IN THE HIGH COURT OF SOUTH AFRICA WESTERN CAPE DIVISION, CAPE TOWN

Case Nr: 9675 /2017 In the matter between: THE MINISTER OF ENVIRONMENTAL AFFAIRS Applicant and RECYCLING AND ECONOMIC DEVELOPMENT Respondent INITIATIVE OF SOUTH AFRICA NPC (Registration number 2010/022733/08)

APPLICANT’S

HEADS OF ARGUMENT

INTRODUCTION ........................................................................................................................................ 2

PROCEDURAL BACKGROUND ............................................................................................................. 2

THE APPLICABLE LAW ........................................................................................................................... 3

Application for condonation ..................................................................................................................... 4

Disclosure in ex parte applications ........................................................................................................... 7

Principles relating to application for the final winding-up of a company ................................................ 8

BACKGROUND .......................................................................................................................................... 9

FINAL LIQUIDATION ............................................................................................................................... 16

The unlawful contravention of the Respondent’s objects ...................................................................... 16

The loss of the Respondent’s substratum .............................................................................................. 19

Misconduct in the management of the Respondent’s affairs ................................................................ 21

POINTS IN LIMINE .................................................................................................................................. 29

Urgency ................................................................................................................................................... 29

The locus standi issue ............................................................................................................................. 34

Non-disclosure ........................................................................................................................................ 39

Inadmissible evidence ............................................................................................................................. 40

Scope of the order .................................................................................................................................. 40

RELIEF CLAIMED .................................................................................................................................... 40

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INTRODUCTION

1. The Honourable Court is charged with two applications to be decided on 5 July

2017 namely –

1.1 an application for condonation for the late filing by a mere few hours of the

Applicants Replying Affidavit, and

1.2 the Honourable Court has to decide whether it would be just and equitable

and in the public interest to finally liquidate the Respondent.

PROCEDURAL BACKGROUND

2. The Applicant successfully sought and was granted an order1 for the provisional

liquidation of the Respondent in terms of section 81(1)(c)(ii) and/or section

81(1)(d)(iii) read with section 157(1)(d) of the Companies Act 71 of 2008 (“the

Companies Act”), on the basis that it is just and equitable and in the public interest

to do so, in terms of which order a rule nisi was issued that required the

Respondent, and any other party with a legitimate interest, to show cause, if any,

on Tuesday, 25 July 2017:

2.1 Why the Respondent should not be placed under a final winding-up order;

2.2 Why the liquidator of the Respondent should not be directed to distribute the

entire net value of the Respondent to the Waste Management Bureau; and

2.3 Why the costs of this application should not be cost in the winding-up of the

Respondent.

1 Order granted on 1 June 2017 by Ms Justice Cloete

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3. On Tuesday 20 June 2017 at 11:45 am, the Respondent filed a notice in terms of

Rule 6(8) of its intention to anticipate the return date of the provisional liquidation

order on Thursday, 22 June 2017. Together with this notice in terms of Rule 6(8),

the Respondent filed an answering affidavit comprising of some 179 pages

together with some 529 pages of annexures attached thereto.

4. The Respondent does not seek a reconsideration2 of the urgent, ex parte order of

1 June 2017. Instead the Respondent anticipated the return date of the rule nisi3

and seeks the dismissal of the application.4 The procedure that was adopted by

the Respondent has important ramifications for the attack that the Respondent

now launches against the Applicant’s locus standi. This issue is pertinently

addressed herein below.

5. On Thursday, 22 June 2017 Mr Acting Justice Sher postponed the anticipated

return date of the provisional liquidation order to 5 July 2017 and directed the

Applicant to file her Replying Affidavit on or before 28 June 2017, and both the

Applicant and the Respondent to file their respective Heads of Argument on or

before Monday, 3 July 2017.

THE APPLICABLE LAW 6. The legal principles that finds application in this application will for ease of

reference be dealt with under the following four headings:

6.1 Condonation;

6.2 Disclosure in ex parte applications; and

6.3 Principles relating to application for the final winding-up of a company.

2 As envisaged by Uniform Rule (“Rule”) 6(12). 3 In the manner provided for in Rule 6(8). 4 Respondent’s Notice of Opposition and Anticipation of Return Date (p. 963 - 965).

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Application for condonation

7. The Applicant offered her Replying Affidavit for electronic service thereof on the

attorney of record of the Respondent at 01:44 pm on 29 June 2017, which

electronic and/or other service thereof the Respondent unreasonably refused at its

own peril.5

8. A substantive application for condonation for the late filing (by a mere few hours)

of the Applicant’s Replying Affidavit shall be served and filed on the Court file.

9. The circumstances that contributed to the late filing of the Applicants Replying

Affidavit are set out fully in the supporting affidavit to the application for

condonation.6 The supporting affidavit also sets out the fact that the Respondent

itself filed parts of its answering affidavit at first electronically while the complete

answering affidavit was served on the Applicant only one day before the

anticipated return date of the provisional liquidation7, and the supporting affidavit

also deals with the unreasonable refusal of the Respondent to accept delivery of

the Applicant’s Replying Affidavit.8

10. The Respondent suffers no prejudice whatsoever by virtue of the late filing of the

Applicant’s Replying affidavit by a mere five hours and 46 minutes after the time

directed by the Honourable Court for such filing.9

11. The condonation application also deals with the Applicant’s prospects of success

in the main application to seek a final liquidation of the Respondent in terms of

section 81(1)(c)(ii) and/or section 81(1)(d)(iii) of the Companies Act 71 of 2008

(“the Companies Act”) on the basis that it is just and equitable to do so. The

5 Harms JA in Thompson v South African Broadcasting Corporation 2001 (3) SA 746 (SCA)

([2001] 1 All SA 329) para 7 E - ‘If a party chooses not to raise an obvious issue in his heads, he does so

at his peril. The Court is entitled to base its judgment and to make findings in relation to any matter flowing fairly from the record, the judgment, the heads of argument or the oral argument itself.' 6 Paragraph 5 to 5.15 on page 2 – 7 of the Supporting Affidavit 7 Paragraph 5 to 10 on page 8 of the Supporting Affidavit 8 Paragraph 11 to 14 on page 9 – 10 of the Supporting Affidavit 9 Paragraph 15 to 18 on page 11 of the Supporting Affidavit

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Applicant has also dealt with the reasons why it would be just and equitable to

wind-up urgently the Respondent.10

12. Condonation is a discretionary matter, which discretion is to be exercised by a

Court judicially upon a consideration of all the facts, and is in essence a question

of fairness to both sides.11

13. In Darries v Sheriff, Magistrate’s Court, Wynberg & Another12 Plewman JA distilled

from the case law the guiding principles in the exercise of this discretion. He

stated:

‘I will content myself with referring, for present purposes, only to factors which the circumstances of this case suggest should be repeated. Condonation of the non-observance of the Rules of this Court is not a mere formality. In all cases some acceptable explanation, not only of, for example, the delay in noting an appeal, but also, where this is the case, any delay in seeking condonation, must be given. An appellant should whenever he realises that he has not complied with a Rule of Court apply for condonation as soon as possible. Nor should it simply be assumed that, where non-compliance was due entirely to the neglect of the appellant's attorney, condonation will be granted. In applications of this sort the appellant's prospects of success are in general an important though not decisive consideration. When application is made for condonation it is advisable that the petition should set forth briefly and succinctly such essential information as may enable the Court to assess the appellant's prospects of success. But appellant's prospect of success is but one of the factors relevant to the exercise of the Court's discretion, unless the cumulative effect of the other relevant factors in the case is such as to render the application for condonation obviously unworthy of consideration. Where non-observance of the Rules has been flagrant and gross an application for condonation should not be granted, whatever the prospects of success might be.’

10 Paragraph 19 to 26 on page 12 – 14 of the Supporting Affidavit 11 United Plant Hire (Pty) Ltd v Hills & Others 1976 (1) SA 717 (A) at 720E – F. 12 1998 (3) SA 34 (SCA) at 40H – 41E.

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14. Two principal requirements for the favourable exercise of the Court’s discretion

have crystallised out,13 namely:

14.1 Firstly, an application must be filed in which:

14.1.1 the applicant must give a full explanation for the delay;

14.1.2 the explanation must cover the entire period of the delay; and

14.1.3 the explanation given must be reasonable.14

14.2 Secondly, the party requesting condonation should satisfy the Court under

oath that his application / opposition is not patently unfounded and that it is

based upon facts which, if proved, would constitute a valid action /

defence.15

15. An application for condonation should be filed as soon as a party realises that it

had not complied with a specific rule and/or court order and/or time period.16

16. In the circumstances the Applicant moves for an order in terms of which the late

filing by a few hours of the Applicant’s Replying Affidavit is condoned and the

Replying Affidavit is accepted.

17. On the premise that condonation for the late filing of the Applicants Replying

Affidavit may be granted and the Replying Affidavit is accepted, we now turn to set

13 In Smith NO v Brummer NO 1954 (3) SA 352 (O) at 358A it was stated that the tendency of the court is to

grant a removal of bar where: (a) the applicant has given a reasonable explanation for his delay; (b) the application is bona fide and not made with the object of delaying the opposite party's claim; (c) there has not been a reckless or intentional disregard of the rules of court; (d) the applicant's action is clearly not ill-founded, and (e) any prejudice caused to the opposite party could be compensated for by an appropriate order as to

costs. 14 Laerskool Generaal Hendrik Schoeman v Bastian Financial Services (Pty) Ltd 2012 (2) SA 637 (CC) at

paragraph 15 and Van Wyk v Unitas Hospital and Another 2008 (2) SA 472 (CC). 15 Ford v Groenewald 1977 (4) SA 224 (T) at 226A–C; Oostelike Transvaalse Koöperasie Bpk v Aurora

Boerdery 1979 (1) SA 521 (T) at 523D–H 16 De Beer en ‘n Ander v Western Bank Ltd 1981 (4) SA 255 (A) at 257 A – B.

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out our legal submissions in respect of the merits of the application for the final

liquidation of the Respondent.

18. For the purpose of these Heads of Argument, we will confine ourselves herein to

the legal submissions only. Due to the magnitude of facts of this matter, we do not

include herein a full discussion of all the facts of the application, to which relevant

facts the Honourable Court will be referred, if necessary, during argument.

However, our legal submissions that it would be just and equitable and in the

public interest to finally liquidate the Respondent, cannot be made without a short

background of the matter, merely to assist the Honourable Court in deciding the

merits of the application for the final liquidation of the Respondent.

Disclosure in ex parte applications

19. From the case law the following five main principles relating to the duty to disclose

in ex parte applications have been recognised and accepted:

19.1 Firstly, the duty pertains to facts and not to law or argument.17

19.2 Secondly, the duty relates to material facts, i.e. those facts that may

influence a Court in coming to a decision.18

19.3 Thirdly, the duty relates to known facts.19

19.4 Fourthly, although non-disclosure of facts need not be wilful or mala fide to

render the court’s discretion applicable, it does require fault, at least in the

form of negligence on the part of the applicant.20

19.5 Lastly, even if the applicant has failed in her duty in the above respects,

the court hearing the matter on the return day has a discretion, when given

17 Phillips v National Director of Public Prosecutions 2003 (6) SA 447 (SCA) at par 33. 18 Cometal-Mometal v Corlana Enterprises 1981 (2) SA 412 (W) at 414C-E. 19 Trakman NO v Livshitz and Others 1995 (1) SA 282 (A) at 288E. 20 Hassan v Berrange 2012 (6) SA 329 (SCA) at par 18.

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the full facts, to set aside the provisional order or to confirm it. In

exercising that discretion the Court will have regard to:21

19.5.1 the extent of the non-disclosure;

19.5.2 the extent to which the Court might have been influenced by

proper disclosure in the ex parte application;

19.5.3 the reason for the non-disclosure;

19.5.4 the consequences, from the point of doing justice between the

parties, of denying relief to the applicant by setting the provisional

order aside.

Principles relating to application for the final winding-up of a company

20. The following principles relating to applications for final winding-up has crystallised

over the years:

20.1 The utilisation of motion proceedings is peremptory when the winding-up

of a company is sought.22

20.2 When seeking a final winding-up order, the applicant must prove all

allegations necessary for such an order on a balance of probabilities.23

20.3 Winding-up applications must, accordingly, and subject to viva voce

evidence in appropriate circumstances, be decided on the papers and in

21 Cometal (supra) at 414H and Phillips v National Director (supra) at par 29. 22 Section 346(1) of the Companies Act, 61 of 1973 (“the 1973 Act”). 23 Wackrill v Sandton International Removals (Pty) Ltd 1984 (1) SA 282 (W) at 285H-286B confirmed by the Appellate Division (as it was then) in Kalil v Decotex (Pty) Ltd 1988 (1) SA 943 (A) at 954D-F.

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accordance with the test formulated in the seminal case of Plascon-

Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd.24

BACKGROUND 21. The Applicant is the Minister of Environmental Affairs, acting in the public interest

as contemplated in section 38 of the Constitution with a view to respect, protect,

promote and fulfil the fundamental right to the environment as provided for in

section 24 of the Constitution.

22. The Respondent is a non-profit company without any members or shareholders25

and all decisions are taken by the Board of Directors of the Respondent and/or by

the Chief Executive Officer who is the deponent to the Respondent’s answering

affidavit, Mr. Erdmann.

23. The Respondent is also an organ of state as defined in section 239 of the

Constitution,26 who is engaged in the administration and implementation of

subordinate legislation (“the Redisa Plan”) and, under the previous legal

dispensation with regard to the funding model thereof, was charged with the

collection of public funds.27

23.1 According to the Respondent, it is, “in performing a constitutional function,

undertaking certain public law functions”.28

23.2 The minutes of a Board meeting held on 15 December 201129 recorded

that Mr Erdmann acknowledged that Redisa is seen as an organ of State.

24 1984 (3) SA 623 (A) at 634E-635C (namely, if the facts as stated by the respondent together with the facts alleged by the applicant that are admitted by he respondent, justify such an order). The applicability of this principle in winding-up proceedings was confirmed in Orestisolve (Pty) Ltd t/a Essa Investments v NDFT Investment Holdings (Pty) Ltd and Another 2015 (4) SA 449 (WCC) at [9]. 25 Page 8 paragraph 3, Founding Affidavit, admitted on page 1050, paragraph 280, Answering Affidavit. 26 “organ of state” means (b) any other functionary or institution (ii) exercising a public power or performing a public function in terms of any legislation. 27 Page 15, paragraph 14 28 Page 1003, paragraph 86, Answering Affidavit 29 Page 2003, Annexure ‘BM 86’ - Forensic Report in paragraph 149 on page 2027, and page 2117, Annexure ‘BM 95’ – confirmatory affidavit by N Tetyana

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It was further recorded therein that there is no confusion as to who is in

charge and the wishes of the Department will at all times be carried out.

23.3 The Respondent’s Memorandum of Incorporation envisaged “that the

Company shall apply to the Commissioner for approval as a public benefit

organisation as contemplated in section 30(3) of the Income Tax Act..” and

for purposes of such qualification shall at all times comply with the

provisions of clauses 8.2 to 8.15 of its Memorandum of Incorporation.30

23.4 A “public benefit organisation” is defined in section 30(1) of the Income Tax

Act 58 of 1962 to mean -

“a non-profit company as defined in section 1 of the Companies Act .. of which the sole or principal object is carrying on one or more public benefit activities, where -

(i) all such activities are carried on in a non-profit manner and with an altruistic or philanthropic intent;

(ii) no such activity is intended to directly or indirectly promote the economic self-interest of any fiduciary or employee of the organisation, otherwise than by way of reasonable remuneration payable to that fiduciary or employee; and

where each such activity carried on by that organisation is for the benefit of, or is widely accessible to, the general public at large, including any sector thereof.”

23.5 The Commissioner shall, for the purposes of this Act, in terms of section

30(3) of the Income Tax Act 58 of 1962, approve a public benefit

organisation which complies with such conditions as the Minister may

prescribe by way of regulation to ensure that the activities and resources of

such organisation are directed in the furtherance of its object; and has

submitted to the Commissioner a copy of its Memorandum of

Incorporation, in which the prerequisites as set out in clauses 8.2 to 8.15 of

the Respondent’s Memorandum of Incorporation is included.

30 Page 258 - 259, Annexure ‘BM 3’

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23.6 There can thus not be any doubt that the Respondent from the outset

considered itself as a public benefit organisation performing a public

function, advancing the Constitutional imperative contained in section 24 of

the Bill of Rights and thus an organ of state as defined in section 239 of the

Constitution.

24. The Respondent was in terms of its Memorandum of Incorporation31 established

with the main object to engage in the conservation, rehabilitation and/or protection

of the natural environment, specifically by creating and procuring the

implementation of an approved Waste Tyre Management Plan as contemplated in

and pursuant to the National Environmental Management: Waste Act 59 of 2008

(“the Waste Act”) and the Waste Tyre Regulations, subject to the conditions of the

ministerial approval thereof. The ancillary objects of the Respondent32 are also

fully depended on the provisions of the approved Waste Tyre Management Plan.

25. The Respondent submitted for ministerial approval a proposed Integrated Industry

Waste Tyre Management Plan in terms of the Waste Tyre Regulations, 2009 (“the

Waste Tyre Regulations”), which was approved on 29 November 2012, subject to

the conditions of approval as set out in paragraph 2 on pages 2 and 3 of the letter

of approval33, notice of which approval was published on 30 November 201234

(“the “Redisa Plan”).

26. The Redisa Plan was approved for a period of five years from the date of

publication of the ministerial approval and the Redisa Plan, in its current form, will

expire by operation of law on 30 November 2012.35 In essence the Redisa Plan is

a waste management measure for the purposes of the Waste Act and is currently

31 Page 249, Annexure ‘BM 3’ in paragraph 3 on page 256 32 Page 256, Annexure ‘BM 3’ paragraph 3.2 33 Page 276, Annexure ‘BM 4” 34 Page 195, Annexure ‘BM 2’ - Government Notice 988 35 Page 12, paragraph 10, Founding Affidavit

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the only waste management measure in place for the management of waste

tyres.36

27. The Supreme Court of Appeal37 held that the Redisa Plan is in the nature of sub-

ordinate legislation; and despite having approved the plan, the Minister is not

functus officio but is in general authorised by section 10(3) of the Interpretation Act

33 of 1957 to further deal with the Redisa Plan; and for the purposes of exercising

these various powers of the Minister in terms of section 10(3) of the Interpretation

Act 33 of 1957, the Redisa Plan is regarded as falling into the concept of a “rule”

as contemplated in this section.

28. The Respondent previously derived its income from a Waste Tyre Management

Fee of R 2.30 plus value-added tax per kilogram of all manufactured and/or of

imported tyres and casings which provided the Respondent with an income stream

from public funds which was intended to be used for the sole purpose of

implementing and administering the Redisa Plan.38 Since the implementation of

the Redisa Plan, the Respondent has collected some R 2 billion of these public

funds from the tyre industry.39

29. The new regulation 9(1)(jA) of the Waste Tyre Regulations (as amended) provided

with effect from 2 December 2016 that an integrated industry waste tyre

management plan (such as the Redisa Plan) must at least be aligned to the pricing

strategy for waste management charges. The Respondent has to date refused to

so align the Redisa Plan.

30. The publication of the “National Pricing Strategy for Waste Management” (“the

Pricing Strategy”) on 11 August 201640, and the commencement of the Rates and

Monetary Amounts and Amendment of Revenue Laws Act 13 of 2016 (“Act 13 of

36 Page 1001, paragraph 80, Answering Affidavit 37 Retail Motor Industry Organisation v Minister of Water and Environmental Affairs 2014 (3) SCA 251 38 Page 14, paragraph 12, Founding Affidavit 39 Page 37, paragraph 28, Founding Affidavit 40 Page 15, paragraph 16, Founding Affidavit

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2016"), amended the funding model for waste tyre management by introducing as

from 1 February 2017, an environmental levy on tyres from the manufacturers,

importers or producers of tyres, which environmental levy shall be collected by

SARS. The current legal dispensation further prohibits the Respondent from

collecting the Redisa contribution from tyre producers or importers in South Africa

unless such a contribution was due to the Respondent before 1 February 2017 -

the Respondent would have continued collecting such contributions (which were

payable three months in arrears) for a period of three months up to 31 May 2017.41

31. The Respondent is resisting the change in the funding model and it had launched

two separate applications in the Gauteng Division of the High Court to review and

set aside the Pricing Strategy and the amendment of the Waste Tyre Regulations

respectively. These applications are still pending but the details of those

applications are for purposes hereof irrelevant. The law as it stands should be

adhered to.

32. The Respondent has appointed a management company known as Kusaga Taka

Consulting (Pty) Ltd (“Kusaga Taka”) “to handle all operational aspects of the

Plan”, but the Respondent, instead of implementing the Redisa Plan with an

independent Board, handed the complete executive control of the Redisa Plan

over to Kusaga Taka.

32.1 Despite several requests for copies of the contract or contracts and full

details of the terms of the contractual relationship between the Respondent

and Kusaga Taka, the Respondent has to date hereof not provided this

information to the Department.

32.2 Three of the executive directors of the Respondent, including Mr Erdmann,

are shareholders and/or have a direct financial interest in Kusaga Taka,

which the Department only discovered during May 2016 when the

41 Page 15 – 16, paragraph 16 – 17, Founding Affidavit.

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Department received a report from the firm iSolveit Consulting.42 The

Board of Directors of the Respondent cannot be regarded as independent.

32.3 Over the period of approval of the Redisa Plan, the staggering amount of

R 662,281 million of the public funds collected by the Respondent were

channelled from the Respondent to Kusaga Taka as a management fee.43

32.4 Kusaga Taka is conducting business in the same building, on the same

floor but just in another wing of the building were the Respondent has its

business.44

33. Nine Years Investments (“NYI”) (a private profit company of which the directors are

Mr Erdmann, his son Alexander Erdmann, Charline Kirk and Christopher Crozier45)

owns 90% of Kusaga Taka Consulting (in liquidation) while the remaining 10% is

owned by Avranet (Pty) Ltd in which Stacey Davidson holds 100% of the shares.

34. The Respondent wasted in excess of R76 million on an Oracle-based accounting,

human resource payroll, subscriber and tyre management system which proved to

be hopelessly dysfunctional and had to be replaced with Phinda – a program

developed in house by a new team at Kusaga Taka Consulting (in liquidation), the

costs of which amounted to another R 5 million46 - this constitutes fruitless,

wasteful and reckless expenditure of public funds. The Respondent paid for all

these IT costs, which are part of the IP which was given away for no value by

Kusaga Taka Consulting (in liquidation) to NYI and for which Kusaga Taka

Consulting (in liquidation) has paid to NYI some R 11 million to date as a 2.5%

royalty, of the 18% administration cost revenue that the Respondent previously

collected from all tyre producers.

42 Page 46, paragraph 38, Founding Affidavit 43 Page 2014, paragraph 74, Annexure ‘BM 86’ 44 Page 48, paragraph 40, Founding Affidavit and 45 Page 389, Annexure ‘BM 23’ 46 Page 2015, paragraph 84, Annexure ‘BM 86’

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35. Kusaga Taka Consulting (in liquidation) apparently entered into yet another

agreement with NYI in terms of which Kusaga Taka Consulting (in liquidation)

recorded that it required “additional management services” for which NYI would be

paid a monthly management fee of R 650 000, escalating at 7.5% per annum,

which in 2017 amounted to R 868 055 excluding VAT per month.47 This

extravagant further expense on the public funds previously collected by the

Respondent, was paid to NYI in addition to the royalties that Kusaga Taka

Consulting (in liquidation) agreed to pay to NYI - and Mr Erdmann and his

associates benefited all-round.

36. Kusaga Taka Consulting (in liquidation) paid dividends to its shareholders,

inclusive of Mr Erdmann and the other executive directors of the Respondent, in

the total amount of R 84 million over the past 4 years and NYI has received the

staggering amount of R 121.6 million in dividends, management fees and

royalties.48

37. In the event that Mr Erdmann owns 70% of the shares of NYI, he would have

benefitted in dividends in the amount of some R 85 million, but if he owns 80% of

the shares of NYI, he would have benefited in dividends in the amount of some

R 97 million.49

38. For the convenience of the Court a flowchart indicating the flow of funds from the

collection thereof (under the previous legal dispensation) by the Respondent from

the tyre producers, through the various other related and interested entities, to the

pockets of Mr Erdmann and his associates, is attached as annexure “X” hereto.

We also attach a flowchart to indicate the involvement of Mr Erdmann and the

various other directors in these interested and related entities, as annexure “Y”

hereto.

47 Page 2014, paragraph 76, Annexure ‘BM 86’ 48 Page 2015, paragraph 79 to 80, Annexure ‘BM 86’ 49 Page 2015, paragraph 81, Annexure ‘BM 86’

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FINAL LIQUIDATION

39. The Applicant submits that an order for the final liquidation of the Respondent

should be granted on the basis that it is just and equitable as provided for in

section 81(1)(c)(ii) and/or section 81(1)(d)(iii) of the Companies Act. The grounds

are the same as contemplated in section 344(h) of the previous Companies Act 61

of 1973, for the reasons as set out under separate headings herein below.50

40. The Applicant contends that the Respondent has acted in contravention of its

objects as stated in its Memorandum of Incorporation, has acted unlawfully

whereby public funds in a non-profit company have been diverted and misapplied,

and that the management company Kusaga Taka Consulting (in liquidation) was

used by the Respondent’s executive directors to eventually channel these public

funds to the pockets of the executive directors of the Respondent, which

constituted an unconscionable abuse of the juristic personality of the Respondent

as a separate entity at the expense of the public.

The unlawful contravention of the Respondent’s objects

39. The Respondent has unlawfully and contrary to its singular purpose and object as

stated,51 not applied all of its assets and income to advance its stated objects,52

but instead:

39.1 The Respondent is pursuing the establishment of income from other waste

streams outside of the scope and ambit of the Redisa Plan,53 and has

spent some R 16 million of the public funds it collected from the tyre

industry to establish itself in the market of other waste streams, the

amount of which was initially misrepresented as far lower to the forensic

50 Cilliers & Others v Duin & See (Pty) Ltd 2012 (4) (SA) 181 (WCC) 51 Page 256, paragraph 3, Annexure ‘BM 3’ 52 Page 256, paragraph 3.1, Annexure ‘BM 3’ 53 Page 271, paragraph 19, Annexure ‘BM 3’

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investigators appointed by the provisional liquidators54 and some of the

invoices indicate no company number or director/executive or contact

telephone number or person – which might even with reference to the

names and designations of the persons mentioned, be disguised

contributions to a political party in contravention of paragraph 8.12 of the

Respondent’s Memorandum of Incorporation.

39.2 The Respondent had built up huge reserves which public funds that the

Respondent rather spent mostly to the benefit of Mr Erdmann and his

associates by the channelling of these public funds to other entities who

have a direct financial interest in the proceeds from Redisa Plan.

39.3 The Respondent has paid remuneration to the directors of the Respondent

which is excessive55, and the Respondent has economically benefited

other persons in a manner which is not consistent with the objects of the

Respondent;56

39.4 The Respondent has paid large portions of its income to and/or to the

benefit of the person who was an incorporator of the Respondent and who

is a director as well as the Chief Executive Officer thereof, namely to Mr

Erdmann;57

39.5 The Respondent has in effect amalgamated and/or merged with, and/or

converted to, a profit company or companies and/or has disposed of some

of its assets, undertaking and/or business to a private profit company or

companies, other than for fair value, and not in the ordinary course of its

54 Page 2025 – 2027, paragraph 132 to 146, Annexure ‘BM 86’ 55 Page 260, paragraph 8.10, Annexure ‘BM 3’ 56 Page 49, paragraph 42 Annexure ‘BM 3’ and page 379 – 402, Annexure ‘BM 13’ to ‘BM 36’ as discussed on page 47 – 55, paragraph 38 to 44, Founding Affidavit 57 Page 257, paragraph 4.2, Annexure ‘BM 3’

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activities,58 of which the staggering amounts channelled to Kusaga Taka59

and to Nine Years Investments60 are but two examples.

39.6 The Respondent refuses to implement the Redisa Plan subject to the

provisions of the current legislation.61

40. The Respondent has from the outset acted in contravention of the provisions of its

own Memorandum of Incorporation in that the Respondent has not appointed the

number and category of directors to its Board as provided for in its Memorandum

of Incorporation,62 the composition of which must reflect the requirements as set

out in the Redisa Plan so as to establish an independent Board of Directors; and it

is uncertain whether the required quorum63 were present when decisions by the

Board of directors of the Respondent were taken. The Redisa plan requires that

the Board of the Respondent be made up of 10 directors,64 while the Respondent

in fact has only 7 directors.65

41. In the matter of Cuninghame and Another v First Ready Development 249

(Association incorporated under section 21)66 Brand JA found the respondent's

whole operation to be unlawful in that it constitutes a contravention of s 21(1)(b)

and s 21(2)(a) of the previous Companies Act and said that “the central element of

s 21(1)(b) turns on 'the main object' of the association which must, self-evidently, I

think, be determined with reference to its memorandum of association.” Brand

JA continued to say that “section 21(1)(c) of the previous Companies Act

specifically provided that the association is obliged to apply its profits (if any) to

promote its main object.” and “In order to comply with section 21(1)(b), the object

of the association must therefore be a communal or group interest of the kind

58 Page 272, paragraph 20, Annexure ‘BM3’, page 48 paragraph 39, page 56 - 57, paragraph 45 to 46 Founding Affidavit 59 Page 2014, paragraph 74, Annexure ‘BM 86’ 60 Page 2015, paragraph 79 to 80, Annexure ‘BM 86’ 61 Page 256, paragraph 3.1, Annexure ‘BM 3’ 62 Page 261, paragraph 11.1, Annexure ‘BM 3’ 63 Page 268, paragraph 13.5.2, Annexure ‘BM 3’ 64 Page 200, paragraph 2, Annexure ‘BM 2’ 65 Page 194, Annexure ‘BM 1’ 66 2010 (5) SA 325 (SCA)

19

contemplated in the earlier part of the section, and not a commercial enterprise.”

The Supreme Court of Appeal then concluded that “On that interpretation the

respondent is conducting an unlawful business which should be terminated by way

of a liquidation order. This renders it unnecessary to consider the further grounds

advanced by the appellants as to why the winding-up of the respondent would be

just and equitable.”

The loss of the Respondent’s substratum

42. Subsequent to the presentation made by the Respondent on 23 May 2017, the

Respondent executed on the threat made in the said presentation by effectively

repudiating the Redisa Plan by publishing the following two notices:

42.1 To all interested parties, signed by Mr Erdmann and dated 31 May 201767,

in which letter the Respondent informed all interested parties that as from

1 June 2017 -

42.1.1 it will no longer collect waste tyres from registered collection

points, including micro-collectors,

42.1.2 the Respondent’s depots will remain open but will not accept any

deliveries,

42.1.3 deliveries to processors will continue as scheduled until further

notice, and

42.1.4 that all enquiries should be directed at the Waste Management

Bureau at the Department.

67 Page 1678, Annexure ‘BM 78’

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42.2 To contracted transporters in the downstream industry that the

Respondent was supposed to establish, signed by Mr Erdmann and dated

31 May 201768, in which letter Mr Erdmann repeats more or less what was

stated in the letter to interested parties mentioned above, but then he also

notifies the transporters –

42.2.1 of the Respondent’s intention to terminate the contract, and

42.2.2 that transporters will only be permitted to deliver tyres currently in

their possession to the depot until 16:00 on Friday, 2nd June 2017,

where after no further deliveries will be accepted.

42.3 The Respondent’s effective repudiation of the implementation and

administration of the Redisa Plan constituted the loss of its substratum as

the realisation of the Respondent’s main object as well as its ancillary

objects as determined by reference to its Memorandum of Incorporation69

became objectively impossible.70

43. In Kia Intertrade Johannesburg (Pty) Ltd v Infinite Motors (Pty) Ltd71 , Wunsh J has

defined “just and equitable” in the following terms:

“where a company (a) has closed a number of branches of its business, (b) has retrenched

staff to a considerable extent, (c) has virtually closed its head office, (d) is diverting funds

which should be used to pay its debts to an overseas concern on grounds which are not

satisfactorily explained, (e) to excuse the non-payment of its liabilities sets up a contrived

and baseless counterclaim, and (f) has transferred assets outside the ordinary course of a

business, it is just and equitable that the creditors should be protected from further losses

and that it should be prevented from disposing of assets and incurring further liabilities”

68 Page 1680, Annexure ‘BM 79’ 69 Page 256, paragraph 3.1, Annexure ‘BM 3’ 70 Taylor v Machavie Claims Syndicate Ltd 1912 WLD 197 71 [1999] 2 All SA 268 (W)

21

44. The substratum of a company incorporated in terms of section 21 of the

Companies Act 61 of 1973 was held to have disappeared where it had the object

to administer drought relief by way of State funding, which funding was withdrawn

inter alia because of the mismanagement thereof.72

Misconduct in the management of the Respondent’s affairs

45. As an organ of state, the Respondent is bound by the constitutional imperative for

transparency and public accountability, and is subject to the statutory controls

under the applicable environmental legislation which the Applicant have the

authority to enforce. The Respondent did not comply with this constitutional

imperative as the public funds entrusted to it was not properly managed and/or

was misappropriated in the following respects:

45.1 The Respondent refused and/or neglected to account properly, openly,

accurately and in detail to the Department, as is evident form several

meetings that the Department held with representatives of the

Respondent.

45.2 The Applicant from the outset had serious concerns about the millions of

Rand allocated by the Respondent to spend on a research and

development project at the NMMU (the Nelson Mandela Municipal

University)73 the full details of which the Respondent has never provided to

the Department.

45.3 The Respondent, without any authority to do so, established another non-

profit company, the Product Testing Institute74 and transferred the amount

of some R 121 million of the public funds it derived from the tyre industry,

to this non-profit company to do research on new tyres in contravention of

its mandate in the Redisa Plan in respect of waste tyres only.

72 Pienaar v Thusano Foundation 1992 (2) SA 552 (BGD) 73 Page 59, paragraph 48.4, Founding Affidavit and page 403, Annexure ‘BM 37’

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45.4 The Respondent has spent some R 23 million on a residential property in

Bryanston purportedly for free accommodation for the staff of the

Respondent75 the purchase of which is not authorised in the Redisa Plan.

45.5 The Respondent splurged on office refurbishment in the amount of

R 6.486 million76 while it had no mandate or authority to do so.

45.6 The Respondent made several payments to persons and entities who

have a direct financial interest in the Redisa Plan, whether they were

disclosed as related parties or not.77

45.7 Exorbitant amounts of public funds were spent on employee costs78 and

directors’ remuneration79 - the 7 executives employed by the Respondent

received remuneration since 2013 to date in the staggering total amount of

R 7,883 million.80

45.8 The Respondent misrepresented to the Department the alleged

achievements of its targets as set out in the Redisa Plan, while none of

those targets were actually achieved.81

45.9 The Respondent over the almost five-year period of approval of the Redisa

Plan, failed to submit any of the required annual performance audits82 to

the Department.

46. The extent of the misconduct in the management of its affairs and the abuse of the

corporate entity of the Respondent and/or of its management company Kusaga

74 Page 68 - 71, paragraph 51.3 to 51.3.6, Founding Affidavit 75 Page 2019, paragraph 95, Annexure ‘BM 86’ 76 Page 72, paragraph 51.9, Founding Affidavit 77 Page 72 – 73, paragraph 51.10 and 51.13, Founding Affidavit 78 Page 73, paragraph 51.12, Founding Affidavit 79 Page 75, paragraph 51.15, Founding Affidavit 80 Page 2021, paragraph 108, Annexure ‘BM 86’ 81 Page 71, paragraph 51.6, page 76, paragraph 53.2, page 77 - 78, paragraph 53.4, page 83, paragraph 55.3 to 55.6, Founding Affidavit 82 Page 277, paragraph 2.1.4 to 2.1.5, Annexure ‘BM 4’

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Taka Consulting (in liquidation), only came to the attention of the Department on

receipt of the preliminary forensic investigation report83 on 28 June 2017, which

report confirmed the following:

46.1 The affairs and operations of the Respondent and that of Kusaga Taka

Consulting (in liquidation) are inextricably operationally intertwined - they

share a premises, accounting and information systems, many staff

functions straddle both businesses, there are numerous agreements

between them and the related entities of Mr Erdmann and certain other

executives of both entities, and the entire day-to-day management of the

business of the Respondent has been subcontracted to Kusaga Taka

Consulting (in liquidation) in terms of a management agreement.84

46.2 It is the preliminary and cursory opinion of the forensic investigators that

the executives of the Respondent (who were entrusted with the obligation

to manage waste tyres on a national scale, a massive undertaking

involving large sums of money which required proper management and

corporate governance) have abused their fiduciary duties.85

46.3 It was never anticipated or disclosed in the Redisa Plan that there would

be a relationship between the executives of the Respondent and the

management entity Kusaga Taka Consulting (in liquidation), which would

create any conflict of interest.86

46.4 Mr Erdmann in his contract of employment87 warrants that he is free of any

conflict of interest between the duties he owes the Respondent and his

private interests.88

83 Page 2003, Annexure ‘BM86’ 84 Page 2004, paragraph 6, Annexure ‘BM 86’ 85 Page 2005, paragraph 13, Annexure ‘Bm 86’ 86 Page 2006, paragraph 21, Annexure ‘BM 86’ 87 Page 2038 – Employment Contract Mr Erdmann 88 Page 2007, paragraph 29, Annexure ‘BM 86’

24

46.5 Mr Erdmann shall be responsible for the management of the business of

the Respondent and bear ultimate responsibility for all management

functions, foster and lead a corporate culture that promotes ethical

practices, encourages individual integrity, ensuring that the company

complies with all laws and corporate governance principles and

requirements.89 The preliminary findings are that there may be material

breaches of the Companies’ Act, the Income Tax Act and the Prevention

and Combatting of Corrupt Activities Act.

46.6 In terms of his employment contract, Mr Erdmann’s remuneration would be

R 140 000 per month, to be reviewed annually by the Board of directors in

February of each consecutive year. In January 2013 the cost to company

of his salary was R 171 805 per month, which has increased in May 2017

to R 347 070 per month. This is an increase of 102% and some 246%

more than CPI over the same period.90

46.7 Between November 2014 and December 2016, the Respondent made

payments to Westfalen Management Services (Pty) Ltd, of which the wife

and son of Mr Erdmann are the directors, in the total amount of R 495 900,

purportedly for reimbursement of expenses - without any supporting

documents, which constitutes a breach of Mr Erdmann’s employment

contract.91

46.8 On 2 February 2013, a director of the Respondent signed a resolution in

terms of which the Respondent entered into a lease agreement for 24

months in respect of residential accommodation for Mr Erdmann, and the

Respondent paid a deposit of R 160 000 to the owner of the residential

property. The Respondent further paid a monthly rental of R 65 000 over

24 months for the residential accommodation of Mr Erdmann. The

89 Page 2007, paragraph 30, Annexure ‘BM 86’ 90 Page 2007, paragraph 34, Annexure ‘BM 86’ 91 Page 2009, paragraph 44, Annexure ‘BM 86’

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Respondent also made other payments in respect of residential

accommodation.92

46.9 The Respondent paid some R 270 880 for a security upgrade at a private

residence which seems to be the property of HE & ME Family Trust, the

sole beneficiary of which appears to be Alex Erdmann and the trustees are

Mr Erdmann, his wife, his son and a certain Mr Botha.93

46.10 The Respondent has been paying for private full time day and night

security at the residences of two of the directors of the Respondent

namely Mr Erdmann and Ms Stacey Davidson, which payments in respect

of Ms Davidson continued even when Ms Davidson no longer resided at

the specific address.94 No employee fringe benefit tax has been deducted

in respect of these payments. The total cost expended by the Respondent

in this regard amounts to the staggering amount of R 2 182 579.42.95

46.11 Mr Erdmann is in his employment contract prohibited from using the

confidential information of the Respondent for any other purpose than

fulfilling his duties as the CEO and not to use this confidential information

to obtain a commercial, trading, financial or other advantage over the

Respondent.96

46.12 It is recorded in Mr Erdmann’s employment contract that the intellectual

property (“IP”) of the Respondent shall belong to and be the absolute

property of the Respondent and that Mr Erdmann assigns all intellectual

property during his employment to the Respondent and no consideration is

payable to Mr Erdmann for such assigned intellectual property97 and yet

the IP of Kusaga Taka Consulting (in liquidation), which can only be

92 Page 2009, paragraph 45 to 46, Annexure ‘BM 86’ 93 Page 2010, paragraph 49 to 50, Annexure ‘BM 86’ 94 Page 2010 – 2011, paragraph 51 to 59, Annexure ‘BM 86’ 95 Page 2012, paragraph 61, Annexure ‘BM 86’ 96 Page 2008, paragraph38, Annexure ‘BM 86’ 97 Page 2008, paragraph 40 to 42, Annexure ‘BM 86’

26

sourced from fulfilling its management functions for the Respondent, was

transferred at no value to another private profit company namely Nine

Years Investments (Pty) Ltd (“NYI”), which is controlled by Mr Erdmann as

the holder of 80% of the shares therein, while 10% thereof is owned by

Charline Krik and the remaining 10% by Christopher Crozier.98

46.13 NYI owns 90% of Kusaga Taka Consulting (in liquidation) while the

remaining 10% is owned by Avranet (Pty) Ltd in which Stacey Davidson

holds 100% of the shares.

46.14 NYI further receives 2.5% as a royalty, of the 18% administration cost

revenue that the Respondent previously collected from all tyre producers.

46.15 While the Respondent paid R 76,748 million for the NCCS to implement

the Redisa Plan, and reimbursed Kusaga Taka Consulting (in liquidation)

for setup costs and expenses, including the IT costs, which inclusive of the

R 76 million amounted to about R 97 million, Kusaga Taka Consulting (in

liquidation) claims ownership of the IT and finance systems and the right to

the IP which should properly vest in the Respondent.99 Kusaga Taka

Consulting (in liquidation) thus not only gave away the IP belonging to the

Respondent, but also agreed to pay to another private profit company NYI,

royalties for the use of this same IP – and Mr Erdmann and his associates

benefitted all the way.

46.16 Kusaga Taka Consulting (in liquidation) received the staggering amount of

R 662,281 million of the total amount of R 2,256 billion of public funds the

Respondent collected in terms of the Redisa Plan.100 Of this amount,

R121 million has been paid to a company in which Mr Erdmann and other

directors of Redisa are the shareholders.101

98 Page 2012 - 2013, paragraph 62 to 67, Annexure ‘BM 86’ 99 Page 2013, paragraph 69, Annexure ‘BM 86’ 100 Page 2014, paragraph 74, Annexure ‘BM 86’ 101 Page 2015, paragraph 80, Annexure ‘BM86’

27

46.17 The total of the unauthorised “investment” by the Respondent in the

Product Testing Institute NPC (now also in provisional liquidation) amounts

to some R 121 million, in respect of which “investment” some documents

refer to as an “equity contribution and investment” by the Respondent and

other documents refer to the contribution being a donation by the

Respondent.102 The leasehold equipment for this alleged “subsidiary” of

the Respondent, in the staggering amount of Є2.134 million is currently

on the water from Germany and due to be commissioned in or about July

2017.103

46.18 The forensic investigators could find no comprehensive business plan

supported by a CAPEX motivation reflecting the expected returns, basis of

generating revenue streams or a proper business plan in respect of the

unauthorised transfer of these public funds to the Product Testing Institute

(in liquidation).104 The role of the directors in committing resources to a

venture which is not contemplated in the Redisa Plan, may constitute

reckless conduct which should be investigated and confirmed at a section

417 and/or 418 enquiry in terms of the Companies Act 61 of 1973.105

46.19 The 7 executives employed by the Respondent received remuneration

since 2013 to date in the staggering total amount of R 7,883 million.

Certain executives are paid as independent contractors and PAYE is not

deducted. This is potentially in contravention of the Income Tax Act.

Furthermore the residential accommodation provided to Mr Erdmann and

the private security arranged for certain directors at their homes, is

potentially a component of remuneration to these executives, which if not

declared for income tax purposes would attract penalties.106 Furthermore,

102 Page 2019, paragraph 97, Annexure ‘BM 86’ 103 Page 2020, paragraph 99, Annexure ‘BM 86’ 104 Page 2020, paragraph 103 – 105, Annexure ‘BM 86’ 105 Page 2021, paragraph 107, Annexure ‘BM 86’ 106 Page 2021, paragraph 110, Annexure ‘BM 86’

28

salaries of executives and personnel appear to be significantly above the

market for Cape Town or South Africa.

46.20 NYI has a lease agreement for the head office of the Respondent, who

then sub-leases to Kusaga Taka Consulting (in liquidation), who then

further sub-leases to the Respondent, in terms of which the Respondent

until 28 February 2015 paid 30% of the cost and thereafter 50% thereof.

While the Respondent only employs 10 people and Kusaga Taka

Consulting (in liquidation) has more than 100 people in its employment,

the Respondent is overcharged to the tune of about 40%, which amounts

to in excess of R 2.4 million per annum.107

46.21 The Respondent made “investments” in excess of R 20 million in Imvelo

Rubber and Waste Beneficiation (two different private profit companies in

which Mr Erdmann has a direct interest), which companies allegedly are

“subsidiaries” of the Respondent.108

46.22 The minutes of the Board meeting of the Respondent on 4 October 2011

record that Helen Kente Makgae (HKM), a director, was authorised to sign

the management agreement between the Respondent and Kusaga Taka

Consulting (in liquidation). There is no evidence that the executive

directors being Erdmann, Kirk, Davidson recused themselves from this

decision.109

46.23 The Respondent entered into a R 24 million letter of intent with Prodigy

Business Services (Pty) Ltd (Prodigy) - the forensic investigator was

unable to find any existing contract with the Respondent while the

Respondent has paid some R 6,84 million to Prodigy to date. An invoice

dated 12 February 2016 addressed to Ms Davidson of the Respondent

records that 10 percent of the contract value was due for the signing of the

107 Page 2023 - 2024, paragraph 120 to 124, Annexure ‘BM 86’ 108 Page 2024, paragraph 125 to 127, Annexure ‘BM 86’ 109 Page 2027, paragraph 148, Annexure ‘BM 86’

29

letter of intent in an amount of R 2,4 million including VAT, which was

paid in March 2016 as R 2,736 million.110

46.24 The Respondent has paid to the South African National Civic Organisation

(SANCO) the amount of R 9.8 million while their function in respect of the

Respondent could not be established by the forensic investigator.111

46.25 The Respondent paid for the rent of an apartment in Cape Town for the

non-executive director Xolani Qubeka, and for numerous travel expenses

incurred by Mr Erdmann.112

47. There is an inherent conflict between the executive directors of the Respondent

and the objects of the Respondent, which conflict seems to be unavoidable.

POINTS IN LIMINE

Urgency

48. This urgent application for the liquidation of the Respondent was prompted by the

presentation made on 23 May 2017 by the Respondent to the Waste Management

Bureau and the Department 113 which presentation alerted the Department to the

sudden and unexplained disappearance of the public funds previously collected by

the Respondent in terms of the Redisa Plan.

49. During the numerous interactions and meetings since early 2014 that the

Department of Environmental Affairs (“the Department”) had with representatives

of the Respondent to discuss the alignment of the Redisa Plan to the amended

Waste Act, the Pricing Strategy and the amended Waste Tyre Regulations, the

following presentations were made by and/or on behalf of the Respondent:

110 Page 2029, paragraph 161, Annexure ‘BM 86’ 111 Page 2029 – 2030, paragraph 163, Annexure ‘BM 86’ 112 Page 2030, paragraph 164 to 166, Annexure ‘BM 86’ 113 Page 901, Annexure ‘BM 76’

30

49.1 PriceWaterhouseCoopers Tax Services (Pty) Ltd (“PWC”) on 13

November 2015 made a written submission to the National Treasury and

SARS regarding the then proposed introduction of an Environmental Levy

on Tyres114 in which it was stated on behalf of the Respondent that whilst

there was no in-principle opposition to replacing the existing waste tyre

management fee collected by the Respondent (and generating an

approximate annual income of R 575 million) with an environmental

levy, the Respondent’s concern was that this will simply become another

source of revenue for Government while the environmental objective falls

by the wayside as allegedly happened with the environmental levy on

plastic bags.

49.2 On 5 February 2016 the Respondent made a submission to the

Department entitled “Implications of Stopping Revenue Flowing to Redisa

NPC on 1 April 2016”115 to address the question whether the Respondent,

in view of the funding model that was changed, could continue operating

without receiving any funding in the 2016 Annual Budget, in which

submission the Respondent alleged that as at 4 February 2016 the

Respondent had cash and cash equivalents in the amount of

R 276 million which the Respondent itself estimated would last for

approximately 7 months.

49.3 In the Respondent’s February 2016 annual financial statements116 it is

indicated that it had a reserve (of cash and assets) of R 665 million which,

together with the Redisa contributions to be collected from 1 March 2016

to the date of the implementation of the amended legislation, would be

more than sufficient to ensure continued operations in terms of the Redisa

114 Page 285, Annexure ‘BM 6’ 115 Page 279, Annexure ‘BM 5’ 116 Page 592, Annexure ‘BM 60’

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Plan until either 30 November 2017 (when the approval for the Redisa

Plan expires) or for the rest of the fiscal year.117

49.4 On 5 April 2016 the Respondent submitted to the Department a review

prepared by PWC of the Respondent’s above-mentioned submission to

the National Treasury on the implications of stopping the revenue of the

Respondent on 1 April 2016 (the original target date for the

implementation of the new funding model, which was later implemented

with effect from 1 February 2017)118, which review indicated that:

49.4.1 The Respondent recorded more cash in its trial balance dated 31

January 2016 than the bank statements for the same period

indicated;119

49.4.2 According to a breakdown of the waste tyre management fee

collected by the Respondent, 20% of these public funds went for

expenses with regard to Head Office (which included a number of

items such as general management and administration, project

management, legal and contracts - presumably paid to Kusaga

Taka).120

49.4.3 The Respondent would be able to operate for 8.38 months until it

is factually insolvent121, but the PWC conclusion does not take into

account the probable cash inflows up to 1 October 2016, nor the

collection of outstanding amounts due to the Respondent after 4

February 2016, nor the further investment income of the

Respondent,122 which cash inflows is likely to increase the period

that the Respondent will be able to operate in future - the

117 Page 18, paragraph 21.2 118 Page 288, Annexure ‘BM 7’ 119 Paragraph 81 of Annexure ‘BM 7’ 120 Page 31, paragraph 26, Founding Affidavit 121 Paragraph 137 of Annexure ‘BM 7’ 122 Paragraph 159 of Annexure ‘BM 7’

32

Respondent would thus after 1 February 2017 be able to carry on

with its business as usual for the rest of the financial year and in

any event to 30 November 2017 when the ministerial approval for

the Redisa Plan in its current form expires or lapses.123

49.5 On 19 July 2016 the Respondent presented its “Business Plan for the next

5 to 10 years”124 in which presentation the Respondent tried to persuade

the National Treasury and the Department not to implement the Waste

Tyre Levy on 1 October 2016. The Respondent proposed an alternative

mechanism to allow for the continued collection under the previous funding

model (in terms of the Redisa Plan before the Waste Tyre Regulations

were amended) while at the same time collecting a Waste Tyre Levy as

revenue for and on behalf of SARS.125 The Department then proposed

certain changes to the Redisa Plan, based on SARS collecting the tyre

levy and an annual allocation to the Respondent according to a business

plan, and the Department confirmed that the aim of the Department is to

maintain and protect the network already established by the Respondent

for the purposes of the Redisa Plan.

49.6 The Respondent submitted a monthly report to the Department under the

heading “DEA Report 31 December 2016”126 in which the Respondent

indicated that it had an “Implementation reserve” of R 728.709 million, an

item for accounts payable in the un-substantiated amount of

R 28.572 million with total equity and liabilities in the amount of

R 757.281 million of public funds.

49.7 On 28 February 2017, the Respondent indicated in their report to the

Department127 that as at 31 January 2017 an amount of R 160,975 million

123 Page 29, paragraph 23.11, Founding Affidavit 124 Page 334, Annexure ‘BM 8’ 125 Page 29, paragraph 24, Founding Affidavit 126 Page 640, Annexure ‘BM 67’ 127 Page 660, Annexure ‘BM 68’

33

was receivable, it had the amount of R 206,144 million as cash reserves

in investments, and in the bank accounts and cash it had the amount of

R 59,220 million available - a total of R 426,339 million of public funds.

50. On 23 May 2017 the Respondent made a presentation to the Waste Management

Bureau and the Department 128 which presentation alerted the Department to the

fact that the Respondent’s Board of Directors made the decision to –

50.1 place the Respondent’s Financial Year 2018 (“FY2018”) Growth Business

Plan on hold until funding uncertainties are resolved;

50.2 develop a steady state FY2018 Business Plan and operate against this

until 31 May 2017;

50.3 should insufficient funding be allocated from 1 June 2017, commence

industry wind-down to meet the directors’ fiduciary responsibilities;

50.4 even if it should receive a “cash injection” of R 210 million in July 2017,

that would only allow the Respondent to postpone wind-down

commencement to 1 October 2017; and

50.5 that the Respondent’s cash balance in May 2017 amounts to only R 150

million and that, since their revenue has stopped, “Redisa is currently

operating off its remediation reserve and is currently incurring a monthly

burn rate of R 36.6 million”.

51. The Respondent offered no explanation for the disappearance of the reserves they

repeatedly in the past confirmed they had available to continue with the

implementation and administration of the Redisa Plan for several months after the

change in the funding model would be effected.

128 Page 901, Annexure ‘BM 76’

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52. Subsequent to the presentation made by the Respondent on 23 May 2017, the

Respondent on 31 May 2017 executed on the threat made in the said presentation

by effectively repudiating the Redisa Plan by publishing the two notices discussed

in paragraph 41 above.

53. The Applicant, acting in the public interest, had no other option than to urgently

launch this application for the liquidation of the Respondent. 129

54. The Applicant submits that the reasons for the application on an ex parte basis are

substantially dealt with.130

55. The Respondent’s points in limine in respect of urgency and ex parte application

should with respect be dismissed with costs.

The locus standi issue

56. As stated above, the Respondent elected to anticipate the return date of the

winding-up application rather than to have the urgent, ex parte order reconsidered.

57. The effect of the Respondent’s election is that it cannot attack the final order that

was made in paragraph 1 of 1 June 2017 Order (i.e. the order that gave the

applicant leave to bring and prosecute this application):

57.1 It is common cause that the Applicant is not a creditor, member or director

of the Respondent. The Applicant is therefore not a person as

contemplated in sections 81(1)(c)(ii) and/or 81(1)(d)(iii) of the Companies

Act.

57.2 The question of whether the Applicant had the necessary locus standi in

the conventional sense does therefore not arise.

129 Page 178 – 184, paragraph 99 to 111, Founding Affidavit 130 Page 184 – 185, paragraph 112 to 115, Founding Affidavit

35

57.3 The Applicant was accordingly compelled to seek an order in terms of

section 157(1)(d) of the 2008 Act for leave to bring and prosecute the

winding-up application against the Respondent in terms of the relevant

sections of the 2008 Act.

57.4 After considering the application, the Honourable Ms Justice Cloete

granted the applicant leave to bring an application for the provisional and

final winding-up of the Respondent in terms of 81(1)(c)(ii) and/or

81(1)(d)(iii) of the 2008 Act.131

57.5 The order is final insofar as the application for leave to bring the

application is concerned. It does not form part of the interim order that

was made subject to the rule nisi132 that is now anticipated by the

Respondent.

58. The wording of Rule 6(8), it being the Rule that was invoked by the Respondent,

contemplates the anticipation of an interim order (or a rule nisi) and not a final

order. Thus, and absent a successful application for the rescission of the order,

the order stands and the issue is res iudicata.133

59. However, and even if the final order giving leave to bring the main application

could be reconsidered by the Court (which it cannot), the Applicant would

nevertheless have demonstrated that it acts in the public interest (as contemplated

in section 157(1)(d) of the Act) in seeking the winding-up of the Respondent.

Before demonstrating why this is so, we firstly turn our attention to the proper

interpretation of section 157 of the 2008 Act.

131 Paragraph 1 of the Order of 1 June 2017 by the Honourable Ms Justice Cloete. 132 Paragraph 3 of the Order. 133 Jacobson v Havinga t/a Havingas 2001 (2) SA 177 (T).

36

Interpretation of section 157134

60. Traditionally the legal standing for claims based on statute is determined with

reference to the relevant statute and its purpose.

61. It cannot be gainsaid that Parliament was aware of this narrow approach to

standing when it drafted the 2008 Act, and that it enacted section 157 of the Act

with the intention to expand the class of persons who may institute legal

proceedings under the Act.

62. Section 157(1) of the Act135 bears a striking resemblance to section 38 of the

Constitution.136

63. Although decisions on the interpretation and application of section 38 of the

Constitution could be helpful in interpreting section 157, one should not lose sight

of the fact that section 157 is not a provision of the Constitution.

134 The content under this heading have drawn liberally from Justice Chris Jafta’s publication in the Journal of Corporate and Commercial Law and Practice (2015 (1) JCCL&P 35) entitled: Critical Analysis of the Extended Legal Standing Provisions under Section 157(1) of the Companies Act 71 of 2008 to Apply for Legal Remedies. 135 (1) When, in terms of this Act, an application can be made to, or a matter can be brought before, a court, the

Companies Tribunal, the Panel or the Commission, the right to make the application or bring the matter may be exercised by a person- (a) directly contemplated in the particular provision of this Act; (b) acting on behalf of a person contemplated in paragraph (a), who cannot act in their own name; (c) acting as a member of, or in the interest of, a group or class of affected persons, or an association

acting in the interest of its members; or (d) acting in the public interest, with leave of the court.

136 Anyone listed in this section has the right to approach a competent court, alleging that a right in the Bill of Rights has been infringed or threatened, and the court may grant appropriate relief, including a declaration of rights. The persons who may approach a court are-

(a) anyone acting in their own interest; (b) anyone acting on behalf of another person who cannot act in their own name; (c) anyone acting as a member of, or in the interest of, a group or class of persons; (d) anyone acting in the public interest; and (e) an association acting in the interest of its members.

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64. A useful and necessary starting point in interpreting section 157 is section 39(2) of

the Constitution which obliges a Court ‘to promote the spirit, purport and objects of

the Bill of Rights when they interpret legislation.

65. The purpose of section 157 is, as its heading suggests to extend legal standing in

proceedings brought in terms of the Companies Act. The meaning assigned to it

must achieve its purpose – put differently, the section must be given a purposive

interpretation.

66. The interpretation of section 157 must also advance the objects of the Companies

Act as stated in section 7 of the Act,137 for section 157 does not expand legal

standing simply for the sake of wider standing. It does so to promote goals of the

Act.

67. One of the stated goals of Act138 is “to promote compliance with the Bill of Rights

… in the application of company law”. This does not only accord with section 39(2)

of the Constitution but was seemingly also the purpose which influenced a

formulation of section 157 which resembled section 38 of the Constitution.

68. What is evident from the text of section 157 is that it does not only identify the

persons who ae clothed with legal standing to launch application proceedings, but

also identifies the types of interest an applicant may have.

69. Section 157(1)(d), being the section that is applicable in this application, grants

standing to any person who acts in the general public interest. However, the

exercise of this right to standing is subject to a prior approval by a competent

court. This requirement (of having to obtain leave from court) places the court in

control of applications instituted in the public interest so as to determine in

advance whether an applicant is entitled to institute proceedings. The notion that

the Minister has legal standing is fortified by the fact that extended locus standi

137 Section 5 of the Act. 138 Section 7(1) of the Act.

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was granted to the relevant Minister to bring a winding-up application on a just and

equitable basis under section 262 of the previous Companies Act, 61 of 1973.

The Minister acting in the Public Interest 70. It is one of the stated objectives of the Act to promote compliance with the Bill of

Rights … in the application of company law, and one would be hard-pressed to

imagine a more fitting case to lead the way in the interpretation of section 157 than

this application.

71. The entirety of this application pivots around the application and implementation of

the Approved Integrated Industry Waste Tyre Management Plan (“the Redisa

Plan”),139 which the Supreme Court of Appeal found to constitute subordinate

legislation.140

72. The Minister is the person responsible for the oversight and implementation of

South Africa’s environmental management systems (inclusive of the Redisa Plan),

both in terms of:

72.1 section 7(2) of the Constitution, which obliges her to ‘respect, protect,

promote and fulfil’, amongst others, the fundamental right, enjoyed by

everyone, ‘to an environment that is not harmful to their health or well-

being’ that is entrenched in section 24(a) of the Constitution; and

72.2 the National Environmental Management Waste Act, 59 of 2008.

73. The Minister’s application makes it clear that she has good grounds for believing

that the Respondent is involved in a scheme to divert Public Funds that are

earmarked for the furtherance of specific environmental management objective, to

139 A copy of the approved Redisa Plan is attached as annexure “BM5” to the Founding Affidavit at pages 240 to 293 of the record. 140 Retail Motor Industry Organisation v Minister of Water and Environmental Affairs 2014 (3) SA 251 (SCA) at [30]

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the Respondent’s executive directors who abuse the Respondent’s corporate

identity to achieve their goal.

74. The Respondent’s point in limine in respect of locus standi should with respect be

dismissed with costs.

Non-disclosure

75. The Applicant made a full disclosure of all the facts that may have a bearing on

relief sought in the application at hand.

76. The litigation that the Respondent complains was not disclosed141 is completely

irrelevant to the application at hand.

77. The Respondent confuses the administrative process of giving notice of the

Minister’s intention to consider the withdrawal of her approval of the Redisa Plan,

with this urgent application for the liquidation of the Respondent142 which are two

complete and separate processes to be addressed in two separate forums.

78. The Respondent is equally confused as to the required process to be followed for

the amendment of the Redisa Plan, which amendment should be done in terms of

Regulation 12 of the Waste Tyre Regulations and not in terms of the Waste Act as

alleged.143

79. The Respondent’s point in limine in respect of non-disclosure should with respect

be dismissed with costs.

141 Page 978 – 981, paragraph 41, Answering Affidavit 142 Page 982 – 983, paragraph 42 to 46, Answering Affidavit 143 Page 983, paragraph 47, Answering Affidavit

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Inadmissible evidence

80. Due to the serious time constraints in the drafting of the urgent application for the

liquidation of the Respondent, the Applicant could not obtain the necessary

confirmatory affidavits from the relevant person. Those confirmatory affidavits

have either already been filed or are in the process of being filed.

81. The Respondent’s point in limine in respect of inadmissible evidence should with

respect be dismissed with costs.

Scope of the order

82. The scope of the order that the Respondent complains about is with respect not of

any concern of the Respondent but that of the liquidators.

83. The Respondent’s point in limine in respect of the scope of the order should with

respect be dismissed with costs.

RELIEF CLAIMED

The Applicant claims an order in terms of which -

1. the Respondent be finally liquidated, and

2. the liquidator of the Respondent be directed to distribute the entire net value of the

Respondent to the Waste Management Bureau, a juristic person established in

terms of section 34A of the National Environmental Management: Waste Act 59 of

2008, in terms of section 30(3)(b)(iii)(bb) of the Income Tax Act 58 of 1962 read

with clause 8.5.2 and/or clause 8.5.3 of the Memorandum of Incorporation of the

Respondent.

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3. Costs of the application, inclusive of the costs of two counsel, to be cost in the

liquidation of the Respondent.

G WOODLAND SC

J RUST

COUNSEL FOR THE APPLICANT

3 July 2017