About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2015
>>
[2015] ZASCA 43
|
|
Absa Bank Limited v Hammerle Group (Pty) Ltd (205/14) [2015] ZASCA 43; 2015 (5) SA 215 (SCA) (26 March 2015)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 205/14
Reportable
In
the matter between:
ABSA
BANK
LIMITED
..................................................................................................
APPELLANT
and
HAMMERLE
GROUP (PTY)
LTD
............................................................................
RESPONDENT
(Formerly
Clidet No 773 (Pty) Ltd)
(Registration
number: 2007/018552/07)
Neutral
citation:
Absa Bank v Hammerle Group
(205/14)
[2015] ZASCA 43
(26 March 2015)
Coram:
Brand, Maya, Cachalia, Mhlantla and Mbha JJA
Heard:
13 March 2015
Delivered:
26 March 2015
Summary:
Winding-up – where debt giving
rise to application for winding-up has been subordinated to other
creditors of the respondent
– applicant is a contingent
creditor and is entitled to institute winding-up proceedings against
the respondent – admission
of insolvency – exception to
what would otherwise be privileged communication.
ORDER
On
appeal from
the North Gauteng High
Court, Pretoria (Mabuse J) sitting as court of first instance):
1 The appeal is
upheld with costs, including the costs of two counsel.
2 The order of the
North Gauteng High Court, Pretoria, is set aside and substituted with
the following order:
'(a) The respondent
is liquidated in the hands of the Master of the High Court.
(b)
Costs of the application, including the cost of two counsel, will be
costs in the winding-up of the respondent.'
JUDGMENT
Mbha
JA (Brand, Maya, Cachalia and Mhlantla JJA concurring)
[1]
The appellant launched an application in the North Gauteng High
Court, Pretoria for the winding-up of the respondent on the
ground,
inter alia, that the respondent was commercially insolvent and unable
to pay its debts as envisaged in s 345 of the
Companies Act 61
of 1973 (the Act). The court a quo (per Mabuse J) dismissed the
application on the basis that (a) part of the
debt giving rise to the
application was extinguished by prescription; and (b) the remainder
thereof was not yet due and payable
as it had, by agreement between
the parties, been subordinated to the debts of other creditors of the
respondent. This appeal against
those findings is with leave of the
court a quo.
[2]
The relevant background to the dispute can be summarised as follows.
Pursuant to a loan agreement concluded between the parties
on 6
December 2007 (the loan agreement), the appellant advanced a loan of
R4 million, which together with interest thereon
would be
repayable in 60 instalments of R96 045,70 from 1 January 2008.
The purpose of the loan was to finance the respondent
and its
business. The indebtedness arising under this loan agreement was
secured by a Special and General Notarial Covering Bond
(the Bond)
which was registered by the Registrar of Deeds in favour of the
appellant on 13 December 2007. In terms of clause 2
of the bond, the
respondent bound certain of its movable property specially and
generally as security for its obligations to the
appellant.
[3]
On 19 November 2007 the appellant, the respondent, Mfiso Investments
(Pty) Ltd and Uwe Christian Hammerle concluded a Subscription
and
Shareholders Agreement (the subscription agreement) in terms of which
the appellant loaned and advanced to the respondent the
sum of
R10 million. The purpose of this loan, which took on the form of
a shareholders loan, was to enable the respondent
to fund the
acquisition of the respondent's business and assets. By virtue
thereof, the appellant acquired a minority shareholding
in the
respondent. In terms of the subscription agreement the loan was
repayable in 60 (sixty) equal monthly instalments consisting
of the
capital repayment amount and interest and became repayable
immediately under certain circumstances, for example, if the
respondent breached any material term or condition of the agreement.
[4]
The appellant averred in the founding affidavit that as at 31 May
2011, the respondent was indebted to it in the total amount
of
R21 005 197,46. This amount comprised of (a) R4 693 437,78
owing under the loan agreement and the notarial
bond, and (b)
R16 311 759,68 arising from the subscription agreement. The
respondent denied in the answering affidavit
that it was indebted to
the appellant and raised two defences. First, that the appellant's
claim under the loan agreement had prescribed
and consequently that
the debt had become extinguished. Secondly, that the loan advanced to
the respondent in terms of the subscription
agreement was in terms of
clause 11.3.3 thereof subordinated in favour of the respondent's
creditors and as the respondent was
indebted to its creditors in the
amount of R2 205 657,07, the amount claimed by the
appellant was not due and payable.
[5]
In so far as the defence based on the subordination clause is
concerned, reliance was placed on a judgment dated 15 October
2010
under case number 14203/2010 (the first liquidation application). In
his judgment Blieden J dismissed the appellant's application
to
wind-up the respondent, inter alia, on the basis that the amount
claimed under the subscription agreement was not due and payable
as
it was subordinated to other creditors to whom the respondent owed
R452 513,28 in total, at the time. The respondent averred
accordingly that regard being had to the subordination clause in the
subscription agreement, the issue as to whether or not any
amounts
were due and payable under this agreement were res judicata and could
not be raised again in these pleadings.
[6]
The denial in the papers that the amount owing at the time of the
institution of the application and consequently that the appellant
was not a creditor as was required by the Act, was resolved at an
early stage of the hearing on appeal. Counsel for the respondent
conceded at the outset that the appellant was a creditor of the
respondent, albeit a contingent creditor. Moreover, that the
respondent
was commercially insolvent and unable to pay its debts as
envisaged in s 345 of the Act. He then contended that this
court,
in the exercise of its discretion, should nonetheless grant a
provisional order only, instead of a final winding-up order. I shall
revert to this aspect in due course.
[7]
In my view all those concessions were well made. With regard to the
debt under the subscription agreement, the respondent admitted
both
in its answering affidavits in the first liquidation application and
in this case, that it owed creditors R452 513,28
and which at
the time of the launching of the current proceedings, had escalated
to R2 205 657,07. Although the appellant's
contention in
the founding affidavit, that the respondent was clearly unable to pay
its debts was only met with a bare denial,
no iota of evidence was
presented to prove the contrary or that any claims or debts of the
creditors were being met.
[8]
On 4 July 2011 the appellant's attorney of record addressed a letter
of demand to the respondent for payment of the arrears
under the
subscription agreement within 30 days of receipt of the letter,
failing which the entire capital and interest outstanding
would
immediately become due and payable. The respondent's attorney replied
to the demand on 5 July 2011 stating quite significantly,
that the
respondent would tender payment only if there were surplus funds
available subject to the subordination clause contained
in the
subscription agreement. The respondent's indebtedness to the
appellant in the amount claimed was not disputed. This,
in my view,
was a clear admission of both the respondent's liability and its
inability to pay its debts.
[9]
In my view the appellant is, in light of the subordination clause in
the subscription agreement, a contingent creditor of the
respondent
in terms of s 346 of the Act.
[1]
The
appellant was accordingly well within its right to have applied, on
this ground alone, for the winding-up of the respondent.
[2]
It
follows accordingly that the court a quo erred (as did Blieden J in
the first liquidation application) when it refused to wind-up
the
respondent on the basis that the debt, specifically under the
subscription agreement, was not as yet due and payable, because
it
had been subordinated to other creditors of the respondent.
[10]
I now turn to consider the respondent's liability to the appellant
with regard to the loan agreement and the plea of prescription
raised
by the respondent. On 7 June 2011 the appellant's attorney despatched
a notice in terms of s 345(1) of the Act calling
upon the
respondent to settle all outstanding arrears in terms of the
aforesaid agreement within three weeks after delivery of
the
aforesaid notice, failing which the appellant would apply for the
liquidation of the respondent.
[11]
On 24 June 2011 the respondent replied stating that '[o]ur client has
always indicated that it would like to make [a] settlement
proposal...'. It also stated in the same letter that
'[n]otwithstanding the aforesaid, please note that our client has
been struggling
to turn the business around. However, our client
believes that it may in due course turn the business around by making
it profitable.
At this stage our client has not been able to make any
meaningful profit in the business'.
[12]
In my view the contents of this letter again serve, not only as an
unequivocal acknowledgement of indebtedness by the respondent
in the
amount claimed under the loan agreement, to the appellant. It also
shows that the respondent is unable to pay its debts
and, is in
consequence, commercially insolvent. The respondent contended that
the letter was written with a view of settling a
dispute and was as
such inadmissible. It accordingly applied that the letter be struck
out, which application was granted. Although
the offending
paragraphs, which reflected the settlement proposals, were blocked
out, the respondent's argument that the entire
document was rendered
inadmissible was upheld.
[13]
It is true that as a general rule, negotiations between parties which
are undertaken with a view to a settlement of their disputes
are
privileged from disclosure. This is regardless of whether or not the
negotiations have been stipulated to be without prejudice.
However,
there are exceptions to this rule. One of these exceptions is that an
offer made, even on a 'without prejudice' basis,
is admissible in
evidence as an act of insolvency. Where a party therefore concedes
insolvency, as the respondent did in this case,
public policy
dictates that such admissions of insolvency should not be precluded
from sequestration or winding-up proceedings,
even if made on a
privileged occasion. The reason for the exception is that liquidation
or insolvency proceedings is a matter which
by its very nature
involves the public interest. A
concursus
creditorum
is created and the trading public is protected from the risk of
further dealing with a person or company trading in insolvent
circumstances. It follows that any admission of such insolvency,
whether made in confidence or otherwise, cannot be considered
privileged. This is explained by the words of Van Schalkwyk J in
Absa
Bank Ltd v Chopdat
,
[3]
when
he said:
'[A]s a matter of
public policy, an act of insolvency should not always be afforded the
same protection which the common law privilege
accords to settlement
negotiations.
A creditor who
undertakes the sequestration of a debtor's estate is not merely
engaging in private litigation; he initiates a juridical
process
which can have extensive and indeed profound consequences for many
other creditors, some of whom might be gravely prejudiced
if the
debtor is permitted to continue to trade whilst insolvent. I would
therefore be inclined to draw an analogy between the
individual who
seeks to protect from disclosure a criminal threat upon the basis of
privilege and the debtor who objects to the
disclosure of an act of
insolvency on the same basis.'
In
the final analysis, the learned judge said at 1094F:
'In
this case the respondent has admitted his insolvency. Public policy
would require that such admission should not be precluded
from these
proceedings, even if made on a privileged occasion.'
[4]
[14]
Moreover, in this case, the unequivocal admissions of liability by
the respondent were not even made in the course of any negotiations,
but in response to a letter of demand for payment of the arrear
instalments due in terms of the loan agreement. The court a quo
accordingly erred in granting the application to strike out reference
to the respondent's admissions of liability.
[15]
The further consequence of my finding that the respondent
unequivocally admitted its liability to the appellant of the amount
claimed in the letter of 24 June 2011, is that the plea of
prescription cannot be sustained. This is because such admission
would
have interrupted the running of
prescription,
if any.
[5]
[16]
As alluded to earlier, counsel for the respondent, having conceded at
the outset that the respondent was insolvent and that
the appellant
had locus standi, sought to persuade us to exercise our discretion
and not grant a final winding-up order but rather
to grant a
provisional winding-up order against the respondent. He reasoned
thus. The prescription point raised by the respondent
remains a live
issue which could succeed on the return day, and the effect of the
subordination clause in the subscription agreement
is that if the
respondent is finally liquidated the appellant's claim will die a
natural death. This argument cannot, in my view,
be sustained as it
is the appellant's prerogative to institute the liquidation
proceedings even though it might not be able to
successfully prove a
claim before the liquidator. With regard to the request for a
provisional winding-up order, he sought to place
reliance on the
decisions in
Jhatam
v Jhatam
[6]
and
Santino
Publishers CC v Waylite Marketing CC
,
[7]
where
a similar point about prescription of a debt was raised.
[17]
In my view these cases are clearly distinguishable. In
Santino
Publishers
both counsel agreed that the
appellant's claim had become prescribed. The Full Court accordingly
held that it should not, in the
exercise of its discretion, grant an
application for a (final) winding-up of the respondent on a claim
which had prescribed. Furthermore,
the application for the winding-up
of the respondent in that case had since become academic. Similarly,
in
Jhatam
,
Holmes J in the exercise of his discretion, felt constrained to grant
an order for compulsory sequestration on a claim which could
well
turn out to be unenforceable on the ground that the petitioning
creditor's claim had become prescribed.
[18]
In light of my finding that the respondent unequivocally acknowledged
its indebtedness to the appellant and thus interrupted
prescription,
it follows that the point pertaining to prescription being still
alive, is clearly not good. The court a quo accordingly
further
misdirected itself in refusing to wind-up the respondent on the basis
that the debt arising from the loan agreement, had
become prescribed.
[19]
In the circumstances I make the following order:
1 The appeal is
upheld with costs, including the costs of two counsel.
2 The order of the
North Gauteng High Court, Pretoria, is set aside and substituted with
the following order:
'(a) The respondent
is liquidated in the hands of the Master of the High Court.
(b) Costs of the
application, including the cost of two counsel, will be costs in the
winding-up of the respondent.'
_____________________
B
H MBHA
JUDGE
OF APPEAL
APPEARANCES:
For
appellant: F H Terblanche SC
H
R Fourie
Instructed
by:
Tim
du Toit Attorneys, Johannesburg
Phatshoane
Henney Attorneys, Bloemfontein
For
respondent: S L Joseph SC
H
J Fischer
Instructed
by:
DMS
Attorneys, Sandton
Molefi
Thoabala Attorneys, Bloemfontein
[1]
Section
346(1) of the Companies Act 61 of 1973 provides:
'(1) An application
to the Court for the winding-up of a company may, subject to the
provisions of this section, be made
(a) . . . .
(b) by one or more
of its creditors (including contingent or prospective creditors);
. . . .'
[2]
Premier
Industries Ltd v African Dried Fruit Co (1950) Ltd
1953
(3) SA 510
(C) at 513D-F.
[3]
Absa
Bank Ltd v Chopdat
2000
(2) SA 1088
(W) at 1092H-1094F.
[4]
Lynn
& Main Inc v Naidoo
2006
(1) SA 59
(N) paras 23-24 which affirmed the principle enunciated in
Chopdat
.
[5]
Section
14(1)
of the
Prescription Act 68 of 1969
reads:
'(1) The running of
prescription shall be interrupted by an express or tacit
acknowledgement of liability by the debtor.'
[6]
Jhatam
v Jhatam
1958
(4) SA 36
(N) at 38C-G.
[7]
Santino
Publishers CC v Waylite Marketing CC
2010
(2) SA 53
(GSJ) at 58A-C.