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[2021] ZAECELLC 10
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Gaboinewe Investments (Pty) Ltd v D-fence Manufacturing (Pty) Ltd (539/2020) [2021] ZAECELLC 10 (12 March 2021)
NOT REPORTABLE
IN THE HIGH COURT
OF SOUTH AFRICA
EAST LONDON
CIRCUIT LOCAL DIVISION
Case No. EL
539/2020
In the matter
between:
GABOINEWE
INVESTMENTS (PTY) LTD
(Registration No.
2012/194827/07)
Applicant and
D-FENCE
MANUFACTURING (PTY) LTD
(Registration No.
2015/261609/07)
Respondent
JUDGMENT IN
RESPECT OF URGENT
APPLICATION TO ANTICIPATE THE RETURN
DATE OF A PROVISIONAL WINDING UP
HARTLE J
[1]
The
respondent (as cited in the principal application for its provisional
winding up which I will refer to herein as “the
company”)
sought on an urgent basis
to
anticipate
the
extended
return
date
of
a
provisional
liquidation
order
granted
by
this
court
in
favour
of
the
applicant
on
22
July
2020
(subsequently
extended
by agreement to 6 April 2021) and to discharge that rule
nisi
.
[1]
[2]
The “respondent” (sic) tendered the costs
of the
“liquidation application” up until 11 February 2020 (this
is the day preceding the launch of the present application),
but
sought an order directing the applicant (who initiated the
liquidation proceedings) to pay the costs in the event that it
opposed “the application to discharge the rule nisi”. It
goes without saying that it did so, both in respect of urgency
and
the purported grounds relied upon for the expedited discharge of the
rule
nisi
.
[3]
The
basis for the discharge is that although at the time of the launch of
the
application
for provisional winding up the company was indebted to the applicant
arising
from a judgment debt in an amount of R1 695 214.56 - which it has
conceded provided a basis at that stage in terms of the
provisions of
section 345 (1)(a) of the Companies Act
[2]
for the applicant to have applied for its provisional
winding
up, it has since
paid
the balance of the capital sum owing to it in full and
given
an undertaking to pay whatever interest and costs remaining still are
lawfully due to it.
[3]
It has
also offered an undertaking to pay the costs of the winding up
application and of the liquidation with a view to staving
off a final
liquidation order.
[4]
The
capital payment was made by the respondent
[4]
following certain (in my view private) negotiations between the
parties best demonstrated by the consent order granted by this
court
on 10 December 2020
[5]
to the
following effect:
“
1.The matter
is postponed to 23 March 2021 and the rule nisi of 22 July 2020 (is)
extended.
2.The respondent
shall pay to the applicant an initial sum of R1 500 000.00 on or
before Tuesday 15 December 2020.
3.In the event that
the respondent fails to comply with the provisions of paragraph 2
above, the applicant will be entitled to expedite
and enroll this
matter on 12 January 2021 for an order that the rule nisi be made
final.
4.In the event that
the respondent complies with the order in paragraph 3 above but does
not make payment of the full balance outstanding
of the applicant’s
full claim (which includes the capital, interest thereon, costs of
this application, the costs of the
previous application under case
number EL516/2018 as taxed, and the costs of the liquidation) or make
arrangements to do so to
the applicant’s satisfaction, on or
before 19 March 2021, the applicant is entitled to move for the rule
nisi be made final
on 23 March 2021.
5.It is recorded
that the respondent has undertaken to withdraw its opposition in the
event that it fails to make payment as set
out in paragraphs 2 or 4
hereof.
6.The costs
occasioned by the postponement and extension of the rule nisi shall
be paid by the respondent on an opposed basis.”
[5]
Neither
paragraph 2 nor 4 of the order was complied with in time which
resulted in the expedited proceedings envisaged in paragraph
3
thereof been pursued by the applicant which the parties had agreed
would be the applicant’s recourse
in
the
event
of
the
failure
of
the
payment
of
the
“initial
sum”.
That
application was however postponed to 26 January 2020 to afford the
respondent a further opportunity to raise the balance of
the capital.
The capital payment was
made
in the interim, on 22 January 2021, but it is common cause that the
“full balance outstanding” contemplated in
paragraph 4 of
the order of 10 December 2020 has yet to be paid. The winding up
application was postponed once again on 26 January
to 6 April 2021
(no doubt in the hope that payment of the interest and taxed costs at
least arising from the applicant’s
claim under case No EL
516/2018 would follow suit)
[6]
with the rule
nisi
issued
on 22 July 2020 extended accordingly.
[6]
In further settlement discussions (the door was ostensibly
left open
in paragraph 4 of the order for the respondent to make arrangements
to pay the full outstanding balance to the applicant’s
satisfaction) the respondent through its attorneys undertook (in a
letter addressed to the applicant’s attorneys dated 10
February
2021) to settle the balance of its indebtedness to the applicant
comprising interest on the judgment debt (albeit there
is a dispute
between the parties concerning the calculation of what is due in this
respect); the costs of the application giving
rise to the judgment
debt (which were taxed after the commencement of the winding up, but
which are now due and payable); the costs
of the winding up
application; and the costs of the liquidation. When exactly these
payments would be made was not stated. The
respondent’s
attorneys revealed in this respect however that it “is in the
process of receiving a payment sufficient
to settle its indebtedness
to (the applicant).” They explained why according to them these
funds could not be accessed: “…(A)s
advised, the payment
cannot be made without a SARS clearance. SARS will not give a
clearance whilst the company is under provisional
liquidation.”
[7]
The respondent’s attorneys hoped in exchange for
the
undertaking given to extract the applicant’s agreement to
withdraw the principal application and for the rule nisi to
be
discharged. Evidently it expects that this will facilitate the
company being placed in the promised funds to
inter alia
make
payment of the monies due to the applicant. Its attorneys urged upon
the applicant’s attorneys to revert with regard
to the
settlement proposal “as a matter of extreme urgency”.
[8]
Not surprisingly in my view, given the history of several
postponements of the principal application at the behest of the
respondent in order to settle the applicant’s claim and the
fact that the company remains commercially insolvent despite the
payment of the capital to the applicant, its attorneys advised
in
response to the urgent demand on the morning of 12 February 2021 that
the rule
nisi
would not be discharged unless all outstanding
monies are paid. An alternative was however proposed, namely that
“all monies”
be deposited to the applicant’s
attorneys’ trust account “as proof of the existence of
these funds, and then
the condition of the release of the funds will
be the discharge of the rule
nisi
.”
[9]
When this did not go the respondent’s way, the
present
application was immediately launched (in the name of the company
ostensibly) and filed together with a certificate of urgency
in which
the submission was made on its behalf that it was left with no
alternative but to approach the court on an urgent basis
for an order
to discharge the provisional liquidation order because of the
applicant’s purportedly unreasonable refusal to
accept its
proposal and or its suggestion of an alternative that is supposedly
impossible to implement. The reasons set out in
the certificate
underlying the urgency is that the respondent had reached an impasse
because of the applicant’s refusal to
accede to its request
which meant that the company was doomed to final liquidation which
was not in the interests of anyone including
the applicant. For so
long as the encumbrance posed by the continued existence of the rule
nisi
remained, so the respondent’s argument went, the
facility of funding offered to the company would in all likelihood be
withdrawn
and the opportunity to resolve the matter to the
satisfaction of all the parties and to “save” the company
would be
lost forever.
[10]
The
applicant was placed on terms in the notice of motion to indicate its
intention to oppose the application by 15 February 2021
with a
further injunction
to
file its answering papers on or before close of business on 17
February 2021. It reluctantly managed to meet these targets.
The
matter was enrolled for hearing
before
me on the unopposed motion court roll on 23 February 2021.
[7]
By the time
the
matter was heard the respondent had filed a replying affidavit and
the application had burgeoned to in excess of a hundred papers
not
counting the two
volumes
comprising the principal application.
[11]
The basis for the claimed urgency was expressed as follows in the
application
itself:
“
I furthermore
submit that this is a matter of extreme urgency in that the
respondent has now reached an impasse relating to its
confirmed
existence. Failure to have the rule nisi discharged almost certainly
dooms the Respondent to final liquidation, which
will not be in the
interests of anybody, including the Applicant itself.
A delay in the
granting of the relief sought, and the resultant failure to uplift
the obstruction to SARS granting a tax clearance,
will in all
probability cause the aforesaid payee (Sic) to withdraw the proposed
payment, and the loss of the opportunity to resolve
this matter to
the satisfaction of all parties concerned.”
[12]
Although the “proposed payment” is at the heart of all
the
fuss and the pressure that company feels itself under, it does
not take the court very much into its confidence in this respect:
“
Despite being
hampered in its ability to trade and do business, the Respondent has
continued in its efforts to source funds to enable
it to pay to the
Applicant the balance of its indebtedness, and also to enable it to
continue with its business operations.
The Respondent has
now been able to source payment, which covers its entire indebtedness
to the Applicant. I am however not at liberty
to disclose the source
of these payments, due to confidentiality reasons. I was however
informed on Wednesday 10 February 2021,
by the prospective payee
(Sic) of the funds to the Respondent that the payment was not able to
proceed, as the payee was unable
to obtain a tax clearance from SARS
for the Respondent.”
[13]
Whilst the payment of the capital debt after the fact (even despite
the
commercial insolvency of the company being ongoing), the support
of a financier in the wings ready to dispense lending, coupled
with
the views of one of the provisional liquidators that the proposed
final winding up order may not necessarily conduce to the
interests
of creditors may well pose a basis for a discharge of the rule
nisi
in the exercise of the court’s discretion on the settled
return date instead of making the order final, the primary issue to
be determined is whether the respondent was justified in seeking to
expedite the return date in all the circumstances or, put
differently, whether it has made out a case for the claimed pressing
urgency.
[14]
The provisions of Uniform Rule 6(12)(b) in peremptory language
requires
an applicant issuing out an urgent application to set forth
explicitly the circumstances which he avers renders the matter urgent
and the reasons why he claims that he cannot be afforded substantial
redress at the hearing in due course.
[15]
In this instance not only has the respondent stinted on the details
of
the benefactor who is expected to rescue the company from its
probable demise, the nature of the funding or the terms of such
lending,
but it has also failed to suggest why it, or the benefactor
for that matter, cannot in the meantime put up security even
conditionally
as was proposed by the applicant’s attorneys
instead of insisting on a tax clearance certificate before it
advances the monies.
The respondent has further not said what
constraints the benefactor has placed on it to provide the tax
clearance certificate if
this is an absolute requirement for the
proposed financial assistance. Neither is any mention made of a date
by when the proposed
offer would fall away in the absence of a
certificate being provided or why the urgent application necessarily
had to be heard
on 23 February 2021.
[16]
Whereas the respondent had originally agreed to an extension of the
rule
nisi
until 6 April 2021, what real emergency interposed
itself that required the exercise of the court’s discretion to
be moved
up in haste and evidently without the input of all the
interested parties? Although the present application enjoys the
support
of one of the provisional liquidators, what about Ms. Ponnen,
the other joint liquidator? The respondent concedes that the
Industrial
Development Corporation is a major creditor, but its views
have ostensibly also not been canvassed in respect of the relief
sought
on an urgent basis (in this application) unless it itself is
the undisclosed benefactor and thus knows of the present developments
and their likely impact down the line. Other creditors may also be
prejudiced by the directors of the company vindicating their
own
personal agendas or parochial interests. In this instance, although
it appears to be fairly commonplace for negotiations between
debtor
and creditor to ensue after a provisional winding up, these
settlement negotiations should not in my view impinge on the
formal
process of winding up or be allowed to subvert the process. Winding
up and liquidation proceedings take on a very public
objective.
[17]
The
grant of a provisional order in winding up proceedings and thereafter
having
to confirm it after proper notice to all concerned by design allows
an opportunity for properly founded objections to the
winding up to
be raised.
[8]
It is
not
only the parties cited as applicant and respondent respectively who
have an interest in the outcome of the winding up application.
[18]
It remains for the respondent to avail itself of the mechanisms of
the
facilities available to it to oppose the winding up proceedings
on the extended return date. That option is not lost to it, but
to
impose its own self-created urgency in the midst of the formal
process to force its hand in a private settlement arrangement
with
its creditor (for that very personal reason) can hardly constitute a
pressing urgency of the kind that might usually entitle
an interested
party to anticipate the return date of a provisional winding up
order.
[19]
In my view the applicant abused the process of court by issuing out
the
application on an urgent basis, warranting its outright
dismissal.
[20]
Ms. Watt who appeared for the respondent submitted that the
appropriate
relief if the respondent did not succeed was to strike
the matter from the roll, but I do not agree. The application itself
was
in my view misconceived.
[21]
On the issue of costs, whereas it is generally accepted that a
company’s
directors have what might be described as “residual
powers” to act on the company’s behalf in causing it to
oppose
the confirmation of the rule in a provisional winding up, or
to appeal against a winding up order, the nature of the present
application
appears to concern the vindication of what I have
referred to above as the parochial interests of the chief executive
officer,
Mr. Luzuko Mbidlana, to force the applicant’s hand in
respect of the settlement negotiations commenced before the
appointment
of the provisional liquidators. I do not believe that Mr
Mbidlana could, as contended for by him in the supporting affidavit,
have
competently launched the application on behalf of the company or
have been duly authorised to do so given the legal effect of a
provisional winding up which is to vest the functions of the company
in the liquidators after their appointment. The issue of his
authority was however not pertinently argued before me. Mr. Ayayee
who appeared for the applicant magnanimously suggested that
Mr.
Mbidlana’s
locus standi
to bring the urgent application
stemmed from his entitlement to seek a setting aside of the
provisional winding up order on the
basis provided for in terms of
section 354 of the (old) Companies Act, supposedly by reason of the
alleged significant changed
circumstances (being the payment of the
capital at least) constituting proof towards the end of satisfying
the court (in terms
of that provision) that the winding up order fell
to be set aside by reason of subsequent events. It is plain from a
reading of
the respondent’s papers however that Mr. Mbidlana
never suggested that the application resorted under these provisions
neither
did he qualify his
locus standi
on such a
basis. It would I believe therefore be prejudicial for the respondent
company to be responsible for the costs of the failed
application. It
is my
prima
facie
view that these costs should
be borne personally by Mr. Mbidlana who instituted the application
but since this issue was not pertinently
dealt with in argument, I
propose to allow the parties an opportunity to make further
representations in this respect on or before
the return date.
[22]
I should add my observation that my criticism above that these
proceedings
should not have been undermined by private debtor-
creditor negotiations applies to the applicant as well.
[23]
In the result, I issue the following order:
1.
The urgent application to anticipate the extended return date with a
view to an early discharge of the provisional
order of liquidation is
dismissed.
2.
The issue of costs is to stand over for determination on the return
date.
3.
The chief executive officer of the respondent, Mr. Luzuko Mbidlana,
is invited to show cause by the return
date why he should not
personally be held liable for the costs of the failed application.
4.
The liquidators representing the interests of the respondent as well
as the applicant are similarly invited
to make representations
regarding who should be liable for the costs of the failed
application in either possible scenario, whether
a discharge of the
rule
nisi
on the extended return date or confirmation of the
rule.
5.
A copy of this judgment and order is to be served on both provisional
liquidators appointed by the Master of
this Court who should by the
return date indicate their opinion whether is desirable for the rule
nisi
to be confirmed or discharged in all the circumstances.
B HARTLE
JUDGE OF THE HIGH
COURT
DATE OF
HEARING:
23 February 2021
DATE OF
JUDGMENT:
12 March 2021*
*Judgment delivered
electronically by email to the parties on this date.
APPEARANCES
:
For the
applicant: Mr. A E Ayayee instructed by Drake Flemmer Orsmond (EL)
Inc., East London (ref. Mr. Pringle)
For the
respondents: Ms. K Watt instructed by Gordon McCune
Attorneys, King William’s Town (ref. Mr. McCune)
[1]
It appears counterintuitive to ask for an order anticipating the
return date when the respondent is by its own admission not
able to
raise all the monies still due to the applicant. One would have
expected the respondent to ask for a stay of the proceedings.
If the
rule is discharged all of its problems will be eradicated according
to it
but
ironically it is conceded that the company remains commercially
insolvent.
[2]
No 61 of 1973.
[3]
The capital sum was paid in full on 22 January 2021.
[4]
I will assume for present purposes (in the absence of any detailed
information in this respect) that payment was made
on
behalf of
the
company because the obvious effect of the provisional winding
up
order was to divest the directors of their functions in such
capacity and to vest them instead in the joint liquidators (Garth
Voigt and
Irene
Ponnen) who were appointed by the Master of this court on 15
December 2020. The provisional liquidators would also have
taken
charge of the assets of the company.
[5]
By this date, the provisional liquidators had not yet been appointed
although the rule
nisi
was
issued some five
months
before.
[6]
At that stage neither the costs of the winding up application or of
the liquidation would have been due and
payable.
[7]
The registrar placed the matter on the roll pursuant to the
provisions of Rule 12 (a)
- (c)
which provide as
follows
in respect of what is required for an application of such a nature:
“
12.
Urgent Applications
(a)
In all applications brought other than in the ordinary course in
terms of the Rules of Court, the
legal practitioner who appears for
the applicant must sign a certificate of urgency which is to be
filed of record before the
papers are placed before the Judge and in
which the reasons for urgency are fully set out.
(b)
The certificate of urgency shall set out the grounds for urgency
with sufficient particularity for the question
of urgency to be
determined solely therefrom without perusing the application papers.
(c)
In matters contemplated in Rule 12 (
a
) above, the registrar
shall issue the papers and shall place the matter on the roll of
cases as may be provided for in the notice
of motion commencing the
application.”
[8]
Ex Parte Strip Mining: In re Natal Coal Exploration Company Ltd
1999
(1) SA 1086
(SCA) at 1090 H – I.