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[2019] ZAFSHC 30
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Viljoen v Viljoen and Another (4793/2018) [2019] ZAFSHC 30 (21 February 2019)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been redacted
from this document in compliance with the law and
SAFLII
Policy
IN THE HIGH COURT
OF SOUTH AFRICA
FREE STATE
DIVISION, BLOEMFONTEIN
Case number: 4793/2018
In
the matter between:
ALBERT
JOHANNES
VILJOEN
Applicant
(Identity
number: 82[…])
and
ALBERT
JOHANNES VILJOEN
(Identity
number:
57[…])
1
st
Respondent
HENCETRADE
34 (PTY) LTD.
2
nd
Respondent
(Registration
number: 1999/010500/07)
HEARD
ON:
31
JANUARY 2019
JUDGMENT
BY:
JORDAAN,
J
DELIVERED
ON:
21
FEBRUARY 2019
[1]
The first respondent is the founder and managing director of the
second respondent company. I will refer to the first respondent
as
respondent and the second respondent as the company.
[2]
The applicant is the son of the respondent, also a shareholder and
director. The company has two other directors.
[3]
The applicant applies for an order declaring the first respondent a
delinquent director in terms of section 162(5) of the Companies
act
71 of 2008 and also seeks leave to bring and institute proceedings on
behalf of and in the name of the company in terms of
section 165(6)
of the act.
[4]
In terms of section 162 a person may be declared delinquent,
inter-alia
if such person is a director and any of the circumstances
contemplated in subsection (5)(a), (b) or (c) applies.
[5]
Subsection (5)- prescribes that an order of delinquency must be
issued if a person, while being a director,
inter-alia
took personal advantage of information or an opportunity contrary to
the provisions of section 76(2)(a), or intentionally or grossly
negligently inflicted harm upon the company contrary to the last
mentioned section or acted in a manner amounting to gross negligence
or willful misconduct in breach of trust in relation to the
performance of his duties or acted in a manner contemplated in
section
77(3)(a),(b) or(c).
[6]
In terms of section 76(2)(a) a director of a company is prohibited
from using his position as such to gain an advantage for
himself or
any other person than the company or a subsidiary thereof and from
knowingly cause harm to the company or a subsidiary.
[7]
In terms of section 77(3)(c) a director is liable for any loss,
damage or costs sustained by the company as a direct or indirect
consequence of the director having been a party to an act or omission
by the company despite knowing that it was calculated to
defraud a
creditor, employee or shareholder or had any other fraudulent
purpose.
[8] The applicant alleges
that the respondent as managing director and authoritative
decision-maker of the company was instrumental
in causing the
company;
- to operate a cash loan
account held by an employee in her personal name to the detriment of
the company;
- to commit tax fraud;
- to partake in BBBEE
fronting;
- to dilute or conceal
assets of the company and,
- to
make payments to the respondent in excess of what he was legally owed
by the company.
[9] I proceed to deal
with the aforesaid complaints in as far as they are relevant and
material to the issues.
CASH
LOAN ACCOUNT.
[10]
According to the applicant he established that a cash loan facility
was established utilising an account held in the personal
name of an
employee. Monies are paid from the company’s bank account into
the employee’s account from where it is suspectedly
distributed.
[11]
According to the respondent the loan account is used to assist
employees in obtaining cash loans. An employee would approach
Me Da
Silva in whose name the account is held and if a loan is approved and
paid to the employee out of the account, the repayment
of the loan is
effected by deducting the amount thereof together with an
administration fee from the salary of the employee, which
is then
paid into the loan account again. Any profits gained from the
transaction fee remain in the loan account. The applicant
was
throughout aware of that.
[12] Obviously the
company finances the loans. That notwithstanding, the so-called
profits are not held by the company but paid
into the personal
account of the aforesaid employee.
TAX
FRAUD.
[13]
According to the applicant the financial affairs of the company were
not shared with directors, in particular himself. He however
saw a
balance sheet of the company dated 24 May 2018 from which it appeared
that the company had a VAT obligation of some R 5.6
million, which
was at the time not disclosed to the SARS. The applicant raised his
concerns in that regard by means of a letter
by his attorneys
addressed to the respondent and the company’s chartered
accountants. According to the applicant, the respondent
and the
accountant then lodged a VAT resubmission for the company for the
period dating back to December 2013. Because of that
the status of
the company at SARS was changed from compliant to non-compliant.
[14]
According to the respondent the decision to resubmit a VAT submission
was a joint decision of all the directors. In the resubmission
the
accountant informed the SARS that the mistake was due to a
misinterpretation of the VAT report. From the resubmission it
appeared
that an amount of approximately R 3.4 million was owing.
According to respondent the company was unable to pay the VAT during
the
period of the transgression. The accountant, on various
occasions, made the directors aware of the underpayment and
misrepresentation
in respect of VAT and explained the implications
thereof to the directors.
[15]
The aforesaid revelations by the respondent is alarming. In so many
words he admits that VAT liability of the company was misrepresented
to SARS because the company was unable to meet its liabilities in
that regard. Moreover the accountant warned against the implications
of doing so. That is clearly fraudulent and in contravention of
section 77(3)(c) of the act. The respondent maintains that the
applicant took part in the decision to resubmit the VAT submission.
Significantly he refrains from alleging, in specific terms,
that the
applicant was part of the fraud, except for stating that the
directors were made aware of this by the accountant on various
unspecified occasions. In any event, if other directors were aware of
this, it does not avail the respondent.
BBBEE
FRONTING.
[16] The applicant’s
allegations in this regard appears to be well founded. Even on the
respondent’s version, shares
were transferred to the BBBEE
partners for an unknown price or value, initially transferred to a
so-called interim holder and the
unknown value and price is to be
paid back by means of deduction from dividends. The payment will
therefore depend on dividends
being declared and the extent or value
thereof. In any event, I do not deem it necessary to make any finding
in this regard since
it does not play any significant role in my
eventual conclusion.
DILUTING
ASSETS.
[17]
The applicant alleges that the financial records of the company
reflected a profit of R 1.9 million as at 11 June 2018 and
no bad
debts were recorded. However, on 17 August 2018 the records reflected
a reduced profit of R 373000 and bad debts recorded
as R 1.44
million.
[18]
The balance sheet of the company recorded the value of machinery and
equipment as at 30 September 2017 at cost of R 21285.00
and the date
thereof as 1 July 1999. The purchase of new equipment since then is
not reflected. According to the applicant, in
the period 2016 to 2017
equipment to the value of R148000.00 was acquired but not recorded.
[19] According to the
applicant the aforesaid were done so as to project lower asset values
and therefore lower share values to
the prejudice of shareholders.
[20]
The respondent maintains that no assets are excluded from the
financial records. Bad debts are only recorded and reflected
in the
statements after discussion with directors. The bad debts involved
the debts of two companies, one of which was Ruwacon
and whose debt
was already regarded as a bad debt in September 2017.
[21] If the debt of the
last mentioned company was already regarded as bad in 2017, the
question arise why it was not recorded as
such on 11 June 2018? The
aforesaid creates the impression that the financial records and
bookkeeping of the company was done in
a haphazard manner. It is
however not material to the conclusion that I arrive at.
PAYMENTS
TO 1
st
RESPONDENT.
[22] The applicant
alleges that the respondent regularly received an amount in the
aggregate of R 40000.00 per month from the company
over and above
respondent’s salary. Over the period such payments amount to
approximately R 3 million. Initial records of
the company as
reflected in the trial balance reflects the respondent’s loan
account as being R169543.58 as at 30 September
2016. The detailed
ledger however reflects the respondent’s loan account as an
opening balance on 1 October 2016 to be R1.496
million, which is also
the amount reflected as the closing balance on 30 September 2017.
Contrary to that, the financial statements
on 30 September 2017 still
depicts the respondent’s loan account as R169543.58. The
detailed ledger reflects an opening balance
of some R 1.6 million as
at 1 October 2017, which increased due to monthly receipts of
approximately R44000.00, to an amount of
R1.9 million as at 30 April
2018.
[23]
The respondent, in general terms, alleges that he from time to time
contributed capital to the company as loans and was therefore
fully
entitled to be repaid. He mentions the fact that he had a favourable
loan account in the close
Corporation
Alie Properties CC
in the amount of R1413056.00 and in the company in the amount of
R169658.00. The Close Corporation is not in a financial position
to
repay that loan.
[24]
The respondent fails to explain how the balance of the loan account
in the company escalated overnight from the amount of R169658.00
to
the amount of R1.4 million. He also does not deny the applicant’s
allegation that the aggregate payments to the respondent
over the
period amounts to R3 million.
[25]
The allegations of the applicant to the effect that the company paid
for personal liabilities of the respondent,
inter-alia
water and electricity and levies in respect of immovable properties
of the respondent, are not answered to nor denied by the respondent.
[26]
The respondent’s reference to the loan account in the CC
creates the impression that, because the CC is unable to repay
the
loan, it has been transferred to the company, which repays that loan.
[27]
It is clear from the aforesaid that the total amount of payments to
the respondent as alleged by the applicant and not denied
by the
respondent, by far exceeds the aggregate of both the aforesaid loan
accounts. If the payments purport to be payments in
respect of the
loan account in the close Corporation, such payments are clearly
detrimental to the company. The aforesaid clearly
qualify as acts
envisaged in section 162(2)(b) read with subsection (5)(c)(iii) and
section 76(2)(a)(i) and (ii).
[28] I have already found
that the respondent was also party to tax fraud in the attempt to
avoid VAT liability. In the circumstances
I am enjoined by the
pre-scripts of section 162(5) to issue an order of delinquency.
LEAVE
TO SUE.
[29]
As initially said, the applicant also applies for leave to institute
proceedings on behalf of the company in terms of section
165(6) of
the act.
[30]
Section 165 regulates the steps to be taken by a person before
applying for leave to institute proceedings on behalf of the
company.
That
inter-alia
entails a demand being made on the company in terms of subsection (2)
and (4). Those steps are prerequisites for an application
and order
in terms of subsection (5).
[31] Subsection (6) makes
provision for leave to be applied for and granted in exceptional
circumstances. It reads as follows;
“
(6)
In exceptional circumstances, a person contemplated in subsection (2)
may apply to a court for leave to bring proceedings in
the name and
on behalf of the company without making a demand as contemplated in
that subsection, or without affording the company
time to respond to
the demand in accordance with subsection (4), and the court may grant
leave only if the court is satisfied that-
(a) the delay required
for the procedures contemplated in subsections (3) to (5) to be
completed may result in-
-(i)irreparable harm to
the company; or
-(ii)substantial
prejudice to the interests of the applicant or another person;
(a) there is a reasonable
probability that the company may not act to prevent that harm or
prejudice, or act to protect the company’s
interests that the
applicant seeks to protect; and
(b)
that the requirements of subsection (5) (b) are satisfied.”
[32]
Nowhere in the founding affidavit does the applicant explicitly deal
with the required exceptional circumstances. I have been
asked to
find that there are exceptional circumstances based on the totality
of evidence.
[33]
Clearly the intended proceedings are aimed at a claim for damages,
inter-alia against the first respondent. Whilst the first
respondent
remained in office and the decision-making authority of the company,
there would be slim prospects of a positive response
to any demand.
However, once the respondent is removed from office, there remains no
compelling reason why serious consideration
of such a demand will not
be given. As aforesaid, the applicant failed to specifically deal
with the circumstances which could
be regarded as exceptional.
[34] I am not convinced
that such an order should be granted at this stage. I will however
leave the door open for the applicant
to approach the court on the
same papers, duly amplified, for relevant relief.
COSTS.
[35] The applicant seeks
a cost order on a punitive scale. I am not convinced that such an
order is justified in the circumstances
of this case. There is
however no reason why an order of costs should not follow the result.
In
conclusion the following orders are granted;
1.
The
first respondent is declared a delinquent director of second
respondent in terms of section 162(5)(c) of the Companies act,
71 of
2008.
2.
Leave
is granted to the applicant to approach the court on the same papers,
duly amplified, for an order in terms of section 165(5)
or (6) of the
Companies act, 71 of 2008.
3.
The
first respondent is ordered to pay the costs of the application.
________________
A.
F.
JORDAAN, J
On
behalf of Applicant
:
Adv.
N. Snellenburg, SC
Adv.
L. Collins
Instructed
by:
Van
der Merwe & Associates
c/o
Honey Attorneys
Honey
Chambers
Northridge
Mall
BLOEMFONTEIN
On
behalf of
Respondents:
Adv. A.P. Berry
Instructed
by:
CMM
Attorneys Inc.
c/o
Bock-Van Es Attorneys
61
Kellner Street
Bloemfontein