The Supreme Court of Appeal (SCA) has ruled that directors of former Gupta-owned companies under business rescue had no authority to appoint lawyers to act on behalf of those companies.
The case is around four companies that had been associated with the Gupta family and are now under business rescue, including Koornfontein Mines, Tegeta Exploration and Resources, Optimum Coal Mine, and Optimum Coal Terminal.
The appointed business rescue practitioners (BRPs) Kurt Knoop, Johan Klopper, Juanito Damons, and Kgashane Monyela had challenged the Pretoria High Court judgment that had authorised Van der Merwe and Van der Merwe Attorneys (VDM) to represent Koornfontein Mines, based on instructions from company director Ronica Ragavan.
The SCA ruling overturned the lower court’s judgment.
“On 21 October 2022, Ms Ragavan and Mr [Dhanasegaran] Archery, purporting to act on behalf of the companies, launched an application in the Gauteng division of the high court in Pretoria for, inter alia, the removal of the first and second appellants as the BRPs of the companies.
“They also sought a declarator that the third and fourth appellants were not properly appointed as BRPs.
“The companies were joined as co-applicants. Purporting to exercise their powers as directors of the companies, Ms Ragavan and Mr Archery appointed Van der Merwe and Van der Merwe Attorneys to act for the companies in the application,” reads the court document in part.
They also sought to declare that the third and fourth appellants were not properly appointed as BRPs.
BRPs dispute attorneys’ authority
According to the court papers, they had done so without the consent or involvement of the BRPs, who, by law, hold full management control of the companies once business rescue proceedings begin.
The BRPs responded with a notice, disputing the authority of the attorneys acting on behalf of the companies.
Despite resolutions submitted by the directors to validate their actions, the BRPs maintained that the directors were not entitled to instruct lawyers without the BRPs’ approval.
The court explained that during business rescue proceedings, directors may only exercise powers subject to the authority of the BRPs.
The court also determined that the high court erred in confirming the authorisation of VDM Attorneys to represent Koornfontein.
“The BRPs are thus accorded ‘full management control of the company’ in place of the board and management of the company but may delegate any of their powers and functions to the directors or erstwhile management.
“The BRPs have the duty to run and manage the company on a day-to-day basis and have full management control over the company’s property, including its financial resources,” reads the court document.
No authority to represent companies
The court pointed to Section 140(1) of the Companies Act, which grants BRPs comprehensive authority to manage the company, including financial and legal matters.
It stated that allowing directors to appoint attorneys to pursue or defend legal proceedings would undermine the statutory framework designed to rehabilitate companies under business rescue.
“The NDPP [national director of public prosecutions] submitted that the directors, Ms Ragavan and Mr Archery, should be directed to pay the costs of the appeal personally.
“They had no authority to represent the companies and instruct the attorneys to appeal the judgment of the high court on their behalf.
“As stated in Islandsite: ‘If persons who are not authorised to do so purport to appoint attorneys to represent a company, it can hardly be expected of the company to bear the costs flowing from that action’.”
