an entirely private process involving the company, the BRP and all affected persons’.

Unless the court is approached for some reason, for example, to set aside the resolution to commence business rescue or the appointment of the BRP, or the BRP applies to place the company in provisional liquidation, the process takes place without any engagement at all with the court.

In those circumstances it is difficult to ascribe any meaning to a provision that says they are officers of the court.

[31] The obligation to report to the court in accordance with any applicable rules of the court is equally mystifying. There are no rules of court imposing an obligation on BRPs to report to it.

Nor are there any orders by a court requiring reports.

In a voluntary business rescue the only occasion on which the BRP is required to inform the court of anything is under s 141(2)(a) of the Act when they conclude that there is no reasonable prospect that the company can be rescued and apply for its liquidation.

The mere fact that they are applying for the company’s liquidation is information enough that they do not believe that it is capable of being rescued. If the court disagrees and refuses a liquidation order there are no apparent consequences for the BRP.

[32] Section 141(2)(b) says that if the BRP concludes that there are no longer any reasonable grounds for thinking that the company is financially distressed they are obliged to inform the court, the company and all the affected parties in the prescribed manner.

With a voluntary business rescue, it is unclear how the court is to be informed or what it is to do with this information. A judge faced with an unopposed, and probably ex parte, application in the motion court, in which no relief was asked and no order could be made, would rightly question whether it was properly before the court.

The BRP merely has to file a notice of termination of business rescue with the CIPC. This brings the business rescue to an end.

Section 141(2)(b) seems inapplicable in the case of a voluntary business rescue. There is no other provision of the Act that requires them to report to the court as envisaged in s 140(3)(a).

In my view, whatever relevance the description of a BRP as an officer of the court may have in the context of business rescue ordered by the court under s 131 of the Act, it has no application to a voluntary business rescue and these provisions should be construed accordingly.

[33] In any event, I do not think that describing a BRP as an officer of the court adds anything to their duties or responsibilities. The expression ‘officer of the court’ is most commonly used to refer to advocates or attorneys who are admitted by the courts and ethically owe special duties to the court that may at times conflict with the interests of their clients.

Its origins in the present context appear to lie in England where certain processes such as insolvency administration were functions of the Court, but delegated to and performed by specific officers of the court designated as such by statute.

The Admiralty Registrar, who had responsibility for the sale of ships arrested in proceedings in rem in the Admiralty Court, appears to have been in much the same position.

There are no similar officers in our jurisprudence, where these functions are discharged by the Master and trustees or liquidators appointed by the Master, or chosen by creditors and subject to the direction of creditors and the overriding supervision of the Master.

The nearest comparison might be with the Registrar or the Sheriff. To say that someone is an officer of the court conveys little practical meaning.

It ‘is a vague term without legal content’. At most it conveys that a fairly high standard of personal integrity is called for from the person so described. But that flows in any event from the duty of good faith and as there was no attack on the personal integrity of Messrs Knoop and Klopper this was not a relevant consideration.

[34] I turn then to s 140(3)(b) of the Act that provides that BRPs have ‘the responsibilities, duties and liabilities’ of a director of the company as set out in ss 75 to 77 of the Act.

Like the previous provision this is an unfortunate legislative shortcut, given that the directors of the company remain in office and perform their duties subject to the authority of the BRP.

The BRP does not become a director of the company for the purposes of the sections in question. Section 75 deals with the personal financial interests of a director and their duties of disclosure in relation to matters coming before the board of directors. It is difficult to see how this is to operate in relation to the BRP.

For the reasons dealt with above, they are already precluded from placing themselves in a position where their personal interests conflict with those of the company or persons interested in it. That would generally preclude them from contracting with the company, other than to agree further remuneration in terms of s 143(2) of the Act.

Assuming there can be contracts or decisions by the company that actually or potentially affect their financial interests or those of related persons, to whom are they obliged to make disclosure? Who can sanction the arrangement after such disclosure, given that the directors can only act subject to the authority of the BRP? These and other conundrums arise from any endeavour to make s 75 applicable to BRPs.

[35] Section 76(2) enacts in statutory form the basic principle of our common law that has existed since the seminal decision in Robinson v Randfontein Estates. It is already part of the duties of BRP.

Similarly, the requirements of s 76(3) that a director must act in good faith for a proper purpose and in the best interests of the company are already implicit in the fact that failing to do so constitutes grounds to remove the BRP.

It might be thought that s 76(3)(c) is of assistance in setting the standard of care that the BRP must display, but applying it in any particular case is frustrated by the inability of the BRP to invoke the provisions of ss 76(4) and (5) describing the circumstances in which the duty is fulfilled.

[36] Section 77 contains a number of provisions dealing with the potential liability of a director to the company arising out of their conduct as a director. Some of its provisions are manifestly inapplicable to a BRP and others are difficult to apply, but it is unnecessary to discuss these any further.

The fact that in certain circumstances the BRP may incur liability to the company for actions performed in the course of the business rescue, says nothing about the scope and extent of the duties of the BRP, nor does the possibility that such liability may arise – including as a result of perfectly honest conduct by the BRP – affect a decision on an application for the BRPs removal.

[37] In the light of these considerations ss 140(3)(a) and (b) are generally unhelpful in determining whether in a particular case the court should order the removal of a BRP. They should not be invoked by way of a ritual incantation to justify removal, when the reasons advanced by the applicant seeking removal do not rely on the breach of any express provision by the BRP.

Only where there is reliance on specific provisions of ss 75 to 77 will it be necessary to consider whether these provisions may be relevant to the decision whether to remove the BRP. There was no such reliance in this case. I turn then to consider the basis upon which the application was brought by reference to the founding affidavit of Ms Ragavan.

. . . . .

Failure to report criminality

[118] The third issue relied upon by the full court needs to be set out in extenso. It read:

‘[30] The first and second respondents’ lack of good faith in conducting the affairs of the companies is again demonstrated in their contention that there exists an element of criminal unlawfulness in the manner in which the board and shareholders have conducted the affairs of the companies. As judicial officers, the first and second respondents bore the onus of reporting such suspicions to the relevant authorities. Their failure to do so, in this court’s view, is dispositive.

Not only does this mean that the first and second respondents’ investigation into the affairs of the companies has been tainted as a result of their potential failure to be forthcoming regarding any dubious activities on the part of the board and shareholders, the first and second respondents’ failure to report their findings to the relevant authorities in turn also taints their impartiality as officers of the court.

Given the nature of the office of a BRP and that the ability to execute one’s duties as a BRP requires a high level of impartiality and independence, the conduct of the first and second respondents in failing to report such findings is critical and speaks to whether the respondents are indeed fit and proper to execute the duties of a BRP.

[31] In the answering affidavit the respondents contend that, although the initial reason for the commencement of business rescue proceedings was the un-banking of the Gupta-linked companies, it later emerged that the entire group was in financial turmoil due to the gross and reckless mismanagement of the affairs of the companies.

The respondents further submit that both Islandsite and Confident Concept form part of the Gupta empire through which billions of rands were channelled under the direction and control of the board of directors, management and shareholders.

We, however, find the unsubstantiated nature of the first and second respondents’ allegations in this regard particularly vexing. Again, if the first and second respondents were so aggrieved at the alleged mismanagement of the companies and the unsavoury and criminal activities that the companies were being subjected to at the hands of the board and shareholders, as an integral part of their judicial duty the first and second respondents could have and should have reported their findings to the appropriate authorities.

Raising such allegations at this stage appears to be a grossly disingenuous litigation tactic that again does not put the first and second respondents’ conduct as officers of the court in the best of light.

[32] It is in turn both intriguing and troubling that the first and second respondents have filed papers vilifying the companies’ board and shareholders, alleging that they have mismanaged the affairs of the companies, and in the same breath want to rescue the companies for the ultimate benefit of the same board and shareholders.

This again speaks to the credibility of the first and second respondents and begs the question whether the accusations levelled at the board and shareholders are truly being raised in good faith.

Lastly, this court cannot overlook the position of conflict that the first respondent may potentially find himself in as a BRP for both companies. This court finds that the gravity of the position held by a BRP requires the utmost level of impartiality and independence and in the event that such impartiality and independence may potentially be compromised, intervention is warranted.’ (Emphasis added, footnotes omitted.)

[119] The full court was not justified in condemning the BRPs conduct on these grounds, or in harsh terms that reflected so adversely on their credibility, their integrity and their bona fides.

As with the issue of fees the alleged failure to report criminal conduct to the relevant authorities was not raised as a ground of complaint or dealt with in the papers. The likelihood of it having been a ground of complaint by Mrs Gupta, speaking through Ms Ragavan, was nil, inasmuch as any such criminal conduct would have been by the Guptas and directors and employees of companies in the Oakbay Group, such as Ms Ragavan and Mr Chawla.

It transpired that it was also factually incorrect. Mr Knoop set the record straight in his answering affidavit in the application for an execution order, explaining that the BRPs had reported their suspicions of potentially criminal conduct to the SAPS, the National Prosecuting Authority, the Special Investigations Unit, the Asset Forfeiture Unit, SARS and the Zondo Commission.

[120] Not reporting potential criminal conduct to the relevant authorities was not raised in the papers, and the judgment did not address the difficulties that confronted the BRPs in managing and operating the companies under business rescue. They were working against a background of public controversy about the business practices of the Guptas and their possible involvement in what was commonly referred to as ‘state capture’.

Under s 141 of the Act the BRPs were required to investigate the affairs of the companies under business rescue. Under s 142 the directors were obliged to co-operate with and assist the BRPs. The evidence showed that the efforts of the BRPs to do the former was at all times obstructed by the directors non-compliance with their statutory obligation, co-ordinated as far as could be seen by Ms Ragavan. This conduct appeared to the BRPs to be furthering the interests of the Guptas and had nothing to do with the successful management of the business rescue.

. . . . .

Conclusion on failure to report criminality

[139] The full court said that this ‘failure’ was dispositive of the application. It was not. The complaint, like others that were referred to in the judgment, appears to have been raised by the court mero motu. For that reason alone, the judgment cannot stand. However, given the stringent criticism of the BRPs the basis for this finding advanced by the full court had to be examined in detail. For the reasons set out above it was without foundation.

. . . . .

Conclusion in relation to the full court’s judgment

[143] In the result all of the grounds advanced by the full court in support of its conclusion that the BRPs should be removed were unfounded.

Had it confined itself to a consideration of the factual allegations advanced on behalf of Mrs Gupta it should have concluded that they failed to make out a case for the BRPs’ removal. The grounds relied on in its judgment should not have been relied on, as they dealt with matters not in issue between the parties. They were in any event unsustainable on the facts and the applicable legal principles. For those reasons the judgment cannot stand.

Result

[144] The appeal must succeed. In regard to the costs occasioned to the BRPs by Mr Tayob’s attempt to intervene, his counsel conceded that they had to follow upon the result of his intervention. It was without merit for the reasons set out in Gupta 1 so he must pay those costs, including the costs occasioned by the employment of two counsel. I did not understand Mr Tsatsawane SC to suggest that any additional costs incurred by his client as a result of the abortive intervention should be paid by Mr Tayob.

[145] Before concluding it is appropriate to remark that the application papers in this matter reflect little credit on the legal practitioners responsible for their preparation. They were replete with allegations in emotive terms not borne out by any of the evidence.

Ms Ragavan’s allegations against the BRPs did not stand up to scrutiny and the charges of incompetence, conflict of interest, lack of independence, a failure to live up to the high professional standards expected of BRPs and the like, were unwarranted.

It should not be necessary to remind legal professionals who draft affidavits for their clients that they bear a responsibility for the contents of those documents and may not use them for the purpose of abusing their client’s opponents. Such allegations should only be made after due consideration of their relevance and whether there is a tenable factual basis for them.

This aggressive tone was likewise reflected in the affidavits of Mr Knoop where he described Ms Ragavan and others as ‘Gupta acolytes’, an expression more appropriate to a newspaper report than an affidavit. On many points, he would have been better advised to set out greater detail and less rhetoric.

As to some of the correspondence between the attorneys, the less said the better. It was marked by aggression, hostility and accusations but little of great relevance to the case and little that reflected well on the authors.

[146] The following order is made:

1 The appeal is upheld with costs, such costs to include those consequent upon the employment of two counsel.
2 The order of the high court is set aside and replaced with:

‘The application is dismissed with costs, such costs to include those consequent upon the employment of two counsel.’

3 The costs occasioned to the appellants by the application to intervene by Mr Tayob, including those consequent upon the employment of two counsel, are to be paid by Mr Tayob in his personal capacity.

Court summary

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

“The SCA today upheld an appeal by the business rescue practitioners (BRPs) of two companies owned by the Gupta family, consisting of the three Gupta brothers and the respondent, Mrs Chetali Gupta, the wife of Mr Atul Gupta. The companies were Islandsite Investments One Hundred and Eighty (Pty) Ltd (Islandsite) and Confident Concept (Pty) Ltd (Confident Concept), both of which had been placed in business rescue on 16 February 2018. Disputes arose between the BRPs and Mrs Gupta, represented by various employees of companies owned or controlled by the Guptas, and in November 2018 Mrs Gupta applied for the removal of the BRPs.

The full court of the Gauteng Division of the High Court, Pretoria, upheld her claim and ordered the removal of the BRPs.

It gave leave to appeal against that order, but at the same time ordered that its removal order could be executed upon. An appeal against that order was upheld after argument on 6 November 2020. (See Knoop and Another NNO v Gupta (No 1) [2020] ZASCA 149.)

In the main appeal the court analysed the allegations by Ms Ragavan, on behalf of Mrs Gupta, against the BRPs. It held that these allegations were, with one exception, not proved and none of them provided grounds for the removal of the BRPs. The SCA analysed the reasons given by the full court for ordering the removal of the BRPs.

It held that none of the grounds relied on by the full court had been raised in the affidavits on behalf of Mrs Gupta and on that ground alone the appeal had to succeed.

However, after considering each of these grounds, it held that none of them were established on the facts and that accordingly none of them provided grounds for removing the BRPs.

In the circumstances, the appeal was upheld with costs, including the costs consequent upon the employment of two counsel, and the order of the high court was altered to one dismissing the application with costs, including the costs of two counsel.”