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2023
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[2023] ZAFSHC 8
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Smith N.O and Another v Karlo Farming (PTY) Ltd (A102/2021) [2023] ZAFSHC 8 (20 January 2023)
IN THE HIGH COURT
OF SOUTH AFRICA
FREE STATE
DIVISION, BLOEMFONTEIN
Case no:
A102/2021
Reportable: YES/NO
Of Interest to other
Judges: YES/NO
Circulate
to Magistrates: YES/NO
In the matter between:
ELRICH
RUWAYNE SMITH
N.O.
1
st
Appellant
ETHNE
MARY VAN WYK
N.O.
2
nd
Appellant
and
KALRO
FARMING (PTY)
LTD
Respondent
CORAM:
MUSI, JP
et
LOUBSER, J
et
POHL, AJ
HEARD
ON:
28 NOVEMBER 2022
DELIVERED
ON:
20 JANUARY 2023
JUDGMENT
BY:
MUSI, JP
[1]
This is an appeal against a judgment of a single judge of this
Division. The court
a quo
dismissed an application for the
provisional liquidation of the respondent, Kalro Farming (Pty) Ltd
(Kalro). Kalro has three directors,
Mr Karel Smit, his wife Mrs
Roleen Smit (the Smits) and Mr Alexis Du Preez (Mr Du Preez). They
each hold 33.3% shares in Kalro.
During the proceedings in the court
a quo
and in this court, Kalro was represented by the Smits
only, due to the acrimonious relationship between the directors.
[2]
The appellants are the joint liquidators of Trackstar Trading 140
(Pty) Ltd – in Liquidation
(Trackstar). Mr Du Preez is also a
director of Trackstar. It is common cause that Kalro purchased the
farm ‘Strydfontein’
to commence its farming operations.
It is also common cause that Nedbank financed the purchase of the
farm. It is further common
cause that Nedbank financed Kalro’s
initial production costs and registered a General Covering Bond over
Strydfontein and
a second farm, Weltevreden. Due to Kalro’s
inability to pay Nedbank, it obtained judgment against Kalro for
approximately
R10m and an order declaring the two farms specially
executable. Nedbank also obtained a session of Kalro’s
crop-income. Nedbank
had not sold the farms at the time of the
application.
[3]
The appellants’ claim is based on transactions between
Trackstar and Kalro. They allege
that there was a partnership
agreement between Kalro and Trackstar, alternatively that Trackstar
advanced production costs to Kalro.
They allege that Kalro owes
Trackstar R3 378 564.04. The appellants unsuccessfully
demanded payment of the aforesaid
amount from Kalro, in terms of
section 345(1)(a)
[1]
of the
Companies Act 61 of 1973 (the Act). They contended that Kalro should
be deemed to be unable to pay its debts. Additionally,
they pointed
out that in terms of Trackstar’s financial statements for the
year ending 2018, Kalro was indebted to Trackstar
in the amount of
R1 435 117.00. Mr Du Preez filed an affidavit wherein he
confirmed Kalro’s indebtedness to Trackstar.
[4]
The Smits vehemently disputed Kalro’s indebtedness to
Trackstar. They contended that the
entire claim is based on false
information obtained from Mr Du Preez. They submitted that the
information on which the claim is
based is vague and unsubstantiated
because Mr Du Preez is under investigation for fraud committed in his
capacity as director of
Trackstar and Kalro. They disputed the
alleged partnership agreement between the two companies. They
specifically pointed out that
Mr Du Preez moved Kalro’s bank
account from Nedbank to Standard Bank ostensibly because Nedbank
adopted an unfriendly approach
towards agriculture or farmers. They
state that Standard Bank denied them access to Kalro’s bank
account. They had no dealings
with Mr Du Preez in connection with
Strydfontein for one year prior to the provisional liquidation
application being launched.
They were not aware that Kalro was in the
process of being deregistered by the Companies and Intellectual
Property Commission (CIPC)
since 2016.
[5]
The Business Rescue Practitioner who was appointed to endeavour to
get Trackstar back to solvency
had indicated that Kalro owed
Trackstar approximately R5.2m which was later reduced to
approximately R3.3m. He reduced the amount
to approximately 3.3m,
being the estimated value of Kalro’s crops that were
recoverable.
[6]
On 10 December 2019 Kalro, represented by Mr Smit and SSS Farming
(Pty) Ltd (SSS), represented
by Mrs Smit entered into a lease
agreement, for a period of nine months. In terms of the agreement,
Kalro leased, amongst others,
Weltevrede farm. The rental was payable
on 31 August 2020 in the bank account of the lessor, as directed by
it in writing.
[7]
The court
a quo
exercised its discretion against the
appellants. In the first place, it found that although liquidation
may well be a means of
ensuring the payment of a debt, it should be
the last resort. Additionally, it found that it is unclear if the
indebtedness is
disputed but the amount of the debt and that it is
due and payable, is. Furthermore, it found that the appellants failed
to prove
that Kalro’s provisional liquidation would be to the
advantage of creditors. Finally, it found that it is good practice
for
courts to be hesitant to grant a liquidation order on the say-so
of a single creditor.
[8]
A respondent can avoid a winding-up order if it shows on a balance of
probabilities that its indebtedness
to the applicant is disputed on
bona
fide
and reasonable grounds.
[2]
A
winding-up order will not be granted where the sole or predominant
motive for seeking the order is something other than the
bona
fide
bringing about the liquidation of the company.
[3]
The Court has a narrow discretion to refuse a winding-up order. An
appeal court will not easily interfere with the exercise of
a
discretion by the court
a
quo
‘unless
that court was influenced by wrong principles or a misdirection of
the facts, or if that court reached a decision
the result of which
could not reasonably have been made by the court properly directing
itself to all the relevant facts and principles’.
[4]
I now turn to examine the court
a
quo
’s
reasons for refusing the application.
[9]
I am not aware of any rule that states that liquidation proceedings
should be used as a last resort
or, for that matter, as a first
choice. The general principle as stated in
Hamba
Fleet
is that ‘an unpaid creditor has a right,
ex
debitio justitiae,
to a winding-up order against the respondent company that has not
discharged that debt’.
[5]
I therefore disagree with the court
a
quo
’s
finding that liquidation proceedings should be utilised as a last
resort.
[10]
The Court
a quo
’s finding that it is unclear if the
indebtedness is disputed but that the amount of the debt and whether
it is due and payable
is disputed, is incorrect. At best for Kalro,
the Smits did not know the nature and extend of Kalro’s
indebtedness to Trackstar.
This is so because they were unaware of
the financial affairs of Kalro because they left the financial
affairs in the hands of
Du Preez. They trusted him. They had no
access to Kalro’s bank account and were not privy to the
transactions between Kalro
and Trackstar. They could therefore not
dispute the indebtedness, on
bona fide
and reasonable grounds.
They had to resort to a bare denial and blanket challenge of
Trackstar’s financial statements. They
could not produce, even
after being challenged to do so, any of Kalro’s financial
statements. As stated earlier, Mr Du Preez
confirmed Kalro’s
indebtedness and that the money was due and payable.
[11]
The claim was proved at the meeting of creditors and Mr Smit was
questioned in connection therewith.
The applicants are not required
to prove the entire amount due but only the legislatively required
amount of R100 or more. Trackstrar’s
undisputed financial
statements showed that Kalro owed it approximately R1. 435m. The
court
a quo
should therefore have found that the applicants
proved that Kalro owed it that amount and that it was unable to pay
that debt in
the ordinary course of its business. A demand was made
and no payment was forthcoming. Kalro could not pay Nedbank and the
applicants
in the ordinary course of its business. It must be
remembered that:
‘
The primary
question which a court is called upon to answer in deciding whether
or not a company carrying on business should be
wound up as
commercially insolvent, is whether or not it has liquid assets
readily realisable assets available to meet its liabilities
as they
fall due to be met in the ordinary cause of business and thereafter
to be in a position to carry on normal trading –
in other
words, can the company meet current demands on it and remain
buoyant’
[6]
[12]
The applicants need not show that it would be to the advantage of the
respondent’s creditors
if the respondent is liquidated. In
Imobrite
the court aptly stated that ‘the concept of
concursus
creditoruim
(which refers to the establishment of a “body of creditors”
for purposes of distributing the estate among creditors)
is not a
prerequisite for the granting of a winding-up order but rather a
consequence of the winding-up order by operation of law.’
[7]
[13]
It is unfortunate that the court
a quo
presented no authority
for its proposition that courts should be hesitant to grant a
winding-up order based on the say-so of a
single creditor. There is
no need for any hesitation or doubt which has no factual foundation.
In terms of section 346(1)(b) of
the Act an application for the
winding-up of a company may be made by one or more creditors.
Generally, if a single creditor establishes
a
prima facie
case
for the liquidation of a company and that company is unable to
discharge the onus of showing that the debt is disputed on
bona
fide
and reasonable grounds then a winding-up order should issue.
[14]
In my view the court
a quo
exercised its discretion influenced
by wrong principles and it reached a conclusion that could not be
reached after a proper consideration
of the facts and principles. It
ought to have found, at the very least, that the respondent should be
deemed to be unable to pay
its debt. There is another reason why the
court
a quo
should have issued a provisional liquidation
order.
[15]
The directors, Mr Du Preez on the one hand and the Smits on the
other, are at loggerheads. The
Smits accuse Mr Du Preez of fraud
regarding the respondent’s assets and they have laid criminal
charges against him. Mr Du
Preez changed the bank account of the
respondent and denied the other directors access to its bank
statements and records. The
respondent has not submitted its annual
returns to the CIPC, for at least four years, and is in the process
of being deregistered.
The Smits were unaware of the deregistration
process and only became aware of it during these proceedings. The
three directors
had not met since 2020. Mr Du Preez took decisions on
behalf of the respondent without properly involving the other
directors.
Mr Smit represented the respondent in a lease agreement
between the respondent and SSS wherein Mrs Smit represented SSS. The
corporate
personality of the respondent and the legal prescripts with
regard thereto were completely ignored by the directors. It is
therefore
blindingly obvious that it would be just and equitable to
liquidate the respondent.
[16]
The appeal ought to succeed. The applicants sought a provisional
liquidation order in the court
a quo
and such order should
have been issued.
[17]
The following order is granted:
1.
The appeal is upheld.
2.
The order of the court
a quo
is set aside and replaced with
the following:
‘
(a)
The respondent, Kalro Framing (Pty) Ltd, is placed under a
provisional order of winding-up in the hands of
the Master of the
Free State Division of the High Court, Bloemfontein.
(b) A
rule nisi is issued calling upon the respondent and all interested
parties to show cause, if any, on Thursday
02 March 2023, as to why:
(i) the respondent should
not be placed under a final order of winding-up; and
(ii)
the costs of this application should not be costs in the
winding-up
of the respondent.
(c)
Service of this order shall be effected:
(i) by the sheriff of the
high court or his lawful deputy on the registered office of the
respondent;
(ii) on the South African
Revenue Services;
(iii)
by publication in the Government Gazette;
(iv)
by registered post on all known creditors of the respondent with
claims
in excess of R25 000;
(v)
on the employees of the respondent in terms of s 346A(1)(b) of the
Companies Act 61 of 1973; and
(vi)
on any registered trade union that the employees of the respondent
may
belong to.
(d)
Costs to be costs in the winding-up.’
C.J. MUSI, JP
I concur.
P.J. LOUBSER, J
I concur.
L. le R. POHL, AJ
Appearances:
For the
Appellants:
Adv. P. Zietsman, SC
Instructed by Phatshoane
Henney Inc
Bloemfontein
For the
Respondent:
In person
[1]
‘
(1)
A company or body corporate 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 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; or
(ii)
in the case of any body corporate not incorporated under this Act,
has served such demand by leaving it at its main office
or
delivering it to the secretary or some director, manager or
principal officer of such body corporate or in such other manner
as
the Court may direct, and the company or body corporate 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…’
[2]
Badenhorst v Nothern Construction Enterprises (Pty) Ltd
1956 (2) SA
346
(T) at 348B; Kalil v Decotex (Pty) Ltd
1988 (1) SA 943
(A) at
980B.
[3]
Imobrite
(Pty) Ltd v DTL Boerdery CC (1007/2020
[2022] ZASCA 67
(13 May 2022)
para 14 and 15.
[4]
Agri Operations Ltd v Hamba Fleet (Pty) Ltd
2022 (1) SA 91
(SCA)
para 11.
[5]
Ibid para 12.
[6]
ABSA Bank LTD v Rhebokskloof (Pty) Ltd
1993 (4) SA 436
(C) at 44F.
[7]
Imobrite
supra
para 17.