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[2020] ZAGPJHC 373
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True North Holdings (Pty) Limited and Another v M D Individually Designed Handcrafted Jewellery (Propietary) Limited (41251/2019) [2020] ZAGPJHC 373 (25 November 2020)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO
:
41251/2019
DATE
:
25
th
November 2020
In
the matter between:
TRUE
NORTH HOLDINGS (PTY) LIMITED
First
Applicant
RAMICULAS
PROPERTY CC
Second
Applicant
and
M D INDIVIDUALLY DESIGNED
HANDCRAFTED
JEWELLERY (PROPIETARY) LIMITED
Respondent
Coram:
Adams J
Heard
:
27 May 2020 – The ‘virtual hearing’ of the
application was conducted as a videoconference on the
Microsoft
Teams
digital platform.
Delivered:
25 November 2020 – This judgment
was handed down electronically by circulation to the parties'
representatives by email, by
being uploaded to the
CaseLines
system of the GLD and by release to SAFLII. The date and time for
hand-down is deemed to be 11H00 on 25 November 2020.
Summary:
Liquidation – Company – Application for final
winding-up order on the grounds that the respondent company is unable
to pay its debts within the meaning of s 344(f), read with s
345(1)(c) and s 344(h) of the Companies Act 61 of 1973 –
whether
applicants are creditors of the company and whether their
claims are
bona fide
disputed on reasonable grounds (the
Badenhorst
rule) –
factual disputes
to be decided on the basis of the
Plascon
Evans
principle – application
dismissed –
ORDER
(1)
The first and second applicants’ application for the final
liquidation of the respondent
is dismissed with costs.
(2)
The provisional winding-up order issued on the 3
rd
of
February 2020 be and is hereby discharged.
(3)
The first and second applicants, jointly and severally, the one
paying the other to be absolved,
shall pay the respondent’s
costs of this opposed winding-up application.
JUDGMENT
Adams J:
[1].
This is the extended return date
of the
rule nisi
issued on the 3
rd
of February 2020 in terms of which the respondent and all other
interested parties were called upon to show cause and put forward
their reasons on or before the 30
th
of April 2020 why a final order for the winding-up of the respondent
should not be granted. On the said date,
viz
the 3
rd
of February 2020, a provisional winding-up order was also granted
against the respondent company.
[2].
The first and
second applicants seek a final winding-up order against the
respondent. The first applicant is the Holding Company
of the Cash
Converters Group of Companies, which carries on business in the pawn
industry and also in the purchase and resale of
second hand goods
business, and the second applicant is a related property owning
company. The respondent carries on business as
a specialised
jeweller, which business includes the valuation, assessment and
refurbishment of jewellery as well as the purchase
and resale of
second hand jewellery.
[3].
The applicants seek the winding up of the respondent company on the
grounds
that it is unable to pay its debts within the meaning of s
344(f) read with s 345(1)(c) of the Companies Act, Act 61 of 1973
(‘the
1973 Companies Act’). The applicants also allege
that it is just and equitable that the respondent be wound up in
terms of
s 344(h) of the 1973 Companies Act. The case of the
applicants is that the respondent is deemed to be and is factually
unable to
pay its debts.
[4].
The first
applicant claims that the respondent is indebted to it (the first
applicant) in an amount of R1 039 035.11 being
in respect
of monies lent and advanced by the first applicant at the special
instance and request of the respondent. This total
amount, so the
first applicant contends, consists of individual amounts of expenses
incurred by the respondent and which amounts
were paid by the first
applicant on behalf of the respondent. These expenditures were
incurred by the respondent and paid on its
behalf in circumstances to
which I shall revert to later on in the judgment. Suffice to state at
this stage that, according to
the first applicant, these itemised
expenses should have been credited in the books of account of the
respondent to the first applicant’s
loan account with the
respondent. As regards the second applicant, it claims from the
respondent an amount of R170 719.01,
allegedly being in respect
of arrear rental and ancillary charges due and payable by the
respondent to the second applicant in
terms of a commercial lease
agreement between the respondent and the second applicant in relation
to the former’s business
premises.
[5].
The respondent
disputes liability to the applicants for these amounts. In essence
the respondent avers that its alleged indebtedness
to the first and
second applicants is premised on assumptions that a ‘joint
venture’ between the first applicant and
the respondent and its
structure had been finalised and the exact details of such a
collaboration agreed upon. Far from it, so
the respondent contends –
no agreement was reached on the structure of the business
relationship and therefore the basis
for the debt falls flat.
[6].
The applicants
contend that there is no real and genuine factual dispute. The
respondent’s admitted indebtedness to them,
so the applicants
submit, is borne out by the books of account of the respondent, which
confirm additionally that the respondent
is factually insolvent.
[7].
It is trite
that liquidation may not be used to enforce payment of disputed
debts. It is not suitable to resolve complex factual
disputes. See
Trinity
Asset Management (Pty) Ltd v Grindstone Investments (Pty) Ltd
2017
(12) BCLR 1562
(CC);
2018 (1) SA 94
(CC) at para 154 and
Badenhorst
v Northern Construction Enterprises (Pty) Ltd
1956
(2) SA 346(T)
at 347-348. Probabilities may not be the basis for
factual findings unless the court is satisfied that there is no real
and genuine
factual dispute. Where the court finds that there is a
real and genuine factual dispute incapable of resolution on papers,
it can
only dismiss the application if it finds that the applicant
should have realized when launching the application that there was a
factual dispute. See
Adbro
Investment Company Ltd v Minister of Interior
1956
(3) SA 345
(A) at 350A.
[8].
During 2018
the first applicant identified the opportunity of increasing the
value of the jewellery its franchisees deal with by
means of the
services rendered by the respondent. It was then contemplated by the
first applicant that the respondent, and its
owners, Mr and Mrs
Maack, would enable the franchisees to better assess the jewellery
they deal with and to have an entity such
as the respondent refurbish
the jewellery so as to increase its value. Therefore, what the first
applicant had in mind was the
establishment of a ‘jewellery
processing centre’, which would add value to the business of
the first applicant, its
group of companies and its franchisees. So,
it should be borne in mind that the relevant transactions and related
business arrangements
were conceived by this idea with its primary
purpose being the addition of value to the first applicant’s
business.
[9].
This is where
the respondent and its owners entered the picture, and during October
2018 the first applicant met with them and agreed
to work together
towards the establishment of the ‘jewellery processing centre’,
which, as already indicated, had as
its main purpose the increase in
value of that portion of the second applicant’s business in the
second hand jewellery field.
[10].
In the months
following the initial approach by the first applicant to the
respondent, more particularly Mr and Mrs Maack, the parties
discussed
and considered the manner in which their business relationship would
be structured. There was general agreement between
the parties that a
separate company, with Mr Maack, Ms Maack and the first applicant as
shareholders, would be formed and which
would house the ‘jewellery
processing centre’. In this context, Mr Maack indicated that
his company, the respondent,
was available and proposed that it be
used for that purpose. Towards the end of 2018 and the beginning of
2019 steps were put in
place to give effect to this general consensus
on the collaboration – also referred to a ‘joint venture’
by the
respondent.
[11].
All the same,
the respondent, as the entity and the vehicle through which the
business of the new entity was being conducted, then
conducted itself
as such. By then though agreement on the exact details of the
contractual and legal arrangements had not yet been
finalised. In the
end no agreement could be reached on the details relating to the
relationship. Mr Maack was not prepared to sign
the legal documents
which would have regularised the legal relationship between Mr and
Mrs Maack and the first applicant, whether
that be in a new company
or in the respondent company. That then meant that the whole
arrangement fell flat – as did the
basis on which the
respondent had been used as the vehicle for the ‘joint venture’
and any and all liability to the
first applicant.
[12].
So, for
example, Mr Maack travelled extensively throughout South Africa to
meet with the franchisees. All of Mr Maack's travel and
accommodation
expenses were paid by the first applicant and the total of those
travel and accommodation expenses were charged to
the respondent. The
total of those expenses amounted R14 912.58. This amount forms
part of the total claim by the first applicant
on which the
winding-up application is based. The same principle applies to the
rest of the itemised amounts charged by the first
applicant to the
respondent – such as the salaries of the employees of the
respondent, which were paid by the first applicant
and which it now
claims from the respondent.
[13].
The first
applicant’s case is therefore that it lent various amounts of
money to the respondent, by way of it paying the respondent's
debts.
The respondent denies this. The payments were made by the first
applicant, so the respondent contends, not as respondent,
but as the
entity which was the vehicle used to implement the proposed business
relationship in relation to the ‘jewellery
processing centre’.
[14].
The intention
of the parties, so the respondent alleges, was that the jewellery
processing centre would be set up for the benefit
of the first
applicant’s
Cash
Converters
Group of Companies to grow its business. This much is conceded by the
first applicant, who in fact approached Mr and Mrs Maack
with a
suggestion that they collaborate in a venture, which had as its aim
the optimisation of that portion of the business dealing
in second
hand jewellery – the idea being, according to the first
applicant, to increase that potion of the business to 30%.
It
therefore stands to reason that the first applicant would, as
contended by the respondent, be funding the project until such
time
as a joint venture vehicle had been established and created, which
would then take over the debts and responsibilities arising
from the
project. However, until such time as the vehicle had been created the
first applicant would be footing the bill.
[15].
The respondent
therefore avers that there was never any intention – and
certainly no agreement – that the respondent
would borrow any
amounts from the first applicant or any of the companies in its
group. The respondent submits that on the evidence
before me there is
no loan agreement in terms of which the first applicant lent and
advanced sums of money to the respondent. There
was also no lease
agreement between the second applicant and the respondent. I agree
with these submissions – the probabilities
favour such a
finding on the facts, which also fits in with the conclusion that,
all things considered, the intention of the parties
was that the
costs incurred in the project and leading up to the commencement
thereof would have been for the account of the new
company, which was
mooted at that stage to be the respondent, with its ownership,
shareholding, executive and management restructured
as per agreement
to be reached between the interested parties.
[16].
The point
about this matter is that it was the first applicant’s Group of
Companies which required a workshop and a jewellery
processing centre
to be set up, with the assistance of Mr Maack, being the expert
gemmologist and specialist jeweller, at which
facilities jewellery
would be valued, cleaned and restored. This was the first applicant’s
idea. So then, why would they
not be liable for the costs and other
expenses relating to the piloting of the project? I therefore find
myself in agreement with
the submission made by the respondent that
it was always within the contemplation of the parties that the first
applicant would
be funding the business. Mr Maack, in these
circumstances, would not have agreed to the respondent renting the
workshop, which
was set up for the future business venture for the
benefit of the first applicant and its Group of Companies. This
conclusion is
bolstered by the fact that no written lease or loan
agreement was ever concluded. There is merit in the argument that the
reason
that there was never any written lease or loan agreement in
existence bears testimony to the fact that no such lease or loan
agreement
ever came into existence.
[17].
The first
applicant makes much of the fact that their version of events is
corroborated by the books of account of the respondent
for the
relevant period from February 2019 to September 2019. It is so that
from about March 2019 the first applicant’s accountants
started
doing the respondent’s books of accounting. However, as rightly
pointed out by Mr Woodrow, Counsel for the respondent,
this was done
in expectation and on the assumption that Mr and Mrs Maack and the
first applicant would conclude and finalize the
agreement or
agreements in terms of which the respondent would become the vehicle
used to drive the first applicant’s jewellery
processing centre
project. In the end, that was not to be and as things turned out, the
respondent was not the possible ‘joint
venture vehicle’
contemplated by the parties in their discussions and deliberations. I
am therefore of the view that no significance
can and should be
attached to those documents.
[18].
The first applicant also relies on these
books of account to demonstrate that the respondent is factually
insolvent. These accounts
include the debts in favour of the first
and second applicants and on which this application for the
winding-up of the respondent
is based. As indicated, those books of
account were in fact prepared on the assumption that the respondent
was at that stage the
entity which would house the jewellery
processing centre. Those assumptions failed and therefor so does the
factual conclusions
on which they are based.
[19].
In sum, the first and the second applicants
contend that the respondent’s disputing of the amounts due to
the first and second
applicants is hollow and contrived. The
respondent, on the other hand, argues that the applicants have failed
to prove that they
are owed the amounts claimed by the respondent. In
any event, so the respondent contends, it has shown that the alleged
debts owed
to the applicants by the respondent are
bona
fide
disputed on reasonable grounds.
[20].
The applicants seek a final winding-up
order and the issues in summary are whether the applicants are owed
the sums they claim by
the respondent and whether their claims are
disputed on reasonable grounds. In
Orestisolve
(Pty) Ltd t/a Essa Investments v NDFT Investment Holdings (Pty) Ltd
and Another
2015 (4) SA 449
(WCC),
Rogers J said the following:
‘
[7]
In an opposed application for provisional liquidation the applicant
must establish its entitlement
to an order on a
prima
facie
basis, meaning that the applicant
must show that the balance of probabilities on the affidavits is in
its favour (
Kalil v Decotex (Pty) Ltd
and Another
1988 (1) SA 943
(A) at 975J
– 979F). This would include the existence of the applicant's
claim where such is disputed. (I need not concern
myself with the
circumstances in which oral evidence will be permitted where the
applicant cannot establish a
prima facie
case.)
[8] Even if the applicant establishes its claim on a
prima facie
basis, a court will ordinarily refuse the
application if the claim is
bona fide
disputed on reasonable
grounds. The rule that winding-up proceedings should not be resorted
to as a means of enforcing payment
of a debt, the existence of which
is
bona fide
disputed on reasonable grounds, is part of the
broader principle that the court's processes should not be abused. In
the context
of liquidation proceedings the rule is generally known as
the
Badenhorst
rule, from the leading eponymous case on the
subject,
Badenhorst v Northern Construction Enterprises (Pty) Ltd
1956 (2) SA 346
(T) at 347H – 348C, and is generally now
treated as an independent rule, not dependent on proof of actual
abuse of process
(
Blackman et al Commentary on the Companies Act
,
Vol 3 at 14 – 82 to 14 – 83). A distinction must thus be
drawn between factual disputes relating to the respondent's
liability
to the applicant and disputes relating to the other requirements for
liquidation. At the provisional stage the other
requirements must be
satisfied on a balance of probabilities with reference to the
affidavits. In relation to the applicant's claim,
however, the court
must consider not only where the balance of probabilities lies on the
papers but also whether the claim is
bona fide
disputed on
reasonable grounds. A court may reach this conclusion even though on
a balance of probabilities (based on the papers)
the applicant's
claim has been made out (
Payslip Investment Holdings CC v Y2K Tec
Ltd
2001 (4) SA 781
(C) at 783G – I). However, where the
applicant at the provisional stage shows that the debt
prima facie
exists, the onus is on the company to show that it is
bona fide
disputed on reasonable grounds (
Hülse-Reutter and Another v
HEG Consulting Enterprises (Pty) Ltd (Lane and Fey NNO Intervening)
1998 (2) SA 208
(C) at 218D – 219C).
[9] The test
for a final order of liquidation is different. The applicant must
establish
its case on a balance of probabilities. Where the facts are
disputed, the court is not permitted to determine the balance of
probabilities
on the affidavits but must instead apply the
Plascon-Evans
rule (
Paarwater v South Sahara Investments
(Pty) Ltd
[2005] 4 All SA 185
(SCA) para 4;
Golden Mile
Financial Solutions CC v Amagen Development (Pty) Ltd
[2010]
ZAWCHC 339
paras 8 – 10;
Budge and Others NNO v Midnight
Storm Investments 256 (Pty) Ltd and Another
2012 (2) SA 28
(GSJ)
para 14).
[10] The difference in
approach to factual disputes at the provisional and final stages
appears to
me to have implications for the
Badenhorst
rule. If
there are genuine disputes of fact regarding the existence of the
applicant's claim at the final stage, the applicant
will fail on
ordinary principles unless it can persuade the court to refer the
matter to oral evidence. The court cannot, at the
final stage, cast
an onus on the respondent of proving that the debt is
bona fide
disputed on reasonable grounds merely because the balance of
probabilities on the affidavits favours the applicant. At the final
stage, therefore, the
Badenhorst
rule is likely to find its
main field of operation where the applicant, faced with a genuine
dispute of fact, seeks a referral
to oral evidence. The court might
refuse the referral on the basis that the debt is
bona fide
disputed on reasonable grounds and should thus not be determined in
liquidation proceedings. (In the present case neither side
requested
a referral to oral evidence.)
[11] If, on the other
hand, and with due regard to the application of the
Plascon-Evans
rule, the court is satisfied at the final stage that there is no
genuine factual dispute regarding the existence of the applicant's
claim, there seems to be limited scope for finding that the debt is
nevertheless
bona fide
disputed on reasonable grounds. It is
thus unsurprising to find that the reported judgments where the
Badenhorst
rule has been relevant to the outcome have been
cases of applications for provisional liquidation rather than final
liquidation.’
[21].
The
Plascon-Evans
approach requires the facts deposed to by the respondent to be
accepted, unless they constitute bald or uncreditworthy denials
or
are palpably implausible, far-fetched or so clearly untenable that
they could safely be rejected on the papers. (
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634D-635D. Also see
Media
24 Books (Pty) Ltd v Oxford University Press Southern Africa (Pty)
Ltd
2017 (2) SA 1
(SCA) para 36.)
[22].
Applying this test
in
casu
the facts deposed to by the
respondent have to be accepted by me. In my judgment, the
claims by the applicants against the
respondent have not been
established on the papers. Moreover, and for the reasons mentioned
supra, even if the applicants have
proven their claims, I am of the
view that those claims are
bona fide
disputed on reasonable grounds.
[23].
On the basis of the facts in this matter it
has to be accepted that the intention of the parties all along would
have been that
the first applicant would pay for all costs and
expenses pending the conclusion of an agreement between the parties
regarding the
structure and the form of the business relationship
which would have regulated the ‘jewellery processing centre’.
Until
such time as the joint venture vehicle had been created and was
up and running, the costs incurred on the project would have been
for
the account of the first applicant. The project was the first
applicant’s brainchild and its initiative – it was
set up
for the benefit of its Group of Companies. It follows that the first
applicant would then have been required to provide
the necessary
funding until such time as the project could run on its own with its
own vehicle. One such vehicle possibly was the
respondent and it was
in the contemplation of the parties as a possible vehicle. It bears
emphasising however that the respondent,
as constituted at the
relevant time was not that vehicle. The respondent would have needed
to be restructured and its ownership
and shareholding realigned. The
restructured respondent, and not the present respondent, is the
entity which would been liable
to the applicants for the amounts
claimed in these proceedings.
[24].
The facts of this matter demonstrate that
there was no lease and no loan agreement concluded between the
applicants and the respondent.
[25].
Therefore, I
find that the first applicant has not demonstrated that the
respondent
per
se
is
liable to it for the so-called loan account with respondent in favour
of the first applicant. The intention viz-a-viz this loan
account and
the debits passed in respect of the expenses incurred by the
respondent was always that liability would be that of
the entity
which would be the vehicle through which the ‘joint venture’
would be channelled. I reach the same conclusion
in regard to the
alleged lease agreement between the second applicant and the
respondent.
[26].
The applicants
have failed to prove that they are owed the amounts claimed by the
respondent. The application for the final winding-up
of the
respondent falls to be dismissed.
Costs
[27].
The general rule in matters of costs is that the successful party
should be given his costs,
and this rule should not be departed from
except where there are good grounds for doing so.
[28].
I can think of no reason why I should deviate from this general rule.
I can also not think of
any reason why I should grant punitive costs
against the applicants, as I was urged to do by Mr Woodrow, who
appeared on behalf
of the respondent.
[29].
I therefore intend awarding costs against the first and second
applicants in favour of the respondent
on the ordinary party and
party scale.
Order
Accordingly,
I make the following order: -
(1)
The first and second applicants’ application for the final
liquidation
of the respondent is dismissed with costs.
(2)
The provisional winding-up order issued on the 3
rd
of
February 2020 be and is hereby discharged.
(3)
The first and second applicants, jointly and severally, the one
paying
the other to be absolved, shall pay the respondent’s
costs of this opposed winding-up application.
_________________________________
L R ADAMS
Judge of the High Court
Gauteng Local Division, Johannesburg
HEARD
ON:
27
th
May 2020 – in a ‘virtual hearing’ during a
videoconference on the
Microsoft Teams
digital platform
JUDGMENT DATE:
25
th
November 2020 – judgment handed
down electronically
FOR THE FIRST AND SECOND APPLICANTS:
Advocate B D Hitchings
INSTRUCTED BY:
Martins Weir-Smith Attorneys
FOR THE RESPONDENT:
Advocate C Woodrow
INSTRUCTED
BY:
Wynand
Du Plessis Incorporated