Judge dismisses bid to deny business rescuer his fees

A business rescue practitioner (BRP) for several businesses has successfully defended a court bid to forfeit his fees. The Western Cape High Court found that there was no basis for the claims of gross negligence.

The case provides clarity on business rescue proceedings that can be used by companies in a similar predicament.

Six property companies were part of a holding company called HFS Group. All six shared a single director, Hendrik Francois Smith.

Land Bank extended a loan of more than R12m to the six companies. However, they failed to service the loan and by 2020 were in arrears. The full outstanding balance of R12m became due and payable immediately. The six companies resolved to begin business rescue proceedings.

In June 2020, Herman Bester, a Cape Town BRP, was appointed. Days later, the Land Bank informed the companies that, unless the outstanding balance was repaid, it would begin liquidation proceedings.

Business rescue proceedings were finalised, the companies were brought out of insolvency, and Bester took his fees.

Smith then brought proceedings against Bester for his removal, to forgo his fees and to pay various court proceedings. The proceedings related to issues Smith had with how agreements had been reached with Land Bank. Smith alleged Bester sold properties without the companies’ consent and created a poor business rescue plan. Bester denied this.

However, the high court dismissed claims of “gross negligence” and attempts to overturn previous agreements.

Acting high court judge Karrisha Pillay found Smith had no legal standing to bring the matter. Since business rescue proceedings had concluded, Smith as the sole shareholder of the holding company had no legal standing “given that a company is separate and distinct from its shareholders”.

Pillay said the court did not have “the power to order a [BRP] to repay fees for misconduct”. This does not stop a company bringing a case for damages based on gross negligence. In this instance “no case for gross negligence has been made”.