Boschpoort Ondernemings (Pty) Ltd v Absa Bank Limited (936/2012) [2013] ZASCA 173; [2014] 1 All SA 507 (SCA); 2014 (2) SA 518 (SCA) (28 November 2013)

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[2013] ZASCA 173
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Boschpoort Ondernemings (Pty) Ltd v Absa Bank Limited (936/2012) [2013] ZASCA 173; [2014] 1 All SA 507 (SCA); 2014 (2) SA 518 (SCA) (28 November 2013)

THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 936/2012
Reportable
In
the matter between:
BOSCHPOORT
ONDERNEMINGS (PTY) LTD
......................................
Appellant
and
ABSA
BANK
LIMITED
.......................................................................
Respondent
Neutral
citation
:
Boschpoort
Ondernemings (Pty) Ltd v Absa Bank Ltd (936/12)
[2013] ZASCA 173
(28
November 2013)
Coram
:
Cachalia, Petse and Willis JJA and Swain and Meyer AJJA
Heard
: 15 November
2013
Delivered
: 28
November 2013
SUMMARY:
Winding-up of a company - whether Companies Act 61 of 1973 or
Companies Act 71 of 2008
applicable - inability to pay its debts -
liquidation ordered in terms of Companies Act 61 of 1973 - appeal
dismissed.
ORDER
On appeal from:
North
Gauteng High Court, Pretoria (Bertelsmann J sitting as court of first
instance):
The appeal is dismissed
with costs, which costs are to include the costs of two counsel.
JUDGMENT
Willis JA (Cachalia
and Petse JJA and Swain and Meyer AJJA concurring):
[1] This case is
concerned with an issue which has vexed the high court in various
centres around the country since the coming into
operation of the
Companies Act 71 of 2008 (‘the new Act’) on 11 May 2011:
to what extent is it, in the words of counsel
for the appellant, Mr
Oosthuizen, ‘business as usual’ where an application is
made for the liquidation of a company
that is commercially insolvent,
even though its assets may exceed its liabilities?
[2] The respondent (‘the
bank’) applied to the high court (Bertelsmann J) for an order
to wind up the appellant in terms
of s 344(f) read with s 345 of the
Companies Act 61 of 1973 (‘the old Act’), alternatively
in terms of s 344(h) of
the old Act, further alternatively in terms
of s 81(1)(cJ(ii) of the new Act. The high court made an order
winding up the appellant
on 15 June 2012. The high court did so on
the basis that it would be ‘just and equitable’ to make
such an order in
terms of s 81(1)(cJ(ii) of the new Act. On 20
November 2012 the high court granted leave to appeal to this court.
[3] It was not disputed
that the appellant had, since 1 October 2010, been in arrears in
respect of its obligations to pay the bank
more than R29 million. At
the time when the application was launched, the appellant had trade
creditors to whom it was indebted
in an amount in excess of R11
million. The appellant also owed First Rand Bank Ltd a little less
than R9 million and the South
African Revenue Service about R2
million.
[4] There was also no
dispute that the appellant had been served with the relevant demand
in terms of s 345 of the old Act and was
in default in respect
thereof. During the course of argument, counsel for the appellant
fairly and correctly conceded that the
appellant was ‘commercially
insolvent’ in the generally accepted sense of the term.
[5] Although the
appellant adverted in its answering affidavit to the possibility of
bringing an application at a later stage for
the commencement of
business rescue proceedings in terms of the provisions of Parts A to
D of chapter six (ss128 to 154) of the
new Act, it did not do so. The
question of the applicability of business rescue proceedings did not
arise in this appeal even though
the court a quo referred in passing
thereto and indicated that such proceedings would be inappropriate in
this case.
[6] The appellant
contended in its answering affidavit as well as in argument before
both the high court and this court, that it
was a ‘solvent
company’ in terms of Item 9(2) of schedule 5 of the new Act
inasmuch as the value of its assets exceeded
its liabilities and,
therefore, could be liquidated only if it would be ‘just and
equitable’ that it be wound up in
terms of s 81 (1 )(cj(ii) of
the new Act.
[7] The question of what
is meant by a ‘solvent company’ in the new Act has loomed
large in this case. Counsel for the
appellant conceded, once again
fairly and correctly, that if a ‘solvent company’ in
subitem 9(2) of schedule 5 of the
new Act meant a commercially
solvent company, the liquidation of the appellant would necessarily
follow. He contended, however,
that a ‘solvent company ‘meant,
simply, one in which its assets exceeded its liabilities.
[8] The high court
accepted that the appellant’s balance sheet indeed showed that
its assets exceeded its liabilities (a state
of affairs which lawyers
usually describe as being ‘factually solvent’) but found
that it was nevertheless clear that
the appellant was unable to pay
its debts (a situation which is, by way of contrast, generally known
as being ‘commercially
insolvent’). In the judgment of
the court below the judge said: ‘Accepting for purposes of this
judgment that the new
Companies Act, 71 of 2008
does apply,
section
81
thereof must be considered’. The judge went on to find that
it would be ‘just and equitable’ to wind up the appellant

in terms of the provisions of
s 81(1)(cJ(ii)
of the new Act and,
accordingly, granted the order liquidating the appellant. The
appellant contended that the high court erred
in making this finding.
It is necessary first to examine the relevant statutory provisions.
[9] Schedule 5 of the new
Act deals with ‘transitional arrangements’. The relevant
subitems of item 9 of schedule 5
provide that:
‘
(1) Despite the
repeal of the previous Act [i.e. the old Act], until the date
determined in terms of subitem (4), Chapter 14 of
that Act continues
to apply with respect to the winding-up and liquidation of companies
under this Act, as if that Act had not
been repealed subject to
subitems (2) and (3).
(2) Despite subitem (1),
sections 343, 344, 346 and 348 to 353 do not apply to the winding-up
of a solvent company, except to the
extent necessary to give full
effect to the provisions of Part G of Chapter 2.
(3) If there is a
conflict between a provision of the previous Act that continues to
apply in terms of subitem (1), and a provision
of Part G of Chapter 2
of this Act with respect to a solvent company, the provision of this
Act prevails.’ (Emphasis added.)
No date has been determined to
affect the interim or transitional operation of item 9 of schedule 5.
Chapter 14 of the old Act
therefore continues to apply. Section 345
of the old Act falls within chapter 14 of the old Act and,
accordingly, in terms of subitem
9(1) of schedule 5 in new Act.
Section 345 continues to apply with respect to the winding-up and
liquidation of companies as if
the old Act had not been repealed.
Subitem 9(1) is nevertheless subject to subitems 9(2) and (3).
Subitem 9(2) excludes, however,
s 344 of the old Act from the
winding-up of solvent companies. As will appear later, the inclusion
of s 345 of the old Act, when
it comes to the winding-up of solvent
companies under subitem 9(1) but the exclusion of s 344 under subitem
9(2) is significant
when it comes to determining what is meant by a
‘solvent’ company.
[10]Section 344(f) of the
old Act provides that a company may be wound up by the court if ‘the
company is unable to pay its
debts as described in section 345’.
The relevant portions of s 345 of the old Act read as follows:
‘
(1)
A company... 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 of money of 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;
...
and the company... 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)
...
(c)
it is proved to
the satisfaction of the Court that the company is unable to pay its
debts.’
[11]Part G of chapter 2
of the new Act (which, as we have already seen, excludes the
application of ss 343, 344, 346, and 348 to
353 of the old Act from
applications for the winding-up of ‘solvent’ companies),
includes ss 79 to 83. Section 79 of
the new Act reads as follows:
‘
Part
G: Winding-up of solvent companies and deregistering companies
79
Winding-up of solvent companies (1) A solvent company may be
dissolved by -
(a)
voluntary
winding-up initiated by the company as contemplated in section 80,
and conducted either -
(i) by the company; or
(ii) by the company's
creditors,
as
determined by the resolution of the company; or
(b)
winding-up and liquidation by court order, as contemplated in
section 81.
(2) The procedures for
winding-up and liquidation of a solvent company, whether voluntary or
by court order, are governed by this
Part and, to the extent
applicable, by the laws referred to or contemplated in item 9 of
Schedule 5.
(3) If, at any time after
a company has adopted a resolution contemplated in section 80, or
after an application has been made to
a court as contemplated in
section 81, it is determined that the company to be wound up is or
may be insolvent, a court, on application
by any interested person,
may order that the company be wound up as an insolvent company in
terms of the laws referred to or contemplated
in item 9 of Schedule
5’. (Emphasis added.)
[12] Section 80 of the
new Act relates to the voluntary winding-up of a ‘solvent
company’. Section 81 of the new Act
relates to the winding-up,
also of a ‘solvent company’, by a court. In terms of s
81(1)fcJ(ii) of the new Act (upon
which the court below based its
decision to liquidate the appellant), a court may order the
winding-up of a company where a creditor
has applied for such an
order on the grounds that ‘it is otherwise just and equitable
for the company to be wound up’.
[13] There have been
discordant views on the circumstances under which a company may be
wound up under the new Act, on the one hand,
or the old Act on the
other. It is clear, however, that ss 79 to 81 of the new Act apply to
the liquidation of ‘solvent’
companies. Section 79(3) of
the new Act provides, however, that if it becomes apparent during the
liquidation proceedings of a
‘solvent’ company, that it
is or may be ‘insolvent’, the transitional provisions
referred to in item 9
of schedule 5 of the new Act apply: the
winding-up of the insolvent company may take place under the old Act.
[14] The new Act has not
defined the meaning of either a ‘solvent’ company or its
converse, an ‘insolvent’
company. The case turns on what
is meant by the term ‘a solvent company’ and conversely,
the meaning of a company being
‘insolvent’.
[15]
Counsel
referred us, in particular, to two recently reported cases that deal
with the issue: Standard Bank of SA Ltd v R-Bay Logistics
CC
[1]
and Firstrand Bank Ltd v Lodhi 5 Properties Investment CC para 30.
[2]
We were also referred to a number of other cases also dealing with
similar subject matter which have been less prominently published.
[3]
The interpretations placed upon the provisions by different courts
have not been in harmony with one another. This is a reflection
on
the lack of clarity in the drafting of the provisions of the new Act
relating to the liquidation of companies. An analysis of
these
various judgments would unduly lengthen this judgment. To the extent
that they are not in conformity with the determination
of what is
meant by a ‘solvent company’ in this judgment, they
cannot apply to situations that may arise in future.
[16]
For decades
our law has recognised two forms of insolvency: factual insolvency
(where a company’s liabilities exceed its assets)
and
commercial insolvency (a position in which a company is in such a
state of illiquidity that it is unable to pay its debts,
even though
its assets may exceed its liabilities). See, for example,
Johnson
v Hirotec (Pty) Ltd
;
[4]
Ex parte
De Villiers & another NNO: In re Carbon Developments (Pty) Ltd
(in Liquidation);
[5]
Rosenbach & Co (Pty) Ltd v Singh’s Bazaars (Pty) Ltd.
[6]
[17]
That a
company’s commercial insolvency is a ground that will justify
an order for its liquidation has been a reality of law
which has
served us well through the passage of time. The reasons are not hard
to find: the valuation of assets, other than cash,
is a notoriously
elastic and often highly subjective one; the liquidity of assets is
often more viscous than recalcitrant debtors
would have a court
believe; more often than not, creditors do not have knowledge of the
assets of a company that owes them money
- and cannot be expected to
have; and courts are more comfortable with readily determinable and
objective tests such as whether
a company is able to meet its current
liabilities than with abstruse economic exercises as to the valuation
of a company’s
assets.
[7]
Were the test for solvency in liquidation proceedings to be whether
assets exceed liabilities, this would undermine there being
a
predictable and therefore effective legal environment for the
adjudication of the liquidation of companies: one of the purposes
of
the new Act, set out in s 7(1) thereof.
[18]
In view of
the long established and well-settled practice in our courts that
commercial insolvency justifies the liquidation of
a company, it must
be presumed that the legislature was aware of this fact. The
principle that Parliament is presumed to be acquainted
with the
interpretation of earlier legislation by the court, applies where
there has been a settled and well- recognised judicial
interpretation
before the relevant legislation was passed.
[8]
[19]
It has also
long been a construction of interpretation of statutes that, in the
absence of express wording to the contrary, the
legislature did not
intend to alter the law as it had previously stood.
[9]
Accordingly, it must be presumed that the legislature deliberately
refrained from defining ‘solvency’. It must have
done so
with a view to ensuring that the well-oiled machinery of the courts
in matters of company liquidations should not stall.
The legislature
must have been content that prevailing judicial interpretations of
solvency and insolvency respectively should
continue to have effect.
The meaning of those terms must be one that leads to a sensible and
business-like result. See Natal Joint
Municipal Pension Fund v
Endumeni Municipality.
[10]
[20]
I referred
earlier to the fact that s 345 of the old Act was retained in terms
of subitem 9(1) of schedule 5 of the new Act. Subitem
9(2) provides
that s 344 of the old Act shall not apply to the liquidation of
‘solvent’ companies, ‘except to
the extent that it
is necessary to give full effect to the provisions of Part G of
Chapter 2’. Part G of chapter two of the
new Act, more
particularly ss 79 to 81 thereof, relate to the winding-up of solvent
companies. As we have seen, s 344(f) and s
345 of the old Act are
fastened together by the clasp in s 344(f) that refers to a company
being unable to pay its debts ‘as
described in s345’. The
seeming anomaly may be resolved if one recognises that s 345 was
retained in subitem 9(1) to enable
a determination to be made in
terms of s 79(3) of the new Act that a company ‘is or may be
insolvent’ - even though
the application was made in terms of
either s 80 or 81 for its winding-up as a so-called ‘solvent’
company. The deeming
provisions concerning the inability to pay its
debts, contained in s 345 of the old Act may be used to establish the
insolvency
of a company. In this regard, I agree with King AJ in
Standard Bank of SA Ltd v R-Bay Logistics CC.
[11]
[21] This conclusion is
significant in determining what is meant by a ‘solvent
company’. The retention by the legislature
in the context of a
winding-up of a solvent company in the new Act, of the deeming
provisions as to when a company is unable to
pay its debts as
contained in s 345 of the old Act, is a clear indication of what is
meant by an insolvent company in the new Act.
It can only mean a
company that is commercially insolvent. It therefore follows that a
solvent company must be the converse, namely
a company that is
commercially solvent.
[22] Consequently, in
order for a solvent company to be wound-up in terms of either s 80 or
81 of the new Act, it must be commercially
solvent. If it is
commercially insolvent it may be wound-up in accordance with chapter
14 of the old Act, as is provided for in
subitem 9(i) of schedule 5
of the new Act.
[23] The confusion which
has arisen as to when a company may be wound­up in terms of the
new Act or in terms of the old Act
is thus eliminated. The so-called
factual solvency of a company is not, in itself, a determinant of
whether a company should be
placed in liquidation or not. The
veracity of this deduction may be illustrated, as in the present
case, where the issue has arisen
as to whether a company which is
factually solvent, but commercially insolvent, is to be wound-up in
terms of the new Act or the
old Act. To attribute so-called ‘factual
solvency’ to the meaning of the term ‘solvent company’
in the
new Act would lead to an unbusiness-like result that would not
make sense.
[24]
Factual
solvency in itself is accordingly not a bar to an application to
wind-up a company in terms of the old Act on the ground
that it is
commercially insolvent. It will, however, always be a factor in
deciding whether a company is unable to pay its debts.
See Johnson v
Hirotec (Pty) Ltd,
[12]
It follows that a commercially solvent company (whether factually
solvent or insolvent), may be wound up in terms of the new Act
only;
a solvent company cannot be wound up in terms of the old Act.
[25] Subject to the
consideration of business rescue proceedings in terms of Parts A to D
of chapter six of the new Act, it is indeed
‘business as usual’
when it comes to a decision as to whether a commercially insolvent
company should be placed in
liquidation. In terms of s 131(6) of the
new Act, an application for business rescue proceedings to commence
has the effect of
suspending an application for the liquidation of a
company. The subsection provides that the suspension of the
liquidation proceedings
against a company operates until the court
has adjudicated upon that business rescue application or the business
rescue proceedings
have come to an end.
[26] The court below
therefore incorrectly decided that s 81(1)(cJ(ii) of the new Act
applied to the determination of whether or
not to grant the order for
the liquidation of the appellant. The high court did, however,
correctly find that the appellant was
unable to pay its debts. The
high court ought to have applied s 344(f), read with s 345, of the
old Act. The reason is that application
had been made for the
liquidation of a company which was insolvent in the generally
understood sense of that term. Under the old
Act, this justifies an
order winding-up the appellant. The appeal must be dismissed, the
high court having made the right order,
albeit by wrongly deciding
that s 81(1)fcJ(ii) of the new Act applied to the facts of this
particular case.
[27]
The importance of this case has justified the costs of two counsel.
[28]
The following order is made:
The appeal is dismissed
with costs, which costs are to include the costs of two counsel.
N
P WILLIS
JUDGE
OF APPEAL
APPEARANCES:
For
the Appellant: H F Oosthuizen
Instructed
by:
Froneman
Roux & Streicher, Centurion
c/o
Honey Attorneys, Bloemfontein
For
the Respondent: J G Bergenthuin SC
(with
him, A C Botha and B Bergenthuin) Instructed by:
Van
Zyl Le Roux Incorporated, Pretoria
c/o
Phatshoane Henney, Bloemfontein
[1]
Standard
Bank of SA Ltd v R-Bay Logistics CC
2013
(2) SA 295 (KZD).
[2]
First
Rand Bank Ltd v Lodhi 5 Properties Investment CC
2013
(3) SA 212
(GNP) para 30.
[3]
Scania
Finance Southern Africa (Pty) Ltd v Thomi-Gee Road Carriers CC
2013
(2) SA 439
(FB) para 12;
Pearl
Construction (Pty) Ltd v Seabo Construction, Plumbing and Business
Ventures CC
(1597/2013)
[2013] ZAFSHC 168
(26 September 2013);
Firstrand
Bank Ltd v Samgram Holdings (Pty) Ltd
(1117/2013)
[2013] ZAKZDHC 41 (26 August 2013);
LSP
Petroleum (Pty) Ltd v Kukhanya Marketing CC, Ntimane v LSP Petroleum
(Pty) Ltd In re: LSP Petroleum (Pty) Ltd v Kukhanya Marketing
CC
(55336/2012)
[2013] ZAGPPHC 212 (17 July 2013);
Firstrand
Bank Ltd v Wayrail Investments
(Pty)
Ltd
[2013] 2 All SA 295
(KZD);
Herman
v Set-Mak Civils
2013
(1) SA 386
(FB) para 34;
Edge
Geo LLC v Geothermal Energy Systems (Pty) Ltd
(6883/12)
[2012] ZAWCHC 391
(14 December 2012);
Platt
v Umgamanzi Fishing (Pty) Ltd
(3936/2011)
[2012] ZAECPEHC 81 (16 November 2012);
Knipe
v Kameelhoek (Pty) Ltd t/a Schaapplaats 978 (Pty) Ltd
(A252/2011)
[2012] ZAFSHC 160
(30 August 2012);
Business
Partners Ltd v Yellow Star Properties 1061 (Pty) Ltd
(7188/2011)
[2012] ZAKZDHC 96 (17 July 2012);
Firstrand
Bank Ltd v Bunker Hills Investments 499 CC
(32130/11)
[2012] ZAGPJHC 84 (4 May 2012).
[4]
Johnson v Hirotec (Pty) Ltd 2000 (4) SA (SCA)para 6
[5]
Ex
parte De Villiers & another NNO: In re Carbon Developments (Pty)
Ltd (in Liquidation)
1993
(1) SA 493
(A) at 502C-D.
[6]
Rosenberg
& Co (Pty) Ltd v Singh’s Bazaars (Pty) Ltd
1962
(4) SA 593
(D) at 596F-597H.
[7]
See, for example, the observation of the court in Firstrand Bank Ltd
v Lodhi 5 Properties Investment CC
2013 (3) SA 212
(GNP) para 34.
[8]
See,
for example,
Fundstrust
(Pty) Ltd (in Liquidation) v Van Deventer
1997
(1) SA 710
(A) at 732A-B;
Commissioner
for Inland Revenue Estate v Hulett
[1990] ZASCA 23
;
1990
(2) SA 786
(A) at 798B-C and
Krause
v Commissioner for Inland Revenue
1929
AD 286
at 297.
[9]
See, for example, Ex parte Davidson
1981 (3) SA 575
(D &CLD) at
577H; Ex parte Aufrichtig
1979 (4) SA 426
(N) at 429B-C; Realisation
Company v Commissioner of Taxes
1951 (1) SA 177
(SR) at 184G-H; In
re Budgett; Cooper v Adams
(1894) 2 Ch 557
at 561.
[10]
Natal Joint Municipal Pension Fund v Endumeni Municipality
2012 (4)
SA 593
(SCA) para 18.
[11]
Standard
Bank ofSA Ltd v R-Bay Logistics CC
(supra)
para 29.
[12]
Johnson
v Hirotec (Pty) Ltd (supra)
para
6.