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- Vantage Mezzanine Fund II Partnership and Another v Hopeson and Others (2022/045978) [2023] ZAGPJHC 1361; 2024 (2) SA 550 (GJ) (24 November 2023)
Vantage Mezzanine Fund II Partnership and Another v Hopeson and Others (2022/045978) [2023] ZAGPJHC 1361; 2024 (2) SA 550 (GJ) (24 November 2023)
Amendments to pleadings: An interpretation of Section 157(1)(d) to allow creditors to seek delinquent director declarations under Section 162 if they can demonstrate that they act in the public interest.
The case involves an application by the plaintiffs, Vantage Mezzanine Fund II Partnership and Vantage Mezzanine Fund II (Pty) Ltd, to amend their particulars of claim in response to an exception raised by the third defendant, Magwaza Johannes Bhekumuzi. The plaintiffs are creditors of a company called Somnipoint (Pty) Ltd, which is now in liquidation, and they are suing the defendants, who were directors of Somnipoint and related companies, for losses incurred due to their inability to fully recover their investments. The amendment seeks to address the issue of the plaintiffs' standing to apply for a delinquency order against the directors under section 162 of the Companies Act, 71 of 2008, as creditors are not explicitly mentioned in the list of stakeholders with the right to seek such relief.
The third defendant opposes the amendment, arguing that a creditor does not have standing to seek disqualification relief and that the application is not genuine as it is in the creditor's own interest rather than the public interest. The judgment provides a detailed analysis of the relevant sections of the Companies Act and considers the background of the case, including the financial dealings between the parties and the role of Delta, a property company of which the defendants were directors.
"The court's approach, since the case of Moolman v. Moolman, is a permissive one. However, as the Constitutional Court most recently observed in Villa Crop Protection (Pty) Ltd v. Bayer Intellectual Property GmbH, 'The permissive principle is not without limits. Pleadings that are excipiable, or, as the holding in Affordable Medicines affirmed, are introduced in bad faith, or cause an injustice that cannot be compensated by an order for costs, afford grounds for refusing a proposed amendment.'"
The court concludes that the plaintiffs' amendment is permissible and addresses the exception raised. It finds that the sequencing of obtaining leave under section 157(1)(d) is not a valid reason to refuse the amendment, and that creditors are not categorically denied the right to seek disqualification relief under section 162. The court also determines that the question of whether the plaintiffs' cause of action is in their own interest or the public interest is a matter of fact and not a valid ground for exception. The third defendant's opposition to the amendment is unsuccessful, and the court grants the plaintiffs leave to amend their particulars of claim.
The core legal principle underlying the decision is the interpretation of Section 157(1)(d) of the Companies Act, 71 of 2008, and its application to creditors seeking to declare directors delinquent under Section 162 of the Act. The court's ratio decidendi can be summarized as follows:
1. Sequencing of Leave: The court rejected the argument that a creditor must seek leave from the court prior to applying for delinquency relief under Section 157(1)(d). It held that the requirement for "leave of the court" does not necessitate a prior application and can be determined by a special plea within the existing action proceedings. This interpretation is supported by previous case law and avoids an overly restrictive approach to managing such applications.
2. Standing of Creditors: The court acknowledged the historical exclusion of creditors from seeking delinquent director declarations under previous Companies Acts. However, it distinguished the restorative nature of those provisions from the disqualification remedies under Section 162. The court emphasized the economic approach to company law, recognizing the changing interests of a company's stakeholders during insolvency or near-insolvency. It concluded that creditors are not categorically denied the right to seek disqualification relief under Section 162 and can rely on Section 157(1)(d) if they act in the public interest.
3. Genuine Public Interest: The court addressed the genuineness of a creditor's public interest claim, noting that it depends on the facts of each case. While acknowledging potential concerns about opportunistic behavior by creditors, the court held that the amendment should not be denied solely on the basis of Vantage's monetary claims against the directors. The court emphasized that Vantage has advanced arguments for acting in the public interest, which can be tested if challenged but are not grounds for refusing the amendment.
4. Own Interest vs. Public Interest: The court rejected the argument that Vantage's monetary claims against the directors automatically disqualify it from acting in the public interest. It cited case law emphasizing the fact-specific nature of determining public interest and held that this is not a valid ground for exception but may be addressed through a special plea.
In summary, the court focuses on interpreting Section 157(1)(d) to allow creditors to seek delinquent director declarations under Section 162 if they can demonstrate that they act in the public interest. The court rejected arguments for a restrictive interpretation of the statute and emphasised a fact-based assessment of the creditor's motives and interests.
Here is a summary of the case law relied on by the court in its reasoning process, along with the neutral citation for each case:
Moolman v Moolman (1927 CPD 27): This case established the permissive principle that courts generally lean in favor of granting amendments to pleadings.
Villa Crop Protection (Pty) Ltd v Bayer Intellectual Property GmbH [2022] ZACC 42: The Constitutional Court affirmed that while the permissive principle allows amendments, there are limits, and pleadings that are excipiable or introduced in bad faith can be grounds for refusing an amendment.
Children's Resource Centre Trust v Pioneer Food (Pty) Ltd 2013 (2) SA 213 (SCA): This case dealt with the certification requirements for class actions, which were distinguished from the extended standing provisions under section 157(1) of the Companies Act.
Minister of Environmental Affairs v Recycling and Economic Development Initiative of South Africa NPC 2018 (3) SA 604 (WCC): Henney J held that the requirement for prior certification in class actions does not apply to extended standing cases under section 157(1)(d) due to the different nature of the two types of proceedings.
Organisation Undoing Tax Abuse NPC and Another v Myeni and Another (15996/2017) [2019] ZAGPPHC 957: Tolmay J followed the reasoning in the REDISA case and held that the requirement for "leave of the court" in section 157(1)(d) can be determined by a special plea within existing action proceedings, rather than requiring a prior application.
Ferreira v Levin No & Others; Vryenhoek & Others v Powell No & Others and Lawyers for Human Rights: These cases discussed the factors to consider when determining whether an assertion of acting in the public interest is genuine, including the nature of the relief sought, the range of affected persons, and the opportunity for those persons to present evidence and arguments.
BTI 2014 LLC v Sequana SA and others [2022] UKSC 25: Lord Reid discussed the traditional approach that directors do not owe a duty to creditors, but he also adopted a more economic approach that considers the changing nature of a company's interests during insolvency or near-insolvency.
Giant Concerts CC v Rinaldo Investments (Pty) Ltd: Cameron J emphasized the pragmatic approach to determining whether a party has the necessary interest in an infringement or threatened infringement, stating that each case depends on its own facts.