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[2018] ZAGPJHC 687
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Fitzgerald v Filter Focus (SA) (Pty) Ltd; Fitzgerald v Integrated Fluid Technologies (Pty) Ltd (26849/17; 26850/17) [2018] ZAGPJHC 687 (26 November 2018)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
LOCAL DIVISION, JOHANNESBURG)
CASE
NO:
26849/17
CASE
NO:
26850/17
In
the matter between:
FITZGERALD,
CRAIG
ALAN Applicant
and
FILTER
FOCUS (SA) (PTY)
LTD Respondent
REGISTRATION
NUMBER: 2003/005816/07
AND
FITZGERALD,
CRAIG
ALAN Applicant
and
INTEGRATED
FLUID TECHNOLOGIES (PTY)
LTD Respondent
Registration
number:( 2005/042995/07)
JUDGMENT
KEIGHTLEY J
1.
This judgment deals
with two, interrelated applications for winding up. Mr
Fitzgerald is the applicant in both. In the
first application,
he seeks the winding up of Filter Focus (SA) (Pty) Ltd (“Filter
Focus”), and in the second, he seeks
the winding up of
Integrated Fluid Technologies (Pty) Ltd (“IFT”).
Save for an alleged counterclaim in the Filter
Focus application, and
some factual differences regarding the amounts of the respondents’
alleged indebtedness, the issues
in dispute in both applications are
the same.
2.
Most of the material
background facts are common cause. Mr Fitzgerald is effectively
a shareholder (through his shares in
a holding company) of both
respondents. He was also a director of both respondent
companies until his resignation in 2017.
It is unnecessary to
go into many details about what predicated his resignation as a
director, but it is safe to say that his departure
from the companies
was not in amicable circumstances. Mr Fitzgerald had advanced a
shareholder’s loan to each respondent
company in May 2016: in
respect of Filter Focus, the amount was R290 000. 00, and in respect
of IFT it was R464 409. 47.
These amounts were advanced to the
companies to allow them to meet their obligations to creditors.
The amounts are reflected
in Mr Fitzgerald’s loan accounts with
the companies.
3.
After Mr Fitzgerald
resigned from the companies, he called up his loan accounts. In
May 2017 his attorney delivered a notice
to each of the respondent
companies in terms of s345(1)(a) of the Companies Act of 1973.
The companies failed to meet the
demand in the letters for the
payment of Mr Fitzgerald’s loan accounts within the 21 day
period provided. Consequently,
Mr Fitzgerald applied for the
winding up of the respondent companies on the primary basis that they
were deemed to be unable to
pay their debts.
4.
The respondent
companies do not dispute the existence or (in the main) the amount of
the debts. However, they contend that:
(a) The debt is not due
and payable, for reasons I will discuss in more detail below.
(b) As regards Filter
Focus, it says it has a counterclaim against Mr Fitzgerald which, it
says, will more than cover the amount
claimed by him, and which thus
constitutes a defence to his claim for the payment of his loan
account.
(c)
The financial position of the companies has improved significantly
since Mr Fitzgerald’s departure, and they argue that
this is a
matter that I should take into account in exercising my discretion
whether or not to grant the order.
5.
As
regards the issues raised in paragraphs (a) and (b) above, the
respondents rely on what is generally referred to as the Badenhorst
principle
[1]
.
The principle, which is well established in the case law
[2]
lays
down that winding-up proceedings ought not to be resorted to as a
means of enforcing payment of a debt, the existence of which
is
bona
fide
disputed on reasonable grounds, as winding-up proceedings are not
designed for the resolution of disputes as to the existence or
not of
a debt.
6.
It has been held
further that:
“
The
onus
on the respondent is not to show that it is not indebted to the
applicant: it is merely to show that the indebtedness is disputed
on
bona
fide
and reasonable grounds.”
[3]
And:
“
(The
respondents) do not, ... have to prove the company’s defence in
any such proceedings. All they have to satisfy me of
is that the
grounds which they advance for their and the company’s
disputing these claims are not unreasonable ... It seems
to me to be
sufficient for the trustees in the present application, as long as
they do so
bona
fide
... to allege facts which, if proved at a trial, would constitute a
good defence to the claims made against the company.”
[4]
7.
It
has been suggested
[5]
that
where the Badenhorst principle is found to be applicable, and a
respondent satisfies the court that its defence raises a
bona
fide
and reasonable dispute in relation to the debt, the winding-up
application will be refused for two reasons: first, because winding
up is an inappropriate mechanism to recover a disputed debt and,
second, because where a debt is disputed, the creditor lacks
locus
standi
.
8.
It stands to reason,
therefore, that I should begin by considering the crisp issue of
whether the respondents can show that they
have a
bona
fide
and reasonable
defence to Mr Fitzgerald’s claim for payment of his loan
account debts. I will first consider the defence
common to both
applications, and then separately consider the issue of whether
Filter Focus’ counterclaim provides it with
a defence that
gives rise to a
bona
fide
and reasonable
dispute as regards the debt.
THE COMMON DEFENCE
9.
As I indicated earlier,
the gist of the respondent companies’ defence is that although
they are indebted to Mr Fiztgerald
for the amounts reflected in his
loan accounts, these debts are not yet due and payable. In each
application the companies
filed an answering affidavit by Maria Sly
(“Ms Sly”), who deposed that she was a co-director of
the
respondent companies. She also appears to be a shareholder in
the companies. Much of the answering affidavit is
devoted to
allegations of various forms of misconduct and mismanagement by Mr
Fitzgerald when he was the director. It is
not necessary to
deal with these allegations, or with Mr Fitzgerald’s responses
to them, as neither party sought to rely
on the issues raised by the
allegations and responses when the matter came before me.
10.
On the pertinent issue
of the disputed debt, Ms Sly avers as follows:
(a) During May 2016 Craig
Pretorius (one of the shareholders) met with Mr Fitzgerald in
Johannesburg to discuss the financial position
of the companies, as
at that stage they had started to run into cash difficulties.
(b) It was discussed
between them that the companies were in need of a cash flow
injection.
(c) It was then verbally
resolved between them that an amount proportionate to their
shareholding’s in the companies was to
be invested.
(d) Ms Sly was informed
of this and she agreed. The payments were then made.
(e) Ms Sly stated that:
“
It
was always and at any given stage the understanding between ourselves
that the loans would only be repayable if and when the
respondent was
in a position to do so. Thus logically after the financial year
end, if funds would be available it would
be repaid to the parties
proportionate to their respective loans. This would also be
done only if and when a repayment was
requested and agreed upon by
the directors
.”
(f) For ease of reference
I will use the term “the understanding” as a shorthand
term for the agreement alleged by Ms
Sly.
(g) The simple reason for
the manner of repayment was to safeguard the companies’ capital
base.
(h) Apart from Mr
Fitzgerald, none of the other shareholders have demanded repayment of
their loan accounts due to their understanding
of the terms regarding
repayment.
(i) The loans are
reflected in the companies’ financials as being unsecured and
no payment date is recorded.
(j) On
the basis of the understanding, the loans could be equated to being
subordinate in nature, in that “
it
was always the understanding between the respective directors and
shareholders that made loans ... that the loan would be repayable
if,
and when the company will be in a position to do so
”.
11.
As regards the
companies’ financial position, in the answering affidavits Ms
Sly averred that since Mr Fitzgerald’s
departure from the
companies, they had turned around the financial situation. For
the months of May to August 2017, the companies
showed a profit.
The respondent companies were now in a proper financial position and
were able to deal with their day-to-day
liabilities when they became
due. It was in a “
healthy
financial position
”.
12.
Mr Fitzgerald disputed
Ms Sly’s version regarding the alleged understanding of when
the loans would fall due for payment.
He stated in his replying
affidavit that he did not meet with Mr Pretorius as averred.
They spoke on the telephone about
the cash crunch and made a decision
to contribute what they could. Their contributions were not
based on their shareholding,
and none of the shareholders in the
group of companies was required to make a contribution, as averred by
Ms Sly. Mr Fitzgerald
stated that the origin of his loans to
the companies was simply that in the middle of a cash crunch, he made
a deposit into the
companies to assist with cash flow.
13.
Critically, he recorded
that there was no discussion whatsoever regarding repayment.
There was no “
if-and-when-the
respondents-could-afford-it
”
condition attached to the loans he made. He did not share the
understanding alleged by Ms Sly. Further, there
was no
discussion about the loans being subordinate to any other
obligations. Mr Fitzgerald’s version was that the
loans
were payable on demand, or within a reasonable time.
14.
Mr Fitzgerald pointed
out, correctly, that there were no confirmatory affidavits attached
to the answering affidavit from Mr Pretorius
or any of the other
directors or shareholders to verify Ms Sly’s version.
15.
Picking up on Ms Sly’s
averments regarding the current healthy position of the respondent
companies, Mr Fitzgerald contended
in his replying affidavits that
what the respondents in effect were saying is that they were now in a
position to pay out his loan
account, or at least a portion thereof.
This begged the question: if the companies were now in profit, why
were his loan
accounts not being paid. He submitted that the
undeniable inference to be drawn from the failure to repay at least a
portion
of his loans in response to his demand for payment was that,
contrary to Ms Sly’s statements of financial health, the
companies
were not, in fact, able to pay their debts.
16.
In
March 2018 the respondent companies filed supplementary affidavits
with a view to updating the court on their most recent financial
position. After describing various positive financial
developments with the respondents, Ms Sly submitted that they now had
a positive bank balance, and that the retained income was in the
region of just shy of R550 000. 00 in respect of Filter Focus,
and
some R927 000 in respect of IFT.
[6]
.
She then proceeded to add a new rider to the repayment terms of the
loans alleged to have been agreed between the shareholders:
“
Having
a good understanding of the fluctuations in the economy and the
trends in the economy
it
was always the understanding
that as soon as the Respondent(s) reached
a
retained income
of approximately one million rand (two million in respect of IFT)
that the company will consider to declare profit on shares and
start
to make repayment on the loan accounts
proportioned (sic) to shareholding. This is so bearing in mind
the agreement as referred to in the answering affidavit.
”
(my emphasis)
17.
No such condition or
rider was alleged by Ms Sly in her original answering affidavit.
It is difficult to escape the inference
that it was introduced to
deal with Mr Fitzgerald’s point when he questioned why his
loans had not been repaid if, indeed,
the respondent companies were
financially solvent and making a profit.
18.
Against these facts I
must determine whether the respondent companies have made out a
bona
fide
and reasonable
case that Mr Fitzgerald’s loans are not yet due and payable.
In this regard, it is important to restate
that the
onus
on the respondents is not such that they must prove their averred
defences based on a balance of probabilities. What they
are
required to do in their affidavits is to allege facts which, if
proved at a trial, would constitute a good defence to the claims
against them by Mr Fitzgerald.
19.
The
respondent companies’ primary defence is the existence of the
understanding which, they say, means that the shareholder’s
loans are not yet due and payable to Mr Fitzgerald. Counsel for
Mr Fitzgerald referred me to a decision of this Division,
Levay
& Another v Van den Heever and Others
,
[7]
in
which reliance was also placed on the alleged existence of an oral
agreement in affidavits filed in liquidation proceedings.
The
court noted in
Levay
that:
“
It
is trite that the affidavits in motion proceedings comprise both the
pleadings and the evidence. Peters' evidence of the
loan
agreement will not even pass muster as a pleading, as it does not set
out where the agreement was concluded, or who represented
the
respective parties.”
[8]
20.
As I understand the
point made in this
dictum
it is that if a party seeks to rely on factual averments in motion
proceedings to found a defence, it must do so in a manner that
reasonably approximates how the defence would be pleaded if the
proceedings were in the nature of trial, rather than motion
proceedings.
When an alleged agreement is pleaded, this must be
done with the same kind of particularity as regards the
facta
probanda
relating
to the agreement that would be required in a plea. For example,
the necessary averments relating to the nature of
the agreement
(whether it was written or oral), the persons representing the
parties to the agreement, when and where the agreement
was concluded,
and the material terms of the agreement should be discernible from
the affidavit in question. In their absence,
the affidavit
would not, as the court put it, “
pass
muster
” as a
pleading. For purposes of an inquiry like that in the present
case, what this means in my view is that if these
essential averments
of the defence are not discernible from the affidavits, this will
materially undermine the
bona
fides
and
reasonableness of the defence relied upon to dispute the debt.
In other words, the dispute will not be based on substantial
grounds.
21.
The only specific
details Ms Sly provides regarding an agreement are that Mr Fitzgerald
and Mr Pretorius met in Johannesburg, during
or about May 2016, and
that they decided between themselves that the shareholders of the
holding company would make proportionate
investments in the
respondent companies. She says she agreed to this. What
is significant about these averments is
that they do not relate to
the repayment terms of the loans: the details pleaded relate only to
the agreement to make the cash
injection. Ms Sly does not say
that Mr Fitzgerald also “
verbally
resolved
” at
this meeting what the repayment terms of the loans would be, and that
she thereafter agreed to those terms. Instead,
from this point
onwards, Ms Sly’s averments descend into a dark hole of
vagueness.
22.
What is crucial here is
that the vagueness goes hand in hand with the most important aspect
of the respondent companies’ defence,
viz. the understanding
regarding the repayment of the loans. The court is told in
vague terms that “
it
was
always
and
at any
given stage
the understanding between
ourselves
”
as to how the loans would be repaid. When was this
understanding reached? Where was it reached? Who, exactly,
was
party to this understanding? Was the understanding constituted by way
of a written, or oral agreement, or by the conduct of
the parties?
What was understood by repayment being dependent on “
if
funds were available
”,
or “
when the
companies were in a position to do so
”?
How was this to be determined? Did the parties consider what
the effect on the alleged understanding would be if
one of them
resigned as a director and wished to withdraw from the companies?
Ms Sly does not traverse any of this in her
affidavits. On this
score alone, in my view the respondents’ defence does not pass
muster.
23.
There are further
difficulties with the
bona
fides
and
reasonableness of the respondent companies’ defence. It
is inexplicable why, if the parties truly had agreed that
the loans
would not be repayable until the companies held retained income of
certain amounts (as stated in the supplementary affidavit),
this was
not pleaded in the answering affidavit. The inescapable
conclusion is that it was not pleaded because it was never
agreed.
It was an afterthought introduced to deal with the obvious difficulty
in the respondents’ own case: if they
were now turning a profit
and were not insolvent, why had they not repaid Mr Fitzgerald’s
loans? There is also the
question of the absence of any
confirmatory affidavits from any of the other shareholders or
directors who, Ms Sly intimates, were
part of the understanding.
While it may not be necessary for the respondents to put up all their
evidence in support of their
defence at this stage, the court should
at least have the comfort of knowing that the other parties to the
alleged understanding
confirm the version contained in the
affidavits. Ms Sly’s version stands on its own.
There is no explanation
as to why none of the other parties have
confirmed her version. Without this, the court is left in doubt
as to
bona fides
of the defence relied on by the respondents to dispute the debt.
24.
For these reasons, I
find that the respondent companies do not dispute the debt
constituted by Mr Fitzgerald’s loans on
bona
fide
and reasonable
grounds.
THE
COUNTERCLAIM DEFENCE
25.
The counter-application
as a defence to the debt relates only to Filter Focus. It
contends that it has a valid counterclaim
that must be set off
against Mr Fitzgerald’s debt. On this basis, Filter Focus
places the amount of the debt in dispute.
26.
The counterclaim is
based on Mr Fitzgerald’s continued possession and use of a
vehicle which belongs to Future Focus, as well
as some other items of
equipment. Filter Focus says that he refuses to return these
assets to it. The vehicle was purchased
for R425 553. 33, and
Filter Focus continues to pay the monthly running costs of the
vehicle. It contends that the value
of the vehicle and other
equipment completely extinguishes Mr Fitzgerald’s claim based
on his loan account.
27.
It is common cause that
Mr Fitzgerald is still in the possession of the vehicle. He
says that historically the shareholders
all had the use of motor
vehicles from the company. He remains a shareholder of the
company, and says he is entitled to continue
to use the vehicle.
28.
Whatever the ins and
outs may be about Mr Fitzgerald’s continued use of the vehicle,
it is common cause that it remains registered
to the company.
It is an asset of the company and will be reflected as such in the
financial statements. Filter Focus
does not allege that Mr
Fitzgerald has unlawfully transferred the vehicle into his own name,
or that he has sold the vehicle and
has pocketed the purchase price.
It’s real complaint is possessory: he will not give the vehicle
back when it thinks
he should. This being the case, it is
difficult to understand how the dispute over his continued
possession
and use
of the
vehicle can form the basis of a valid claim against him, sounding in
money, and based on the
value
of the vehicle. The fact that Mr Fitzgerald offered to set off
the vehicle against his loan account does not take the matter
further: this would have entailed, one presumes, a transfer to him of
ownership. This would not constitute a loss to Future
Focus, as
the loss of its asset would be compensated by a reduction in the loan
account due. The offer could never constitute
a recognition
that Filter Focus has a valid counterclaim against Mr Fitzgerald, as
it suggests.
29.
For these reasons, I
find that the counterclaim does not constitute a valid defence giving
rise to a
bona fide
and reasonable dispute of the debt.
THE
REQUIREMENTS FOR WINDING UP
30.
It follows from my
findings in relation to the defences raised that Mr Fitzgerald’s
locus standi
as a creditor is not reasonably in dispute, and is thus established.
There is also no reasonable and
bona
fide
dispute
arising from the respondents’ averment that the loans were
subordinate, and thus that Mr Fitzgerald is only a contingent
creditor. On the contrary, the debts constituted by his two
loan accounts are due and payable, either on the basis that they
were
payable on demand, or at least within a reasonable period.
31.
Mr Fitzgerald relies
primarily on section 344(f), read with section 345(a) of the 1973
Companies Act, read further with schedule
5 of the
Companies Act 71
of 2008
as the basis for the winding up of the respondents.
These sections permit the winding up of a company in circumstances
where
it is deemed to be unable to pay its debts. Mr Fitzgerald
states that on 19 May 2017 he caused to be delivered to the
respondent
companies a letter demanding payment from them of his loan
account within seven days. The letters further referred the
respondent
companies to the relevant provisions of the Companies
Acts, and advised them that in the event of their non-compliance
therewith
by meeting the demand to his satisfaction within three
weeks, they faced the prospect of a liquidation application.
32.
It is common cause that
after receipt of these letters an approach was made by the
respondents to meet to attempt to come to an
arrangement between the
parties. However, these were not to the satisfaction of Mr
Fitzgerald. No payment was made subsequent
to this, and Mr
Fitzgerald commenced the winding-up proceedings.
33.
In terms of
section
345(1)(a)
a company will be deemed to be unable to pay its debt if a
demand is made in accordance with the section for the repayment of
the
debt and the company for three weeks thereafter has neglected to
pay the sum demanded or to secure or compound the debt to the
reasonable satisfaction of the creditor. The company
respondents did not pay the debt in response to the
section 345
demand letters, and accordingly they must be deemed to be unable to
pay them.
34.
The respondents
submitted that despite this, I should exercise my discretion to
refuse to order their winding up. They submitted
that they had
made a financial turnaround, they were now in a healthy financial
position, and they were able to pay their day-to-
day creditors.
This is disputed by Mr Fitzgerald.
35.
An
unpaid creditor who cannot obtain payment and who brings his claim
within the Act is, as against the company, entitled
ex
debito justitiae
to a winding-up order and is not bound to give the company time to
pay.
[9]
In
these circumstances, the discretion of a court to refuse a winding up
is a very narrow one.
[10]
36.
Bearing this in mind,
in my view there are no substantial reasons for me to exercise my
discretion to refuse Mr Fitzgerald’s
application. On the
respondents’ own version, they do not have sufficient
retainable income at this stage to pay Mr
Fitzgerald’s debt,
even though they say they hope to be able to do so at some point in
the future.
37.
Finally, there is no
dispute that Mr Fitzgerald has complied with the statutory
formalities required for a winding-up order.
CONCLUSION
38.
For all the above
reasons, I make the following order:
38.1. Each of the above
mentioned respondents is hereby placed under provisional winding up;
38.2. All persons who
have a legitimate interest are called upon to put forward their
reasons why this court should not order the
final winding up of the
respondent on the 11
th
February 2019 at 10h00 am or so
soon thereafter as the matter may be heard;
38.3.
A copy of this order must be served on the respondents at their
registered office;
38.4. A copy of the order
must be published forthwith once in the Government Gazette;
38.5. A copy of this
order must be forthwith forwarded to each known creditor by prepaid
registered post or by electronically receipted
telefax transmission;
38.6. A copy of the
provisional winding-up order must be served on;-
a)
Every affected trade
union;
b)
The employees of the
respondent by affixing a copy of the application to any notice board
to which the employees have access inside
the respondent’s
premises, or if there is no access to the premises by the employees,
by affixing a copy to the front gate,
where applicable, failing which
to the front door of the premises from which the debtor conducted any
business at the time of the
presentation of the application;
c)
The South African
Revenue Services; and
d)
The respondents.
_______________________
R
M, KEIGHTLEY
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA,
GAUTENG
LOCAL DIVISION, JOHANNESBURG
DATE
OF HEARING: 31 OCTOBER 2018
DATE
OF JUDGMENT: 26 NOVEMBER 2018
APPEARANCES
APPLICANT’S
COUNSEL: A.P ELLIS;
INSTRUCTED
BY: ALLA LEVIN & ASSOCIATES
RESPONDENT’S
COUNSEL: CGVO SEVENSTER
INSTRUCTED
BY: VEZI & DE BEER INCORPORATED
[1]
From the
judgment in
Badenhorst
v Northern Construction Enterprises (Pty) Ltd
1956 (2) SA 346
(T) at 347-8
[2]
See, for
example, Kalil v Decotex (Pty) Ltd & Another
1988 (1) SA 943
(A);
Feshvest
Investments (Pty) Ltd v Marabeng (Pty) Ltd
[2016] ZASCA 168
(24 November 2016);
Trinity
Asset Management (Pty) Ltd v Grindstone Investments
132 (Pty) Ltd 2018 (1) SA 94 (CC)
[3]
Kalil
at 980D-F,
cited in, among others,
Feshvest
Investments (Pty) Ltd
at [4]
[4]
Hulse-Reutter
& another v HEG Consulting Enterprises (Pty) Ltd (Lane and Fey
NNO intervening)
1998 (2) SA
208
(C) at 219E-20A, cited in
Freshvest
Investments
,
above, at [6]
[5]
See
Henochsberg on the
Companies Act, 71 of 2008
[Issue 15] Vol 2
APPI-48
[6]
In a
supplementary reply to this affidavit, Mr Fitzgerald disputed these
averments, asserting that the financials reflect a company
with a
declining turnover; declining stock levels and declining cash.
[7]
2018 (4) SA 473
(GJ)
[8]
At para
[44]. The court cited the case of
Radebe
and Others v Eastern Transvaal Development Board
1988 (2) SA 785
(A) at 793C – G
for
the trite principle referred to in its dictum.
[9]
See
Henochsberg, above at APPI-56 and the cases cited there.
[10]
Sammel
and Others v President Brand Gold Mining Co Ltd
1969 (3) SA
629
(A) at 662