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[2010] ZAGPPHC 181
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Street Spirit Trading 92 (Pty) v Ukwanda Leisure Holdings (Pty) Ltd [2010] ZAGPPHC 181 (21 April 2010)
NOT
REPORTABLE
IN
THE NORTH GAUTENG HIGH COURT PRETORIA
CASE
NO.: 44153/09
DATE:
21/04/2010
In
the matter between:
STREET
SPIRIT TRADING 92 (PTY)
LTD)
.....................................................
Applicant
(Registration
Number: 2007/012184/07)
and
UKWANDA
LEISURE HOLDINGS (PTY)
LTD
..............................................
Respondent
(Registration
Number: 2005/003625/07)
[1]
In this matter the applicant seeks an order for the final winding up
of the respondent in the hands of the Master of this Court.
The
application is based on two grounds, namely, that the respondent is
unable to pay its debts as envisaged by section 345(1)(c)
of the
Companies Act, No. 61 of 1973 (as amended) ('the Act
!
)
and that it is just and equitable to do so in terms of section 344(h)
of the Act.
[2]
At the outset I should deal with two issues. The applicant contended
- and so it was submitted in the Heads of Arguments of
Mr Styliano
who appeared for the applicant - that Respondent's Answering
Affidavit was irregular in that it was filed substantially
cut of
time and there was no application for condonation filed by the
Respondent. However, at the hearing of the matter, Mr Styliano
informed the Court that he was not strenuously persisting with this
point
in
limine
raised
in the Replying Affidavit and proceeded to argue the matter on the
merits. (In any event, applicant had proceeded to file
its Replying
Affidavit without launching
an application in terms of Rule 30(1 J The second issue relates to a
striking out application launched by the Respondent. It sought
to
strike out a number of paragraphs from Applicant's Replying
Affidavit. Although the Heads of Argument for Respondent were
prepared
by Advocate J E Smit, Advocate Terblanche argued the matter.
He informed the Court that Respondent was not persisting with the
striking out application. The hearing then continued on the merits.
[3]
The respondent is a property development and investment company which
commenced business in 2007. It was formed for the purpose
of
developing leisure properties and resorts throughout South Africa.
[4|
In order to finance its operations, the respondent concluded a loan
agreement with applicant in terms of which the applicant
would loan
it the sum of R6 000 000,00 over a period of 24 months, at R250
000,00 per month. (The applicant was formed, with the
agreement of
the respondent, as a special purpose vehicle by Vuwa Investments
(Pty) Ltd for the purposes of this transaction.)
[5]
A shareholders' agreement was concluded on 21 November 2007 in
Pretoria.
[6]
The shareholders' agreement provides,
inter
alia
as
follows:
"5.2
It is recorded that the initial shareholders have, prior to the
entering into of this agreement formed an alliance ("the
alliance') to seek funds for the business of the Company from outside
sources but -5.2.1 It is recorded that Vuwa has been issued
shares
subject to it
making
a loan to the company in an amount of R6 000 000 (six million
rands)("Vuwa loan")
5.2.1.1
Vuwa
will make the loan contemplated in 5.2.1 to the Company by way of 24
(twenty four) equal monthly instalments in an amount ofR250
000 (two
hundred and fifty thousand rands) into the trust account of Veneziano
Incorporated, Standard Bank Castle Walk., Account
Number: 411373749
or such other bank account as nominated by the Board of Vuwa in
writing;
5.2.1.2
the
first instalment of the monies due as contemplated in clause 5.2.1.1
will be paid upon signature
of
this agreement..."
It
is to be noted that the applicant is referred to as "Vuwa"
in the shareholders' agreement.
[7]
The Vuwa Loan would only be repayable by respondent once the
applicant successfully obtained additional loans for the Respondent
totalling R200 000 000,00 (two hundred million rands) over the 24
month period.
[8]
From November 2007 to December 2008, fourteen loans, each in the sum
of R250 000,00 (equalling R3.5 million) were made to the
respondent
by the applicant.
[9]
Applicant alleges that in order to be able to raise the sum of R200
million it was envisaged by the parties that the respondent
would, by
the
end
of April 2008,
be
issued:
9
.1
with
shares amounting to 15% (fifteen percent) of the ordinary issued
share capital of Acc-Ross Holdings Limited CAcc-Ross
,;
);
and
9.2
with
derivative instruments equating to 45% (forty five percent) of the
issued ordinary share capital of Acc-Ross.
[10]
The Shareholders' Agreement ("SHA")is preceded by what
i
call
for present purposes a 'cover sheet' which refers to three documents,
namely, a "Shareholders Agreement", a "Call
Option
Agreement" ("COA") and a "Letter",
[11]
The
SHA was entered into by the initial shareholders who are defined in
the SHA as the applicant (referred to in the SHA as "Vuwa");
Before the Wind Investments 300 (Pty) Ltd (referred to in the SHA as
"Quattro") and Blue Nightingale Trading 707 (Pty)
Ltd.
[12]
The SHA relates to these three entities acquiring shares in the
respondent.
[13]
The COA is between a trust called the Quattro Trust (a different
entity from
the
company
referred to in the Shareholders Agreement as "Quattro") and
the respondent in relation to an option to purchase
by respondent of
certain Call Option Shares at a specified call price in Acc-Ross. The
Option period was eight months from date
of signing of the COA. The
COA was signed by Quattro's representative as grantor on 21 August
2007. The Respondent's representative
(as grantee) signed on an
unknown date as the space for the day and month is blank save that
the year has been typed in as 2007.
[14]
The letter is a letter dated 21 November 2007 on the letterhead of
Jansk International Limited ("Jansk") with its
registered
office listed as being in the British Virgin islands. The letter,
which is addressed to the respondent; states
inter
alia:
"Re:
Proposed
Structuring. "Dear Sirs
We
further wish to confirm the proposed transfer (subject to the
conclusion of successful negotiations and any required regulatory
approvals) to Ukwanda of unencumbered physical shares amounting to
15% of the issued ordinary share capital of Acc-Ross Holdings
Limited
and unencumbered derivative instruments equating control over a
further 45% of the issued ordinary share capita! of Acc-Ross
Holdings, i.e. the agreement will become effective immediately
following such transfer." "We endeavour to complete the
proposed agreements for the transfers as referred to above by the end
of April 2008.
[Signed]
Jac de Beer - Authorised Representative".
[15]
Applicant says respondent fails or refuses to repay the loan hence
the 1
51
ground for the winding up of respondent, i.e. the latter's inability
to pay its debts.
[16]
The applicant says it is not only a shareholder in the respondent (as
per the SHA) but also a creditor of the respondent for
the R3,5
million it has loaned it in accordance with the SHA and more
particularly in terms of clause 5.2.1 thereof
(supra).
[17]
Respondent denies or disputes that the amount of R3,5 million
advanced thus far by applicant is still a loan. It refers to
clause
5.2.6 of the SHA where it is stated that the applicant would procure
an amount of not less than R200 million for the respondent,
failing
which the monies loaned as contemplated in clause 5.2.1. and 5.2.2
would be "written off and or donated to the respondent
as per
clause 5.2.7 of the SHA.
[18]
It is to be noted that the Call Option Agreement was signed some 3
months before the SHA was signed and the letter by Jansk
was
furnished.
[19]
Applicant's Counsel says in his written Heads of Arguments that the
COA (between the Quattro Trust and the respondent) was
concluded to
give effect to the transaction referred to in the letter and that
these documents must be read together with the SHA.
Respondent's
Counsel disagreed.
[20]
The applicant says its investment in the respondent was made on
condition that the Acc-Ross transaction took place and on
the
representation that it would take place. The representation, which
was false, was material and induced the applicant in advancing
the
loan to the respondent. The loan instalments were advanced prior to
the expected transaction and in anticipation of the fulfilment
of the
Acc-Ross transaction and in order to finance the respondent's interim
activities.
[21]
According to the applicant the rationale behind the planned
acquisition of the Acc-Ross interest was that Acc-Ross was a
well-established
and well-known company engaged in the acquisition
and development of residential, commercial, retail and leisure
properties in
South Africa. It would therefore have given the
respondent the much needed credibility and financial viability it
needed to raise
the R20G million.
[22]
Applicant therefore contends that it was a
tacit
term
to the SHA that the transfer of shares and derivatives of Acc-Ross to
respondent would take place. Since that failed to take place,
so the
applicant contends, it was entitled to resile from the agreement and
claim the R3 500 000,00 it had so far loaned to respondent.
[23]
Respondent for its part denies that there was such a tacit term as
the SHA does not make any reference to the Acc-Ross transaction.
That
contention is untenable. Clause 26.10 of the SHA does refer to the
Acc-Ross transaction. It states:
"The
parties to this agreement acknowledge that the Company
[respondent]
had prior to the signing of this agreement entered into a Caii Option
Agreement with Quattro Trust IT1472/2005 ( a
copy of which is
attached hereto for identification purposes) for the purchase of
shares issued by Acc-Ross Holdings Limited and
by signature hereof
the parties ratify the agreement"
[24]
In
Alfred
McAl
pi
ne
& Son (
Pty)
Lt
d
v Transvaal Provincial Administration 197
4
(3)
SA
506
(A)
at
532
G
533
B
it
was held that a court will not readily import a tacit term info an
agreement. The court held:
''Before
it can imply a tacit term the Court must be satisfied, upon a
consideration in a reasonable and businesslike manner of
the terms of
the contract and the admissible evidence of surrounding
circumstances, that an implication necessarily arises that
the
parties intended to contract on the basis of the suggested term . .
:".
[25]
Given
ail
the
above facts
I
am
of the view that it was indeed a tacit term of the SHA that the
Acc-Ross transaction would take place. Otherwise it would not
make
business sense in the circumstances for the applicant to agree to
lend the respondent
R6
000 000
and
undertake to obtain additional loans totalling
R200
000 000
for
the respondent.
[26]
Further
support for this view can be found in a meeting of some of the
shareholders of the respondent on 4 March
2009
where
an oral agreement
was
reached
for the repayment of the loan. Applicant relies on the minute of that
meeting. Respondent counters this on two grounds. Firstly, it says,
the applicant did not comply with the SNA by failing to raise
the
additional R200 million. Applicant for its part says it could not do
so as respondent had failed
to
acquire
the Acc-Ross shares worth R74 036 430,01. Secondly, respondent says
the alleged oral agreement was merely a
discussion
between
some
of
the
shareholders of the respondent. Not all the shareholders were
present. Hence, it could not be construed to be a shareholders'
meeting where the respondent agreed to repay the loan of R3,5
million. In my view what is important here is that the Chief
Executive
Officer CCEO') of the respondent, Mr Peter Barbas undertook
to repay the loans to the applicant. The day to day running
of
a
company is vested in its Board of directors and not the shareholders.
That the CEO of the respondent agreed
to
repay
the loan lends further credence to applicant's submissions in this
regard.
[27]
Respondent submits that there is a bona fide dispute of fact and
relies on the so-called 'Badenhorst principle' derived from
BADENHO
RST
v
NORTHERN CONSTRUCTION ENTERPRISES LTD.
1956(2) SA 347(7) at 347H where it was held:
"Die
maatskappy betwis die geidigheid van die vordering van 120 Pond, en
wanneer 'n skuld ter goeder frou betwis word, moet
n
l
ikwidasie-aansoekgeweierword.
Hierdie proses is nie bedoel virdie beslissing van twyfetagtige
skulde nie''.
[28]
In view of what I have said above the respondent's reliance on the
,:
Badenhorst
principle" that there is a bona fide dispute about whether the
debt is owing falls to be rejected. Therefore on this first
ground
alone, the applicant has made out a case for the winding up of the
respondent.
[29]
However,
applicant also relies on an additional ground for winding up
respondent, The applicant contends that not only is the respondent
unable to pay its debts but, in addition, it would be
just
and equitable
to finally wind up the respondent.
[30]
The
applicant says that the stated objective of the respondent to invest
in and develop properties throughout South Africa can no
longer be
accomplished because of the failure of the Acc-Ross acquisition. The
effect has been that there is a disappearance of
the respondent's
sub-stratum. Applicant's Counsel submitted that the factual matrix
justifies the conclusion that it is just and
equitable to wind up the
respondent. For this submission he gives the following grounds:
30.1
the
respondent is not a trading company with employees;
30.2
the
applicant is a shareholder of the respondent;
30.3
the
applicant has invested
R3
500 000,00
in
the respondent;
30.4
the
investment in the respondent was clearly premised on the
understanding that the Acc-Ross shares would be purchased;
30.5
it
is common cause that the Acc-Ross transaction did not take place;
30.6
the
respondent will have obtained an unwarranted and unjustified windfall
of
R3,5 million for nothing.
[31]
Respondent's Counsel submitted that the applicant has not
demonstrated that the objectives set out in respondent's memorandum
and articles of association are untenable. A broad and genera!
submission was made that respondent "can invest in and develop
properties". This submission is not tenable. The respondent was
dependent on the R8 million loan from the applicant and the
further
and much more substantial R200 million ban that was to be raised for
it to realise its objective of developing leisure
properties and
resorts. The prospects of acquiring the shares and derivative
instruments in Acc-Ross are extremely remote if not
impossible. In
this regard the applicant has made the undisputed statement in its
founding affidavit that Acc-Ross has since merged
to become part of
an entity called Pinnacle Point Ltd.
[32]
Applicant relies on this ground on the basis that it "postulates
not facts but only a broad conclusion of Law, justice
and equity as a
ground for winding up".
(Moosa
NO v Ma
vjee
Bhavan
(Pty) Ltd
1967 (3) SA 131
(T)). In the matter of
Ebrahimi
v Westbourne Galleries Ltd
[1972] 2 All ER 492
, (cited with approval by the Supreme Court of
Appeal in
Apco
Africa (Pty) Ltd & Anothe
r
v Apco
Worldwide
Inc
[2008] ZASCA 64
;
2008 (5) SA 615
{SCA}), Lord Wilberforce says at 499-500:
"My
Lords,
in my opinion these authorities represent
a
sound
and rational development of the law which should be endorsed. The
foundation of it ail lies in the words 'just and equitable'
and, if
there is any respect in which some of the cases may be open to
criticism, it is that the courts may sometimes have been
too timorous
in giving them full force. The words are a recognition of the fact
that a limited company is more than a mere judicial
entity, with a
personality in law of its own: that there is room in company law for
recognition of the fact that behind it., or
amongst it, there are
individuals, with rights, expectations and obligations inter se which
are not necessarily submerged in the
company structure. That,
structure is defined by the Companies Act 1948 and by the articles of
association by which shareholders
agree to be bound. In most
companies and in most contexts, this definition is sufficient and
exhaustive, equally so whether the
company is large or small. The
'just and equitable' provision does not, as the respondents suggest,
entitle one party to disregard
the obligation he assumes by entering
a
company,
nor the court to dispense him from it. it does, as equity always
does, enable the court to subject the exercise of legal
rights to
equitable consideration; consideration, that is, of a personal
character arising between one individual and another,
which may make
it unjust, or inequitable, to insist on Segal rights, or to exercise
them in a particular way."
[33]
The respondent's annual financial statements for the period ending 30
June 2008 (which are attached to the Applicant's founding
affidavit)
shows that it is a holding company with no turnover during the period
and it has made a loss of R947 328,00 after taxation.
A long term
loan from Vuwa of R2 000 000 is shown. It made no profit at all for
the 2007 financial year. It did not attach its
latest financial
statements for the year ending 30 June 2009 which it could have done
if its financial position has since improved,
i am compelled to draw
the adverse inference that its position has, at best not improved or,
it has worsened. The applicant is
a shareholder of the respondent and
has invested R3 500 000 in the respondent. Respondent's purpose,
according to the applicant
- which is not disputed by respondent - is
to develop leisure properties and resorts. The respondent was clearly
reliant on the
additional funding of R200 000 000 that was to be
procured to achieve its stated objective. This did not materialise,
whatever
the reasons might be for the failure and cannot in the
circumstances achieve its stated objectives.
[34]
In all the circumstances, I am of the view that it is also just and
equitable to finally wind up the Company.
It
is ordered:
1
.
That
the Respondent company be placed under final winding up in the hands
of the Master of this Court;
2.
That
the costs of this application be costs in the winding up of the
Respondent.
N
RANCHOD
ACTING
JUDGE OF THE HIGH COURT