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[2022] ZAMPMBHC 18
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Visser v An Exclusive Guest House (Pty) Ltd and Another (2661 / 2021) [2022] ZAMPMBHC 18 (29 March 2022)
THE
HIGH COURT OF SOUTH AFRICA
MPUMALANGA
DIVISION, MBOMBELA MAIN SEAT
CASE
NO: 2661 / 2021
REPORTABLE: NO
OF INTEREST TO OTHER
JUDGES: NO
REVISED.
29 March 2022
In
the matter between:
JOHAN
VISSER
APPLICANT
And
AN
EXCLUSIVE GUEST HOUSE
FIRST RESPONDENT
(PTY)
LTD
IZAK
JACOB
VILJOEN
SECOND RESPONDENT
J U D G M E N T
RATSHIBVUMO
J:
Delivered:
This judgment was handed down
electronically by circulation to the parties' representatives by
email. The date and time for hand-down
is deemed to be 10H00 on 29
March 2022.
[1]
A court may order a solvent company to be
wound up if it is otherwise just and equitable for the company to be
wound up –
see
section 81(1)(d)(iii)
of the
Companies Act, no.
71 of 2008
. It is on this basis that the Applicant seeks the winding
up of the First Respondent. The Applicant argues that it would be
just
and equitable in that the business relationship between the
shareholders has deteriorated to the extent that there is no
meaningful
communication between them due to lack of trust. The
Applicant and the Second Respondent are the only shareholders in the
First
Respondent with the Applicant owning 60% interests, leaving 40%
for the Second Respondent. In fact, the little communication they
had
since September 2020, was through their legal representatives. The
Application is opposed by the Second Respondent.
[2]
The sad state of affairs between the two
shareholders signals the end of the era which started in 2012 when
they started a partnership
and registered a company through which
they conducted a guesthouse business which they jointly owned with
similar shareholders’
interests. The two were also the only
directors of the company (the First Respondent) who were in charge of
managing its affairs.
The company affairs were initially dealt with
by the Applicant who for the initial years, was seen as the only
director by anyone
who got involved with the First Respondent. The
reason for this is subject of dispute. According to the Applicant,
the Second Respondent
just disappeared and was absent throughout. The
Second Respondent alleges that the Applicant physically stopped him
from entering
the premises of the First Respondent. They however
swapped the roles in 2020 when the Second Respondent applied to the
Companies
Tribunal for the Applicant to be removed as a director, and
the Applicant decided to resign instead; leaving the Second
Respondent
as the only director of the First Respondent.
[3]
The
relationship between the two shareholders has since deteriorated to
the extent that the mutual trust that once existed, is totally
gone.
One needs to just to read through the minutes of the only meeting
ever held between the shareholders to understand the hostilities
between the Applicant and the Second Respondent.
[1]
The founding and the answering affidavits also display the level of
mistrust and lack of respect between them. The Second Respondent
avers that the Applicant committed fraud when he sat as a director of
the First Respondent going to the extent of stating that
he, together
with the Hawks were investigating further criminal charges against
the Applicant.
[4]
The fact that charges were laid against the
Applicant should not be seen as a suggestion that the Second
Respondent was wrong in
taking such steps. If fraud was uncovered, he
may have been obliged to lay criminal charges. Equally, this should
not be seen as
accepting that fraud was committed by the Applicant.
That would be a question for consideration by another forum if it
comes to
that. It suffices to state that both sides seem to be
ad
idem
on the breakdown of communication
between them. I am therefore persuaded to agree that there are no
prospects of a normal business
relationship being restored between
the two.
[5]
Circumstances under which a solvent company
can be wound up are detailed in
section 81
of the
Companies Act no.
71 of 2008
as follows,
81. Winding-up of
solvent companies by court order
(1) A court may order a
solvent company to be wound up if-
(a) the company has-
(i) resolved, by special
resolution, that it be wound up by the court; or
…
(c) one or more of the
company’s creditors have applied to the court for an order to
wind up the company on the grounds that-
…
(ii)
it is otherwise
just and equitable for the company to be wound up
;
(d) the company, one or
more directors or one or more shareholders have applied to the court
for an order to wind up the company
on the grounds that-
(i)
the directors are
deadlocked in the management of the company, and the shareholders are
unable to break the deadlock
, and-
(aa) irreparable injury
to the company is resulting, or may result, from the deadlock; or
(bb)
the company’s
business cannot be conducted to the advantage of shareholders
generally
, as a result of the deadlock;
(ii) the shareholders are
deadlocked in voting power, and have failed for a period that
includes at least two consecutive annual
general meeting dates, to
elect successors to directors whose terms have expired; or
(iii)
it is otherwise
just and equitable for the company to be wound up
;
…
[My
emphasis]
[6]
I
make the emphasis above to highlight that the legislation recognised
that for a company to properly function, it is imperative
for the
directors to avoid deadlocks and that where it happens, the
shareholders should be able to break it; and that the company
business should be conducted to the advantage of shareholders
generally. In
Thunder
Cats Investments 92 (Pty) Ltd v Nkonjane Economic Prospecting &
Investment (Pty) Ltd,
[2]
the
Supreme Court of Appeal (the SCA) held that
winding-up
on the basis of
section 81(1)(d)(iii)
“postulates not facts but
only a broad conclusion of law, justice and equity, as a ground for
winding-up. The subsection
is not confined to cases which
were analogous to the grounds mentioned in other parts of the
section. Nor can any general
rule be laid down as to the nature
of the circumstances that had to be considered to ascertain whether a
case came within the phrase. There
is no fixed category of
circumstances which may provide a basis for a winding-up on the just
and equitable ground.” It went
on to quote with approval from
the decision of
Sweet
v Finbain
[3]
where the following was said;
'The
ground is to be widely construed; it confers a wide judicial
discretion, and it is not to be interpreted so as to exclude matters
which are not
ejusdem generis
with the other grounds
specified in
s 344
[of the Companies Act, no. 61 of 1973]. The fact
that the Courts have evolved certain principles as guides in
particular cases,
or examples of situations where the discretion to
grant a winding-up order will be exercised, does not require or
entitle
the Court to cut down the generality of the words "just
and equitable".'
[7]
As indicated above, the impasse between the
Applicant who is the majority shareholder and the Second Respondent
who is the only
other shareholder is common cause. Two issues are
however raised by the Second Respondent in his opposition to the
application.
The first one is that the stalemate between the two is
as a result of the Applicant’s own deeds. It was submitted on
Second
Respondent’s behalf that the application should be
refused as the Applicant’s does not come with clean hands. The
Applicant’s
hands are alleged to be dirty based on the same
accusations which caused the Second Respondent to seek the
Applicant’s removal
as a director which also form the basis of
the criminal charges that he laid against him. The second issue is
that winding up of
the First Respondent should only be resorted to as
a last avenue. The Second Respondent argues in this regard that the
Applicant
could have appointed another director to look after his
interests or even consider selling his shares in the First
Respondent.
[8]
I do not understand how the appointment of
a new director would resolve the deadlock which currently exist
between the shareholders.
The deadlock is not between the directors
but between the shareholders. Even if a new director is appointed,
the shareholders will
remain being the Applicant and the Second
Respondent who cannot have a meaningful communication without
erupting into an argument.
A simple task of handing over items
privately owned by the Applicant ended up with letters of threats
being sent from their legal
representatives. There is no basis for
this submission in my view.
[9]
While
it is desirable that winding up should be the last resort, the
alternative suggested by the Second Respondent has been exhausted
by
the parties involved. The Applicant alleges that he made an attempt
to have the Second Respondent buy his shares, but he was
not prepared
to accept the offer made by him in return. The Second Respondent also
indicated to the Applicant that he was not in
a financial position to
purchase the Applicant’s shares.
[4]
The Second Respondent does not deny this averment. It is for this
reason that I hold the view that this option has been fully
exhausted. I also accept the undisputed submission by the Applicant
to the effect that it would be impractical to get a third party
to
purchase the shares because the value thereof, would be
disproportionate because of the individual loans that the current
shareholders
have in the First Respondent.
[10]
As
for the clean hands’ theory, I am guided once more by the
judgment in
Thunder
Cats
[5]
,
where
the
appellants contended that the respondents were to blame for the
breakdown in the parties' relationship and that, for this
reason,
they were precluded from seeking the liquidation of the company. The
appellants, in other words, invoked the principle
that a person who
applies for winding-up on the just and equitable ground must come to
court with 'clean hands'. If the breakdown
in the relationship is due
to an applicant's misconduct, it cannot insist on the company
being wound up. However, the
SCA held that lack of clean
hands is not an absolute bar. It held that a court should thus assess
the respective contributions
to the breakdown to determine whether it
is just and equitable to liquidate as a party's fault should not
necessarily deter a court
from winding-up. In reaching this
conclusion, the SCA referred to the Australian authority,
Ruut
v Head
[6]
where Santow J said,
'As
a matter of logic, lack of clean hands could not be an absolute bar,
else otherwise for example, where both partners are equally
at
fault, neither could obtain a winding-up order. Nonetheless it
must be an important factor in the exercise of the court's
discretion
along with other factors, such as whether the partnership is truly
deadlocked.'
[11]
The Applicant’s hands are said to be
stained because fraud accusations. Although the first documentation
of these accusations
dates back to September 2020, or even earlier,
the Applicant is yet to be convicted, let alone being arrested and
charged of any
of the several charges laid against him. It is again
not clear as to how the commission of fraud by the Applicant,
presuming it
was proved, would result in a deadlock between the two
shareholders to the extent that they currently only communicate
through
their legal representatives and the courts. Can it be that
the Second Respondent refuses to interact with a person whom he
believes
to be a fraudster? Investigations are said to be underway
already. What bars the two shareholders from meeting and take the
resolutions
to be carried out by the First Respondent?
[12]
The
Applicant attached several letters in which he asked for financial
statements of the First Respondent, and some calling for
a meeting of
the shareholders. The requested statements were not furnished, the
emails went unanswered and no meeting was held,
or the Second
Respondent failed to attend. The Second Respondent received these
mails and chose not to respond because according
to him, the
Applicant “did not take proper steps and protocol in the
requesting of information and meetings.”
[7]
The least that the Second Respondent could have done if he was
genuine was to indicate to the Applicant as to what proper steps
and
protocol he was missing for the meeting to take place or for the
financial statements to be furnished. It is for these reasons
that I
am unable to find that the Second Respondent is with clean hands in
this impasse.
[13]
The
First Respondent owes its loyalty to the shareholders and its
business as a company has to be run to their advantage. The Applicant
is not just a shareholder, but a majority shareholder in it. The
nature of the relationship between the Applicant and the Second
Respondent was more than a commercial one. It appears as if that
Nestadt J in
Erasmus
v Pentamed Investments (Pty) Ltd
[8]
must
have had in mind a similar relationship when he said,
“
the
relationship between the directors was more than a purely commercial
one; that an understanding or at least a contemplation
that the
original shareholders of respondent, whilst they remained such, would
also be and remain directors, thus participating
in the management of
the company, is to be inferred. As Mr
Du
Toit
put
it, the partnership relationship outside the company characterised
the relationship of the shareholders inside it.”
[14]
After evaluating all the facts, including
the communication between the shareholders, the need for the company
to operate to the
advantage of the shareholders, the period that
lapsed while the stalemate between them prevails and other such
factors as they
appear in this judgment, I am of a view that it is
just and equitable to have the First Respondent wound up.
[15]
Consequently, the following order is made:
[15.1] The First
Respondent is hereby placed under final winding-up.
[15.1] Costs of this
application to be costs in the liquidation.
TV
RATSHIBVUMO
JUDGE
OF THE HIGH COURT
FOR
THE APPLICANT
: ADV. MOLENTZE
INSTRUCTED
BY
: MICHAEL VAN RENSBURG ATTORNEYS
NELSPRUIT
FOR
THE RESPONDENT
: ADV FOURIE
: CRONJE DE WAAL
SKHOSANA INC
NELSPRUIT
DATE
HEARD
: 03 MARCH 2022
JUDGMENT
DELIVERED
: 29 MARCH 2022
[1]
See p. 34 of the paginated bundle: Annexure FA3
[2]
2014
(5) SA 1 (SCA)
para
15.
[3]
1984
(3) SA 441 (W)
[4]
See para 45 of the founding affidavit on p. 23 of the paginated
bundle.
[5]
Supra at para 27.
[6]
[7]
See para 32.1 of the Answering Affidavit on p.72-73 of the paginated
bundle.
[8]
1982
(1) SA 178 (W)
at
188C-D.