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[2021] ZAWCHC 26
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Drakenstein Municipality v Castle Ultra 300 (Pty) Ltd ; Drakenstein Municipality v De Oude Paarl Trading (Pty) Ltd (9530/2020; 9531/2020) [2021] ZAWCHC 26 (16 February 2021)
Republic
of South Africa
IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE DIVISION, CAPE TOWN
Case
numbers: 9530/2020
and
9531/2020
Before:
The Hon. Mr Justice Binns-Ward
Hearing:
11 February 2021
Judgment:
16 February 2021
In
the matters between:
DRAKENSTEIN
MUNICIPALITY
Applicant
and
CASTLE
ULTRA 300 (PTY)
LTD
Respondent
And
between:
DRAKENSTEIN
MUNICIPALITY
Applicant
and
DE
OUDE PAARL TRADING (PTY) LTD
Respondent
JUDGMENT
(Delivered
by email to the parties’ legal representatives and by release
to SAFLII.
The
judgment shall be deemed to have been handed down at 10h00 on
16
February 2021.)
BINNS-WARD J:
[1]
These two applications came up for hearing
together. The
applicant in both matters is the Drakenstein Municipality, which has
its council offices in Paarl. The
Municipality applies in each
application for the provisional winding up of the respondent company.
[2]
The respondent companies are interrelated
in the sense that their
respective sole shareholder and director is one Gerhard Meyer.
De Oude Paarl Trading (Pty) Ltd, which
is the respondent in case no.
9531/2020, is the registered owner of certain immovable property in
Paarl, and the other company,
Castle Ultra 300 (Pty) Ltd, rents the
property and sublets it to a commercial tenant at a rental of just
over R107 000 per
month, excluding VAT.
[3]
As these applications are for provisional
orders, it is therefore at
this stage only necessary for the Municipality to make out a prima
facie case in the sense explained
in
Kalil v Decotex
1988 (1)
SA 943
(A). The applicant is entitled to the relief it seeks if
it shows on a balance of the probabilities as they appear from the
papers that it is a creditor of the companies and that they are
unable to pay their debts. I therefore do not intend in this
judgment to traverse the facts in the detail that might be
appropriate in support of a decision granting final relief. It
is not in dispute that the Municipality is a creditor of the
respondent companies. It relies on the deeming provisions of
s 345 of the Companies Act 61 of 1973 to establish that the
companies are unable to pay their debts.
[4]
The Municipality has a claim for unpaid property
rates and service
charges against the property-owning respondent and a claim for unpaid
electricity accounts against the tenant
company. A number of
actions for payment of the amounts claimed by the Municipality have
been instituted in the magistrates’
court. Apart from one
case, in which default judgment was obtained against Castle Ultra 300
(Pty) Ltd for just over R180 000
in February 2015, none of these
actions has been brought to trial.
[5]
A
nulla bona
return was rendered when the Municipality
endeavoured to obtain execution of its judgment. The
Municipality abandoned any
reliance on the judgment and the
nulla
bona
return in its counsel’s argument in support of the
winding up application. That was a sensible decision because
there
do appear to have been questions pertaining to the efficacy of
the service of the process in that action. The applicant’s
counsel did stress, however, that the respondent in that matter had
failed to apply for the rescission of the judgment. Any
rescission application would, of course, require the judgment debtor
to show that it had a defence to the claim and, in order to
demonstrate its bona fides, also disclose the nature thereof in
sufficient detail to persuade a court of the genuineness thereof.
[6]
The respondents have been somewhat equivocal
in their response to the
applications. On the one hand, represented by the
aforementioned Mr Meyer who deposed to the respondent
companies’
answering affidavits, they contend that the Municipality’s
claims are bona fide disputed and that it should
be required to
proceed to trial with the actions pending in the magistrates’
court, as winding-up proceedings are generally
inappropriate where a
money claim on which it is premised is disputed (cf.
Badenhorst v
Northern Construction Enterprises (Pty) Ltd
1956 (3) SA 346
(T)).
On the other hand, however, they assert that the actions ‘
were
not set down by the
[Municipality]
for trial, as the parties
involved in the legal actions arrived a settlement agreement, the
terms of which settlement
agreement the
[Municipality]
has
breached,
inter alia
, by refusing to accept
payment of its claims against the respondent [i.e. Castle Ultra 300
(Pty) Ltd] and
PAARL TRADING
in 36 instalments
as per the agreement arrived at between the parties, contained in
annexures “
SJ14”
and “
SJ15”
to the
[Municipality’s]
founding affidavit
’.
[7]
I consider that this court is entitled to
infer from Mr Meyer’s
averments that were the Municipality to proceed to trial in the
pending actions, the respondents would
amend their pleadings to plead
that the Municipality’s claims had been compromised.
Inherent in what Mr Meyer has said
is that the respondents admit
their indebtedness to the Municipality at least to the extent that
might be deduced from the content
of annexures SJ14 and SJ15 to the
applicant’s founding affidavit.
[8]
The relevant part of SJ14, which is a letter
from the Municipality’s
attorneys to the respondents’ attorneys, dated 6 April 2018,
records that the Municipality’s
books indicated a total amount
of R1 581 442,66 as owing by the respondents. The
letter proceeds to state (in para
5 thereof) that the respondents
would pay 20% of that amount (R316 288,84) into the local
authority’s attorneys’
trust account within seven days
and that the dispute concerning the exact balance owing by the
respondents would be referred to
a mutually agreed upon firm of
accountants and auditors for independent assessment and
determination. It recorded that the
auditors’
determination would be regarded as final and binding. It also
recorded that the amount[s] so determined would
be paid in 36 equal
instalments. It appears from the papers that the amount of
R316 288 was duly paid. Payment
in that amount had been a
prerequisite in order to have the municipal services to Paarl
Trading’s property reconnected so
that it could be occupied by
the aforementioned commercial tenant in terms of the lease then
recently concluded between Castle
Ultra 300 (Pty) Ltd and the said
tenant.
[9]
Suffice it to say that it is apparent from
the papers that the
Municipality’s claims have been the subject of settlement
attempts between the parties over an extended
period. The
property-owning company has contended that the rates have been
incorrectly assessed by reason, amongst other
matters, of the alleged
failure by the Municipality to make the appropriate adjustments after
the property in question had been
the subject of a consolidation of
several erven a few years ago. There was also an issue
concerning a reduction in the number
of toilets on the property,
which allegedly impacted on the calculation of the sewerage services
charge.
[10]
Annexure SJ15 to the founding papers is a copy of the respondents’
attorneys’ reply to annexure SJ14. It stated in the
relevant parts that the ‘minimum terms’ set out in
para 5
of the letter under reply were ‘in principle’ acceptable
to the respondents. The penultimate paragraph
of SJ15 went as
follows:
We
have in the above regard been instructed to place on record that our
clients agreed to the minimum terms set out in paragraph
5 of your
email under reply on the understanding that:
1.
Our client does not concede that a total amount of R1 581 442,66
is in fact due
and payable to your client, but is prepared to concede
that according to your client’s records the amount is reflected
as
being due and payable by our clients to your clients; and
2.
Our clients and yours will make submissions to the “independent
auditing firm” who
will investigate the matter both from an
accounting and a legal point of view so as to decide on the amount
payable by our clients
to your client.
[11]
An extended period of debate ensued about who should be appointed
undertake the exercise of determining the dispute. It
culminated in the appointment of a certain Mike Dreyer of the
auditing
firm C2M.
[12]
The deponent to the Municipality’s founding affidavit averred
(in para 63 of the affidavit in the application against Castle Ultra
300 (Pty) Ltd, in case no. 9530/2020) that -
[o]n
13 December 2018, a meeting was held with C2M pursuant whereto C2M
sent a report to applicant on 15 February 2019 in regard
to the
indebtedness of the companies as appears from “SJ19”
hereto. On these calculations the total amount due
was
R877 217, 39 of which R334 528,92 Had already been paid. An
amnesty of R438 608,70 was claimed. (Applicant
had not
consented to any such amnesty). On C2M’s version
R104 079,78 remained unpaid after the deduction of the
amnesty
and payment made.’
The
respondents’ answer to those averments is set forth in para 51
of the answering affidavit in case no. 9530/2020.
It goes
as follows:
I
admit that the representatives of the parties met on the 13th of
December 2018 and that C2M after an investigation of the documents
placed before it by the applicant and having regard to the amnesty
granted by the applicant to numerous consumers in their areas
of
jurisdiction, calculated that the balance owing by the respondent and
PAARL TRADING
totalled R104 079,78, which the respondent
and
PAARL TRADING
were prepared to pay in instalments as per
the agreement contained in annexure “
SJ14”
and in
particular paragraph 5(h) of the agreement which provided for payment
of the balance owing “over a period of no more
than 36 months”.
[13]
Exchanges between the parties continued. On 19 September
2019, Dreyer addressed an email to various officials at the
Drakenstein Municipality in the following terms:
Further
to my meeting with Gerhard [Meyer] yesterday and in an attempt to
resolve this matter I would like to put Gerhard’s
case forward
for a final time and offer a payment arrangement which he is able to
commit to. Gerhard is also prepared to sign an
acknowledgement of
debt for the full outstanding amount in the event he does not stick
to the suggested payment arrangement. Kindly
note that this offer is
based on the rand for rand write-off offered by the Drakenstein
Municipality and an agreed amount due of
R669 562,09 of the full
outstanding debt of R1 418 375,27.
Gerhard’s
reasoning and understanding for involving C2M in this matter was to
take an objective view on the outstanding amounts
due to the
Drakenstein Municipality not to recalculate the accounts provided, as
this would serve no point. We embarked on our
calculation of the
liability of the relevant entities based on our understanding of the
situation. This understanding was that
services were discontinued to
the property, that the toilets were cut off from the sewage system
and the toilets were sealed with
concrete. We were also informed that
properties were consolidated. however the municipal accounts were
only consolidated many months
later and that therefore rates and
taxes were levied incorrectly.
Taking
the above into account we presented the municipality with our
estimated amount due. Your office however could not accept
our
calculation as it was communicated that Gerhard did not follow the
proper procedures for disconnection and therefore the amounts
as they
stand are payable. Despite Gerhard being of the opinion that the
involvement of C2M has therefore served no point and his
argument for
the past 5 years has not been properly considered, in a final attempt
to settle this matter he is willing to offer
the following.
R669 562,09
to be settled in 3 instalments
1
st
installment (sic) 30
th
November
2019
R180 000,00
2
nd
installment 30
th
June 2020
R244 781,05
3
rd
installment 30
th
June 2020
R244 781,05
[14]
I think that one might reasonably deduce from the aforegoing that
Mr
Meyer had been willing, albeit grudgingly, to concede at the end of
the exercise contemplated in the exchange of letters SJ14
and SJ15
that the respondents were indebted to the Municipality in the very
finely calculated sum of sum R669 562,09.
The Municipality
was not willing to accept a settlement in the terms proposed and
advised Mr Dreyer by email dated 4 October 2019
that the Municipality
would ‘continue with the legal recovery process of the
outstanding amount which will most probably
include liquidation of
the relevant companies’.
[15]
The Municipality thereafter proceeded to address letters to the
respondent companies in terms of s 345(1) of the 1973 Companies
Act, in which it demanded payment from Castle Ultra 300 (Pty)
Ltd in
the sum of R618 383,92 and from Oude Paarl Trading (Pty) Ltd in
the sum of R797 447,90. The respondents
responded to the
letters by contending that the matter had been settled in terms of
the exchange of letters in annexures SJ14 and
SJ15 to the
Municipality’s founding affidavit discussed above. Quite
how the settlement was to work in the context
apparent from the email
sent by Mr Dreyer on the respondents’ behalf on 19 September
2019 was not explained. The
expressed willingness to settle the
respondents’ indebtedness in the amount of just over R669 500
was not reiterated
in the reply to the section 345 letters.
On the contrary, in response to the following paragraph (para 16)
in the
Municipality’s letter of demand:
Should
you nevertheless dispute a portion of [the Municipality’s]
claimed amount, then kindly indicate the full extent and
details of
such dispute and take notice that in the event that you do not
provide full particulars of the basis of your dispute
for (sic) the
entire outstanding amount (less R100-00), then we will nevertheless
apply for relief as indicated hereunder and after
lapse of the
timeframe provided [i.e. the 21 day period referred to in s 345
of the 1973 Companies Act].
the
respondents retorted in a letter from their attorneys, dated 14
January 2020, as follows:
AD
PARAGRAPH 16 THEREOF
16.1
Your client is already in possession of full details as to the
disputes raised by
our clients and it will serve no useful purpose to
re-hash all the matters which have been raised during the “extensive
engagement
sessions” which have taken place between the
parties.
16.2
Our clients are of the view that the terms of the “provisional
agreement”
are binding on all the parties thereto, this despite
the fact that your client has indicated that it apparently does not
regard
the provisions of paragraph 5(h) of the “provisional
agreement” as binding upon it.
[16]
Notwithstanding the clear contextual indications from the offer
of
settlement communicated on their behalf by Mr Dreyer in the amount of
nearly R670 000 that the respondents admitted their
indebtedness
to the Municipality in an amount considerably in excess of the sum of
R100 mentioned in s 345 of the Companies
Act, the respondents
did not make or tender payment in any amount in response to the
letters, not even in the aforementioned lesser
amount of just over
R104 000. In the companies’ answering affidavits it
is admitted that the respondents are indebted
to the Municipality ‘in
an amount still to be agreed upon between the parties’.
The deponent, Mr Meyer, also
averred ‘I had at no stage denied
that the respondent [Castle Ultra 300 (Pty) Ltd] and
PAARL TRADING
owed amounts to the [Municipality]’.
[17]
In the Municipality’s replying affidavit, the deponent averred
in paragraphs 13 and 14:
13.
The companies admit that they are indebted to applicant yet refuse to
say what amount according to them is due and payable or owed. They
say it is not the amount stated by Applicant but do not say what
amount it is. This does not create a bona fide factual dispute
or defence or a basis whereupon not to accept what Applicant
has
stated in this regard.
14.
In the circumstances and as it is common cause that the companies
have
been indebted to applicant for a number of years which debt has
not been paid, it is submitted that the companies are unable to
pay
their debts and fall to be wound-up.
Those
averments adumbrated the essence of the argument addressed at the
hearing by their counsel, Mr
LM Olivier
SC, in support of the
applications.
[18]
Section 345 of the 1973 Companies Act provides as follows in relevant
part:
When company deemed unable to pay its debts
(1) A company or body corporate shall be deemed to be
unable to pay its debts if-
(a) a
creditor, by cession or otherwise, to whom the company is indebted in
a sum not
less than one hundred rand then due-
(i)
has served on the company, by leaving the same at its registered
office, a demand
requiring the company to pay the sum so due; or
(ii) …,
and the company or body corporate has for three weeks
thereafter neglected to pay the sum, or to secure or compound for it
to the
reasonable satisfaction of the creditor; or
(b) …;
or
(c) it is
proved to the satisfaction of the Court that the company is unable to
pay its
debts.
(2) In determining for the purpose of subsection (1)
whether a company is unable to pay its debts, the Court shall also
take into
account the contingent and prospective liabilities of the
company.
There
is some doubt as to whether the letters in terms of s 345 were
served on the respondents strictly in accordance with
the prescripts
of the provision, but it is common ground that they came to the
companies’ notice, as is indeed apparent from
their response
thereto mentioned above.
[19]
Malan J (as he then was) stated in
Body Corporate of Fish
Eagle v Group Twelve Investments (Pty) Ltd
2003 (5) SA 414
(W) in
para 16 that ‘The deeming provision of s 345(1)(a) of the
Companies Act creates a rebuttable presumption to the
effect that the
respondent is unable to pay its debts (
Ter Beek
's case [
Ter
Beek v United Resources CC and Ano.
1997 (3) SA 315
(C)] supra at
331F). If the respondent admits a debt over R100, even though the
respondent’s indebtedness is less than the
amount the applicant
demanded in terms of s 345(1)(a) of the Companies Act, then on
the respondent’s own version, the
applicant is entitled to
succeed in its liquidation application and the conclusion of law is
that the respondent is unable to pay
its debts.’ Rogers J
subsequently expressed doubt that the presumption created in terms of
the provision was rebuttable,
remarking that in his opinion a
respondent company affected by the deeming provision that was able to
show that it was in fact
able to pay its debts could nevertheless
prevail on the court to exercise its overriding discretion; see
Orestisolve (Pty) Ltd t/a Essa Investments v NDFT Investment
Holdings (Pty) Ltd
2015 (4) SA 449
(WCC) in para 16.
[20]
It is not necessary in this matter to plump for either of these
contrasting interpretations of the provision. It seems to me
that the end result would generally be the same whichever of
the two
approaches was adopted. The respondents have neither rebutted
the presumption, nor shown why the court’s discretion
should be
exercised in their favour.
[21]
In an evident endeavour to influence the court against putting the
companies into provisional liquidation, the respondents’
counsel handed in some correspondence at the commencement of the
hearing that showed that the respondents had offered to pay the sum
of R105 000 to the Municipality in order to see off the
winding-up applications. The Municipality’s counsel did
not object to the court receiving the correspondence put in
from the
bar by the companies’ counsel.
[22]
In an email letter to the Municipality’s attorneys, dated
25
January 2021, the respondents’ attorneys referred to the
winding-up applications and said:
We
refer to the above matters which are again on the court roll for
hearing tomorrow and believe that the prospects of a judge being
allocated to deal with the matters are remote.
Substantial
costs have already been incurred in the above matters and will no
doubt be incurred in future, should the matters again
be postponed
and under the circumstances and without any admission of liability by
our clients, or any concession of the merits
of the liquidation
applications, we have instructions to offer the amount of R105 000,
which we hold in trust, in full and
final settlement of all the
matters in dispute between the parties, both in the Magistrates’
Court and in the High Court.
The
above offer is open for acceptance until the close of business on
Friday 29th January 2021, failing which acceptance the offer
is to be
regarded as having been withdrawn and no longer open for acceptance.
Kindly
acknowledge receipt.
Yours
faithfully
[signed]
PS
you will recall that an amount of R104 079,78 was previously
suggested by our expert witnesses in settlement, hence the
amount of
R105 000 being offered in settlement above.
[23]
Having not received a favourable response from the Municipality,
the
respondents renewed the offer, this time ‘with prejudice’,
in an email letter from their attorneys to the Municipality’s
attorneys, dated 5 February 2021. The renewed offer was stated
to be open for acceptance until close of business on the date
that it
was made.
[24]
The respondents’ counsel explained that the correspondence
was
being handed in to show that the companies were in point of fact able
to pay their debts.
[25]
In my judgment, the respondents’ tender is not good enough.
It brings to mind the closing remarks of Malan J made in comparable
circumstances in his judgment in
Fish Eagle
supra, in para 18:
‘
The respondent has not discharged the onus resting on it.
The amount due, owing and payable by the respondent is in excess of
the
R100 provided for in terms of s 345(1)(a) of the Companies
Act 61 of 1973. The respondent has neglected to pay, to secure or
to
compound for that sum to the reasonable satisfaction of the
applicant, as contemplated by
s 345(1) of the Companies
Act. The only defence relied on by the respondent is that the debt is
disputed. The respondent has
not shown that it is both factually and
commercially solvent. On the respondent's own version there is a debt
payable but it has
made only a conditional tender of payment and has
not paid the amount it says is owing. This is not good enough’
.
[26]
In my judgment the respondents have not shown
that the companies are able to pay their debts. On the
contrary, it appears
from the papers on a balance of probabilities
that they are indebted to the Municipality in a sum considerably
greater than R104 079,78.
Mr Meyer has been dogged in his
resistance to the local authority’s claims against the
companies and I consider it extremely
unlikely in the circumstances
that an offer of settlement would have been made to the Municipality
in the sum of nearly R670 000
if there had been any belief on
his part that the local authority’s claim in at least that
amount had not been substantiated.
It is striking that the
respondents have not taken the court (and the Municipality) into
their confidence by setting forth in detail
the basis upon which they
have conceded a limited liability to the Municipality. They
should have been able to state the
amounts in which they admitted
liability to the local authority and set out how such amounts were
determined, and they should have
paid the admitted amounts
unconditionally. Furthermore, the indications that the
companies would need to settle the determined
amounts of their
indebtedness in instalments over an extended period of time is
suggestive of their inability to pay the debts
as and when they were
due. It has not been explained why deferred payment terms
should be necessary or appropriate.
Municipalities are obliged
by legislation to recover rates either monthly or annually
[1]
and members of local communities have the duty to pay
promptly
service fees, rates on property and other taxes, levies and duties
imposed by the municipality.
[2]
These shortcomings in the respondents’ answers to the
applications suggest that the Municipality’s claims are
not
bona fide disputed, at least not to their full extent. The
answers also fall short of affording any basis upon which
the court’s
discretion might be judicially exercised in the respondents’
favour.
[27]
In the result, provisional winding-up orders, returnable on 15 April
2021, will issue in respect of each of the respondent companies in
accordance with the draft orders handed up by the Municipality’s
counsel, which I have signed and marked ‘X’.
A.G.
BINNS-WARD
Judge
of the High Court
[1]
Section 26
of the
Local Government: Municipal Property Rates Act 6
of 2004
.
[2]
Section 5(2)(b)
of the
Local Government: Municipal Systems Act 32 of
2000
.