About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: South Gauteng High Court, Johannesburg
SAFLII
>>
Databases
>>
South Africa: South Gauteng High Court, Johannesburg
>>
2021
>>
[2021] ZAGPJHC 415
|
|
TE Connectivity Solutions GMBH v TIS Invest (Pty) Ltd (2019/28318) [2021] ZAGPJHC 415 (10 September 2021)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, JOHANNESBURG
REPORTABLE:
NO
OF
INTEREST TO OTHER JUDGES: NO
REVISED.
NO
DATE:
10 September 2021
CASE
NO: 2019/28318
In
the matter between:
TE
CONNECTIVITY SOLUTIONS
GMBH
Appellant
and
TIS
INVEST (PTY)
LTD
Respondent
JUDGMENT
WEINER J
Introduction
[1]
The
applicant,
TE
Connectivity Solutions GmbH
(‘TEC’),
sought the winding-up of the respondent
TIS
Invest (Pty) Ltd
(‘TIS’)
on the basis that TIS
is
indebted to the applicant in the amount of €1 127 174.59,
together with interest thereon. It bases the application
on the fact
that TIS is unable to pay its debts and is, in terms of s 345(1)(a)
of the Companies Act 61 of 1973 (the ‘1973
Act’),
commercially insolvent.
[1]
Application for
postponement
[2]
At the hearing of this matter TIS applied
for a postponement which I refused, stating that the reasons would be
incorporated into
the main judgment. I set out the reasons hereunder.
[3]
Two days before the final winding-up was to
be heard on 23 July 2021, TIS launched an application for the
winding-up application
to be postponed. The purpose was for TIS to
file a further affidavit in order to:
(a)
Respond to the allegations contained in the
‘Joint Provisional Liquidation Report’ (the ‘Report’)
dated
10 May 2021, which was referred to in TEC’s replying
affidavit dated 17 May 2021;
(b)
Deal with any new issues arising from the
allegations made in relation to the financial position of TIS, as
documented in the Report.
[4]
In order to ascertain whether a
postponement was warranted and could be justified by TIS, this Court
took heed of the chronology
of events preceding this application.
[5]
On 26 August 2021, Bhoola J granted an
order for the provisional winding-up of TIS, with a return date of 5
October 2020. TIS failed
to file reasons as to why a final order
should not be granted. The provisional order was extended on 5
October 2020 to 23 November
2020, again on 23 November 2020 to 3
February 2021, and again on 3 February 2021 to 12 May 2021. Despite
these extensions, no affidavits
were filed by TIS.
[6]
On 27 April 2021, TEC’s attorneys,
Werksmans Attorneys, (‘Werksmans’) addressed an email to
TIS’s attorneys,
Ledwaba Mazwai Attorneys (‘Ledwaba
Attorneys’), in terms of which Werksmans advised that it
intended to apply for a
final order on 12 May 2021. Werksmans
requested Ledwaba Attorneys to advise whether TIS was persisting with
its opposition and
if so, when an affidavit would be filed. TIS filed
its affidavit on 30 April 2021. On 17 May 2021, TEC filed its
replying affidavit.
[7]
At no point after TIS filed its replying
affidavit did Ledwaba Attorneys raise any issues in respect of TEC’s
referral to
the Report in the replying affidavit, nor was the
accuracy of the Report placed in issue. On 31 May 2021, TEC filed its
heads of
argument and practice note and on 14 June 2021, TIS filed
its heads of argument and practice note. In its heads of argument,
TIS
made reference to the Report in support of its contention that it
is ‘not a suitable candidate to be wound up’.
[8]
On 24 June 2021, TEC served its notice of
set down on TIS and proceeded to enrol the matter on the opposed
motion roll for the week
19-23 July 2021. It had been allocated for
hearing on 23 July 2021. A letter of confirmation was sent to Ledwaba
Attorneys on 12
July 2021. On 14 July 2021, Ledwaba Attorneys
addressed a letter to Werksmans, informing them that:
(a)
On 9 July 2021, all three counsel briefed
for TIS had withdrawn from their briefs due to the provisional
liquidators’ refusal
to make payment of the legal fees for the
winding-up application;
(b)
Ledwaba Attorneys had been instructed to
bring an urgent application for an order to compel the provisional
liquidators to pay the
fees, which application was in the process of
being finalised. It had also been instructed to brief new counsel to
argue the liquidation
application. It was hoping to do so by 15 July
2021;
(c)
If a postponement was required as a result
of this, Ledwaba Attorneys had been instructed to apply for it.
[9]
There was no mention of the Report in such
correspondence. Werksmans replied to the letter on 15 July 2021
stating:
(a)
Any application to postpone should precede
the application to compel the liquidators to pay counsel’s
fees, and should be
brought urgently so that it could be heard on 23
July 2021 before the winding-up application;
(b)
Times for filing of affidavits were
proposed, with the application for postponement to be filed by 16
July 2021.
[10]
TIS stated that it could not file the
application on the suggested date, but undertook to file its
application for postponement
by 20 July 2021, but only delivered same
on 21 July 2021.
[11]
TEC contended that all of these events lead
to the conclusion that TIS is simply employing delaying tactics for
which TIS had not
provided a full explanation. It was further
submitted that any further affidavit filed in relation to the Report
would not take
TIS’s case any further, because this crisp issue
in the winding-up proceedings is whether or not TEC has demonstrated,
on
a balance of probabilities, that:
(a)
It is a creditor of the TIS in the amount
of at least R200;
(b)
The applicant is commercially insolvent.
[12]
TEC contended that the indebtedness of TIS
to TEC had been fully dealt with in previous affidavits exchanged
between the parties.
The Report was filed 10 days after TIS filed its
answering affidavit and it had not sought to deal with it until the
very last
minute.
[13]
In any event, TIS has now dealt in detail
with the Report in its founding affidavit in the postponement
application. TIS has placed
before the Court the additional financial
information it sought to introduce in a further affidavit, thereby
remedying any prejudice
which TIS claims it will incur should it not
be allowed to file a further affidavit.
[14]
It
is trite that before granting a postponement and an extension in a
provisional winding-up application, the reasons therefor must
be
properly scrutinised, in order to protect the creditors who are
prevented by the provisional winding-up order from enforcing
their
claims. It is necessary for the court to protect such creditors
against the costs of legal fees, administration costs and
other
financial disadvantages which may occur if an extension were
granted.
[2]
[15]
From the recent financial statements
referred to in the Report, TIS has a retained income position of
minus R6 804 002.54.
It has no funds available; thus a
costs order will not alleviate the prejudice caused to the body of
creditors if the postponement
were to be granted.
[16]
In regard to the necessity for a
postponement to deal with the Report, TIS has annexed a myriad of
financial statements which it
says were provided to it by the
provisional liquidators. TIS contended that such documentation shows
that it is in a solvent financial
position and should not be
liquidated. As will appear below, TIS has dealt extensively with the
findings in the Report and a postponement
will not assist them in
taking the matter further.
[17]
TEC submitted that TIS is hopelessly
insolvent and a postponement cannot alter this factual position. It
will only result in further
administration costs being incurred, with
the result that there will be a lower dividend for the body of
creditors.
[18]
Creditors have been waiting for over two
years for TIS to be wound up for their benefit; if the business has
value, this must be
realised by way of a sale of the business by the
liquidators and for the benefit of the creditors who are owed
R49 336 614.60.
[19]
Thus the applicant for postponement was
refused.
Legislative background
[20]
Commercially insolvent companies are
wound-up in terms of Chapter XIV of the 1973 Act by virtue of Item 9
of Schedule 5 of the Companies
Act 71 of 2008 (the ‘2008 Act’).
In terms of s 344 of the 1973 Act, the winding-up of a company
may be sought
on a number of bases, including that it is unable to
pay its debts (s 344(f)) and that it is just and equitable to do
so (s 344(h)).
[21]
In
terms of s 346(1)(b) of the 1973 Act, the winding-up of a
company may be sought by a creditor, including a contingent or
prospective creditor. The debt need only consist of a nominal amount.
Where the respondent’s indebtedness has,
prima
facie
,
been established, the onus is on such respondent to show that this
indebtedness is disputed on bona fide and reasonable grounds.
[3]
[22]
In
Absa
Bank Limited v Rhebokskloof (Pty) Ltd
,
[4]
which passage was cited with approval by the SCA in
Murray
NO and Others v African Global Holdings (Pty) Ltd
,
[5]
it was held that:
‘…
The
concept of commercial insolvency as a ground for winding up a company
is eminently practical and commercially sensible. 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 or
readily realisable assets available to meet its liabilities
as they
fall due to be met in the ordinary course 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? It matters
not that the company's assets, fairly valued,
far exceed its
liabilities: once the Court finds that it cannot do this, it follows
that it is entitled to, and should, hold that
the company is unable
to pay its debts within the meaning of s 345(1)(c) as read with s
344(f) of the Companies Act 61 of 1973
and is accordingly liable to
be wound up.’
[23]
Section
345(1)(a) provides that creditors who have little or no knowledge of
a company’s financial affairs, may apply for
its winding-up
based on an allegation that the company is commercially insolvent, by
delivering a demand to the respondent company’s
registered
address; if the respondent company fails or neglects to pay, secure
or compound for the indebtedness, it is deemed to
be commercially
insolvent. In
Body
Corporate of Fish Eagle v Group Twelve Investments Pty Ltd
,
[6]
the court held that:
‘
The
deeming provision of s 345(1)(a) of the Companies Act creates a
rebuttable presumption to the effect that the respondent is
unable to
pay its debts ... If the respondent admits a debt over R100, even
though the respondent's indebtedness is less than the
amount the
applicant demanded in terms of s 345(1)(a) of the Companies Act, then
on the respondent's own version, the applicant
is entitled to succeed
in its liquidation application and the conclusion of law is that the
respondent is unable to pay its debts.’
[24]
In
Murray
NO
,
[7]
reference is made to
Boschpoort
Ondernemings
(Pty) Ltd v Absa Bank Ltd
,
[8]
where the Supreme Court of Appeal (‘SCA’) stated that:
‘
For
decades our law has recognised two forms of insolvency: factual
insolvency (where a company’s liabilities exceed its assets)
and commercial insolvency (a position in which a company is in such a
state of illiquidity that it is unable to pay its debts,
even though
its assets may exceed its liabilities).’
[25]
In
general, an unpaid creditor has a right,
ex
debito justitiae
,
to a winding-up order against the respondent company that has not
discharged the debt owing to the creditor. In
Afgri
Operations Limited v Hamba Fleet (Pty) Ltd
the SCA noted that, ‘…the of a court to refuse to grant
a winding-up order where an unpaid creditor applies therefor
is a
“very narrow one” that is rarely exercised and in special
or unusual circumstances only.’
[9]
Factual background
[26]
On 3 November 2016, TIS and TEC concluded a
written co-operation, kitting and distribution agreement (the
‘Agreement’),
in terms of which TEC agreed to sell its
processing and trade products to TIS. In turn, TIS would act as a
non-exclusive distributor
of the TEC products in South Africa.
[27]
TEC supplied TIS with
products
during
July
2017
to
April
2019
in
the
total
amount
of
€1 768 479.93. Payment by TIS was due within thirty
days from the date of each invoice.
[28]
TEC alleged that TIS breached the Agreement
by failing to make payment to TEC. During May 2019, in order to
reduce the amount owed
by TIS, TEC agreed to the return of products
to the value of €641 305.00, which reduced the debt owed by
TIS to €1 127 174.59,
together with interest. The debt
remains unpaid by TIS.
[29]
On 12 April 2019, TEC’s attorneys,
Werksmans addressed a letter to TIS in terms of s 345(1)(a)(i)
of the 1973 Act (read
with Item 9 Schedule 5 of the 2008 Act)
demanding payment of the amount owing.
[30]
In response to the demand, on 19 May 2019,
TIS’s attorneys advised that the goods which been delivered by
TEC were, despite
having been ordered by TIS, not supposed to have
been
delivered.
On 3 June 2019, TIS addressed a further letter to TEC in which TIS
advised that it had identified key issues which had
led to a
‘governance breakdown’ in a number of areas of TIS, which
had in turn resulted in certain of the debts of
TIS being unpaid,
such unpaid debts including that of TEC. The letter which is signed
by the acting CEO of TIS, Ms Motaung, set
out that:
(a)
The previous CEO of TIS had been replaced;
(b)
The company had determined ‘what
caused the cash flow issues of the company’; and
(c)
A ‘cash flow plan’ was being
prepared which identified €900 000 in back orders that
would be processed.
[31]
In the letter, Ms Motaung also sought to
conclude an agreement with TEC in terms of which any funds which were
received by TIS (for
future TIS stock sales) would be paid to a third
party with ‘instructions to pay a fixed percentage of such
receipts to TE
Connectivity.’ It was further stated that—
‘
The
effect of this will be that TE Connectivity will have security that a
portion of all future sales by TIS go to repayment of
TIS’s
outstanding accounts to TE Connectivity, and thereby allowing TIS’s
credit balance to be reduced to normal trade
terms over time.’
[32]
It was thus clear that TIS was unable to
pay the full amount owed to TEC, but was seeking to continue trading
and pay a portion
of funds to TEC and thereby reduce the debt ‘over
time’. The period of time was, however, unspecified.
[33]
According
to Mr Andrew Meerburg,
[10]
the
reason that TIS was unable to pay its debts was because the previous
CEO (‘Mr Moloko’) had diverted over R15 million
from the
company into his other businesses.
[34]
On 9 July 2019, Mr Meerburg provided TE
Connectivity with a written payment plan.
The plan recorded that TIS was
‘undercapitalized’ and required that TEC provide further
credit in order for TIS to supply
its outstanding orders. It also
required further stock to be provided on credit to the value of R4,9
million. The arrear debt would
be ring-fenced and settled over an
undefined time period. TIS did not dispute its debt to TEC.
[35]
TEC stated that the proposed terms were not
acceptable as the proposal would not result in the payment of the
debt; it only sought
to require TIS to incur further debt of R4,9
million.
[36]
TIS did not make any payments to settle the
debt and on 14 August 2019, TEC launched the winding-up application.
The respondent’s
defence to the application for winding-up
[37]
In the answering affidavit, TIS alleged
that the stock delivered to it was not in accordance with the
purchase orders that were
placed with TEC. In addition, some stock
that was delivered was not ordered by TIS. This allegation was raised
for the first time
in the answering affidavit. At no time during the
meetings or correspondence was this issue raised by TIS’s
representatives.
[38]
To deal with this issue, TEC set out the
process involved prior to stock being delivered to TIS. Firstly, TIS
would provide TEC
with a purchase order (‘PO’) which
shows the stock ordered as well as the delivery date. In response to
the PO, TEC
provides an Order Acknowledgement (‘OA’) to
TIS. TEC then processes the order and arranges for delivery of the
stock,
to be delivered on the date reflected in the PO provided by
TIS. TEC contended that each PO and corresponding OA constituted a
binding contract between TEC and TIS. TEC contended that each PO and
OA relied upon by TEC was valid and binding. TEC stated that
it
fulfilled its obligations in terms of each of the contracts.
[39]
TEC thus submitted that, having established
the indebtedness, the onus fell on TIS to raise a bona fide dispute
in respect thereof,
which it had failed to do.
[40]
On 17 September 2019, after the winding-up
application was launched, Ms Motaung (the deponent to the answering
affidavit in this
application) launched an application for TIS to be
placed in business rescue. In such application, Ms Motaung confirmed
that:
(a)
TEC was a creditor of TIS;
(b)
TIS was unable to pay its debts;
(c)
Numerous creditors of TIS had not been
paid;
(d)
The total debt owed by TIS to its creditors
was R53 414 956.37. Included in this amount, as well as the
list of creditors
provided by Ms Motaung, is part of the debt owed to
TEC in the amount of R16 424 292.55, which amount is listed
as being
outstanding and overdue;
(e)
TIS was financially distressed and
commercially insolvent.
[41]
On
13 December 2019, the business rescue application was dismissed by
Dippenaar J, with costs.
[11]
It was held that Ms Motaung had failed to make out a case that a
reasonable prospect existed for TIS to be rescued.
[42]
Despite having conceded in the business
rescue application that TIS is financially distressed and
commercially insolvent, and despite
Dippenaar J having found that TIS
cannot be rescued, TIS has continued to oppose this application on
what TEC describes as ‘unsustainable
grounds’.
[43]
TEC
thus contended that TIS is currently trading in insolvent
circumstances and is diverting funds (which should be used to pay
its
debts, including the debt of the applicant) to other entities which
are owned and /or controlled by the directors of TIS. It
is also
alleged that TIS is unlawfully transferring the assets of TIS, to the
prejudice of TIS’s creditors. In this regard,
TEC relied on
Kia
Intertrade Johannesburg (Pty) Ltd v Infinite Motors (Pty) Ltd
,
[12]
where Wunsh J held:
‘…
where
a company (a) has closed a number of branches of its business, (b)
has retrenched staff to a considerable extent, (c) has
virtually
closed its head office, (d) is diverting funds which should be used
to pay its debts to an overseas concern on grounds
which are not
satisfactorily explained, (e) to excuse the non-payment of its
liabilities sets up a contrived and baseless counterclaim,
and (f)
has transferred assets outside the ordinary course of business, it is
just and equitable that the creditors should be protected
from
further losses and that it should be prevented from disposing of
assets and incurring further liabilities.’
[13]
[44]
In my view, the concessions made by Ms
Motaung in the business rescue application that TEC is a creditor of
TIS and that TIS is
commercially insolvent, nullifies the belated
attempt to dispute the orders and the deliveries. Such concessions
invalidate the
submissions by TIS that the defences raised are
genuine or bona fide.
[45]
In dealing with the Report, TIS seeks to
show that TEC is solvent and should not be would up. TEC challenges
the conclusions arrived
at by TIS. TEC contended that the retained
income position of TIS as at 14 July 2021 amounted to minus
R6 804 002.54;
it has been trading at a loss for a
sustained period of time, thus demonstrating commercial insolvency.
TEC contended further that
TIS is relying on the
post-liquidation financial position, which does
not present an accurate picture of its ongoing financial situation.
In this regard,
TEC points out that:
(a)
TIS is currently trading under the
protection of a moratorium against any legal proceedings; it
therefore does not have the pressure
of having to pay its creditors.
Because TIS is in provisional liquidation, it has managed to build up
cash reserves of approximately
R2 million as there is no
immediate pressure to pay suppliers. Some suppliers have agreed to
pay TIS once they get paid.
(b)
The expenses listed in the profit and loss
report do not accurately portray what TIS would ordinarily be paying
for its expenses
had it not been placed under provisional
liquidation. For example, a lower rental was negotiated between the
provisional liquidators
and the landlord of the premises from which
TIS is operating.
(c)
In addition, the provisional liquidators
have negotiated preferential payment terms with contractors such as
Vodacom. Thus, TIS
will be paid quicker than they would under normal
payment terms. Therefore, TIS’s liquidity appears to have
improved –
but these preferential payment terms will only exist
for as long as TIS remains in provisional liquidation and is trading
under
the control of the provisional liquidators.
(d)
Other costs such as interest on
liabilities, costs of the liquidation, costs incurred for the repair
of the building premises (which
TIS has recently vacated) have not
been accounted for in the profit and loss account.
[46]
Thus, it is submitted that the financial
position described by the acting CEO of TIS,
Mavis
Leoma Motaung (‘Ms Motaung’), in her founding affidavit
and the facts alleged in the postponement application,
in relation to
the Report are inaccurate; the majority of the documents relied upon
relate to the post-liquidation trading period
of TIS, and do not take
into consideration the solvency position of TIS pre-liquidation.
[47]
In my view, TEC has shown that it is a
creditor of TIS; the debt is not disputed on bona fide or reasonable
grounds; TIS is trading
in insolvent circumstances and is both
factually and commercially insolvent; and assets of TIS have been
diverted to the prejudice
of TIS’s creditors, including TEC.
Accordingly, the
following order is made:
1.
The respondent is placed under final
winding-up in the hands of the Master of the High Court.
2.
The costs of this application are to be
costs in the winding-up.
SE
WEINER
JUDGE
OF THE HIGH COURT
GAUTENG
DIVISION, JOHANNESBURG
This
judgment was handed down electronically by circulation to the
parties’ and/or parties’ representatives by email
and by
being uploaded to CaseLines. The date and time for hand-down is
deemed to be 10h00 on 10 September 2021.
Date
of hearing:
23
July 2021
Date
of judgment:
10
September 2021
Appearances:
Counsel
for the applicant:
Adv. JE Smit; Adv. C Gibson
Attorney
for the applicant:
Werksmans Attorneys
Counsel
for the respondent:
Adv. M Meyer
Attorney
for the respondent:
Ledwaba Mazwai Attorneys
[1]
Section
345(1)(a) of the 1973 Act provides:
(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; …
[2]
Ex
Parte W J Upton Transport (Pty) Ltd; Man Truck & Bus (SA) (Pty)
Ltd v W J Upton Transport (Pty) Ltd
1985 (1) SA 312
(W) at 313.
[3]
Afgri
Operations Limited v Hamba Fleet (Pty) Ltd
[2017] ZASCA 24
;
[2017]
JOL 37585
(SCA) para 6.
[4]
Absa
Bank Ltd v Rhebokskloof (Pty) Ltd and Others
1993 (4) SA 436
(C) at 440E–H. See also R Sharrock et al
Hockley’s
Insolvency Law
9 ed (2012) at 250-251) where it is stated that this approach has
been tempered by the availability of business rescue proceedings;
but winding-up is more appropriate where dispositions need to be set
aside, or where there are legal disputes.
[5]
Murray
NO and Others v African Global Holdings (Pty) Ltd and Others
[2019]
ZASCA 152
(SCA);
2020 (2) SA 93
(SCA) para 31.
[6]
Body
Corporate of Fish Eagle v Group Twelve Investments Pty Ltd
2003 (5) SA 414
(W) para 16.
[7]
Murray
NO v African Global Holdings
(note
5 above) para 23.
[8]
Boschpoort
Ondernemings (Pty) Ltd v Absa Bank Ltd
[2013] ZASCA 173
;
2014 (2) SA 518
(SCA) para 16.
[9]
Afgri
Operations
(note 3 above) para 12.
[10]
Described
as the CEO of Agilequity and appointed as consultant and interim
chief financial officer of TIS.
[11]
Motaung
v TIS Invest (Pty) Ltd and Others
[2019] ZAGPJHC 533. Judgment was delivered on 13 December 2019.
[12]
Kia
Intertrade Johannesburg (Pty) Ltd v Infinite Motors (Pty) Ltd
[1999]
2 All SA 268
(W) at 279i-280a.
[13]
See
also
Securefin
Ltd v KNA Insurance and Investment Brokers (Pty) Ltd
[2001]
3 All SA 15
(T) para 48.