ALERT DISPUTE RESOLUTION - Cliffe Dekker Hofmeyr
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4 JUNE 2020
DISPUTE
RESOLUTION
ALERT
Crash landing: The rise and fall of Dudu Myeni
IN THIS In a judgment delivered by the North Gauteng High Court last
ISSUE week, former non-executive chairperson of SAA, Dudu Myeni, was
declared to be a delinquent director.
What NOT to do when under business rescue
Once a company is placed under business rescue, it is of the
utmost importance that from the commencement of the business
rescue the board, members or directors of the company fully
cooperate and work with the business rescue practitioner.
The business recue practitioner is after all, there to try rescue
their business.
Post in haste, repent forever!
Tuning in to the news - morning or evening, local or international
- you are inevitably met with headlines such as, “Acting judge steps
down from the bench after lashing out at Government policy in
Facebook rant”; and “Aspiring Miss SA contestant forced to
withdraw from the pageant following the re-emergence of
controversial tweets published when she was 14”.
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DISPUTE RESOLUTION
Crash landing: The rise and fall of
Dudu Myeni
In a judgment delivered by the North In terms of section 162 of the Companies
Gauteng High Court last week, former Act, Directors will be found delinquent if
From a legal technical non-executive chairperson of SAA, they “acted in a manner that amounted
Dudu Myeni, was declared to be a to gross negligence, willful misconduct
point of view, Myeni’s
delinquent director. or breach of trust in relation to the
conduct ticked all the performance of the directors functions
Myeni, and certain board members who
boxes for a finding of within, and duties to, the company” as
supported her decisions, frustrated
delinquency. and sabotaged a number of important
contemplated in sections of the dealing
with directors’ fiduciary duties. Such duties
well motivated transactional initiatives
were, in the case of SAA, enhanced by the
developed by the executives of SAA to try
requirements of section 50 of the Public
to turn its fortunes around. What remains
Finance Management Act (PFMA) which
unexplained is why Myeni and her fellow
requires directors of public entities to “act
board members behaved in this way with
with fidelity, honesty, integrity and in the
disastrous consequences for the airline.
best interests of the public entity”.
Myeni either refused to give explanations
or gave evidence which the court found to The scope of this alert is too short to
be evasive, contradictory, unreliable and permit a detailed description of the facts.
dishonest. She alleged - in the case of an Certain remarks made by the court speak
abortive transaction with Emirates - that for themselves. Ms Myeni’s “belated
she was following instructions by former attempts to justify her misconduct show
President Jacob Zuma. But the court that she acted dishonestly, in bad faith
found that even if this was true, it did not and not in the best interests of SAA or
excuse her own conduct. The citizens of the country”. She was warned by then
South Africa, who have paid the price of Minister of Finance, Nhlanhla Nene, that
her failures, remain none the wiser as to she and the Board were failing in their
her motivations. Criminal investigation fiduciary duties but simply paid no heed to
has been recommended. It remains to be this advice. She interfered with executive
seen if this will provide the explanation as decision-making or went behind the back
to whether she was simply enormously of executives in dealing with third parties.
and arrogantly incompetent, or whether She acted without Board authority. She
there were more sinister reasons behind acted with “deliberate dishonesty and a
her behavior. gross abuse of power” as contemplated by
section 162. She was “reckless” in ignoring
From a legal technical point of view,
advice and recommendations.
Myeni’s conduct ticked all the boxes for a
finding of delinquency. As the court pointed out, a Minister
can only “exercise effective oversight
over major transactions” for SOE’s “if
information is presented honestly, fully
2 | DISPUTE RESOLUTION ALERT 4 June 2020
DISPUTE RESOLUTION
Crash landing: The rise and fall of
Dudu Myeni...continued
and accurately”, whereas the information Of course, declarations of delinquency do
presented by Myeni was replete with not undo the damage that the underlying
Of course, declarations ”falsehoods, misrepresentations and misconduct may have caused. By the time
omissions”. Myeni furthermore “displayed such findings are made it is usually too late.
of delinquency do not
complete disregard for public funds”.
undo the damage that the The court went on to make the following
The court ultimately concluded that, “She remarks which many South Africans would
underlying misconduct
was a director gone rogue, she did not endorse: “To serve on the Board of an
may have caused. By the have the slightest consideration for her SOE should not be the privilege of the
time such findings are fiduciary duty to SAA” and that “her actions politically connected. Government has,
made it is usually too late. did not constitute mere negligence but as custodian of the common good, an
were reckless and willful”. As it is entitled obligation to ensure that suitably qualified
to do under law, the court in measuring people, with integrity are appointed in
the culpability of her conduct, took into these positions…. to ensure that state
account both objective standards and resources are not squandered, or the
Myeni’s apparent extensive personal economy placed at risk”.
experience as a director: she professed
Amen to that.
herself to be an expert on corporate
governance. Myeni was found to have
Richard Marcus
completely betrayed the trust placed in
her as a director of a public company –
and it is this betrayal of the standards of
proper corporate conduct and trust which
underpins findings of delinquency in terms
of the Companies Act.
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3 | DISPUTE RESOLUTION ALERT 4 June 2020
DISPUTE RESOLUTION
What NOT to do when under
business rescue
Once a company is placed under had clearly been curtailed and his ability
business rescue, it is of the to do his work hamstrung from the
In dealing with the merits utmost importance that from the very start by the members of Lyndoch.
commencement of the business rescue The court later held that Dr Wolmarans
of the application, the
the board, members or directors of the was a business rescue practitioner of
court also had to consider company fully cooperate and work with a “blatantly uncooperative” second
Lyndoch’s application the business rescue practitioner. The respondent, Lyndoch.
for a postponement, business recue practitioner is after all,
In dealing with the merits of the
there to try rescue their business.
along with a condonation application, the court also had to consider
application for filing In the matter between First Rand Bank Lyndoch’s application for a postponement,
Limited and Dr LL Wolmarans and along with a condonation application for
supplementary papers. another (2020) the Northern Cape filing supplementary papers.
High Court was asked to step in and
What is clear from this judgment is that the
protect the rights of an affected creditor
court will not allow respondents, under
where a business rescue was voluntary
business rescue, to abuse its process in
commenced, but it later emerged that
order to avoid and delay the consequences
the true reason for the business rescue
of legitimate litigation against it and in
was to afford the controlling minds of
particular where there is no prospect of
Lyndoch 432 CC (Lyndoch) more time to
rescuing the business.
squeeze as much they could out of the
business with no real intent to rescue The background of this case dates back
the business. almost four years. During 2016, the Bank,
Lyndoch and certain sureties entered
The applicant, First Rand Bank Limited
into a deed of settlement agreement in
(the Bank) in its capacity as the main
an attempt to avoid litigation. In breach
creditor, brought an application in terms
of the agreement, Lyndoch, only made
of section 133(1)(b) of the Companies Act
two payments resulting in its outstanding
to lift the mortarium on legal proceedings
debt to the Bank growing to R5.5million.
against a company under business rescue,
To recover the amounts owed, the Bank
and if so lifted, that the court order, (1) the
arranged for an auction of Lyndoch’s main
setting aside of the voluntary business
asset, the Lyndoch farm. However, as is
rescue resolution adopted by the members
frequently the case with unscrupulous
of Lyndoch and (2) for the winding-up
business rescue proceedings, Lyndoch
of Lyndoch. Notwithstanding the Bank’s
placed itself under business rescue by
interest in the matter, the application also
adopting a resolution in the nick of time,
arose pursuant to and in circumstances
bringing the Bank’s auction plans to a
where the appointed business rescue
halt, in accordance with the moratorium
practitioner and first respondent,
imposed in terms of section 133 of the Act.
Dr LL Wolmarans’ (Dr Wolmarans) powers
4 | DISPUTE RESOLUTION ALERT 4 June 2020DISPUTE RESOLUTION
What NOT to do when under
business rescue...continued
Subsequently, 27 months passed and no It is trite that in order for a business rescue
business rescue plan had been adopted. practitioner to perform its duties properly,
Having granted the Dr Wolmarans contended that this was the practitioner needs to be aware of all
due to Lyndoch’s lack of cooperation and the activities of the business, have access
Bank leave to bring the
their unwillingness to provide funding for to its full financial statements and receive
application, the court, in the business rescue proceedings. It had the necessary funding from the business
deciding the issues before also come to light that the members of in question to formulate, and implement,
it, first had to consider Lyndoch failed to disclose to the business its business rescue plan. On the facts, it
rescue practitioner certain of the business’ was clear that this had not been the case,
Lyndoch’s application income streams and that those same with a member of Lyndoch conceding in
for postponement and members had been keeping some of an affidavit filed as part of the proceedings
the request to file further these profits for themselves. Finally, in that “In this respect I might have not fully
papers brought by the February 2018, Dr Wolmarans issued a taken the business rescue practitioner
notice to all affected parties, stating that into my confidence”. This was a slight
members of Lyndoch. there was no possibility of rescuing the understatement, as the court found that
company and that he will apply to court for Dr Wolmarans had been kept in complete
liquidation order. The Bank beat him to it, darkness. The court made it clear that it
resulting in this judgment. will not tolerate an abuse of process in
order to delay the inevitable and given
Having granted the Bank leave to bring
the clear statement by Dr Wolmarans
the application, the court, in deciding
that there is no prospect of rescuing the
the issues before it, first had to consider
business, a postponement of the matter
Lyndoch’s application for postponement
would not be entertained.
and the request to file further papers
brought by the members of Lyndoch Turning then to the application for winding
(not the business rescue practitioner, up brought by the Bank, the court made
who decided to abide by the court’s reference to the Supreme Court judgment
decision). The court found that Lyndoch’s in Naidoo v Absa Bank 2014 (4) SA 597
postponement application was without (SCA), where it was held that sequestration
merit and that in the submissions made on proceedings are not legal proceedings to
its behalf, no good cause had been shown enforce an agreement, but rather a way
on part of Lyndoch. In refusing Lyndoch’s to set the machinery of law in motion.
application, the court also considered Although the application in question was
and criticized Lyndoch’s general attitude one for liquidation of a close corporation
throughout the course of the business and not the sequestration of a private
rescue proceedings, and specifically the person, the law relating to the two are
members’ actions toward Dr Wolmarans. similar. As such the Bank is entitled to bring
an application for liquidation.
5 | DISPUTE RESOLUTION ALERT 4 June 2020DISPUTE RESOLUTION
What NOT to do when under
business rescue...continued
In assessing the merits of the application, This judgment once again reminds us of
the court held that Lyndoch was clearly the importance of cooperation between
This judgment once indebted to the Bank, commercially the members/directors of a company/close
insolvent and in financial distress. The only corporation in business rescue and the
again reminds us of
instance in which the court can exercise business rescue practitioner. It is essential
the importance of its discretion to not grant the liquidation for all the parties to work together
cooperation between order, is where Lyndoch can establish that towards the same goal, otherwise the
the members/directors it will pay its debts if not liquidated. From business rescue is destined for failure and
the facts, this was clearly not the case. liquidation becomes inevitable. Trust,
of a company/close Having regard to the prejudice to the Bank transparency and teamwork is the key to a
corporation in business and a possible concursus of creditors, the successful business rescue.
rescue and the business court found that it was in the interest of
rescue practitioner. justice that a provisional winding up order Lucinde Rhoodie, Pauline Manaka
be granted. and Kara Meiring
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6 | DISPUTE RESOLUTION ALERT 4 June 2020DISPUTE RESOLUTION
Post in haste, repent forever!
Tuning in to the news - morning or Hard questions and no straight answers.
evening, local or international - you Maybe those posting harmful / hateful
Offenders face virtual are inevitably met with headlines such content have no understanding that
as, “Acting judge steps down from the posting on social media constitutes
justice presented by the
bench after lashing out at Government publication. If so, a good place to start
evolving and ubiquitous policy in Facebook rant”; and “Aspiring in understanding defamation is the legal
“cancel culture” that targets Miss SA contestant forced to withdraw authorities. The Constitutional Court in
anyone whose social from the pageant following the Le Roux v Dey 2011 3 SA 274 confirmed
re-emergence of controversial tweets that the law of defamation is designed to
media posts offend (even published when she was 14”. These are compensate a victim for any publication
marginally) the court of just two of the headlines (the titles may that injures the victim in their good name
public opinion. vary per publication or news source) and reputation. The court set out the
that have done the rounds in the past elements of defamation succinctly as: the
month alone. wrongful and intentional publication of
a defamatory statement concerning the
Cautionary tales regarding controversial
wronged party.
content published on social media and
internet platforms are not new. Offenders As the online environment develops it is
face virtual justice presented by the the notion of publication that we focus on
evolving and ubiquitous “cancel culture” here. Before the internet, what constituted
that targets anyone whose social media “publication” was limited generally to
posts offend (even marginally) the court of hardcopy print. But with the advent and
public opinion. They also face the risk of evolution of electronic communication,
defamation claims which can be costly to the internet and social media, examples
fight and very costly to lose. meeting the requirement of “publication”,
as set out in the Le Roux case, will
With those risks to profile and pocket,
self-evidently include email but also:
why do people still publish potentially
harmful or controversial content on social ∞ posts on any social media platforms,
media platforms? Is freedom of expression Instagram; Facebook; Twitter; LinkedIn;
regarded as an absolute (online) right? and TikTok included;
Does a perception of online anonymity ∞ WhatsApp messages;
fuel a misplaced and ill-advised bravado ∞ comments on online news articles;
amongst keyboard warriors? and
∞ any other publicly accessible medium.
7 | DISPUTE RESOLUTION ALERT 4 June 2020DISPUTE RESOLUTION
Post in haste, repent forever!...continued
What is even more important to - going viral. The internet and social
understand is that South African law media are immensely powerful but so
So just by clicking share, considers repeating or sharing defamatory dangerous for the innocent and unwary.
content as sufficient to constitute Many children have access to electronic
you could be perpetuating
“publication” and, thus, defamation in devices and social media platforms, and it
the defamation, exposing its own right, even if the repeater or is so important that children are aware of
yourself to a damages sharer was not the author of the original the grave consequences of irresponsible
claim for defamation or defamatory post. So just by clicking share, conduct, consequences that might only be
you could be perpetuating the defamation, manifest years down the line. Just like an
to potential dismissal by exposing yourself to a damages claim for elephant, the internet never forgets.
your employer. defamation or to potential dismissal by
We should have no sympathy for bigots
your employer. Disciplinary proceedings
and online “trolls” – they should get what’s
against employees in relation to their
coming to them. But children, young
social media activity and online conduct
adults and the uninitiated need to be made
is now well established in our law, as
aware that, no matter how innocently they
detailed in our employment alerts of
publish or share something online, that
18 November 2019 and 3 December 2019.
publication could jeopardise their future.
With 1.62 billion users visiting Facebook The last thing anyone wants, having posted
each day (as at 4 May 2020) - and rashly or carelessly, is to be left quoting
approximately 145 million daily active JK Rowling’s Rubeus Hagrid: “Shouldn’t
users on Twitter (as at 30 November have said that...I should not have said that…
2019), the chances of a defamatory post shouldn’t have said that!”.
going undetected are slim – in fact, you
have more chance of the opposite result Tim Smit and Elizabeth Sonnekus
8 | DISPUTE RESOLUTION ALERT 4 June 2020CHAMBERS GLOBAL 2017 - 2020 ranked our Dispute Resolution practice in Band 1: Dispute Resolution.
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9 | DISPUTE RESOLUTION ALERT 4 June 2020OUR TEAM
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