THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 982/18

In the matter between:
CARATCO (PTY) LTD

APPELLANT
and
INDEPENDENT ADVISORY (PTY) LTD                        RESPONDENT

Neutral citation: Caratco (Pty) Ltd v Independent Advisory (Pty) Ltd (Case
no 982/18) [2020] ZASCA 17 (25 March 2020)
Coram:
CACHALIA, WALLIS, NICHOLLS AND DLODLO JJA AND
KOEN AJA
Heard:
25 February 2020
Delivered: 25 March 2020
Summary: Companies Act 71 of 2008 – whether special fee for remuneration
of business rescue practitioner outside of s 143 prohibited – special fee agreed
with creditor of company under business rescue – whether void for illegality
or contrary to public policy – business rescue practitioner’s duties under ss 75
and 76 considered.

_____________________________________________________________
ORDER
_____________________________________________________________
On appeal from:  Gauteng Division of the High Court, Johannesburg
(Makume J, sitting as court of first instance):

The application is dismissed with costs.

_____________________________________________________________
JUDGMENT
_____________________________________________________________
Cachalia JA (Wallis, Nicholls and Dlodlo JJA and Koen AJA concurring)

[1] This is an application for leave to appeal against an order of the Gauteng
Local Division of the High Court (Makume J) ordering the applicant, Caratco
(Pty) Ltd, to pay to Independent Advisory Services (Pty) Ltd (IAS) the amount
of R2 280 000 plus costs on an attorney and client scale. IAS claimed the
amount from Caratco as a ‘success fee’ for having implemented the business
rescue of a financially distressed company, Galaxy Jewellers (Pty) Ltd.
Caratco is a creditor and holds an indirect controlling interest in the Galaxy
group of companies. It is therefore a company ‘related’ to Galaxy as envisaged
in s 2 of the Companies Act 71 of 20081 (the Act). IAS sued Caratco because

1‘Related and inter-related persons, and control
(1) For all purposes of this Act-
(a)   . . .
(b)   . . .
(c)   a juristic person is related to another juristic person if-

it alleged that Caratco had undertaken liability for payment of the success fee.
Caratco denied liability, but the court a quo rejected all its pleaded defences
and also refused it leave to appeal against the order. Caratco then applied for
leave to appeal to this court, which referred the application for oral argument
in terms of s 17(2)(d) of the Superior Courts Act 10 of 2013, with the parties
having to be prepared to address the court on the merits if necessary.

[2] In order to be granted leave to appeal in terms of s 17(1)(a)(i) and
s 17(1)(a)(ii)2 of the Superior Courts Act an applicant for leave must satisfy
the court that the appeal would have a reasonable prospect of success or that
there is some other compelling reason why the appeal should be heard. If the
court is unpersuaded of the prospects of success, it must still enquire into
whether there is a compelling reason to entertain the appeal. A compelling
reason includes an important question of law or a discreet issue of public
importance that will have an effect on future disputes. But here too, the merits
remain vitally important and are often decisive.3 Caratco must satisfy this
court that it has met this threshold.

[3] IAS is a company specialising in business rescue. On 9 October 2015,
two of its directors, Mr Frederick Johannes Klopper and Ms Rynette Peters

(i)   either of them directly or indirectly controls the other, or the business of the other, as determined in
accordance with subsection (2);
(ii)   either is a subsidiary of the other; or
(iii)   a person directly or indirectly controls each of them, or the business of each of them, as determined
in accordance with subsection (2).’
2 ‘Leave to appeal
(1) Leave to appeal may only be given where the judge or judges concerned are of the opinion that-
(a)
(i)   the appeal would have a reasonable prospect of success; or

(ii)   there is some other compelling reason why the appeal should be heard, including conflicting

judgments on the matter under consideration.’
3 Minister of Justice and Constitutional Development and Others v Southern Africa Litigation Centre and
Others [2016] ZASCA 17; 2016 (3) SA 317 (SCA) paras 23 and 24.

were appointed as joint business rescue practitioners by Galaxy. Klopper
discussed the payment of the success fee with Mr Stephan Olivier, Galaxy’s
managing director, who in turn agreed the fee of R2 million with Mr Tom
Watson. Watson is Caratco’s managing director and the Galaxy group’s
controlling mind. On 20 February 2016 he confirmed this agreement in an
email to Klopper. On 24 March 2016 Caratco’s attorney, Mr Christopher
Holfeld of Webber Wentzel Attorneys, informed Klopper that he would
advise him in due course which entity in the Galaxy group would be chosen
to be responsible for payment of the fee so as to maximize any income tax
advantage to the group.

[4] On 30 March 2016, Holfeld requested Klopper by email to submit his
company’s invoice to Caratco. He added that IAS had to file its notice of
substantial implementation to bring an end to the business rescue proceedings
with the Companies and Intellectual Property Commission and publish a
notice to this effect in terms of the applicable regulation. He stated further that
‘until this has occurred, our client (Caratco) is not obliged to pay any further
amount to you’. IAS complied with the notice and publication requirement on
the same day and duly invoiced Caratco for payment of the R2 million,
excluding VAT. But Caratco ignored the invoice and IAS’s subsequent
demand for payment.

[5] Relying on these essential facts IAS launched motion proceedings
against Caratco for payment of the debt on 4 August 2016. Watson deposed
to Caratco’s answering affidavit opposing the relief claimed. Importantly, he
admitted the agreement between IAS and Caratco but denied liability on
several other grounds. On 3 March 2017, the motion court referred the matter

to trial. IAS filed its declaration to which Caratco filed a plea, and IAS a
replication.

[6] Despite having initially conceded that it had concluded the agreement
with IAS in its answering affidavit, Caratco now denied this in its plea.
Among several other defences it also pleaded that if there was an agreement,
Holfeld had not been authorised to conclude it on its behalf. In the alternative
it pleaded that the agreement was concluded due to its unilateral mistake,
induced by Klopper’s misrepresentation that a special fee was due in terms of
s 143 (when it was not a fee contemplated in the section) and was therefore
void. As a measure of last resort Caratco pleaded that the agreement was
illegal and contrary to public policy.

[7] Klopper testified for IAS. He was the only witness who testified at the
trial. He was cross-examined at length. His version of the events and
correspondence preceding Holfeld’s communication with him on 30 March
2016, when he was asked to invoice Caratco, was largely unchallenged.
Significantly, no version was put to him regarding the factual basis for any of
Caratco’s pleaded defences other than that no agreement was concluded.
Caratco closed its case without calling any witnesses to rebut Klopper’s
version. In particular it did not call Watson to explain why he had accepted
that an agreement was concluded in his answering affidavit, which was now
denied in its plea, or to support its unilateral mistake defence. And Holfeld,
being an attorney, was unsurprisingly not called to confirm Caratco’s pleaded
case that he was not authorised to conclude the agreement, or crucially, why
he had asked Klopper to invoice Caratco for the special fee, if it had no

obligation to pay the fee. He would doubtlessly have had some difficulty
explaining this in the light of Klopper’s uncontested version.

[8] The court a quo, therefore, had little difficulty in finding that Caratco
had agreed to pay the success fee of R2 million (plus VAT) and that it had
failed to establish any of its defences, including the illegality and public policy
defences, which I shall consider later. The learned judge was also correct in
drawing an adverse inference against Caratco for having failed to call Watson
and Holfeld, and in finding that a punitive costs order was warranted against
it for the manner in which it had conducted the litigation.

[9] In its application to this court Caratco, wisely, did not persist with the
defences relating to mistake or Holfeld’s alleged lack of authority to conclude
the agreement. But it persisted with its unmeritorious defence that no
agreement had been concluded. This despite Watsons’s earlier admission to
the contrary. It is unnecessary to consider the merits of the ‘no agreement
defence’ in any detail because there is no reasonable prospect of this court
overturning the factual findings of the high court on this aspect. And it was
not suggested that there is any compelling reason to entertain the appeal on
this ground either.

[10] Instead, in this court Caratco focused on its statutory illegality and
public policy defence/s. It contended that the issue as to whether a business
rescue practitioner may earn a success fee outside the strictures of s 143 of the
Act involved important questions of public policy and constituted a
‘compelling reason’ for the appeal to be entertained as contemplated in
s 17(1)(a)(ii) of the Superior Courts Act.

[11] The defence was pleaded as follows:
‘5.3
The consensus is illegal, alternatively, contrary to public policy and accordingly
void and the Court should declare the agreement void under the provisions of section 218
of the Act; alternatively, the agreement is unenforceable;
5.3.1 In terms of section 145 of the Act, the plaintiff (as the business rescue practitioner)
has powers to manage and control the company, but has the responsibilities, duties and
liabilities of a director as set out in sections 75 to 77 of the Act.
5.3.2 In terms of section 75(3) of the Act, a business rescue practitioner may not approve
or enter into any agreement in which he/she or a related person has a personal financial
interest; or determine any other matter in which the person or a related person has a
personal financial interest.
5.3.3 Section 76 prohibits the business rescue practitioner from gaining an advantage for
itself.
5.3.4 A business rescue practitioner is not entitled to earn a special fee from a third party
in consequence of acting as the business rescue practitioner, such special fee not being one
in terms of section 143 of the Act.
5.3.5 Properly construed, section 143 of the Act is the only means by which a practitioner
can be remunerated for her services in business rescue proceedings.’

[12] I shall consider the illegality defence first. Caratco has pleaded no facts
to support this defence. It is however beyond dispute – now that the ‘no
agreement’ defence has been found to have no reasonable prospect of success
– that Caratco undertook the obligation to settle the success fee. That being
so, it contended that s 1434 of the Act, which provides for the remuneration of

4 Section 143 reads:
‘Remuneration of practitioner
(1) The practitioner is entitled to charge an amount to the company for the remuneration and expenses of the
practitioner in accordance with the tariff prescribed in terms of subsection (6).
(2) The practitioner may propose an agreement with the company providing for further remuneration,
additional to that contemplated in subsection (1), to be calculated on the basis of a contingency related to-
(a) the adoption of a business rescue plan at all, or within a particular time, or the inclusion of any
particular matter within such a plan; or

business rescue practitioners, is the sole means by which they may be
remunerated. Therefore, the argument continued, any fees agreed upon
outside of its terms are impliedly prohibited. The court ‘should’ therefore, it
concluded, declare the agreement void in accordance with its powers under
s 218 of the Act.

[13] The first difficulty with this contention is that s 143 regulates the
remuneration of business rescue practitioners by the company under business
rescue. It says nothing about any other fee arrangements that may be
concluded between a practitioner and a third party, which is what the
agreement in issue in this case is. So, whatever the scope of s 143 regarding
such fee arrangements, it does not apply here.

[14] But even if we accept the dubious proposition that s 143 is the sole basis
by which business rescue practitioners may be paid, there are no indications
in the section suggesting that an agreement that does not fall within its ambit

(b) the attainment of any particular result or combination of results relating to the business rescue
proceedings.
(3) Subject to subsection (4), an agreement contemplated in subsection (2) is final and binding on the
company if it is approved by-
(a) the holders of a majority of the creditors’ voting interests, as determined in accordance with section
145(4) to (6), present and voting at a meeting called for the purpose of considering the proposed agreement;
and
(b) the holders of a majority of the voting rights attached to any shares of the company that entitle the
shareholder to a portion of the residual value of the company on winding-up, present and voting at a meeting
called for the purpose of considering the proposed agreement.
(4) A creditor or shareholder who voted against a proposal contemplated in this
section may apply to a court within 10 business days after the date of voting on that proposal, for an order
setting aside the agreement on the grounds that-
(a) the agreement is not just and equitable; or
(b) the remuneration provided for in the agreement is egregiously unreasonable having regard to the
financial circumstances of the company.
(5) To the extent that the practitioner’s remuneration and expenses are not fully paid, the practitioner’s claim
for those amounts will rank in priority before the claims of all other secured and unsecured creditors.
(6) The Minister may make regulations prescribing a tariff of fees and expenses for the purposes of
subsection (1).’

is void. In the absence of any such clear expression, the question as to whether
or not the agreement is void depends on whether this inference may be drawn
from the language of the statute, or put differently, whether such intention
may be imputed to the lawmaker. One such indication would be if the statute
penalises the act; it could then be said to impliedly prohibit it and render it
null and void. But this is not a hard and fast rule. It is only if a court is
convinced that the lawmaker intended to invalidate the act that a court would
so hold.5 Section 143 contains no language entitling a court to draw any such
inference, much less here where the agreement is with a third party.

[15] Realising the difficulties it faced relying on s 143 to invalidate the
agreement, Caratco attempted to bolster its case by relying generally on two
other provisions, ss 75(3) and 76. It pleaded that because a business rescue
practitioner has the powers to manage and control the company in terms of
s 140(3)(b),6 and the responsibilities, duties and liabilities of a director as set
out in ss 75(3) and 76, its failure to fulfil its responsibilities and duties for
which these sections provide renders the agreement void.7

[16] Section 75 deals with a director’s duty not to have personal financial
interests in future or existing contracts with the company.8 Section 140(3)(b)

5 Geue and Another v Van Der Lith and Another 2004 (3) SA 333 (SCA) para 18.
6 Mistakenly pleaded as s 145 of the Act.
7 Caratco also included s 77 among the responsibilities, duties and liabilities of director and business rescue
practitioner it pleaded. But no argument was presented regarding this section.
8 ‘Director's personal financial interests
(1) In this section-
(a)   “director” includes-
(i)   an alternate director;
(ii)   a prescribed officer; and
(iii)   a person who is a member of a committee of the board of a company,
irrespective of whether the person is also a member of the company's board; and

(b)   “related person”, when used in reference to a director, has the meaning set out in section 1, but also
includes a second company of which the director or a related person is also a director, or a close corporation
of which the director or a related person is a member
(2) This section does not apply-
(a)   to a director of a company-
(i)   in respect of a decision that may generally affect-
(aa)   all of the directors of the company in their capacity as directors; or
(bb)   a class of persons, despite the fact that the director is one member of that class of persons, unless the
only members of the class are the director or persons related or inter-related to the director; or
(ii)   in respect of a proposal to remove that director from office as contemplated in section 71; or
(b)   to a company or its director, if one person-
(i)   holds all of the beneficial interests of all of the issued securities of the company; and
(ii)   is the only director of that company.
(3) If a person is the only director of a company, but does not hold all of the beneficial interests of all of the
issued securities of the company, that person may not-
(a)   approve or enter into any agreement in which the person or a related person has a personal financial
interest; or
(b)   as a director, determine any other matter in which the person or a related person has a personal financial
interest,
unless the agreement or determination is approved by an ordinary resolution of the shareholders after the
director has disclosed the nature and extent of that interest to the shareholders.
(4) At any time, a director may disclose any personal financial interest in advance, by delivering to the board,
or shareholders in the case of a company contemplated in subsection (3), a notice in writing setting out the
nature and extent of that interest, to be used generally for the purposes of this section until changed or
withdrawn by further written notice from that director.
(5) If a director of a company, other than a company contemplated in subsection (2) (b) or (3), has a personal
financial interest in respect of a matter to be considered at a meeting of the board, or knows that a related
person has a personal financial interest in the matter, the director-
(a)   must disclose the interest and its general nature before the matter is considered at the meeting;
(b)   must disclose to the meeting any material information relating to the matter, and known to the director;
(c)   may disclose any observations or pertinent insights relating to the matter if requested to do so by the
other directors;
(d)   if present at the meeting, must leave the meeting immediately after making any disclosure
contemplated in paragraph (b) or (c);
(e)   must not take part in the consideration of the matter, except to the extent contemplated in paragraphs
(b) and (c);
(f)   while absent from the meeting in terms of this subsection-
(i)   is to be regarded as being present at the meeting for the purpose of determining whether sufficient
directors are present to constitute the meeting; and
(ii)   is not to be regarded as being present at the meeting for the purpose of determining whether a
resolution has sufficient support to be adopted; and
(g)   must not execute any document on behalf of the company in relation to the matter unless specifically
requested or directed to do so by the board.
(6) If a director of a company acquires a personal financial interest in an agreement or other matter in which
the company has a material interest, or knows that a related person has acquired a personal financial interest
in the matter, after the agreement or other matter has been approved by the company, the director must
promptly disclose to the board, or to the shareholders in the case of a company contemplated in subsection
(3), the nature and extent of that interest, and the material circumstances relating to the director or related
person's acquisition of that interest.
(7) A decision by the board, or a transaction or agreement approved by the board, or by a company as
contemplated in subsection (3), is valid despite any personal financial interest of a director or person related
to the director, only if-
(a)   it was approved following disclosure of that interest in the manner contemplated in this section; or
(b)   despite having been approved without disclosure of that interest, it-

imposes the same general obligations and fiduciary duties of a director under
s 75 upon a business rescue practitioner when he or she assumes this
responsibility, mutatis mutandis.9 The directors remain in office under
s 137(2) acting under the practitioner’s authority. The practitioner does not
become a director. At common law, which applies to s 75, a director has a
fiduciary duty to avoid any conflicts of interest with the company. In general,
therefore, a director cannot have an interest in a contract with the company
unless it approves the contract at a general meeting after disclosure of the
interest by the director. Where no disclosure is made the contract is voidable
(not void) at the company’s instance.10

[17] Section 75(3), one of the two provisions Caratco attempts to rely upon
to invalidate the agreement, deals with one such instance where an ‘only
director of a company’ is required to disclose any personal financial interest
in a contract with the company to its shareholders. To assist the reader the
section is repeated here. It provides:
‘(3)
If a person is the only director of a company, but does not hold all of the beneficial
interests of all of the issued securities of the company, that person may not-

(a)   approve or enter into any agreement in which the person or a related person

has a personal financial interest; or

(b)   as a director, determine any other matter in which the person or a related

person has a personal financial interest,

(i)   has subsequently been ratified by an ordinary resolution of the shareholders following disclosure of
that interest; or
(ii)   has been declared to be valid by a court in terms of subsection (8).
(8) A court, on application by any interested person, may declare valid a transaction or agreement that had
been approved by the board, or shareholders, as the case may be, despite the failure of the director to satisfy
the disclosure requirements of this section.’
9 Section 140(3)(b) provides that during a company’s business rescue proceedings, the practitioner has the
responsibilities, duties and liabilities of a director of the company, as set out in ss 75 to 77.
10 See generally P Delport Henochsberg on the Companies Act 71 of 2008 Vol 1 [issue18] at 292(2)–292(5)
(online version).

unless the agreement or determination is approved by an ordinary resolution of the
shareholders after the director has disclosed the nature and extent of that interest to the
shareholders.’

[18] There are several problems with Caratco’s attempt to rely on this
section. The first obvious one is that it applies only where there is a single
director, who does not hold all the shares in the company. In addition, even
assuming the section is broad enough to include agreements between the
director and a third party, as opposed to with the company itself, the
agreement must, at the very least, be one in which the company has a material
interest.11 The agreement between IAS and Caratco is not one in which Galaxy
has any interest. It therefore did not apply to Galaxy, which has a board of
directors, not a single director; secondly, Caratco did not specify which
subsection – s 75(3)(a) or s 75(3)(b) – applied in this case; thirdly, it pleaded
no facts to bring the contract within the ambit of the provision,12 nor did it
even suggest to Klopper in cross-examination that Galaxy had any interest in
the agreement or that the business rescue practitioners had a duty to disclose
the agreement with Caratco to the Galaxy board.

[19] On the contrary it is clear from the evidence that Watson, who was the
managing director of Caratco and the controlling mind of the Galaxy group,
was a central figure in negotiating and concluding the agreement. So, neither
Caratco nor anyone else in the Galaxy group can complain that they were
unaware of the agreement or that it amounted to a conflict of interest having

11 See s 75(6) and s 75(7).
12 Cf Yannakou v Apollo Club 1974 (1) SA 614 (A) at 623F-H; Naude and Another v Fraser 1998 (4) SA
539 (SCA) at 563F-G; Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and
Others 2004 (4) SA 490 (CC) para 27.

regard to the business rescue practitioner’s fiduciary duty to Galaxy. On the
contrary if anyone had cause to complain it may have been Galaxy (the entity
under business rescue) and not Caratco, which now deploys this argument
cynically to escape the consequences of its agreement.

[20] Caratco’s reliance on s 76 of the Act is equally unmeritorious. The
section deals with directors’ fiduciary duties and their duty of care, skill and
diligence owed to the company. At common law the duty includes a
prohibition against a director gaining an advantage for himself by, for
example, misappropriating the company’s corporate opportunities. As with
s 75, and also by virtue of s 140(3)(b), these duties apply equally to business
practice practitioners.

[21] Section 76 is extensive in its scope and comprises five sub-sections that
also contain further sub-sections.13 Here too, Caratco has not pleaded which

13 ‘Standards of directors conduct
(1) In this section, “director” includes an alternate director, and-
(a)   a prescribed officer; or
(b)   a person who is a member of a committee of a board of a company, or of the audit committee of a
company,
irrespective of whether or not the person is also a member of the company's board.
(2) A director of a company must-
(a)   not use the position of director, or any information obtained while acting in the capacity of a director-
(i)   to gain an advantage for the director, or for another person other than the company or a wholly-owned
subsidiary of the company; or
(ii)   to knowingly cause harm to the company or a subsidiary of the company; and
(b)   communicate to the board at the earliest practicable opportunity any information that comes to the
director's attention, unless the director-
(i)   reasonably believes that the information is-
(aa)   immaterial to the company; or
(bb)   generally available to the public, or known to the other directors; or
(ii)   is bound not to disclose that information by a legal or ethical obligation of confidentiality.
(3) Subject to subsections (4) and (5), a director of a company, when acting in that capacity, must exercise
the powers and perform the functions of director-
(a)   in good faith and for a proper purpose;
(b)   in the best interests of the company; and
(c)   with the degree of care, skill and diligence that may reasonably be expected of a person-
(i)   carrying out the same functions in relation to the company as those carried out by that director; and

sub-section it specifically relies upon or the facts that supposedly bring the
business rescue practitioner’s conduct in concluding the success fee
arrangement with it, within its ambit. And, as I pointed out earlier in relation
to the s 75(3) complaint, it did not suggest to Klopper during his cross-
examination how his conduct supposedly fell foul of any of its provisions.
IAS cannot sensibly be expected to answer this allegation.

[22] Finally Caratco pleaded that because the agreement is ‘illegal’ the court
‘should’ declare it void under the provisions of s 218 of the Act.14 Section 218

(ii)   having the general knowledge, skill and experience of that director.
(4) In respect of any particular matter arising in the exercise of the powers or the performance of the functions
of director, a particular director of a company-
(a)   will have satisfied the obligations of subsection (3) (b) and (c) if-
(i)   the director has taken reasonably diligent steps to become informed about the matter;
(ii)   either-
(aa)   the director had no material personal financial interest in the subject matter of the decision, and had
no reasonable basis to know that any related person had a personal financial interest in the matter; or
(b)   the director complied with the requirements of section 75 with respect to any interest contemplated in
subparagraph (aa); and
(iii)   the director made a decision, or supported the decision of a committee or the board, with regard to
that matter, and the director had a rational basis for believing, and did believe, that the decision was in the
best interests of the company; and
(b)   is entitled to rely on-
(i)   the performance by any of the persons-
(aa)   referred to in subsection (5); or
(bb)   to whom the board may reasonably have delegated, formally or informally by course of conduct, the
authority or duty to perform one or more of the board's functions that are delegable under applicable law; and
(ii)   any information, opinions, recommendations, reports or statements, including financial statements
and other financial data, prepared or presented by any of the persons specified in subsection (5).
(5) To the extent contemplated in subsection (4) (b), a director is entitled to rely on-
(a)   one or more employees of the company whom the director reasonably believes to be reliable and
competent in the functions performed or the information, opinions, reports or statements provided;
(b)   legal counsel, accountants, or other professional persons retained by the company, the board or a
committee as to matters involving skills or expertise that the director reasonably believes are matters-
(i)   within the particular person's professional or expert competence; or
(ii)   as to which the particular person merits confidence; or
(c)   a committee of the board of which the director is not a member, unless the director has reason to
believe that the actions of the committee do not merit confidence.’
14 ‘Civil actions
(1)  Subject to any provision in this Act specifically declaring void an agreement, resolution or provision of
an agreement, Memorandum of Incorporation, or rules of a company, nothing in this Act renders void any
other agreement, resolution or provision of an agreement, Memorandum of Incorporation or rules of a
company that is prohibited, voidable or that may be declared unlawful in terms of this Act, unless a court has
made a declaration to that effect regarding that agreement, resolution or provision.

contains three sub-sections but Caratco did not specifically refer to the sub-
section it wishes to rely upon, either. But it seems that it had s 218(1) in mind
for this purpose. The section permits a court to declare an agreement void if it
is ‘prohibited, void, voidable or may be declared unlawful’.

[23] I have already indicated that there is no substance in any of Caratco’s
‘illegality’ complaints. On that basis it is unnecessary to consider the court’s
power to declare a contract concluded contrary to the provisions of the Act,
void under s 218(1). That point is not reached in this case.

[24] What remains is Caratco’s public policy defence. It contended that the
agreement is contrary to public policy on two grounds: First, it said that
Klopper ‘subverted the democratic vote of the majority of creditors’ by
claiming the debt under the pretext that it was due in terms of s 143, when it
was not. In this regard s 143(3) provides for a meeting of the creditors to
consider and approve the proposed agreement, and s 143 (4) provides for a
creditor, who voted against the proposal, to apply to a court within 10 business
days of the meeting for an order setting aside the agreement on the grounds
that it is not just and equitable or that the fee charged is egregiously
unreasonable having regard to the financial circumstances of the company.
Thus, submitted Caratco, the other creditors could have secured a greater
dividend for themselves than the amount they received and the conclusion of
the private treaty between IAS and one of the creditors – Caratco – without

(2)  Any person who contravenes any provision of this Act is liable to any other person for any loss or damage
suffered by that person as a result of that contravention.
(3)  The provisions of this section do not affect the right to any remedy that a person may otherwise have.’

disclosure to the other creditors was inimical to the legislative purposes of the
Act.

[25] Secondly, and related to the first ground, it contended that because
business rescue practitioners have a duty of impartiality and independence
towards the company under business rescue, the agreement for payment of a
success fee with a single creditor without seeking the approval of the general
body of creditors offended this duty. This is so, it is contended, because the
creditor with whom the agreement is concluded would be ‘captured’ by the
business rescue practitioner and secure its own interests outside of the general
body of creditors. This implied that there was some sort of bribery or collusive
behaviour between the practitioner and the creditor.

[26] These submissions were not only extraordinary but utterly without any
merit. It is trite that it is for the party seeking to impugn an agreement on
public policy grounds to plead and prove the facts upon which it is founded.15
Caratco has done neither. Even worse, the proven facts are against it.

[27] The evidence reveals that Klopper had initially included the success fee
in the draft business rescue plan that he had prepared on 19 February 2016,
which would be voted on as envisaged in s 143(4). However, Holfeld
requested him to delete the fee from the plan so that it could be dealt with in
a separate agreement with another company – Outlast (Pty) Ltd – that is also
controlled by Mr Watson and his co-directors. Klopper agreed to this
proposal. That agreement never materialised because Caratco subsequently

15 AB v Pridwin Preparatory School [2018] ZASCA 150; 2019 (1) SA 327 (SCA) para 27.

undertook liability for the payment of the success fee. So, when Galaxy’s
creditors and shareholders adopted the business rescue plan on 1 March 2016
there was no separate success fee to be voted on. There was therefore no
factual basis for the suggestion that Mr Klopper was subverting the
democratic vote of the creditors by agreeing to delete the success fee at Mr
Holfeld’s request. If there was any prejudice to the other creditors that would
have to be laid at Caratco’s door, not IAS.

[28] The facts, however, show there was no prejudice to any creditor either.
Caratco submitted that in consequence of the fee, the creditors had to take less
money than was otherwise available for distribution to them. But
Mr Klopper’s evidence contradicted this expressly. He testified that the fee
had no financial impact on creditors at all as it was an additional amount that
Caratco had undertaken to pay. It was not earmarked for the creditors and if
they were dissatisfied with their dividend, they would have voted against it,
but they did not.

[29] It hardly lies in the mouth of Caratco, which seeks only to avoid having
to meet its payment obligations, to now opportunistically invoke some
unproven prejudice to creditors, to this end. If this was truly its concern, it
would have joined the other creditors to enable them to make this case.

[30] Even more extraordinary is the submission that the agreement for
payment of the success fee with a single creditor, without seeking the approval
of the body of creditors, was offensive because it would lead to a creditor
being ‘captured’ by the business rescue practitioner to the disadvantage of the
general body of creditors. But it was Watson and Holfeld, Caratco’s managing

director and attorney respectively – not IAS – who proposed that the
additional fee be deleted from the draft plan. The idea that IAS through
Klopper was somehow engaged in some sort of collusive process that resulted
in Caratco’s ‘capture’ was not only at odds with the facts, but also defies any
logic.

[31] Importantly, Caratco did not contend – and was unable to make a case
– that the fee it freely negotiated and agreed upon with the business rescue
practitioner was either unjust, inequitable or ‘egregiously unreasonable’ as
envisaged in s 143(4) of the Act. In these circumstances the public policy
defence is also without any merit.

[32] For these reasons Caratco has neither made out a case that it has
reasonable prospects of success in the appeal nor that there are other
compelling reasons to grant it leave to appeal.

[33] The application is accordingly dismissed with costs.

__________________
A CACHALIA
JUDGE OF APPEAL

Appearances

For appellant:
D J Vetten
Instructed by:
Nel Van der Merwe & Smalman Attorneys, The Willows

Honey Attorneys, Bloemfontein

For respondent:
G D Wickins
Instructed by:
Brooks & Braatvedt Inc, Johannesburg

Symington & De Kok, Bloemfontein
SUPREME COURT OF APPEAL SOUTH AFRICA
MEDIA SUMMARY – JUDGEMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM         The Registrar, Supreme Court of Appeal
DATE          25 March 2020
STATUS     Immediate
Please note that the media summary is for the benefit of the media and does not form part of the
judgement of the Supreme Court of Appeal.

CARATCO (PTY) LTD
v
INDEPENDENT ADVISORY SERVICES (PTY) LTD
______________________________________________________________________
The Supreme Court of Appeal (SCA) today dismissed an application for leave to
appeal by Caratco (Pty) Ltd against an order of the high court requiring it to pay IAS
(Pty) Ltd the amount of R2 280 000 plus costs on an attorney and client scale.
Caratco was ordered to pay the costs of the application.
IAS is a firm specialising in the business rescue of companies that are financially
distressed. It claimed payment of the amount based on an agreement with Caratco
for payment of a ‘success fee’ for implementing the business rescue of Galaxy

Jewellers (Pty) Ltd (Galaxy). Caratco is a ‘related entity’ and part of the Galaxy
group of Companies. It is also a creditor of Galaxy.
Caratco denied that it had concluded the agreement and also pleaded that if the
agreement was concluded that it was illegal because it did not comply with the
relevant provisions of the Companies Act of 2008 and also that the agreement was
contrary to public policy because the payment of the success fee to one creditor,
namely Caratco, was to the prejudice of the other creditors.
After hearing oral arguments from both parties the SCA upheld the finding of the
high court that IAS had established the agreement with Caratco. It also found that
Caratco’s arguments regarding its illegality and public policy complaints was devoid
of any factual or legal merit. The SCA thus rejected Caratco’s application on the
grounds that it neither had any reasonable prospect of success, nor was there any
other compelling reason to entertain the merits of the appeal.