The company accused of being a front of the Guptas has successfully opposed an appeal by the Gupta lieutenants who wanted to have voting powers to approve the business rescue plan of Optimum Coal Terminal.
Liberty Energy, which is currently in charge of operations at Optimum Coal Mine as a creditor to Optimum Coal Terminal, successfully opposed the application by Gupta associates, namely, Romica Ragavan, Ravin Dranath, and Ashu Chawla.
The trio, who are the directors of Tegeta Exploration and Resources, wanted to have voting powers to approve the business recuse plan of Optimum Coal Terminal – a subsidiary of Optimum Coal Mine in Mpumalanga.
Optimum Coal Terminal was placed under business rescue plan after it started experiencing liquidity problems several years ago.
In a verdict delivered by the Supreme Court of Appeal in Bloemfontein on March 31, the judges dismissed the directors’ appeal and ordered them to pay the costs Liberty Emergency and the other six respondents.
“Such costs must include those of the affected creditor, Liberty, which together with the relevant respondents opposed the appeal”.
Coram of the supreme court judges delivered a ruling on March 31 that “the appeal is dismissed with costs, including the cost of two counsel, in respect of the first, second, third, fifth, sixth and seventh respondents as well as Liberty Energy (Pty) Ltd”.
The Gupta associates had appealed to the supreme court to affirm their rights to vote on the approval of a business rescue plan for Optimum Coal Terminal, which is wholly owned by Tegeta and also a debtor to the mother company.
This after Liberty Energy successfully opposed the directors’ application in the Joburg High Court to have the voting rights.
In the court papers, Liberty Energy argued that the voting rights were vested with the business rescue practitioners.
The Gupta lieutenants argued that in terms of the law, the business and affairs of a company must be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, unless the company’s memorandum of incorporation (MIO) provides otherwise.
Optimum Coal Terminal and Tegeta entered into voluntary business rescue in February 2018 and the business rescue practitioners were appointed soon after.
Optimum Coal Terminal published a business rescue plan in October 2021 and notified Tegeta, which is also an Optimum Coal Terminal creditor that a vote would take place on November 10, 2021.
The directors of Tegeta asserted they had the right to vote on the business rescue plan.
The business rescue practitioners, however, disagreed.
The High Court in Johannesburg stopped the meeting to vote on the proposed plan until the right to vote was determined.
Subsequently, the high court ruled in favour of the practitioners.
In their appeal papers, Ragavan, Dranath, Chawla argued that the company’s affairs and business should be managed by its board.
They said the board had all the company’s powers and could do whatever it wanted, subject to company laws.
They also said the company’s board of directors had plenary powers, and the business rescue process proposed a hybrid cohabitation model where both the board and practitioner continued to play a decisive role.
Regarding governance, they said the directors retained strategic positioning powers. But the Gupta clique accepted that the practitioners’ powers trumped the directors’ when it came to managing the business of the company on a day-to-day basis.
They submitted as case law a ruling that unless indicated otherwise, a company must bear its ordinary meaning as a company represented by its board.
But the court ruled that while the law gave original authority to the board, there were exceptions, including when a business rescue practitioner was in charge.
Judge Nolwazi Mabindla-Boqwana said the facilitation of company rehabilitation expressly includes management of property, and everything that had to do with the company’s debtors fell within the category of management.
“With the full suite of powers over the company’s property outlined above, it is difficult to see how the practitioner cannot also vote on the plan of a debtor company and thereby determine the extent to which a particular debt would be recovered under that plan or not.
“The primary purpose of business rescue is to enable the practitioner to prepare and implement a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis,” she ruled.
“If it is not possible for the company to continue in existence, it results in a better return for the company’s creditors, or shareholders than would result from the immediate liquidation of the company.
“Whether debts can be recovered and what the assets of the company are, form a crucial part of the process of preparing a plan. The plan must contain information, which includes the property available for distribution to the company’s creditors and a three-year projected balance sheet. In developing a plan, it would make no sense to exclude the power to vote on the plan of a debtor.”
Judge Mabindla-Boqwana added that the inability to vote on a debtor company’s plan would affect the practitioner’s assessment of the company’s prospects of rescue and/or the state of its financial distress. “To give this power to the directors would be subversive of the purpose of the ‘full management control’ conferred to the practitioner by the Act.”
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