11 December 2020 by Business Rescue, Restructuring & Insolvency Newsletter

How far is too far? Considering the exercise of the court’s inherent powers in the face of statutory provisions

In the recent SCA judgment of Knoop and Another NNO v Gupta (No 1) (115/2020) [2020] ZASCA 149 (19 November 2020) the court had to consider not only the main issue on appeal which was the appeal against a judgment in the High Court ordering for the removal of two business rescue practitioners of two unbanked companies, Islandsite Investments One Hundred and Eighty (Pty) Ltd (Islandsite) and Confident Concept (Pty) Ltd (Confident Concept), but also the issue of the suspension of the execution order and whether or not this was to be upheld despite the High Court’s direction to execute immediately.

As is alluded to above, the High court found in favour of the Respondents and ordered for the removal of the Business Rescue practitioners. The practitioners took the judgment on appeal to the SCA on an urgent basis.

While upholding the application for leave to appeal, the High Court at the same time, granted an execution order permitting the immediate removal of the practitioners – hence the urgency of the appeal.

Pending the hearing of an appeal, statute provides that an execution order is to be suspended. This is so as the immediate execution of a court order, when an appeal is pending has the potential to cause enormous harm to the party ultimately successful. Regardless of this however, the full bench granted an order that the urgent appeal would not suspend the operation of the execution order and new practitioners were thus appointed in respect of the two companies.

As a result thereof, in the first instance, the newly appointed BRPs withdrew the appeal lodged by the practitioners who were removed on the premise that consequent to their removal, they no longer had legal standing to pursue the appeal.

The new BRPs then purported to terminate the business rescue proceedings in respect of the two companies.

The matter was brought on an extremely urgent basis before the SCA and it was highlighted that the court first had to deal with the validity of the full bench’s order of the overriding of the suspension of the execution order and then only could the court consider the appeal against the order for the removal of the BRPs.

The SCA found that the overriding of the suspension of the execution order was invalid as it flew in the face of the express provisions of the statute giving the right of appeal. Specifically referring to section 18(4) of the SC Act which reads as follows:

‘If a court orders otherwise, as contemplated in subsection (1) –

(i)    the court must immediately record its reasons for doing so;

(ii)   the aggrieved party has an automatic right of appeal to the next highest court;

(iii)  the court hearing such an appeal must deal with it as a matter of extreme urgency; and

(iv)   such order will be automatically suspended, pending the outcome of such appeal.

The section is intended to safeguard against irreparable prejudice occurring as a result of a court grating an execution order when it should not have done so – i.e. prior to the outcome of an appeal being finalised.

Further, the overriding of the suspension had been granted by the court of its own volition and without notice to the parties therefore denying them the opportunity to make submissions in that regard. The court found that the inherent power of a court to regulate its own procedure cannot be used to override the provisions of a statute directly governing the issue.

This finding by the SCA meant that pending the outcome of the appeal, the “erstwhile” practitioners remained the duly appointed BRPs in respect of Islandsite and Confident Concept and the removal of their appeals was therefore invalid and ineffective, as was the termination of the business rescue proceedings. The appointment of the new BRPs also effectively became invalid.

In considering the main issue to be decided and main ground of appeal, the SCA had to consider whether the Respondent had proven that the circumstances which warranted the removal of the practitioners were exceptional. Further, that the Respondent would suffer irreparable harm should the BRPs not be removed immediately and in turn whether the BRPs would suffer such harm if they were to be removed immediately.

The court in this instance found that the Respondent had not put forward any evidence to suggest that these were exceptional circumstance and that the fact that the Respondent merely alleged that the BRPs failed to meet the required standard expected of a BRP, without further evidence, did not constitute exceptional circumstances.

In considering the second and third requirements, the court further found that no irreparable prejudice had been established in the case of the Respondent from the evidence put before it, nor had the Respondent successfully discharged the onus in showing that the removal of the BRPs would not cause them irreparable harm.

The court ultimately upheld the appeal and the order of the full court a quo was set aside.

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