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[2011] ZAGPJHC 167
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Budge NO and Others v Midnight Storm Investments 256 (Pty) Ltd and Another, Budge NO v Wavelengths 1147 and Another (2011/27316, 2011/14531) [2011] ZAGPJHC 167; 2012 (2) SA 28 (GSJ) (15 November 2011)
REPORTABLE
SOUTH
GAUTENG HIGH COURT, JOHANNESBURG
Case
No. 2011/27316
DATE:15/11/2011
In
the matter between:
JONATHAN
STUART BUDGE
N.O.
.............................................................
First
Applicant
FARRELL
EAN BOON N.O.
…...............................................................
Second
Applicant
VIVIEN
BARBARA BUDGE
N.O.
................................................................
Third
Applicant
(in
their capacities as trustees of the JSB Family Trust)
versus
MIDNIGHT
STORM INVESTMENTS 256 (PTY) LTD
.............................
First
Respondent
RUSSELL
GLYN-CUTHBERT
............................................................
Second
Respondent
And,
in the matter between:
Case
No. 2011/14531
JONATHAN
STUART BUDGE
N.O.
.............................................................
First
Applicant
versus
WAVELENGTHS
1147
….............................................................................
First
applicant
RUSSELL
GLYN-CUTHBERT
............................................................
Second
Respondent
JUDGMENT
MEYER,
J
[1] The
applicants in
Jonathan
Stuart Budge N.O. & Others v Midnight Storm Investments 256 (Pty)
Ltd & Another
(case no 2011/27316) (Midnight Storm) seek the winding-up of the
first respondent company, Midnight Storm, and the applicant in
Jonathan
Stuart Budge v Wavelengths1147 CC & Another
(case no 2011/14531) (Wavelengths) seeks the same relief in respect
of the first respondent close corporation, Wavelengths. The
protagonists in the two applications are the same - Messrs Jonathan
Stuart Budge and Russell Glyn-Cuthbert – and the grounds
for
seeking the winding-up of Midnight Storm and of Wavelengths are
essentially identical. The parties agreed that the two applications
should be heard together and that Wavelengths should follow the fate
of Midnight Storm.
[2] Each
application was brought in terms of s 344(h) of the Companies Act 61
of 1973 (the old Companies Act) upon the erroneous
supposition that
the transitional provisions of the Companies Act 71 of 2008 (the new
Companies Act) have
the effect of keeping
s 344(h)
of the old
Companies Act operative
. The supposition was incorrect insofar as
the winding-up of solvent companies, such as Midnight Storm and
Wavelengths, is concerned.
This is clear from the provisions of item
9 in Schedule 5 of the new
Companies Act.
[3
] In
terms of a supplementary affidavit that was filed in each instance
the applicants indicated that they nevertheless sought the
winding-up
of Midnight Storm and of Wavelengths pursuant to the terms of
s
81(1)(d)(iii)
of the new
Companies Act. The
applicants rely
inter
alia
on the
as yet unreported judgment of
Heinrich
Muller v Lily Valley (Pty)
(case
no. 2011/22041) that was delivered in this division on 24 October
2011, in which Weiner J held that the legal basis for winding-up
under
s 81(1)(d)(iii)
of the new
Companies Act is
the same as that
under
s 344(h)
of the old
Companies Act. Mr
LJ Morison SC, who
appeared with Ms EJ Keeling for the applicants, limited the case of
the applicants to grounds analogous to those
for the dissolution of a
partnership, and particularly that it may be just and equitable for a
company to be wound up where there
is a justifiable lack of
confidence in the conduct and management of the company’s
affairs. Mr ARG Mundell SC, who appeared
for the respondents,
submitted that the just and equitable ground for winding-up referred
to in
s 81(1)(d)(iii)
of the new
Companies Act should
be
restrictively interpreted and limited to the circumstances referred
to in the preceding
ss 81(1)(c)
and
81
(1)(d) thereof, which
circumstances do not include the circumstances upon which the
applicants rely in seeking the winding-up of
Midnight Storm and of
Wavelengths. These conflicting contentions call for an
interpretation of
s 81(1)(d)
of the new
Companies Act.
[4
]
S
344
of the old
Companies Act reads
:
‘
A company may be
wound up by the Court if-
the company has by
special resolution resolved that it would be wound up by the Court;
the company commenced
business before the Registrar certified that it was entitled to
commence business;
the company has not
commenced its business within a year from its incorporation, or has
suspended its business for a whole year;
in the case of a
public company, the number of members has been reduced below seven;
seventy-five percent
of the issued share capital of the company has been lost or has
become useless for the business of the company;
the company is unable
to pay its debts as described in
section 345
;
in the case of an
external company, the company is dissolved in the country in which
it has been incorporated, or has ceased to
carry on business or is
carrying on business only for the purpose of winding up its affairs;
it appears to the
Court that it is just and equitable that the company should be wound
up.’
[5] The
‘just and equitable’ ground for winding-up referred to in
s 344(h)
of the old
Companies Act was
held not to be construed
ejusdem
generis
the
other grounds specified in
s 344.
See:
Emphy
and Another v Pacer Properties (Pty) Ltd
1979
(3) SA 363
(D&CLD), at p 365H, and
Erasmus
v Pentamed Investments (Pty) Ltd
1982
(1) SA 178
(WLD), at p 181D. Coetzee J, in
Rand
Air (Pty) Ltd v Ray Bester Investments (Pty) Ltd
1985
(2) SA 345
(WLD), at pp 349G – 350H, referred to the long legal
history of the just and equitable ground for winding-up and to the
following
five broad categories of cases that may be brought under
it:
‘
The first is the
disappearance of the company’s substratum. Where the company
was formed for a particular purpose for instance,
and that purpose
can no longer be achieved at all, its
raison
d’etre,
its
substratum
has gone and it may be fair and equitable to the incorporators under
those circumstances to wind it up. There are a variety of
circumstances which can possibly lead to the disappearance of a
company’s
substratum.
Secondly, illegality of
the objects of the company and fraud committed in connection
therewith. If a company is promoted in order
to perpetrate a serious
fraud or deception on the persons who are invited to subscribe for
its shares, it is the kind of case in
which the persons who are
defrauded in that fashion can take the promoters to Court and,
provided the circumstances demand that,
ask that the company be wound
up.
The third is that of
deadlock which results in the management of companies’ affairs,
because the voting power at board and
general meeting level is so
divided between dissenting groups, that there is no way of resolving
the deadlock other than by making
a winding up order. The kind of
case which falls most frequently to be dealt with under this heading
is one where there are only
two directors or only two shareholders,
usually in a private company, who hold equal voting shares or rights
and have irreconcilably
fallen out.
Fourthly, grounds
analogous to those for the dissolution of partnerships. Where the
company is a private one and its share capital
is held wholly or
mainly by the directors and it is in substance a partnership in
corporate form, the Court will order its winding
up in the same kind
of situation that it would order the dissolution of a partnership on
the ground that it is just and equitable
to do that.
Fifthly, there is
oppression. Where the persons who control the company have been
guilty of oppression towards the minority shareholders
whether in
their capacity as shareholders or in some other capacity, a winding
up order in suitable cases may be made. This is
in addition to other
remedies in the
Companies Act, which
are available to oppressed
minorities to obtain not only dissolution, but also a money
judgment.’
[6]
S
81(1)
of the new
Companies Act set
out the grounds upon which a Court
may order a solvent company to be wound up. It reads:
‘
(1) A court may
order a solvent company to be wound up if –
the company has –
resolved, by special
resolution, that it be wound up by the court; or
(ii) applied to the
court to have its voluntary winding-up continued by the court;
(b) the practitioner of
a company appointed during business rescue proceedings has applied
for liquidation in terms of
section 141(2)(a)
, on the grounds that
there is no reasonable prospect of the company being rescued; or
(c) one or more of the
company’s creditors have applied to the court for an order to
wind up the company on the grounds that
–
(i) the company’s
business rescue proceedings have ended in the manner contemplated in
section 132(2)(b)
or (c)(i) and it appears to the court that it is
just and equitable in the circumstances for the company to be wound
up; or
(ii) it is otherwise
just and equitable for the company to be wound up;
(d) the company, one or
more directors or one or more shareholders have applied to the court
for an order to wind up the company
on the grounds that –
(i) the directors are
deadlocked in the management of the company, and the shareholders are
unable to break the deadlock, and –
(aa) irreparable injury
to the company is resulting, or may result, from the deadlock: or
(bb) the company’s
business cannot be conducted to the advantage of shareholders
generally, as a result of the deadlock;
(ii) the shareholders
are deadlocked in voting power, and have failed for a period that
includes at least two consecutive annual
general meeting dates, to
elect successors to directors whose terms have expired; or
(iii) it is otherwise
just and equitable for the company to be wound up;
(e) a shareholder has
applied, with leave of the court, for an order to wind up the company
on the grounds that –
(i) the directors,
prescribed officers or other persons in control of the company are
acting in a manner that is fraudulent or otherwise
illegal; or
(ii) the company’s
assets are being misapplied or wasted; or
(f) the Commission or
Panel has applied to the court for an order to wind up the company on
the grounds that –
(i) the company, its
directors or prescribed officers or other persons in control of the
company are acting or have acted in a manner
that is fraudulent or
otherwise illegal, the Commission or panel, as the case may be, has
issued a compliance notice in respect
of that conduct, and the
company has failed to comply with the compliance notice; and
(ii) within the
previous five years, enforcement procedures in terms of this Act or
the Close Corporations Act, 1984 (Act No. 69
of 1984), were taken
against the company, its directors or prescribed officers, or other
persons in control of the company for
substantially the same conduct,
resulting in an administrative fine, or conviction for an offence.’
[7] The
respondents’ contention is that s 81(1)(d)(iii) of the new
Companies Act should
be construed
ejusdem
generis
the
other grounds specified in
ss 81(1)(c)
and
81
(1)(d) thereof. In
Colonial
Treasurer v Rand Water Board
1907
TS 479
, at p 484, Bristowe J formulated the
ejusdem
generis
rule
or principle as follows:
‘
The principle of
ejusdem
generis
is a principle which is very usually applied to the construction of
clauses where words of limited meaning are followed by others
of
general application.’
[8] Schreiner
JA, in
Grobbelaar
v De Vyver
1954
(1) SA 255
(A), said this:
‘
The instrument
of interpretation denoted by
ejusdem
generis
or
nascitur
sociis
must always be borne in mind where the meaning of general words in
association with specific words has to be ascertained; but
what is
often a useful means of finding out what was meant by a provision in
a contract or statute must not be allowed to substitute
an artificial
intention for what was clearly the real one.’
[9] The
‘just and equitable’ basis for the winding-up of a
solvent company in terms of
s 81(1)(d)(iii)
of the new
Companies Act
should
for the reasons that follow not be interpreted so as to only
include matters
ejusdem
generis
the
other grounds enumerated in
s 81.
The
ejusdem
generis
rule,
in my view, is inapplicable to
s 81(1)(d)(iii)
of the new
Companies
Act.
[10
] In
enacting
s 81(1)(d)(i)
, which applies to a situation where the
directors are deadlocked in the management of a company, and
s
81(1)(d)(ii)
, which applies to a situation where the shareholders are
deadlocked in voting power, the legislature modified the judicially
developed
deadlock category that forms part of the just and equitable
ground for winding-up of a company and made its application subject
to certain new requirements. The application of
s 81(1)(d)(iii)
to
deadlock categories and to the circumstances referred to in
s
81(1)(c)
would render the provisions of
s 81(1)(d)(i)
and of
s
81(1)(d)(ii)
nugatory since an applicant who is unable to meet the
requirements of those sections would nevertheless be able to invoke
the judicially
developed deadlock category that forms part of the
just and equitable ground for winding-up in terms of
s 81(1)(d)(iii).
I am further of the view that the
ejusdem
generis
rule
is excluded, because the specific words of
s 81(1)(d)(i)
and of
s
81(1)(d)(ii)
exhaust the genus, in this instance deadlock. See:
Carlis v
Oldfield
(1887)
4 HCG 379, at p 383.
[11] I
have earlier referred to the long history of the just and equitable
ground for winding-up and to the five broad categories
of cases which
by judicial interpretation thus far may be brought under it. The
just and equitable phrase appears in the old
Companies Act and
its
predecessors. The application of the
ejusdem
generis
rule
would, in my view, be contrary to the legislature’s object of
adopting the same meaning which has been given to the ‘just
and
equitable’ words forming the basis for the winding-up of
companies by the courts over many decades when it incorporated
or
made the same words part of
s 81(1)(d)(iii)
of the new
Companies Act.
In
Wray v
Minister of the Interior and Another
1973
(3) SA 554
(WLD), at p 561A, Coetzee J said this:
‘
It is trite law
that when the words of an older statute are either incorporated in or
made part of a later statute, this is understood
to be done with the
object of adopting any legal interpretation which has been put on
them by the Courts.’
[12] The
dictionary meaning of the phrase ‘or otherwise’ is that
it is ‘used to indicate the opposite or negation
of a preceding
noun, adjective, adverb, or verb.’ See:
The
New Shorter Oxford English Dictionary on Historical Principles
Clarendon
Press Oxford 1993 Ed Vol II, at p 2032. The words ‘or …
it is otherwise just and equitable for the company
to be wound up’
must accordingly in their context be given the meaning that a court
may order a solvent company to be wound
up on the just and equitable
ground other than in terms of the deadlock category so that all the
other categories of cases that
may be brought under the just and
equitable ground are included. Compare:
R
v Bono
1953
(3) SA 509
(C).
The
language used in
s 81(1)(d)(iii)
is clear and unambiguous and must
accordingly be given effect to. Only the deadlock category is
excluded from the broad just and
equitable ground for the winding-up
of a solvent company referred to in
s 81(1)(d)(iii).
Subject to this
qualification, I agree with the finding of Weiner J in
Heinrich
(supra)
that
the legal basis for winding-up under
s 81(1)(d)(iii)
of the new
Companies Act is
the same as that under
s 344(h)
of the old
Companies
Act.
[13] I
now turn to consider the question whether or not it is just and
equitable that Midnight Storm and Wavelengths should be wound
up. A
decision on this question involves a factual determination, and, if
it is concluded on the facts found to be relevant that
winding-up
would be just and equitable, the exercise of a judicial discretion
that takes into account all the relevant circumstances
and ‘with
due regard to the justice and equity of the competing interests of
all concerned.’ See:
Moosa
NO v Mavjee Bhawan (Pty) Ltd and Another
1967 (3) SA 131 (T) at p 136G – H;
Kyle
and Others v Maritz & Pieterse Inc
[2002]
3 AA SA 223 (T), para [30]; and
Henochsberg
on the
Companies Act
>
Vol I, p 702.
[14] The
applicants seek the final winding-up of Midnight Storm and of
Wavelengths and the
onus
accordingly
rests upon them to satisfy the court, on a balance of probabilities,
that it is just and equitable to finally liquidate
those companies.
The papers are interspersed with disputed issues of fact. The well
known test enunciated by Corbett JA in
Plascon-Evans
Paints Limited v Van Riebeeck Paints (Pty) Ltd
1984
(3) SA 623 (A), at pp 634E – 635C, is of application. Final
winding-up orders may, in terms of the test, only be granted
if the
facts stated by the respondents together with the admitted facts in
the applicants’ affidavits justify the orders.
See:
Paarwater
v South Sahara Investments (Pty) Ltd
[2005]
4 All SA 185 (SCA), paras [3] – [4].
[15] Applying
this test to the facts of the present matters, it emerges that a
pre-existing partnership between Messrs Budge and
Glyn-Cuthbert
continues to underlie the company structure. They utilised various
‘special purpose corporate vehicles’,
including Midnight
Storm and Wavelengths, through which immovable properties were
acquired and developed in the carrying out of
their partnership
business. Each of them – Mr Budge through the JSB Family Trust
and Mr Glyn-Cuthbert personally - holds
fifty percent of the issued
shares of Midnight Storm and each holds a fifty percent members’
interest in Wavelengths. They
are the only two directors of Midnight
Storm. Until 26 November 2007, they both equally participated in the
conduct and management
of the businesses and affairs of the various
corporate entities utilised by them, and in particular those of
Midnight Storm and
of Wavelengths. By October 2007, they agreed to
part ways and that the only feasible manner in which to extricate
themselves from
their business relationship was to wind down the
businesses of the relevant companies, a process which would involve
the finalisation
of the developments that were undertaken by them and
the sale of all immovable properties owned by the companies utilised
by them.
[16] Messrs
Budge and Glyn-Cuthbert concluded a written ‘dissolution of
partnership’ agreement on 26 November 2007,
in terms whereof
they agreed to dissolve their business association (‘the
dissolution agreement’). Midnight Storm
and Wavelenghts were
inter alia
also parties
to the dissolution agreement. Mr Budge’s participation in the
conduct and management of the businesses and affairs
of the various
corporate entities ceased from then on and Mr Glyn-Cuthbert was to
wind down the affairs of the various corporate
entities in accordance
with the dissolution agreement. Mr Glyn-Cuthbert states that ‘the
provisions which could not be given
effect to were readily varied by
agreement between Budge and me.’
[17] The
undisputed evidence, however, establishes instances in which Mr
Glyn-Cuthbert materially failed to give effect to the dissolution
agreement without
consensus
having been
reached on variations thereof. Mr Glyn-Cuthbert was to incorporate a
new property-holding company, Rusco, and various
of the companies
utilised by Messrs Budge and Glyn-Cuthbert, including Midnight Storm
and Wavelenghts, were, according to the dissolution
agreement, to
sell certain of the immovable properties owned by them to Rusco at
specified prices. One such property, known as
the Sandy Ridge
development, which is owned by Midnight Storm, was to be sold to
Rusco for R6 million. Rusco, according to the
dissolution agreement,
was also to ‘… be paid a consulting and management fee
of R3 million, plus VAT for management
and collection services
rendered, to be paid in 12 equal monthly instalments from 1
st
January 2008 until 31
st
December 2008.’ Mr Glyn-Cuthbert, however, did not cause Rusco
to be incorporated and no plausible explanation is given
as to why he
failed to give effect to the dissolution agreement in this regard.
With reference to the Sandy Ridge property, Mr
Glyn Cuthbert merely
states that ‘[t]he originally proposed price is unrealistic and
cannot be achieved. The property must
be sold on public auction and
the proceeds thereof paid to Midnight Storm whereafter they can be
disbursed amongst its shareholders
as agreed.’ Mr
Glyn-Cuthbert caused the total management fee of R3 million, which
according to the dissolution agreement
was to be paid to Rusco,
instead to be paid in monthly installments from the coffers of
Wavelengths to another company called Rusking
Real Estate Marketing
(Pty) Ltd, which company, on Mr Glyn-Cuthbert version, ‘…
was not incorporated for the purposes
of giving effect to the
dissolution agreement’, but was incorporated for the purpose of
conducting Mr Glyn-Cuthbert’s
‘estate agent’s
activities.’ Mr Glyn-Cuthbert also makes the startling
statement that the fact that he caused
amounts to be deposited to the
credit of Rusking Real Estate Marketing (Pty) Ltd ‘…is
entirely coincidental.’
[18] Mr
Glyn-Cuthbert also caused further amounts totaling R4m to be paid by
Wavelengths to Rusking Real Estate Marketing (Pty)
Ltd during the
period 1 March 2009 to 28 February 2010. He says that such payments
constituted a further management fee that was
payable to him for the
year 2009 in terms of an oral agreement concluded between him and Mr
Budge at a meeting held on 4 December
2008. This is disputed by Mr
Budge. The dissolution agreement does not provide for the payment to
Rusco or to Mr Glyn-Cuthbert
of any management fees other than the
one of R3 million to which I have referred in the preceding
paragraph. It is also to be
noted that the dissolution agreement
contains a non-variation clause. Wavelengths also paid Mr
Glyn-Cuthbert a ‘salary’
of R150, 000.00 per month for
the months of March and April 2010. Mr Budge avers that these
payments to Mr Glyn-Cuthberts were
against his wishes and
unauthorised.
[19] Mr
Glyn-Cuthbert maintains that the dissolution agreement was impossible
of implementation. The averment of Mr Budge that
Mr Glyn-Cuthbert ‘…
has approbated and reprobated on the dissolution agreement …’
is supported by the
undisputed facts. Mr Budge avers that the
dissolution agreement had been repudiated by Mr Glyn-Cuthbert, which
repudiation he
accepted and that the agreement was accordingly at an
end. There is accordingly, on either version, no longer an agreement
in
place for the winding down of the corporate entities, and in
particular Midnight Storm and Wavelengths. There remain assets
vested
in Midnight Storm and in Wavelengths. The participation of Mr
Budge in the management of the companies ceased from November 2007.
The business of the corporate entities has largely been wound down.
Issues have developed between Messrs Budge and Glyn-Cuthbert.
Attorneys became involved. They now only communicate through their
attorneys. Their relationship is acrimonious and there is
clearly,
on the undisputed facts, a complete breakdown in the relationship of
trust that had once existed between them.
[20] It
has, in my judgment, been established on a balance of probabilities
that Mr Budge has a justifiable lack of confidence in
Mr
Glyn-Cuthbert’s conduct and management of the affairs of
Midnight Storm and of Wavelengths. See:
Moosa,
NO v Mavjee Bhawan (Pty) ltd and Another
1976
(3) SA 131 (T), at p 137 and
Erasmus
v Pentamed Investments (Pty) Ltd
1982
(1) SA 178 (WLD), at p 182B
et
seq
. Mr
Budge has not been shown to have been wrongfully responsible for the
situation which has arisen nor has it been established
that he is
acting unreasonably in seeking to have Midnight Storm and Wavelengths
wound up.
[21] Midnight
Storm and Wavelengths have ceased to carry on business and are
managed by Mr Glyn-Cuthbert only for the purpose of
winding down
their affairs. I have referred to the undisputed material respects
in which the dissolution agreement, which was
intended to bring about
a consensual winding down of the affairs of Midnight Storm and
Wavelengths, have unilaterally not been
given effect to by Mr
Glyn-Cuthbert. Messrs Budge and Glyn-Cuthbert are not
ad
idem
about
the disposal of the remaining properties and assets of Midnight Storm
and of Wavelengths and how the agreed winding down process
should be
completed. Despite being represented by attorneys since the end of
2010 the disputes between them could not be resolved.
Mr
Glyn-Cuthbert previously refused the request of Mr Budge that their
disputes be referred to arbitration. A most weighty consideration
in
the present matters is that winding-up will be in the hands of the
Master, who will appoint an independent liquidator to complete
the
winding down process on which Messrs Budge and Glyn-Cuthbert cannot
agree. In my view, regard being had to all the relevant
circumstances of these matters, it is just and equitable that
Midnight Storm and Wavelengths be finally wound up.
[22] In
the result I make the following orders:
A. In
Jonathan
Stuart Budge N.O. & Others v Midnight Storm Investments 256 (Pty)
Ltd & Another
(case no 2011/27316):
1. The first respondent
company is placed under final winding-up;
2. The costs of the
application, including the costs attendant upon the engagement of two
counsel for the applicants, are to be
costs in the winding-up.
B. In
Jonathan
Stuart Budge v Wavelengths1147 CC & Another
(case no 2011/14531):
1. The first respondent close
corporation is placed under final winding-up;
2. The costs of the
application, including the costs attendant upon the engagement of two
counsel for the applicant, are to be costs
in the winding-up.
P.A.
MEYER
JUDGE
OF THE HIGH COURT
15
November 2011
Date
of hearing: 7 November 2011
Date
of Judgment: 15 November 2011
Counsel
for the applicants: Adv. L.J. Morison SC
Adv.
E.J. Keeling
Counsel
for the
respondents:
Adv. A.R.G. Mundell SC
Attorneys
for the applicants: Ramsay Webber
269
Oxford Road
Illovo
Johannesburg
Ref:
Mr B Webber
Attorneys
for the respondents: Schwarz-North Inc.
Block
7 Albury Park
Cnr
Jan Smuts Ave & Albury Road
Hyde
Park
Ref:
Mr H P North