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[2018] ZAGPPHC 887
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The Body Corporate of Santa Fe Sectional Title Scheme No 61/1994 v Bassonia Four Zero Seven CC (41913/2015) [2018] ZAGPPHC 887 (25 January 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION,
JOHANNESBURG
(1)
REPORTABLE:
YES
(2)
OF
INTEREST TO OTHER: YES
(3)
REVISED
CASE NO: 41913/2015
25/1/2018
In
the matter between:
THE
BODY CORPORATE OF SANTA FE
SECTIONAL
TITLE SCHEME NO 61/1994
Applicant
and
BASSONIA
FOUR ZERO SEVEN CC
Respondent
JUDGMENT
Sardiwalla AJ:
Introduction
[1]
This is a winding up application brought in terms of section 69 of
the Close Corporations
Act 69 of 1984 (the Act) read with section
345(1)(b) Companies Act 61 of 1973 (the Companies Act) as read with
the Companies Act
71 of 2008 (the
Companies Act, 2008
). The Applicant
is seeking an order for the winding up of the Respondent who it
alleges has failed to honour its debts.
The
parties
[2]
The Applicant, The Body Corporate of the Santa Fe Sectional Title
Scheme 61/1994,
is a duly registered and incorporated body corporate
in terms of the Sectional Titles Act 95 of 1996. The Respondent,
Bassonia
Four Zero Seven CC (CK 2007/125058/23) is a close
corporation registered in terms of the Act.
Background
[3]
The Respondent is the owner of Flat Nos 13 and 15 Santa Fe,
Soetdoring Street, Bassonia
Extension 1 in the Sectional Title Scheme
known as Santa Fe. The Applicant being the Body Corporate responsible
for the management
of Santa Fe is responsible for the collection of
all charges and monthly levies for the repair, upkeep, control
management and
administration of the common property.
[1]
The Body Corporate may also require owners to make contributions for
it to satisfy any claim against it.
[2]
[4]
The Respondent has allegedly failed to pay monthly charges and levies
for a period
up until July 2015 amounting to R330, 135.39 and R221
799.63 for the flats it owns. Following this failure to honour its
debt the
Applicant has brought winding up proceedings against it.
Applicant's
case
[5]
The Applicant's case can be summed up as
follows: on 20 August 2015 a letter of demand was delivered to the
Respondent highlighting
the extent of indebtedness and advising the
Respondent to remedy within 21 days. The Respondent failed to pay the
debt or respond
to the demand letter and thus the Applicant
instituted these proceedings.
[6]
Another application will also be
considered, the Applicant filed its replying affidavit more than 10
days after the answering affidavit
had been filed. Thus a separate
application for condonation of such late filing has been sought. The
explanation offered by the
Applicant is that the Respondent raised a
number of issues in its papers that required further investigation on
the Applicant's
part in order to establish the veracity of those
issues.
Respondent's case
[7]
The Respondent's case can be summed up
as follows: Firstly, Theresa Azar, the alleged executrix nominate of
the late Michael Azar
(the deceased) the sole owner to the Respondent
provided the answering affidavit. She states that she and the
deceased were married
in community of property and an undivided half
share of the Respondent belongs to her and by virtue of his death the
other half
belongs to her being the sole heir of the deceased's
estate. She states that she is unable to register her interest until
an executor
is appointed and suggests that these proceedings are held
in abeyance until then. Secondly, the Respondent argues that the
Applicant
does not have the necessary
locus
standi
to bring this matter before
the Court because the resolution relied on to evidence the decision
is defective. The meeting was allegedly
improperly constituted as the
Respondent never received notice of such meeting; the
locus
standi
of the trustees is called to
question; and the resolution is incomplete because it does not
specify the date on which the meeting
was held.
[8]
Further, the Respondent alleges that the
Applicant's affidavit is invalid as the oath was not administered in
terms of Government
Notice R 1258 of 21 July 1972, as amended, and
Government Notice R 1648 of 19 August 1977. Additionally, the
Respondent argues
that the accounts provided by the Applicant
indicate that Bassonia Four Seven Zero (Pty) Ltd and not the
Respondent owe the amount
and there is no supporting evidence in the
form of an affidavit by the person who captured the amounts. Further,
the Respondent
argues that there is an on-going arbitration
proceeding between the parties arid these should be finalised prior
to an application
in Court.
[9]
The Respondent alleges that the
Applicant is using the
Close Corporations Act to
overcome its
shortfalls in proving any amount owed to it. The Respondent to
support this claim states that the amount claimed in
the Applicant's
papers differs greatly from the statement of account. Further, the
Respondent states that the winding up would
not be for the benefit of
its creditors and thus would not be just and equitable and its assets
greatly outweigh its liabilities.
[10]
Finally, the Respondent seeks condonation for the late filing of the
answering affidavit. The
deponent states that she only received
notice of the application on 8 February 2016 given that she does not
no1mally attend to
the management of the properties and her son is
responsible for mis. She then outlines the steps she took to have the
notice of
opposition files following her discovery of the
application.
Issues
[11]
The parties in this case have raised a
number of issues for determination and these shall be highlighted
below:
11.1.
Condonation
11.2.
Preliminary points
11.3.
The winding up application
Condonation
[12]
Both parties have sought condonation in
this application and neither have opposed their counterpart's
application for condonation.
Condonations are regulated by Rule 27(1)
of the Uniform Rules of Court which states that:
[3]
'In the absence of agreement
between the parties, the court may upon application on notice and on
good cause shown, make an order
extending or abridging any time
prescribed by these Rules or by an order of court or fixed by an
order extending or abridging any
time for doing any act or taking any
step in connection with any proceedings of any nature whatsoever upon
such terms as to it
seems meet.'
[13]
This has been discussed in B
Free
Investments 128 (Pty) Ltd v Makulu Plastics and Packaging
CC
[4]
highlighted the following three elements to be considered in an
application for condonation:
'The two condonation applications
were opposed by the applicant on the basis that . no good cause was
shown by the respondent for
its delay in that no reasonable
explanation was advanced for the respondent's failure to comply with
the Rules of Court and the
Practice Rules, secondly, that the
respondent failed to satisfy the Court that it has a
bona fide
defense, and thirdly, that the respondent failed to show that the
applicant will not be prejudiced.'
[14]
The Constitutional Court in
Van
Wyk v Unitas Hospital and Another
[5]
considered the first requirement and
held that:
'An applicant for condonation must
give a full explanation for the delay In addition, the explanation
must cover the entire period
of delay. And, what is more, the
explanation given must be reasonable.'
In
this case both parties have applied for condonation. The process of
investigation undertaken after the answering affidavit revealed
that
the sole owner of the Respondent was deceased explains the
Applicant's delay. The Respondent's deponent contends that she
was
not aware of the application until 8 February 2016 after which she
sought to address it immediately.
[6]
I believe in both instances a reasonable explanation has been
advanced and given the lack of opposition this requirement is met.
[15]
The second requirement is the presence
of a
bona fide
defence.
In consideration of this, the Respondent has raised a number of
questions that this Court ought to consider the determination
of
which would negate the application, with that consideration a
bona
fide
defence has been raised.
Similarly, the replying affidavit serves to answer some questions
raised in the answering affidavit and
thus I feel meets this
requirement even if it does not fall within the meaning of a defence.
[16]
Finally, is the issue of prejudice.
Given that neither party has opposed the other's condonation
application it seems that neither
party believes it will be
prejudiced by condonation being granted. I am in agreement that the
delay occasioned by the late filing
has not prejudiced either party.
Thus in consideration of all the above, the condonation applications
are allowed.
Preliminary points
[17]
The Respondent has raised a number of
preliminary points the determination of which may mean we are not
required to make a decision
on the merits of the case. Firstly, the
deponent, who is allegedly also the executrix nominate, suggests that
the procedure should
be held in abeyance until an executor is
nominated. The Applicant objects to this on two grounds: that the
Respondent being a close
corporation has a separate legal personality
and the deponent has not shared a marriage certificate which would
indicate that she
was married to the deceased in community of
property. I think the question of proof of marriage is unnecessary to
determine, as
the Applicant's own exhibit 'RA1'
[7]
is indicative that the deponent is the deceased's surviving spouse.
[18]
On the former question, does the
Respondent continue to exist without its sole member; this is an
infinitely more complicated question.
In South African Law a members'
interest in a corporation forms part of the deceased's estate until
an executor is appointed and
makes a determination on how such
interest shall be used or distributed.
[8]
[19]
The question on what happens in a close
corporation upon the death of member married in community of property
was considered in
Pro Stevens
Products
CC.
[9]
This Court found that:
'[T]he CC indeed does not lose its
legal status, however on the appointment of the executor, the concern
forms part of the sole
member's deceased estate, by virtue of the
deceased 100% member's interest ownership that now falls in his
estate. The new owner
of the business would be the deceased's estate,
as above, at least until the estate was closed and the stock interest
distributed
as provided by the will or intestacy laws; see
F JS
Painting
CC
v Absa Bank Ltd
(083/3) [2004) ZASCA 52 28 May
2004. In that case the executor administers the estate that now owns
the business, therefore the
executor is the one who controls the
business. The CC being a juristic person acts through its members and
now the member being
the estate, before the interest is transferred
it would be acting through the executor.'
This Court goes further and holds
that:
'On
the basis of what has been illustrated above, the Respondent's
allegation that
as
the CC continues to exist separately from the deceased member's
estate, the death of the sole member, holding 100% member's Interest
had no direct Impact on the CC has no merit.'
[10]
[20]
In casu we are guided by the dicta above, but we consider it with
caution. In the
Pro Stevens Products
CC a default judgment had
been obtained against the Applicant who was seeking to rescind it.
Noteworthy in that case is that the
Respondent was aware that the
sole member had died and that his surviving spouse was the executor
of the State. These factors considered
together led to the conclusion
that a member's interest in a close corporation forms part of their
estate. However, guiding this
is the finding that a close corporation
maintains its legal status.
[21]
In this case I do not think, as the
Respondent suggests it is necessary to hold the proceedings in
abeyance as an executor is appointed.
Firstly, the deceased died in
April 2014 and the deceased became aware of this matter in February
2016. A period of almost two
years has passed with no explanation as
to why an executor has not been appointed, further it was only due to
the investigation
of the Applicant that this Court became aware that
an executor had been appointed at an earlier date but had recused
themselves.
[11]
This was information not provided by the Respondent. Additionally, as
the Applicant has suggested and indeed as the Court above
indicates
the close corporation does not lose its status. I believe it would be
unreasonable to hold the proceedings in abeyance,
particularly
considering the alleged sole heir (a will has not been availed) of
the estate is represented in this matter.
[22]
The second point raised is the issue of
locus standi.
The
Respondent argues that the Applicant does not have
locus
standi
because the resolution relied
on is defective. Firstly, the Respondent states that the
resolution
[12]
is vague as to whose signatures appear on it. This is cured in reply
with the confirmatory affidavits of the trustees.
[13]
The Respondent alleges that the meeting was improperly constituted
because it did not receive notice, however, no evidence has
been
brought forward to indicate that this is a decision that ought to
have been taken in an owner's meeting or what type of notice
was
required for such a meeting and thus no finding can be made. Finally,
the Respondent alleges the resolution was incomplete
because the date
at which the meeting was held was not stated. There is a date on the
resolution, which signifies when the decision
was taken and it would
thus be delusive to be overly prescriptive and require that one
specifically highlights the date of the
meeting.
[23]
The Respondent further alleges that the
founding affidavit is defective when considered with Government
Notice R 1258 of 21 July
1972, as amended, and Government Notice R
1648 of 19 August 1977. This allegation is unclear, the Respondent
does not substantiate
this further to indicate in what respect the
oath has failed to meet the requirements. Therefore, without further
explanation this
allegation is seemingly a red herring.
[24]
Finally, the Respondent argues that there is an on-going arbitration
proceedings between the
parties and these should be finalised prior
to an application in Court. This is another issue cured in reply, the
Applicant provided
an arbitration award as exhibit 'RA6'
[14]
which indicates that the matter under arbitration has been concluded
and there are no on-going arbitration proceedings. The Respondent
provided no evidence indicating that the matter concluded under
arbitration is the same matter before this Court.
[25]
Therefore, having considered the preliminary points raised by the
Respondent and having disposed
of them I shall proceed to consider
the merits.
Winding
up application
[26]
This application is brought in terms of
section 69
of the
Close
Corporations Act, which
defines circumstances under which a close
corporation is unable to pay its debt. The legislative provisions or
winding up of a
close corporation have become less clear since the
repeal of
section 68
of the
Close Corporations Act, which
can be
described as the enabling provision.
[15]
[27]
The repealed
section 68(c}
provided for
winding up by order of Court if a company in unable to pay its debt.
This is no longer in force, however,
section 69
, which describes the
circumstances under which a corporation is deemed unable to pay its
debts has remained in force. Which has
begged the question what is
the effect of repealing
section 68
and maintaining section 69 of the
Act?
[28]
The Courts have been divided on the
effect of this repeal and there are a number of conflicting decisions
to this effect. There
are two schools of thought regarding such
applications and this is necessary because of the gap created by the
repeal of section
68.
HBT
Construction and Plant Hire
CC
v
Uniplant Hire
CC
[16]
where the Court held that:
'It
must therefore be borne in mind that s 68 of Act 69 of 1984 has been
repealed and that the applicant can therefore only succeed
if there
is proof that the respondent is insolvent or that it-is just and
equitable that the respondent be liquidated.'
[29]
A similar position was adopted by the
same Court in
Herman and Another v
Set-Mak Civils
CC
[17]
where it went further and interrogated the effect of the repeal of
section 68 stating that:
'As stated earlier, section 68 of
the CC Act, and in particular section 68(c), referring to the
inability of a close corporation
to pay it debts as a ground for
winding-up, has been repealed. At this stage of our jurisprudence a
solvent close corporation can
only be wound-up and liquidated by a
court order as contemplated in s 81 of the 2008 Act. . .
If the 2008 Act is considered in
context the legislature most probably intended to provide for
efficient rescue of financially distressed
companies, including close
corporations, in order to ensure that winding-up and liquidation
should be a creditor's last resort.
A solvent close corporation can
therefore only be wound up by the court on application of a creditor
thereof if business rescue
proceedings have ended and it is just and
equitable, alternatively if it is otherwise just and equitable, to be
wound up.'
[30]
And thus the first school of thought is
captured above. Because section 68 has been repealed a creditor would
not be able to effect
winding up proceedings only on the basis that a
debtor is unable to pay its debts. Thus
section 81
of the
Companies
Act, 2008
would be applicable and a creditor would only have this
avenue after business rescue proceedings have ended and if it is just
and
equitable to grant the order, or if it is just and equitable.
[31]
The second school of thought however, differs in its application and
in this we are guided by
Scania
Finance Southern Africa (Pty) Ltd v Thomi-Gee Road Gamer
CC,
ABSA
Bank Ltd v
Femofire Bethlehem
CC
[18]
where the Court disagreed with the above holding that:
'I respectfully disagree with the
ratio decidendi,
in so far as it relates to the issue at hand,
in both the well-reasoned judgments in HBT and SET-MAK CIVILS. The
misconception of
requiring a creditor to prove insolvency before
being able to rely on Chapter 14 of the previous Act is apparent
merely from the
provisions of section 345, read with 344 of the 1973
Act, which clearly does not provide for factual insolvency, merely a
deemed
inability to pay its debts (and also if it is proved to the
satisfaction of the court that the company is unable to pay its
debts).
The section has always brought about a peculiar consequence,
namely that the debtor was deemed to be unable to pay its debts,
although
it may well be able to pay other debts. One of the grounds
available to such debtor to oppose the application for winding-up on
this basis was to prove solvency. Then the court still retained its
discretion.'
The Court went further and held
that:
'As matters stand, to my mind,
both
section 69
of the
Close Corporations Act and
section 345
of the
previous Act are still deeming provisions. I will henceforth refer
only to section 345 and that must be read to include
section 69
of
the
Close Corporations Act. If
any of the statutory elements are
satisfied, for example the non payment after being duly served
with a demand in terms of
section 345
, the company is deemed to be
unable to pay its debts and the company may, as in the previous
disposition, be wound up solely on
this ground. Such applicant is
entitled to seek a winding-up order on that basis. The court retains
its discretion. Should the
respondent however prove that it is
solvent, then (and only then) the applicant will obviously have to
satisfy the requirements
of sections 79(2) and 81 of the 2008
Act.'
[19]
[32]
Another proponent of this school of
thought is
Absa Bank Limited v
Tamusai Empire Park CC
where the
defendant raised the Applicant's inability to rely on Section 68(c)
as a defence. Here the Court held that:
'As matters stand, to my mind,
both
s 69
of the
Close Corporations Act and
s 345
of the previous Act
are still deeming provisions. I will henceforth refer only to s 345,
and that must be read to include
s 69
of the
Close Corporations Act.
If
any of the statutory elements are satisfied, for example the
non-payment after being duly served with a demand in terms of
s 345
,
the company is deemed to be unable to pay its debts and the company
may, as in the previous disposition, be wound up solely on
this
ground. Such applicant is entitled to seek a winding-up order on that
basis.
[20]
[33]
This position is also proposed in
FirstRand Bank Ltd v Bunker Hills
Investments 499
CC,
[21]
Standard Bank of South Africa Ltd v
R-Bay Logistics
CC
[22]
and
FirstRand Bank Ltd v Lodhi 5
Properties Investment
CC
[23]
where it was found that commercial insolvency remains a ground for
the liquidation of a close corporation.
[34]
Thus both positions have been outlined,
without a binding decision to chart a clear path forward. I will thus
consider this within
our set of facts. The Applicant has relied on
section 69 of the Act as read with section 345 of the Companies Act,
1973 and provisions
of the
Companies Act, 2008
. The Respondent has
raised some defences around this firstly, that it would not be just
and equitable to grant the application;
secondly that its assets
outweigh its liability; and finally that there are some discrepancies
in the accounts.
[35]
I shall address the discrepancies first
because they are the easiest to dispose of. Firstly, the Respondent
states that the account
states '(Pty) Ltd' and not 'CC' as required
for a close corporation and argues that another party is being
referred to. The Applicant
has explained this as a mistake in reply
and this is a reasonable conclusion to reach and thus it is accepted
that it is a mistake.
Secondly, the Respondent alleges that there are
discrepancies in the amounts on the accounts as opposed to those in
the pleadings,
I am not aware of any such discrepancies and thus
cannot consider them. Finally, the Respondent alleges that the
evidence of the
person who generated the accounts was not included.
As I have mentioned above I believe this is another red herring, the
Respondent
has not disputed the accuracy of the accounts nor tendered
any evidence that would render doubt as to the accuracy of the
accounts
and as such requiring a statement by the author of the
accounts is not necessary u less there was doubt as to their
accuracy.
[36]
Next is the question of whether or not
the Respondent is factually solvent and thus cannot be subject to
such an application. I
must note that as I proceed to answer this
question the Respondent has not tendered any evidence before this
Court proving that
its assets outweigh its liabilities and nothing
has been placed before this Court indicating the value of the
Respondent's properties.
However, we consider this question
nonetheless because of the ground relied on by the Applicant.
[37]
Having read the decisions of my
colleagues above, considering the divergent points of view that are
held I am inclined to agree
with the second school of though. The
legislature repealed
section 68
but opted to maintain
section 69
and
this must have been deliberate as the legislature had the option to
repeal this section too. I agree with the judgment in the
Scania
case that the only manner in which a
purposive interpretation of the maintenance of
section 69
can be
achieved is by construing it as referring to section 344(f) of the
Companies Act, 1973. Further, it must be noted that the
Court retains
its discretion in this matter and had the Respondent proven that it
was factually solvent then we would be guided
by the
ABSA
Bank Limited
decision and the
provisions of
section 79(2)
and
81
of the
Companies Act, 2008
.
[38]
On the question of whether or not it is just and equitable the answer
would have to be the same
as the above, that
section 69
would be
illusory if not read within the context of the
Companies Act? 344(f)
and
this it must be purposively interpreted as such and it would not
be necessary for the Applicant to prove that.
[39]
This of course requires us to interrogate whether or not the
Respondent has been unable to pay
its debts within the meaning of
section 69.
Section 69
provides that:
'(1) For the purposes of
section
68(c)
a corporation shall be deemed to be unable to pay its debts,
if-
(a)
a creditor, by cession or otherwise, to
whom the corporation is indebted in a sum of not less than two
hundred rand then due has
served on the corporation, by delivering it
at its registered office, a demand requiring the corporation to pay
the sum so due,
and the corporation has for 21 days thereafter
neglected to pay the sum or to secure or compound for it to the
reasonable satisfaction
of the creditor;
or
(b)
any process issued on a judgment, decree
or order of any court in favour of a creditor of the corporation is
returned by a sheriff,
or a messenger of a magistrate's court, with
an endorsement that he has not found sufficient disposable property
to satisfy the
judgment, decree or order, or that any disposable
property found did not upon sale satisfy such process; or
(c)
it is proved to the satisfaction of the
Court that the corporation is unable to pay its debts.
(2) In determining for the
purposes of subsection (1) whether a corporation is unable to pay its
debts, the Court shall also take
into account the contingent and
prospective liabilities of the corporation.'
[40]
In casu the Applicant served the
Respondent with a notice to satisfy a debt of R330 135.39 and R221
799.63 for its respective properties
(an amount considerably more
than R200) and the Respondent neglected to do so within 21 days. In
fact to date the Respondent has
made no attempt to satisfy these
amounts and has not provided any evidence to indicate that it is not
indebted to the Applicant.
Therefore, I find that the Respondent is
unable to pay its debts within the meaning of
section 69
and the
provisions of section 344(f) of the Companies Act, 1973 are
applicable .
Section
344(f) states 'a company (this applies to a close corporation) may be
wound up by a court if it is unable to pay its debts'.
Conclusion
[39]
Therefore , I conclude that the
Applicant has made a case for winding up as it has proven that the
Respondent is unable to pay its
debts within the meaning of section
69 of the Act and that section 344(f) of the Companies Act will be
applicable. However, guided
by the dicta I have discussed above I
opine that a provisional winding up order is granted giving the
opportunity to prove that
it is factually solvent on the return date.
Order
[40]
I make the following order:
a)
The Respondent is provisionally
liquidated with the return date of 23 February 2018.
b)
This order should be served on the
Master of the High Court. the South African Revenue Services, any
employees and be gazetted.
c)
The Respondent shall bear the costs of
this Application.
SARDIWALLA C
ACTING JUDGE OF THE HIGH COURT OF
SOUTH AFRICA
GAUTENG
DIVISION, JOHANNESBURG
[1]
Section 37(a)
of the
Sectional Titles Act 95 of 1986
.
[2]
Section 37(b)
of the
Sectional Titles Act.
[3
]
GN 315 (GG19834) of 12 March 1999.
[4]
(71816/13) [2014] ZAGPPHC 253 (2 April 2014) para 9.
[5]
[2007] ZACC 24
;
2008 (2) SA 472
(CC) para 22.
[6]
Laerskool Generaal Hendrik Schoeman v Bastian Financial Services
(Pty) Ltd
2012 (2) SA 637
(CC) at 640H-l?, the Court disregarded
the period in which the applicant was unaware of the judgment in its
determination of
a condonation application. This approach is
adopted in this case.
[7]
Page 80 of the Bundle.
[8]
Pro Stevens Products ccv Standard Bank of South Africa and
Another: In
Re
Standard Bank of South Africa v Pro Stevens
Products CC
Unreported Case No 48241/2010.
[9]
Supra para 30. ·
[10]
Supra para 36.
[11]
'RA1• page 80 of the Bundle.
[12]
Page 13 of the Bundle.
[13]
Exhibit 'RA2-RA4' pages 82-88.
[14]
Page 89 of the Bundle.
[15]
Section 68 of the Act was repealed in Schedule 3 of the
Companies
Act, 2008
.
[16]
2012 (5) SA 197 (FB)
[17]
2013 (1) SA 386
(FB) paras 13 and 14.
[18]
2013 (2) SA 439
(FB) para 12.
[19]
Para 14.
[20]
(1151/2013) ZAWCHC 187 para 24, quoting
Scania
para 14.
[21]
2012 JDR0755 (GSJ).
[22]
2013 (2) SA 295
(KZD).
[23]
2013 (3) SA 212
(GNP).