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[2019] ZAECPEHC 22
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Hacker v Hartmann and Others (1415/2017) [2019] ZAECPEHC 22 (10 April 2019)
IN THE HIGH COURT OF SOUTH AFRICA
(EASTERN
CAPE LOCAL DIVISION – PORT ELIZABETH)
CASE NO. :
1415/2017
Heard
on: 6 September 2018
Date delivered: 10
April 2019
In
the matter between:
INGE
JOANE HACKER
Applicant
And
MARK
KEISER HARTMANN AND OTHERS
Respondents
JUDGMENT
MAJIKI
J:
[1]
The applicant approached court seeking in the main the following
orders:-
(i)
Declaring the first respondent to be a delinquent director
in terms
of section 162 of the companies Act No. 71 of 2008 (the Act);
(ii)
Directing that the first respondent be removed as a director of the
second
and third respondent and authorising the applicant to bring
proceedings in the name of and on behalf of the second respondent
against
the first respondent for repayment of financial assistance
provided to him in contravention of section 45 of the Act. The
first, fourth to sixth respondents oppose the application. The
purported opposition on behalf of the second, third and ninth
respondent is contested by the applicant.
[2]
The applicant and the first respondent are the surviving siblings of
the late John
Hartmann and his surviving spouse Faith Hartmann.
Even though the applicant’s directorship is to be challenged as
the
first respondent contends, the two siblings are co-directors of
the second and third respondents’ companies. The second
respondent is a hotel and the third respondent is a property owning
company. The fourth to sixth respondents are trustees
of
Repocalyptic Trust which holds 52% shares of the second respondent.
The remainder of 48% shares is held by Hartmann Family
Trust (HFT),
fifth to ninth respondents. HFT holds 100% shares of the third
respondent.
[3]
The first, second, third, fourth, fifth, sixth and ninth respondents
had filed counter
applications dated 21 July 2017, which were later
abandoned. The only issue that requires determination
arising therein
relate to costs. The respondents then had
simultaneously filed a provisional abridged answering affidavit
deposed to by the
first respondent. The same respondents also
filed a supplementary affidavit deposed to by the first respondent on
8 September
2017. The applicant filed replying affidavits to
the said affidavits together with an application to strike out parts
of
the respondents’ affidavits.
[4]
The respondents’ heads of argument were filed two court days
out of time, on
28 August 2018 instead of the 24
th
.
The first respondent filed an application for condonation for such
late filing. It was premised on the reason that
counsel who was
supposed to attend same could not be available to timeously finalise
same due to other work pressure. The
applicant opposed the
application. Amongst others, the applicant contended that
lateness was not an isolated occurrence,
in the respondents’
conduct of the entire litigation in this matter. Even if
condonation is granted, their conduct
ought to be met with an
appropriate order of costs. The condonation application was
granted.
[5]
The applicant has launched an application to strike out from the
first respondent’s
provisional abridged answering and
supplementary affidavits a number of averments on various grounds.
Those grounds are that
the averments are scandalous, vexatious
argumentative and or irrelevant. The abridged answering
affidavit with annexures
is about 203 pages. The supplementary
answering affidavit is about 588 pages, excluding confirmatory and
supporting affidavits.
STRIKING
OUT APPLICATION
[6]
Rule 6(15) of the Uniform Rules of Court provides:
“
The
court may on application order to be struck out from any affidavit
any matter which is scandalous, vexatious or irrelevant…
The court shall not grant the application unless it is satisfied that
the applicant will be prejudiced in his case if it be not
granted.”
[7]
The starting point in exercising the discretion whether to strike out
any matter is;
(i) the matter sought to
be struck out must indeed be scandalous, vexatious or irrelevant;
(ii) the court must be
satisfied that if the applicant would be prejudiced if the
application is not granted.
In Gelyke
Kanse
and Others v Chairman of Senate Stellenbosch University
2018 (1)
AllSA 46
at
paragraph
160
it is explained that the establishment of such prejudice does not
mean that if the offending allegations remain, the applicant’s
chances of success will be reduced. On the contrary, the requirement
is substantially less than that. The applicant has relied
on
these grounds in her application to strike out. In
National
Director of Public
Prosecutions v Zuma
[2009] ZASCA 1
;
2009 (2) SA 277
SCA para 23 it was held the test for irrelevance is
whether the allegations do not apply to the matter at hand or do not
contribute
one way or another to a decision of that matter.
Inadmissible evidence is by its very nature irrelevant. The
applicant
further contended that over and above these grounds, the
court should exercise its discretion to strike out as irrelevant, any
matter in the second answer which is simply repetition of averments
in the first answer.
[8]
There has been no notice of opposition to the striking application,
however, during
argument, Mr Rosenberg stated that it is opposed.
In the heads of argument it is stated that whatever is said to be
vexatious
constitutes the first respondent’s case. He
wishes to advance it in those strong terms. Mr Nel who made
submissions
on the striking application submitted that the applicant
has also levelled serious attacks on the first respondent and his
integrity.
In argument it was persisted with that the
applicant’s motives to divide the assets to be sold amongst the
two siblings is
relevant. This goes to the heart of the
requirement of good faith in section 165(5) of the Act. Further
the outline
of what the applicant herself has received in money from
the company is relevant. Issues relating to background and
context
as to which the companies had been conducted cannot be
irrelevant or saying they are would be a narrow approach.
[9]
Before I deal with the grounds set out for striking I must state that
the more than
1000 pages of papers filed by the respondents, in
particular the affidavits of the first respondent, are full of
repetition and
prolix material which poses a very strenuous read.
[10]
In my attempt to deal with the allegations sought to be struck out I
will summarise those falling
under the same ground and pronounce
thereon collectively, except where the finding is different. It
may not be possible in
this judgment to set out each and every
allegation with a corresponding finding and reasons thereof.
Allegations that use
abusive language, hearsay, those that do not
relate to the issues at hand or do not contribute to them in any way
will be struck
out. The context and history must still address
the issues in the case.
IRRELEVANT
ALLEGATIONS
Ad
paragraph 2.7
Briefly,
it is averred that applicant ought not to have come to court because
not approaching court is in line with the intention
of the founding
trustees of HFT. Their parents always intended that the
disputes relating to the trust and related entities
be resolved
privately, through alternative dispute resolution.
I
agree, the relief sought by applicant and the issue to be determined
therein is not related to what would regulate the trust which
the
first respondent seeks to bring in, in this answer. The
application is about resolving issues in the companies in second
and
third respondent.
Ad
paragraphs 3.9 and 3.11
First
respondent says Ms Wendy Hay acted improperly and sided with the
applicant without consulting him in breach of her appointment
as
independent trustee. She presented to him as a
fait accompli
resolutions of HFT, second and third respondents to terminate the
first respondent’s directorship as delinquent director.
He goes on to say he worked hard for both companies without being
paid. Further the applicant ignored assets of third respondent
when applying means test based on the second respondent only.
The companies are closely related.
I
agree it would not be relevant whether he was consulted, if
resolutions were taken having followed due process. The
issue is the effect of his loans to the entities, how they were
obtained and the liquidity position of the entities. Further
issue would be his entitlement to remuneration, if the contribution
counts, the facts proving the contribution would bear relevance.
Ad
paragraph 4 “Annexure E”
These
are said to be irrelevant. With regard to Annexure E, no
relevant components of it upon which the first respondent may
be
purporting to rely have been set out and incorporated in the
answering affidavit. Paragraph 19 of annexure E is said to
be
scandalous and vexacious. The sub-paragraphs therein set out
the family background, the shareholding as averred by the
first
respondent in the second and third respondents.
The
only relevant portion therein which stands not to be struck relate to
his averments about his claim about shareholding and the
family
background as it relates to the operations of the business. The rest
of the averments are irrelevant. As for annexure
E no facts or
basis for it has been laid in the affidavit.
Ad
paragraph 6.2
I
agree the allegation about dispute of close family relatives and
explanation about family ties is irrelevant.
Ad
paragraphs 6.3, 6.3 and 6.4
I
agree the allegations about the applicant’s reasons to come to
Port Elizabeth being suspect and her husband’s proposal
to sell
properties without the first respondent’s knowledge and consent
are irrelevant to the issues in the application.
Ad
paragraphs 6.8, 6.9, and 6.10 to 6.12
The
issues about previous financial bailout and benefits to the applicant
by their parents are indeed hearsay and irrelevant.
There is no
case of about calculation of what the applicant and the first
respondent would share in the remaining assets.
Ad
paragraph 6.16
Similarly,
all the averments about nearly losing grading status are irrelevant.
Ad
paragraph 7
The
averments herein are irrelevant, repetitive of first respondent’s
speculative perspective of applicant’s motives.
Ad
paragraph 8.6
The
averments about how and when the application papers were served are
irrelevant.
Ad
paragraph 8.8
The
averments herein are irrelevant. The application does not
concern shareholding or termination of trust.
Ad
paragraph 9.10
The
applicant submitted that the averments herein are irrelevant, I
disagree. The contents hereof are not to be struck out.
Ad
paragraphs 9.11 and 9.12
I
agree with the applicant that whether the first respondent loses his
trusteeship or not is irrelevant for the purposes of determining
this
application.
Ad
paragraph 9.16
The
illness of the first respondent’s ex-wife is irrelevant.
Ad
paragraph 10.5
I
do not agree that the first sentence is hearsay and irrelevant, if he
avers that this was what Ms Wendy Hay said to him.
The rest of
the paragraph may be unnecessarily long but a point is alleged
therein that Ms Hay failed to apply her mind in the
issue.
Ad
paragraphs 10.6, 10.7, 11, 12.1 to 12.7, 12.9, 12.11 12.12, 12.13 to
12.21
I
agree the whole allegations about allegations and action against Ms
Hay are irrelevant herein. The rest are also irrelevant,
I have
already alluded to the issue of shareholding above. Similarly
the history of the acquisition of properties is irrelevant.
Ad
paragraph 17.1 and 17.2
I
do not agree these paragraphs stand to be struck out.
Ad
paragraph 18.1
The
contents hereof are to be struck out, for being argumentative.
There may be slight relevance in relation to why the first
respondent
is opposing the application and put the allegations about the
applicant’s motives remains irrelevant.
[11
] Other grounds for striking out first respondent’s
answering affidavit.
Ad
paragraph 2.7
I
agree that to the extent that the first respondent refers to the
application as being extortionist attempt to use sword of the
court
in an inappropriate manner is scandalous and vexatious.
Ad
paragraph 2.10
I
agree reference to applicant’s actions as to be preposterous
demands is scandalous and vexatious.
Ad
paragraph 3.4 and 3.4.1
I
agree reference to the applicant’s motives for the application
as bearing pressure in extortionist manner is scandalous
and
vexatious.
Ad
paragraph 6.1
The
contents hereof are not scandalous or so argumentative as to warrant
a striking.
Ad
paragraph 6.3 and 6.4
I
agree to aver that the applicant and her husband swooped in, tried to
do a reverse takeover of business entities, the use of the
word pipe
dream is scandalous and vexatious.
Ad
paragraph 6.5.2 to 6.9
Reference
to warped reasoning, blatant in targeting the first respondent and
Port Elizabeth’s assets are indeed vexatious.
Ad
paragraph 6.10 to 6.12
I
agree reference to the applicant as leading a luxurious life and
chosen not to work is indeed vexatious.
Ad
paragraph 6.13
Reference
to revelation of blatant dishonesty and the motive of the application
as abuse of court process on fast (sic) grounds
whilst failing to put
annexure “F” into context, whilst it ought not to be part
of the papers in the first place is
vexatious.
Ad
paragraph 6.14
I
agree use of words, ruthless, opportunistic disingenuous, devious and
self interest in these circumstances is scandalous and vexatious.
Ad
paragraph 6.15
Similarly
use of sabotage, strong-arm tactics stooping the lowest, playing
games of brinkmanship is scandalous and vexatious.
Ad
paragraph 6.16
Similarly
reference to exceed (sic) to blackmailing demands and pattern of
blackmail is scandalous and vexatious.
Ad
paragraph 7
Reference
to applicant’s motives, use of words grab the money and run,
heartless are scandalous and vexatious.
Ad
paragraph 8.9
Reference
to the application as malicious and revengeful is scandalous and
vexatious.
Ad
paragraph 9.2, 9.3
Reference
to the applicant as tending to overdramatise, to achieve her own
agenda and circling him like and deliberately distorting
the picture
vultures are indeed scandalous and vexatious.
Ad
paragraph 9.6
Use
of weapon in terorem for financial gain is scandalous and vexatious.
Ad
paragraph 9.12
I
do not agree that the last sentence hereof is scandalous and
vexatious.
Ad
paragraph 9.13
Use
of extortionist is scandalous and vexatious.
Ad
paragraph 9.14
Allegations
of vindictiveness and malice, ripping huge amount of money, extorting
her way of a lump sum are indeed scandalous and
vexatious.
Ad
paragraph 10.2 to 10.4
The
use of language like applicant started these antics of hers, gathered
support of so-called independent trustee clandestinely,
concocted
mandate they conspired to achieve in 10.2 to 10.3 are scandalous and
vexatious.
Ad
paragraph 12.7
Reference
to carcass in the field the vultures are circling is scandalous and
vexatious.
Ad
paragraph 12.12, 13.8
The
use of language grumbling about share transfer, complete nonsense and
double standards is scandalous and vexatious.
Ad
paragraphs 13.11, 15.3
The
contents hereof fall not to be struck out.
Ad
paragraph 17.1 and 17.2
Only
contents of paragraph 17.2 referring to ulterior and illegal motive
fall to be struck out as scandalous and vexatious.
Ad
paragraph 18.1
The
contents hereof are to be struck out for being argumentative.
The slight relevance relates to why the first respondent
is opposing
the application and allegations about the applicant’s motives.
[12]
AFFIDAVIT OF ROLAND HEIRESS DATED JULY 2017
Only
the paragraphs that are to be struck are referred to herein.
Ad
paragraph 6 to 8
Paragraphs
6 – 7 stand to be struck for being irrelevant.
Ad
paragraph 14
The
contents thereof are relevant only in as far as the information
relating to latest municipal valuation and managing director’s
entitlement to remuneration.
Ad
paragraph 16
I
agree paragraph 16 ought to be struck out as hearsay evidence.
Ad
paragraphs 23, 24, 25 27
I
agree the contents of these paragraphs are irrelevant.
Ad
paragraph 26
Only
the part of first respondent’s interest bears relevance, the
rest of the contents are irrelevant.
RESPONDENTS’
SUPPLEMENTARY ANSWERING AFFIDAVIT
Ad
paragraph 1.4
I
agree that this paragraph has to be struck out, it is repetitive of
issues already canvassed elsewhere by the first respondent
and
contains irrelevant averments.
Ad
paragraph 2.1
I
agree the third sentence hereof falls to be struck out for being
vexatious and scandalous.
Ad
paragraphs 2.3 to 2.6
I
do not agree that the contents hereof are irrelevant.
Ad
paragraphs 3.4, 3.5
The
contents of this paragraph is repetitive, refer applications that are
no longer up for adjudication and are therefore irrelevant.
Ad
paragraph 4.1, 4.2
These
paragraphs fall to be struck out, they contain irrelevant, vexatious
and scandalous material
Ad
paragraphs 4.3, 4.4, 4.6, and 4.7
Second
sentence of this paragraph 4.3 and the rest of the mentioned
paragraphs fall to be struck out they are irrelevant.
Ad
paragraph 6
The
contents hereof about alleged loans to the applicant or her husband
are irrelevant.
Ad
paragraphs 7.4 to 7.13
This
falls to be struck out contains irrelevant, scandalous and vexatious
material.
Ad
paragraphs 7.15, 7.16, 7.18 and 13.5
The
averments about alleged action to be sought are irrelevant.
Ad
paragraph 10.2
The
contents hereof are repetitive and argumentative fall to be struck
out.
Ad
paragraph 11.2 and 11.3 and 12.4
I
agree the contents hereof stand to be struck out for being
irrelevant.
Ad
paragraph 13.4
The
last sentence of application being used as weapon in terrorem is
struck for being vexatious and scandalous.
Ad
paragraph 14.2 and 14.3
Both
annexures E and P are irrelevant and are hereby struck out.
Annexure P has not been canvassed in the affidavit.
Ad
paragraphs 15.2 – 15.3
The
contents hereof are struck out as irrelevant.
Ad
paragraph 15.5
The
contents hereof are repetitive, scandalous and vexatious and fall to
be struck out.
Ad
paragraph 16
I
agree the entire paragraph is hereby struck out as irrelevant,
scandalous and vexatious.
Ad
paragraph 17.4
The
contents hereof fall to be struck out for being repetitive,
scandalous and vexatious.
Ad
paragraph 18.2
The
averments relating to summons are irrelevant and fall to be struck
out.
Ad
paragraphs 19.1.2, 19.1.3, 19.1.4 and 19.1.5
The
contents hereof are struck out. The averments about the first
respondent being the only one to provide suretyship to Nedbank
for
second respondent and insinuations about the applicant are
irrelevant, scandalous and vexatious.
Ad
paragraph 19.2.2 – 19.2.5
These
paragraphs are struck out for being vexatious and scandalous.
Ad
paragraph 19.3.3
The
contents hereof are not to be struck out
Ad
paragraph 19.3.4
The
contents hereof fall to be struck out, they are scandalous and
vexatious.
Ad
paragraph 19.3.5
Other
than the admission that over the past year he drew more than the
agreed remuneration package, the contents hereof contain
repetitive
and vexatious material.
Ad
paragraph 19.3.6
Other
than the averments relating to debatement of the applicant and first
respondent’s loan accounts, the rest of the averments
are
repetitive and vexatious and fall to be struck out.
Ad
paragraph 19.3.7, 19.3.8
Other
than averments about the mortgage bond in favour of Nedbank, in
excess of the debt, the rest of the averments fall to be struck
out
as either being hearsay evidence, or repetitive and vexatious.
Ad
paragraph 19.4.1 to 19.4.4
The
contents of these paragraphs are repetitive and irrelevant they fall
to be struck out.
Ad
paragraph 19.4.5
Other
than the open offer for early termination of HFT, the rest of the
averments are repetitive, scandalous and vexatious, they
fall to be
struck out.
Ad
paragraph 19.4.6
The
contents hereof fall to be struck out, they are repetitive and
irrelevant.
Ad
paragraphs 19.5.5 to 19.5.17
Contents
hereof are not to be struck out.
Ad
paragraph 19.5.18
The
second, fourth and fifth sentences are scandalous and vexatious.
Ad
paragraph 19.5.20
The
sixth sentence hereof is scandalous and vexatious.
Ad
paragraph 19.5.22
The
seventh sentence, tenth to twelfth sentence fall to be struck out as
speculative, scandalous and vexatious.
Ad
paragraph 19.6.1, 19.6.2
Other
than denial of default in rent, the contents of this paragraph fall
to be struck out as scandalous and vexatious. Annexure
Q is not
supported by any averments making reference to it.
Ad
paragraph 19.6.5
Other
than averments relating to rental due being exceeded by payments made
by second respondent the rest of the averments are repetitive
and are
irrelevant and fall to be struck out. The two last sentences
thereof are scandalous and vexatious.
Ad
paragraph 19.6.6
The
contents of this paragraph are irrelevant and fall to be struck out.
Ad
paragraph 19.6.7
Other
than the averment about verbal agreement remaining not replaced the
rest of the contents of these paragraphs are irrelevant
and fall to
be struck out.
Ad
paragraph 19.6.8 to 19.6.10
I
disagree these paragraphs out not to be struck.
Ad
paragraphs 19.6.11 and 19.16.12, 19.16.13 and 19.16.4
The
contents of these paragraphs are irrelevant and fall to be struck
out.
Ad
paragraph 19.6.15
The
contents hereof ought not to be struck out
Ad
paragraph 19.6.16
The
contents hereof fall to be struck out as scandalous and vexatious.
19.7.1
and 19.7.2
The
contents hereof are repetitive, scandalous and vexatious. They
fall to be struck out.
Ad
paragraphs 19.7.3 and 19.7.4
The
contents hereof are irrelevant and fall to be struck out.
Ad
paragraph 19.7.5
The
contents hereof are irrelevant and repetitive. They fall
to be struck.
Ad
paragraphs 19.7.6 to 19.7.15
The
contents hereof are irrelevant and fall to be struck out.
Ad
paragraph 19.7.16, 19.7.17
The
contents hereof are irrelevant, scandalous and vexatious and stand to
be struck out.
19.7.18,
19.7.19, 19.7.21, 19.7.24
The
contents hereof are irrelevant, contain hearsay, scandalous and
vexatious averments they fall to be struck out.
Ad
paragraph 19.17.20
Other
than the averments about improvement of trading results the rest of
the averments fall to be struck they are scandalous and
vexatious.
Ad
paragraph 19.7.29
Other
than averments about generation of income for JM, the rest of the
averments fall to be struck as they are scandalous and vexatious.
Ad
paragraph 19.7.30
The
contents hereof contain repetitive, scandalous and vexatious
material. The paragraph falls to be struck out.
Ad
paragraph 20
20.1.1
– The contents herein are scandalous and vexatious and fall to
be struck out.
Ad
paragraphs 20.1.4, 20.1.5, 20.1.6 20.1.7, 20.1.7, 20.2.1, 20.2.2,
20.2.3, 20.2.4, 20.2.5
The
contents hereof fall to be struck as it is repetitive material and
irrelevant.
Ad
paragraph 20.1.8
The
contents hereof fall to be struck for they are scandalous and
vexatious.
Ad
paragraph 20.3.1
This
paragraph is unnecessary repetition, it falls to be struck out.
Ad
paragraphs 20.3.2 and 20.3.3
The
contents hereof contain irrelevant material and are to be struck out.
Ad
paragraphs 20.3.4, 20.3.5 and 20.3.6
The
contents hereof contain repetitive, irrelevant and vexatious material
and fall to be struck.
Ad
paragraphs 20.3.8, 20.3.9, 20.3.12, 20.3.13 20.3.14, 20.3.15 and
20.3.16
These
paragraphs contain past information that is irrelevant and fall to be
struck out.
Ad
paragraph 20.3.10
The
contents hereof contain repetitive material. They fall to be
struck out.
Ad
paragraph 20.3.11
Other
than reference to the salaries and expenses the rest of the contents
contain irrelevant, repetitive, scandalous and vexatious
material,
which falls to be struck out.
Ad
paragraphs 20.3.17, 20.3.18
The
contents hereof are irrelevant, scandalous and vexatious, they fall
to be struck out.
Ad
paragraphs 20.4.2, to 20.4.16
Other
than the explanation of why security service provider, that his
drawings did not endanger the companies financially or otherwise
and
applicant received more than 4.2 million via the second respondent to
date the rest of the contents herein are irrelevant,
scandalous and
vexatious and contain repetitive material, they fall to be struck.
Ad
paragraph 20.4.16
Other
than denial of being reckless, the rest of the averments are
repetitive, scandalous and vexatious, they fall to be struck.
Ad
paragraph 20.4.17
This
is repetitive and falls to be struck out.
Ad
paragraphs 20.4.18, 20.4.19, 20.4.20, 20.4.21 and 20.4.22
The
contents hereof are repetitive, irrelevant and vexatious and fall to
be struck out.
Ad
paragraphs 20.5.1 - 20.5
The
contents hereof are repetitive, irrelevant and contain scandalous and
vexatious averments and fall to be struck out.
Ad
paragraphs 20.6.1 – 20.6.7
Save
for the information that the applicant ought to have taken into
account in her financial analysis the rest of the averments
are
scandalous and vexatious and fall to be struck out.
Ad
paragraph 20.7
The
contents hereof are irrelevant, scandalous and vexatious.
Ad
paragraph 21.5
The
seventh, ninth and tenth sentences fall to be struck they are
scandalous and vexatious.
Ad
paragraph 21.7
Other
than averment about omission of information the rest of the contents
of this paragraph are irrelevant and contain scandalous
and vexatious
statement, they fall to be struck out.
Ad
paragraphs 21.11 and 21.12
The
contents hereof are scandalous and vexatious. Paragraph 21.12
contains repetitive averments. These paragraphs fall
to be
struck out.
Ad
paragraphs 23.1 – 23.4
The
contents hereof are irrelevant. Paragraph 23.4 specifically
contains repetitive, scandalous and vexatious averments, they
fall to
be struck out.
Ad
paragraph 23.7
The
contents hereof are irrelevant and repetitive and fall to be struck
out.
Ad
paragraph 23.8
The
second and the last sentences of this paragraph are scandalous and
vexatious they fall to be struck out.
Ad
paragraphs 23.9, 23.10, 23.11, 23.12, 23.14 and 23.15
Other
than the auditor’s views on the impact of the application on
financial statements and their uncertainty of recoverability
of his
loan account the rest of the averments are irrelevant and repetitive,
they fall to be struck out.
Ad
paragraphs 23.18 and 23.20
The
contents hereof are repetitive and irrelevant, the first sentence of
paragraph 20 is scandalous and vexatious they are struck
out.
Ad
paragraph 24.9
The
contents hereof are repetitive they also scandalous and vexatious
averments fall to be struck out.
Ad
paragraph 24.12
The
fifth sentence of this paragraph is scandalous and vexatious, the
averments that relate to debatement of his loan are repetitive.
Ad
paragraph 24.15
Other
than averring that determination of benefits in a forensic manner
would have been the legal relief expected, the rest of the
averments
herein are repetitive and irrelevant. They fall to be struck
out.
Ad
paragraphs 25.3 and 25.4
The
contents hereof are repetitive and contain irrelevant averments, they
fall to be struck out.
Ad
paragraph 25.8
Other
than averments that he never prevented applicant from performing her
duties as director the entire contents of the paragraph
are
irrelevant repetitive, scandalous and vexatious.
Ad
paragraph 25.10
The
reference to applicant as milking companies is scandalous and
vexatious and falls to be struck out.
Ad
paragraphs 25.12, 25.13, 25.14, 25.16 and 25.18
The
contents hereof are repetitive and contain scandalous and vexatious
averments, they fall to be struck out.
Ad
paragraphs 26.1 and 26.2
The
contents hereof are irrelevant they fall to be struck out.
Ad
paragraph 26.3
The
contents hereof are repetitive and irrelevant they fall to be struck
out.
Ad
paragraph 26.9
The
contents hereof are scandalous and vexatious, they fall to be struck
out.
Ad
paragraph 26.10
The
contents hereof are repetitive, scandalous and vexatious. They
fall to be struck out.
Ad
paragraphs 27.1 – 27-4
Other
than the first respondent’s denial of the applicant’s
averments the rest of the contents contained herein are
irrelevant,
scandalous and vexatious fall to be struck.
Ad
paragraphs 31.2 and 31.3
The
contents hereof are scandalous and vexatious fall to be struck out.
[13]
SUPPLEMENTARY AFFIDAVIT OF ROLAND HEIRISS
Ad
paragraph 6
There
is no clear answer and how the emails find relevance is averred in
this paragraph. It falls to be struck out.
[14]
FURTHER SUPPLEMENTARY AFFIDAVIT OF ROLAND HEIRISS
AFFIDAVIT OF MARIKA BERG AND
AFFIDAVIT OF NICOLETTE SAAYMAN
I
am of the view that none of the contents hereof fall to be struck
out.
[15]
AFFIDAVIT OF MARIE – JOSE GABIELLE HARTMANN
Ad
paragraph 10
The
third paragraph herein consists of hearsay evidence and falls to be
struck out.
Ad
paragraphs 12 and 13
The
second paragraph herein is irrelevant and constitutes hearsay
evidence and falls to be struck out.
That
is so far as the application to strike out goes. The applicant
has been successful in its application to strike in respect
of
substantial parts that were sought to be struck out. The
respondents will therefore be liable for the costs of the striking
application. I now deal with the main application.
LOCUS
STANDI OF THE FIRST RESPONDENT TO REPRESENT THE SECOND AND THIRD AND
WITH NINTH RESPONDENTS.
[16]
During the hearing the applicant’s counsel sought clarity as to
the confirmation of which
respondents oppose the application.
Mr Rosenberg confirmed that the opposing respondents were the first,
second, third respondents
and trustees of Repocolyptic trust (as
fourth, fifth and sixth respondents).
In his
first answering affidavit the first respondent also said he is
opposing the application as the cited trustee of HFT
(ninth
respondent). Mr Rosenberg however, recorded that there were no
instructions to oppose the application on behalf of
HFT.
[17]
With regard to the second and third respondent the first respondent
said he opposed the application
on the basis that he is the managing
director of both companies. He has also been mandated by
Repocalyptic Trust, the majority
shareholder with 52% shareholding)
of the second respondent to oppose the application on behalf of the
second respondent.
He is also claiming to be true holder of
52% shareholding in the third respondent and that makes him a
majority shareholder
and therefore entitled to oppose the application
on behalf of the third respondent.
[18]
The applicant contests the first respondent’s standing to
represent these other respondents.
With regard to the ninth
respondent, no other trustee of HFT has opposed the application.
They have actually resolved not
to so, oppose it. In the light
of the address by the respondents’ counsel, it is accepted that
there is no opposition
on behalf of HFT. The first respondent’s
opposition on behalf of the ninth respondent also falls away.
[19]
There is also neither a resolution on behalf of Repocolyptic trust
that it should oppose the
application nor are there any for the
second and third respondents. The powers of attorneys furnished
in that regard are
signed by the first respondent, both as managing
director and majority shareholder in third respondent. There is
no authority
from the board of directors for the first respondent to
exercise powers on behalf of the board of directors of the said
companies.
[20]
With regard to the second and third respondents section 66(1) of the
Companies Act 71 of 2008
(the Act) requires that the business and
affairs of a company be managed by or under the direction of its
board (collectively)
which has the authority to exercise all of the
powers and perform any of the functions of the company, except to the
extent that
the Act or its memorandum of incorporation provides
otherwise, the shareholders or director, if not a collective, cannot
exercise
such powers unless provided for in the memorandum of
Incorporation.
DECLARATORY
ORDERS
[21]
For the two main orders sought the applicant relies on the following
sections: 162(2):
“
A
company, a shareholder, director, company secretary or prescribed
officer of a company, a registered trade union that represents
employees of the company or another representative of the employees
of a company may apply to a court for any order declaring a
person
delinquent or under probation…”
Section
162(5) (c) provides:
A
court must make an order declaring a person to be a delinquent
director if a person –
…
.
while a director grossly abused the position of director; ..
(iii) intentionally, or by gross
negligence, inflicted harm upon
the
company or a subsidiary of the company, contrary to such 76 (2)
(a);
(iv)(aa)
acted in a manner that amounted to gross negligence, wilful
misconduct or breach of trust in relation to the performance
of
director’s functions within, and duties to the company…
.”
Section
45(1)
(a)
“
In this section, “financial assistance”
includes lending money, guaranteeing a loan or other obligation and
securing
any debt or obligation
(b)
but does not include lending money in the ordinary course of
business by a company whose primary business is the lending money …”
Section
165 (6)(a)
(a)
“
In exceptional circumstances a person contemplated in
subsection (2) may apply to court for leave to bring proceedings in
the name
and on behalf of the company without making a demand as
contemplated in that sub-section, or without affording the company
time
to respond to the demand in accordance with subsection (4), and
the court may grant leave if the court is satisfied that the delay
required for the procedures contemplated in subsection (3) to (5) to
be completed may result in irreparable harm to the company
or
substantial prejudice to the interests of the applicant or another
person.”
The
application of this section does not require a substantive
application.
THE
LATE FILING OF ANSWERING AFFIDAVIT
[22]
Firstly, the respondents filed their answering affidavits late.
In the exercise of my discretion,
considering that all papers had
been filed and parties wanted the hearing to proceed with all issues
ventilated I grant the condonation
for the late filing of the
answering affidavit.
APPLICANT’S
CASE
[23]
The applicant avers that she is the director of
second and third respondents together with the first respondent.
She is also an employee who does general administrative oversight
role for the second respondent but has little to do with its
day to
day operations. She and first respondent are also trustees of HFT.
[24]
She then outlines various facilities which the third respondent has
with Nedbank totalling to
14million rand, secured with mortgage bond
in favour of the bank over the immovable property in the amount of 25
million rand and
cession of lease to the bank. The third
respondent’s source of income is derived from a monthly lease
from second respondent.
This enables the third respondent to
service its credit facilities with the bank. These facts do not
seem to be in dispute.
[25]
According to the applicant during the time of the launching of this
application the financial
position of the second respondent was dire,
in particular with regard to funding its operating costs. It
continued to detoriate,
she says largely due to extraction of cash
from the second respondent by the first respondent on a monthly
basis. In particular,
from 2010 he appropriated cash and there was
extensive growth in his debt loan account. At the end of
financial year ending
on 28 February 2010, she saw in the financial
statements that such loan account increased year on year.
Therefrom she declined
to sign off the financial statements.
However, she was not supported by her fellow trustees in Repocalyptic
Trust, (her mother
and Mr Heiriss) she ended up signing the financial
statements, in 2014 and 2015 her fellow trustees respectively
resigned from
the Repocalyptic Trust. She was now residing in
Port Elizabeth, she was able to observe serious improprieties in the
businesses
management accounts. Loan accounts were incorporated
in lump sum amount as a liability rather than itemised as an asset.
His monthly domestic costs were paid by the second respondent
and not debited accordingly in his loan account. When she raised
these concerned with the first respondent, he would either dismiss
her or inform her that he controlled majority shareholding in
third
respondent which entitled him to a dominant position in the second
respondent.
[26]
By October 2016 the cash flow position of the second respondent had
become extremely tight.
In November 2016 she raised her
concerns with the company auditors and that the second respondent
would not meet the standards
of liquidity and solvency appropriate to
support continued financial assistance to directors. In
December 2016 the first
respondent had unilaterally increased his
salary twice; with increase of 61.99 per cent in two years without
board’s approval.
He asked her and the second
respondent’s bookkeeper to expunge his loan accounts. He
refused to acknowledge his indebtedness
to the second respondent and
to stop further borrowings and reduce his salary to the previously
agreed amount. In the financial
year end 2016 he made a number
of payments to himself or third parties from who he derived benefit
totalling to R1 536 985.75;
On
28 February 2017 same amounted to R 1 689 921.98;
On
31 March 2017 same amounted to R
212 053.98
These
totalled to
R 3 438 961.71
On
27 March 2018 they amounted to
R10 586 587.66
These
were debited to his loan account. The first respondent acted on
behalf of the second respondent lending money to himself.
He
neither had authority to effect loans on behalf of second respondent
nor did he have intentions of repaying them or realistic
expectation
to be able to do so.
[27]
These constituted financial assistance, a contravention of
section 45
of the
Companies Act, they
were not authorised by the board of
directors and there was no special resolution of shareholders adopted
within two years of the
financial assistance. The shareholders were
not notified of the financial assistance. Furthermore, the said
section requires
that the board be satisfied that immediately after
the provision of financial assistance the company would satisfy
solvency and
liquidity test. The second respondent is not able
to afford all the payments to the first respondent. There are
no
fixed terms of repayment; the interest charged at 7.75 per year is
deemed to constitute income and taxed as such whilst not paid.
Section 45
precludes directors from using company monies to pay
for their private matters, for example the first respondent used the
company
resources whilst dealing with his divorce action demands and
legal costs for unauthorised actions against the applicant.
[28]
This resulted in serious financial strain to the second respondent,
it detoriated to an extent
that it became substantially in arrears
with the local municipality for rates and consumption charge.
The rentals to the
respondent could not be paid in full. There
was a threat that the second respondent would not be able to
meet its wage
bill in January 2017. The facility of the second
respondent with Nedbank could not be reviewed due to non-submission
of financial
statements, among others. The auditors had
confirmed some of her concerns, as a result she felt vindicated in
her refusal
to sign off the financial statements.
[29]
She and seventh respondent, an independent trustee of HFT saw a need
to call a meeting of the
trustees for which she gave due notice of,
proposed that meetings of the shareholders of the second and third
respondents be called
with a view to address first respondent’s
conduct and his possible removal as director of second and third
respondents.
Indeed resolutions were taken on behalf of the
trust a meeting held on 6 March 2017, to amongst others, to remove
the first respondent
as director. If not, proceed with the
section 162(2) of the Act application, alternatively application to
the companies tribunal
for a determination in terms of which the
first respondent be so removed. The meetings of the
shareholders of second and
third respondents were requisitioned for
eight (8) days later. The said meetings could not take place,
instead, shortly before
one of the board meetings, the first
respondent sent an email with allegations against her and
subsequently suspended her as the
director of the second respondent
and later as an employee. The meeting ended abruptly when they
could not agree on the date
of shareholder’s meeting.
[30]
The first respondent had already refused to agree to stop raiding the
resources of the second respondent; he would also minimise
it by
stating that the applicant and him were not compatible as directors.
The first respondent as the employee of the second
respondent granted
himself unlawful salary increases in April 2015 and November 2016.
She regarded the first respondent’s
actions in increasing
salary, taking loans and paying his expenses without authority as
reckless trading. His actions amounted
to gross negligence,
wilful misconduct or breach of trust.
[31]
The applicant further states that according to the opinion of Mr
Heiriss on behalf of the second
respondent’s auditors and
concerns they raised in the annual statements for the period ending
on 29 February 2016, the second
respondent did not meet the solvency
and liquidity test referred to in section 4 of the Act. On 10
March 2010, following
concerns she raised, Mr Heiriss stated that he
was waiting for an opinion on his audit report which he qualified due
to uncertainty
of the first respondent’s loan. The
independent auditors also confirmed the qualification saying they
were unable to
obtain all the necessary information and explanation
they needed to be satisfied that the loan receivable amounting to
R8 593.591
(2015: R6 453 286) is fully recoverable, in
the main.
[32]
The auditors also recorded observations, which confirmed the
requirements of section 45(3) about
solvency and liquidity test,
already referred to above. Further, they stated that if the
section 45 requirements are not
met, the transaction could be
considered void and employees, creditors etc. as stakeholders can
hold directors personally liable
for the returning of the funds to
the company, assuming there have been no other breaches in the
director’s conduct.
[33]
On 3 April 2017 the applicant demanded certain undertakings from the
first respondent, in particular
aimed at restraining him from making
payments from the second and third respondents’ accounts, or
increase salaries without
a resolution of board. Further,
that the applicant would be given unrestricted access to financial
information on the
conduct of affairs of the company, which had
always been resisted by the first respondent. Two days after
that, 05 April
2017 the first respondent caused a payment a sum of
R45 000.00 to be made to him from second respondent’s bank
account.
A day later the undertakings sought were given.
RESPONDENT’S
CASE
[34]
The first respondent’s initial argument is that the applicant
has not placed any facts
that formulate the basis for any case on
behalf of the third respondent. The founding affidavit is lean
and is more focused
on section 45 of the Act. The contravention
of section 45 has to be proved, allegations cannot lead to obtaining
an order
of delinquency, when the facts on which the contravention is
based are disputed. Further, non-compliance with section 45 is
not decisive of delinquency. Further, he is of the strong view
that the issues in dispute are not capable of determination
on the
papers. The court should, in adjudicating the matter, adopt a
robust approach and dismiss the application in accordance
with to the
Plascon Evans
rule.
[35]
The first respondent disputes that the third respondent’s
financial solvency is not strong.
It has a very high net asset
value with ownership of commercial land in Summerstrand in the tune
of no less than 80 million rand.
With regard to the financial
pressure put by the first respondent’s drawings or loan account
the respondents dispute that
there has been such pressure. The
net asset value of the third respondent has grown tremendously during
the first respondent’s
fourteen (14) years tenure at the helm,
managing the entities. He was the sole operational director
despite the fact that
there was no resolution or no provision in the
memorandum of incorporation providing for that.
[36]
The second and third respondents are owned by the same family and
have always operated as one
business unit. They did not keep
strict and proper record of, inter-company loan accounts. The
nature of the special
relationship between the two companies cannot
be ignored. If when assessing the solvency status of the
second respondent,
everything that it offers to the third respondent
at no cost, could be taken into account, the face of second
respondents’
finances change drastically. This has an
effect of dispelling the fears that the applicant says she is
entertaining.
There is a flaw in applicant’s reasoning
and approach when she says the financial health status of the
companies is not primary,
the primary issue is misappropriation of
funds in contravention of section 45 of the Act. Heiress
says things had never
been done by the book by the family. The
applicant signed financial statements since 2010 and only raised
concerns with those
of year ending February 2016. She always
knew of the first respondent’s loan accounts.
[36]
During argument the court was called upon, on behalf of the
respondents, to consider that the
entities in question are domestic
companies operated for the benefit of the same family. When
approaching the issue of absence
of resolutions, the court ought to
consider the relationship between the two shareholder siblings is
that they are at loggerheads.
The applicant herself could not
produce either company’s resolution appointing her as a
director. The first respondent
acted as a sole director and had
been managing the companies. He has run the entities for years,
his conduct when doing so
ought to count when testing his
directorships. The tacit and express authority of an
operational director against an absent
one is also a factor to be
taken into account. The applicant has not criticised the second
respondent’s abilities.
Delinquency declarations has
consequences, he will lose his source of income, they will remove him
from employment and his business.
That will be the end of his
22 year professional career.
[38]
With regard to the first respondent’s loan accounts the
respondents aver that the funds
referred to, were never meant to be
true loan accounts debits. They are an agreed portion of his
remuneration package as
managing director of the two companies.
Only the excess would be loan. He acknowledges that after 22
years of service,
over the last year at times he drew more than his
agreed remuneration for the year. The intention had always been to
transfer such
loan accounts to HFT, where they would be dealt with
upon the dissolution or termination of the trust.
Alternatively, the
first respondent would still be able to repay that
portion when it becomes repayable and the loan would remain an asset
of the
second respondent. The applicant herself has always
transferred her loans to HFT. The interest on loan accounts was
never meant to be a recoverable interest it is a simple book entry in
line with South African Revenue Services (SARS) requirements.
His expenditure paid by second respondent was construed to be part of
his remuneration and cannot be regarded as financial assistance.
[39]
With regard to substantial unauthorised increase in his remuneration
package, he disputes that
he was not entitled to the said package.
He avers that the manner in which it is structured has a long
history. It
used to be so with former directors who were
partners (his father and Mr Sanderson). As regards the cash
component of the
package he avers that he in fact has been
underpaid. This requires forensic investigation as to the
precise terms and conditions
of his package. Only that exercise
would determine if his drawings exceed his entitlement and that would
require oral evidence
or alternative dispute resolution. The
second and third respondents have always been sister companies.
The second respondent
always generated income that paid substantial
expenses on behalf of third respondent. Further, there was an
executive committee
(Exco) in 2007 which acted as remuneration
committee as well, it determined his remuneration package as 1
million rand per year,
reviewed annually. Annexure C to Mr
Heiress Affidavit is a copy of minutes of Exco meeting on 6 October
2009 recording the
2007 resolution. The nature and extent of
financial assistance is uncertain, it is not possible to decide that
issue on papers
[40]
The first respondent avers that the applicant failed to disclose her
own financial benefits she
received from the second respondent under
the guise of emoluments. She never rendered any significant
services to the second
respondent. Those facts are material and
ought to have been disclosed. Section 45 of the Act requires
the applicant
to act in good faith, in the best interests of the
company.
[41]
With regard to undertakings and obstructing the applicant to carry
out fiduciary duties, the
first respondent states that he is
complying with the undertakings and disputes that he is obstructing
the applicant in any manner.
The court should limit the issues
for consideration to the state of affairs as at the time of the
launch of the application.
The parties are not
ad idem
about the construction of the undertaking and those differences
cannot be resolved on the papers.
[42]
With regard to the application to bring application for recovery of
the first respondent’s
indebtedness the respondents
submit that the applicant has failed to comply with section 165(2).
Only after that,
may an application in terms of section 165(5) made.
Section 165(5) requires that the court be satisfied that the
requirements
of section 165(5)(b) are met. Section 165(2)
provides that a demand may be served to commence or continue legal
proceedings
to protect the legal interests of the company. Section
165 (5) provides that a person who has made a demand in terms of
section
(2) may apply to court for leave to bring or continue
proceedings in the name and on behalf of the company. Section
165(5)(b) provides
that the court must be satisfied that the
applicant is acting in good faith (the proposed or continuing
proceedings involve the
trial of a serious question of material
consequence to the company) and that granting the leave will be in
the interest of the
company.
[43]
Compliance with demand affords the company served with the demand to
apply to court to have it
set aside in terms of section 165(3) on the
grounds that it is frivolous, vexatious or without merit.
Alternatively, it is
obliged to appoint an independent and impartial
person or committee to investigate the demand and issue a section
165(4) report.
According to the respondents the applicant has
not complied with any of these.
[44]
The issue for this application is the determination of whether a case
for order declaring the
first respondent to be delinquent director
has been made. Furthermore, whether a case for approving that
the applicant brings
a derivative action, on behalf of the second
respondent, for the repayment of financial assistance provided to the
first respondent
in contravention of the Act has been made.
[45]
As regards the first respondent’s
locus standi
to
represent the remaining respondents, (trustees of Repocolyptic trust
second and third respondents), the first respondent relies
on his
shareholding or the majority shareholding of Repocalyptic trust and
the fact that he is a managing director of the second
and third
respondents. Section 66(1) of the Act is clear that it is the
board that has authority to exercise powers and perform
the functions
of the company. Even if the first respondent has been a
defacto
manager in the companies, the section requires him to have a
resolution of the board to litigate on behalf of the companies.
I have considered the fact that they are, as he puts it, at
loggerheads with the other director, however, in the circumstances
where the litigation revolves around his conduct and the substantial
relief being sought against him, he would not, without more,
unilaterally make the decision to exercise the powers of the board.
I therefore find that he is non-suited to represent the
said
respondents.
[46]
With regard to the first relief sought, the court has to be satisfied
that a director grossly
abused his position, intentionally or by
gross negligence, inflicted harm upon the company or acted in a
manner that amounted to
gross negligence, wilful misconduct or breach
of trust in relation to the performance of his functions and duties
to the company.
The applicant contended that the first
respondent’s conduct of making payments to himself or third
parties on his behalf
constitutes financial assistance prohibited in
terms of section 45 of the Act.
[47]
The respondent has urged me to look at these circumstances only to
the time of the launch of
proceedings. He stated that he
furnished undertaking to refrain from the conduct complained of in
the terms sought by the
applicant. Further, I must not apply
myself to breaches, if any, that occurred thereafter, which is when
the current proceedings
were in progress. These would include
legal costs the first respondent has expended after the launch of the
application.
Therefore, I must also disregard that the
applicant has had to obtain an interdict to restrain the first
respondent from continuing
to make payments to himself or third
parties for his benefit, amongst others. In the final analysis
I must consider that
the third respondent has a healthy financial
status.
[48]
The legal position in determination of factual disputes in
applications as articulated in
Plascon Evans Paints Ltd v Van
Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A), at 634 is that, a
final order whether it be an interdict or some other form of relief,
may be granted if those facts averred
in the applicant’s
affidavits which have been admitted by the respondent, together with
the facts alleged by the respondent
justify such an order. In
certain circumstances the denial by the respondent of a fact alleged
by the applicant may not be
such as to raise a genuine or
bona
fide
dispute of fact, if the respondent has not availed of his
right to cross examine the deponents and the court is satisfied as to
the credibility of applicant’s factual averment, it may proceed
on the basis of the correctness thereof. The court
may reject
on the papers the denials or allegations by the respondent if they
are so far-fetched or clearly untenable.
[49]
The first respondent has admitted, in respect of year 2017, that he
received payments exceeding
what he says are his remuneration.
However, these cannot be quantified in an application procedure.
For most
of other payments he contends, they are his remuneration
which would need forensic investigation in order to determine if they
are more than his actual due. Just on the common cause issue of
excess unauthorised payments, the first respondent has not
put up a
defence that such is not a contravention of section 45 of the Act.
Whether quantum is disputed or not, to the extent
of his own
admission, he has extracted monies more than his remuneration from
the second respondent. Misappropriation of
second respondent’s
monies has been admitted thus far. He only states that in the
history of the family business section
45 has never been strictly
adhered to. I agree with the applicant this does not constitute
a valid defence.
[50]
As regards the rest of the loans, no valid authority for them or
compliance with section 45 has
been pleaded. On the concerns
the applicant raised with February 2016 financial statements.
Heiress has stated that
the second respondent did not meet section 4
liquidity test. I am unable to accept that, because these are
family business
companies, that there has been a history not to do
things by the book, they were not proper loans to be repaid on
demand, that
the applicant also had loans, therefore, that constitute
a defence for unauthorised loans which can negate a finding of
misappropriation.
A lot has gone wrong in the management of
these loan accounts, even the charging of interest was never meant to
be repayable, but
a book entry in line with SARS requirements.
[51]
With regard to remuneration, the allegation is that some of the
amounts constitute his agreed
remuneration and none of his drawings
placed the second respondent in financial peril. However, to
the extent that it exceeds,
they should be added on his loan
account. Specific averments of cash extracted have been made.
A genuine denial would
state that a specific sum of that represents
remuneration. It cannot be that such is left to some future
speculation of outcome
of some forensic investigation. Further,
still aver that if it exceeds it is a loan and an asset, all the
loans are recoverable,
they increase the face of financial health of
the second respondent. This is not supported by any of the
facts, even the
allegation that the trust to which it is said the
loans could be transferred to, has no documentary support that this
is the
arrangement with the trust. I am also not able to
accept that there is an issue regarding the construction of the
undertakings.
In my view to undertake not to make further
payments, for example is precise, so as undertaking to ensure access
to information.
There can be no confusion in determining
whether such are honoured or not.
[52]
I have noted that the answers to huge remuneration package, without
ratification by the board,
alleged by the applicant place version
that Exco approved One Million Rand package per annum,
increasing annually for the
first respondent in 2007.
Again this is brought about by the first respondent as a proposition
that if there is any
financial assistance he received, it cannot be
ascertained. He and Heiress on the other hand prepared a table
with values.
It is my view that if there is merit on this
submission about the said resolution, which I doubt as it is not
stated where the
remuneration committee or Exco derived its powers,
the first respondent and Heiriss should have been able to put up firm
facts
of how much he earned as against what was due. This is
compounded by the fact that even the applicant was not given access
to information and had to obtain a court order in order to have it.
[53]
Heiress admits that the liquidity of the second respondent is
materially influenced by the loan
accounts. However, he tones
it down by saying this is not unusual in family business. The
fact is Nedbank failed to
review the credit facility, his speculation
about the usual bank’s attitude to the loans in family business
does not take
the issues any further. This together with
auditor’s submission that the company failed to meet section 4
liquidity
test, lead to one conclusion, the loans do cause harm to
the second respondent. It is no doubt if liquidity is affected,
the company cannot pay its debts when they become due, including
employees salaries, harm has been caused there.
[54]
An allegation has been put by the respondent that the applicant is
not acting in good faith.
It is alleged she withheld
information about her loans, poor management and wants to liquidate
the companies. None of these
constitute a defence that
addresses the root of the basis for the application which is the
first respondent’s extraction
of cash from first respondent
which leads to problems in respondent’s finances. Even if
it is so that in the context
and history of the companies, the
businesses were treated like any other family matter, things not done
by the book, business money
exchanged hands between family members
without proper record and legal implications or the applicant herself
knew about such, that
does not justify condonation of the conduct
that trumps the provisions of the Act. What is sought to be
achieved by enacting
the Act, is to ensure protection of
innocent third parties, amongst others.
[55]
As for the third respondent, what constitutes its main liability are
the facilities it has.
It derives its income from the second
respondent’s rentals. If it is unable to service its
facilities due to the second
respondent’s failure to pay rent,
I am unable to contend with the submission that no facts have been
pleaded to formulate
a case on behalf of the third respondents.
The second respondent’s inability to service the third
respondent is linked
to the draining of resources by the first
respondent from the second respondent.
[56]
In my view, averments that do not provide a defence for the
application cannot be regarded as
creating real genuine dispute of
facts. On the common cause facts and with allegations that do
not factually and legally
dispute the applicant’s version, I am
satisfied that the applicant is entitled to the first relief sought.
This
is so, without even considering what the applicant
avers continued to happen even after the launch of these proceedings.
[57]
In
Giwhala and Others v Grancy Property Ltd and Others
2017
(2) SA 337
SCA at 149, it was held that it is the serious
misconduct of a director that results in delinquency. If they
lose their
profession and work as a result of the delinquency order
against them, that is so because they have been found to have
committed
a serious misconduct. The court drew an analogy with
an attorney who is struck off the roll of attorneys as a result of
his
misconduct. This is not to punish but a consequence of the
conduct they would have been found guilty of.
[58]
Regarding the second relief, relating to the applicant being granted
leave to bring an action
on behalf of the second respondent for
recovery of what would be proved to be due by the first respondent,
the respondents aver
that neither a case in terms of section 165(5)
of the Act has been made nor any exceptional circumstances have been
set out for
approaching the court under section 165 (6) Act, have
been placed by the applicant. Section 165 (2) requires service
of a
demand on the company as an initial step. The next step is
what is provided for in section 165(3) which affords the company
an
opportunity to set aside the demand if it is of the view that it is
frivolous or vexatious. Alternatively, appoint an
independent
person or committee to investigate the demand and issue a report in
terms of section 165(4) (a). Thereafter,
within sixty (60) days
of demand or with leave of court, any longer period the company may
allow proceedings to be initiated or
may refuse to comply with
demand. Only then that an application to bring proceedings may
be made in terms of section 165(5).
It is only in certain
exceptional circumstances that a person may come directly to court
for leave to sue without making a demand,
that is provided for in
section 165 (6).
[59]
The applicant on the other hand contended that her action is not in
terms of section 165(5),
instead she has invoked section 165 (6).
In her founding affidavit she placed the following circumstances for
applying to
court for leave to sue on behalf of the second
respondent. She stated that, she and the first respondent are
the only directors
of the companies. Considering that he has
already frustrated the board meeting convened to resolve on the dates
of holding
of the shareholders’ meetings, it is unlikely that
he would vote in favour of a motion that the second respondent
institute
proceedings against him. He was invited to repay the
said monies in the founding affidavit and if he declined to do so,
the
applicant states that the second respondent would be left without
remedy.
[60]
I am satisfied that the applicant has made out a case in terms of
section 165 (6) (b) and (c)
for the granting of leave to sue.
Indeed it is unlikely that the first respondent would co-operate with
a process to ensure
that the second respondent’s interests are
protected or harm is prevented. His conduct which lead to the
interdict
granted by this court to restrain him from continuing with
his draining the first respondent of cash and his stance in the
present
application say so much in that regard.
[61]
In the circumstances, I am of the view that the applicant has made
out a case for the reliefs
prayed for to be granted.
In
the result, the following order is made
1.
The first respondent is declared a delinquent director as
contemplated in
section 162(5)(C)
of the
Companies Act 71 of 2008
.
2.
The first respondent is removed as a director of second and third
respondents.
3.
The applicant is authorised to bring proceedings in the name of and
on behalf of the
second respondent against the first respondent for
repayment of the financial assistance proven to have been provided to
him or
for his personal benefit by the second respondent in
contravention of
section 45
of the
Companies Act 71 of 2008
.
4.
The first respondent pays the costs of the abandoned
counter-applications.
5.
The first respondent pays the costs of the application to strike.
6.
The first respondent pays the costs of this application and those
costs to include
costs of two counsel.
_____________________________
B
MAJIKI
JUDGE
OF THE HIGH COURT
Counsel
for the applicant :
Advocate Ford SC with Advocate
Richards
Instructed
by
: Messrs Kaplan
Blumberg Attorneys
Block
A, First Floor
Southern
Life Gardens
70
– 2
nd
Avenue
Newton
Park
PORT
ELIZABETH
Counsel
for the Respondents: Advocate
Rosenberg SC with Advocate Nel
Instructed
by
: Messrs
Lexicon Attorneys
Corner Westbourne & Clevedon Roads
Central
PORT ELIZABETH