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[2016] ZAKZDHC 34
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Air Tratment Engineering And Maintanance CC v Pac-Con Pharmaceuticals (3394/2014) [2016] ZAKZDHC 34 (25 July 2016)
OFFICE
OF THE CHIEF JUSTICE
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
LOCAL DIVISION, DURBAN
CASE
NO: 3394/2014
DATE:
25 JULY 2016
In
the matter between:
AIR
TREATMENT ENGINEERING
AND
MAINTENANCE
CC
...............................................................................................
APPLICANT
And
PAC-CON
PHARMACEUTICALS
..............................................................................
RESPONDENT
JUDGMENT
Date
Delivered: 25 July
2016
MASIPA
J:
Introduction
[1]
This is an application for the winding up of the respondent in terms
of section 344(f) read with section 345(1)(a) of the Companies
Act 61
of 1973 (the old Act). The application was filed on 27 March 2012. In
its application papers, the applicant avers that the
respondent is
indebted to it in the amount of R756 430.37 for work done and
materials supplied to the respondent at its special
instance and
request during January to July 2010.
[2]
The applicant and respondent concluded a contract for the
installation of air-conditioning equipment in the total amount of
R2 401 240.00. The applicant contends that it was a term of
the agreement that payment would be made within 30 days of
invoicing.
The respondent denies this and contends that periodic payments were
to be made as the work progressed and final the
final amount of the
contract would be paid upon approval of the Department of Trade and
Industry (the DTI). Payment by the DTI
was to be effected once the
air-conditioning units was complete.
[3]
The applicant issued various invoices to the respondent to the total
value of R1 689 297.89 between 15 June 2010 and
30 August
2010. An amount of R932 867.52 was paid leaving the balance of
R756430.37. The respondent disputes that the value
of the completed
work in R 756 430.37 as stated.
[4]
The applicant avers that on 24 December 2010, it sent a letter of
demand to the respondent. Pursuant to this, the respondent
issued
four post-dated cheques to the applicant. The first of the four
cheques was presented for payment on 4 May 2010 and was
dishonoured
marked ‘stopped’. The applicant contends that it sent
another letter of demand on 12 July 2011 demanding
payment of the
full amount due. The respondent denies this and contends that the
letter was sent to an incorrect postal address.
It was sent to BDO
House, 1 Ridgeside Office Park, Umhlanga, 4319 while the correct
address is P O Box 47, La Lucia, 4153. In view
of this, the
respondent denied that the letter served as a demand as contemplated
in section 345(1)(a) of the old Act.
[5]
The letter advised the respondent of the sum owing, due and payable,
that if it failed to effect payment within three weeks
from date of
service of the letter or failed to compound the said sum to the
reasonable satisfaction of the applicant it would
be deemed unable to
pay its debts and an application would be made to court for the
respondent’s winding up in terms of section
344(f) of the Act.
The applicant contends that the respondent failed to pay the amount
owing or to secure or compound in. The respondent
deny that it failed
to compound the debt subsequent to the letter and aver that payment
in the amount of R50 000.00 was made.
Further that a dispute
arose following the compounding of the debt which led to a commercial
dispute between the parties. The respondent
contends that instead of
the applicant suing on the amount it believes is due, it elected to
pursue inappropriate liquidation proceedings.
[6]
The applicant averred in its founding affidavit that security
required in terms of section 346(3) of the old Act shall be filed
prior to the filing of the application. Further, that it would ensure
that a copy of the application papers are served with the
master of
the High court in terms of section 346(4) of the Old Act. It averred
further that it was unable to ascertain whether
any employees are
members of a trade union and would ensure that a copy of the papers
were served on the South African Revenue
Services as required in
section 346((4A)(a) of the old Act. The respondent denied any
compliance with the requirements set out
for a winding up
application. It further stated that its defences and opposition to
the application were limited to the application
being based on the
old Act. The respondent indicated that it no longer persisted with
the issues regarding the non-compliance with
the formality to the
provide security.
[7]
The respondent contends that the application for provisional or final
liquidation falls to be dismissed as the applicant misunderstood
the
effect of the new Companies Act 71 of 2008 (the new Act) in respect
of liquidation applications. This is because the application
was
premised on the following:
1.
That the applicant served a demand as
envisaged in section 345(1) of the old Act;
2.
That the respondent is therefore deemed
unable to pay its debts having failed to pay or secure or compound
the debt to the reasonable
satisfaction of the creditor within 3
weeks as provided for in section 345;
3.
The respondent should consequently be wound
up for being unable to pay its debts in accordance with section
344(f).
[8]
The second point in limine was that the application failed to
disclose a cause of action since the respondent was solvent and
the
new Act applied to liquidations of solvent companies while the old
Act continued to apply to insolvent companies. The respondent
met the
solvency and liquidity test provided for in the new Act. In
Boschpoort Ondernemings (Pty) Ltd v ABSA
Bank Ltd
2014 (2) SA 518
(SCA) the
court set out the distinction between commercial insolvency and
solvent company. Since the applicant relied on the provisions
of
section 344 and 346 of the old Act, it was required to demonstrate
that the respondent was insolvent which it had not done.
[9]
In terms of the new Act, the legal position is
inter
alia
that a distinction is made between
a solvent and an insolvent company. The old Act applies to insolvent
companies while the new
Act is applicable to solvent companies. It
was contended that the applicant in its founding papers had not
relied on or alleged
that the respondent is insolvent. In fact, so
argued the respondent, it is solvent and therefore any liquidation
proceedings would
have to be brought under the new Act. Further that
the solvency and liquidity test was set out in section 4 of the new
Act and
the respondent meets both the liquidity and the solvency
test. The respondent contended that since there was no allegation of
insolvency,
it would not elaborate on it. The applicant denied
this and contends that the respondent misinterpreted the relevant
provisions
of the old and the new Acts. It contended further that the
respondent was insolvent and was aware of default judgment being
granted
against the respondent on 31 July 2012 which remained unpaid.
It referred to other outstanding payments which the respondent failed
to pay.
[10]
The applicability of section 344 to solvent companies is excluded, it
follows therefore that in order for the applicant to
succeed in its
claim, it must show that the respondent is commercially insolvent
i.e. that it is in a state of illiquidity which
results in its
inability to pay its debts. In its founding affidavit,
the applicant only stated that the respondent
failed to pay its debt
but did not allege that it was commercially insolvent. Mr
Topping
for the applicant argued that it must
be inferred that if one has money they would pay their debts. The
fact that the respondent
failed to pay its debts therefore proves
commercial insolvency. As part of the respondent’s defence, Mr
Marais
submitted
that the respondent disputed the correctness of the amount it was
invoiced for on the basis that the final payment was
due upon
completion of the service required. Mr
Marais
’
argument was therefore that in view of the dispute regarding the
actual amount due, the applicant could and should refer
its claim for
determination by a court and that liquidation is not the proper
process to follow.
[11]
The respondent averred further that the applicant was not entitled on
the relief sought even on the old Act. This was because
the letter
relied upon by the applicant as a demand and therefore its
causa
is dated 12 July 2011. Subsequent to
the letter being sent, a meeting was held between the applicant’s
and respondent’s
representatives where is was agreed that the
respondent would pay to the applicant monthly payments of R200 000,
outstanding
work on the property would be completed, the total amount
due would be agreed later.
[12]
The respondent contends that the applicant failed to disclose this to
the court. For section 345 of the old Act to become effective,
the
applicant must compound a debt i.e. come to agreement with the
creditor. Since this was not done, a new letter would have to
be sent
until this was done, the deeming provision in terms of the old Act
would not apply. The applicant agreed that an agreement
was concluded
during January 2012. It was agreed that the entire amount would
remain due, owing and payable if one instalment was
not met. A single
payment of R50 000 was made before the meeting. The applicant
denied that the debt was ever secure or compounded
to the reasonable
satisfaction of the applicant. The issue of the claim being
compounded was withdrawn during argument.
[13]
A further point raised by the respondent was that it is the court and
not the applicant that winds up a company in terms of
section 344.
This being so, it contended that the court should not grant the
relief since the relief sought was drastic and would
affect many
innocent people while there are other legal means which the applicant
could rely on to enforce its alleged rights.
The applicant avers that
the respondent in its answering affidavit admitted its indebtedness
to it but contests the correctness
of the amount claimed. An
inference could be drawn from the respondent’s failure to pay
its creditors that it is commercially
insolvent.
Points
In Limine
[14]
The respondent in its written and oral submissions raised several
points
in limine.
The
New Evidence
[15]
The first point
in limine
raised was that the applicant having failed to make out a case in its
founding affidavit, sought to make out a case in its replying
affidavit. Mr
Marais
argument which was correctly conceded by Mr
Topping
,
it is trite that a party must make out its case in its founding
affidavit. The application was exclusively based on section 344(f)
of
the old Act providing for the court to wind up a company if the
company is unable to pay its debts as described in section 345.
The
introduction of the applicability of the deeming provision in Section
345(1)(b) and (c) introduced new issues in an endeavour
to
demonstrate commercial insolvency. Paragraphs 7(c), 7(d) and 7(e) to
the applicant’s replying affidavit falls to be struck
off and
are struck off.
The
Absence of the Cause of Action
[16]
The second point
in limine
was that the application failed to disclose the cause of action since
the respondent was solvent and it is the new Act that applies
to
liquidations of solvent companies while the old Act continued to
apply to insolvent companies. The respondent met the solvency
and
liquidity test provided for in the new Act. Since the applicant
relied on the provisions of section 344 and 346 of the old
Act, it
was required to demonstrate that the respondent was solvent which it
had not done. It was argued that the applicant relied
on an incorrect
cause of action and failed to present evidence.
[17]
It is common cause that the application is based on the provisions of
section 344(f) read with 345(1)(a) of the Companies Act
1973 (the old
Act) .
[18]
As submitted by the Respondent, Section 9(1) of the Companies Act,
2008, (the new Act) provides that Chapter 14 of the old
Act continues
to apply with respect to winding-up or liquidations of companies as
if the old Act had never been repealed.
Despite this provision,
section 9(2) excludes the application of sections 343, 344, 346, and
348 to 353 in instances where the
winding-up is for a solvent company
except to the extent necessary to give effect to the provisions of
Part G of Chapter 2.
[19]
Section 344 of the old Act does not apply to solvent companies. In
order for the applicant to succeed in its claim, it must
show that
the respondent is commercially insolvent i.e. that it is in a state
of illiquidity which results in its inability to
pay its debts.
The only statement by the applicant in its founding affidavit was
that the respondent failed to pay
its debt. There was no allegation
that it was commercially insolvent. Mr
Topping
for the applicant argued that it must
be inferred that if one has money they would pay their debts and the
fact that the respondent
failed to pay its debts therefore proves
commercial insolvency. While in the ordinary course this inference is
reasonable, the
respondent in its answering affidavit disputed the
correctness of the amount of R756 430.37 as owing due and
payable. The
Respondent contended further that it was invoiced for on
the basis that the final payment was due upon completion of the
service
required.
[20]
The respondent’s argument was therefore that in view of the
dispute regarding the actual amount due, the applicant could
and
should refer its claim for determination by a court and that
liquidation is not the proper process to follow. In order for
the
court to arrive at a conclusion that the respondent is insolvent, it
must be satisfied that the applicant has proven that the
respondent
is unable to pay its debts. From the facts presented in this case, it
cannot be concluded that the respondent is unable
to pay its debts
since in its opposition to the application the respondent has
disputed the amount and the also placed in dispute
that the amount is
due and payable. As correctly argued by Mr
Marais
,
liquidation proceedings are not competent to determine the amount due
to the applicant. The applicant failed to make out a case
of
commercial insolvency as provided for in Section 344(f) of the old
Act read with Section 9(1) of the new Act. This point
in
limine
therefore succeeds.
The
Prescription
[21]
The third point was that the application had prescribed. The
submission in this regard is that the applicant became aware of
the
debt of 24 December 2010 and issued post-dated cheques which may have
interrupted prescription until 4 September 2011. It was
submitted
that an email dated 30 January 2012 may have also extended the
applicability of prescription further and so did the applicant’s
court application dated 4 May 2012. This would mean that the three
year period for prescription started running on 4 May 2012 and
the
period has since passed.
[22]
It was argued that an application for liquidation is not a legal
proceeding for the enforcement of a right relating to a debt
owed by
the applicant as contemplated by section 6(1)(b) of the Prescription
Act. In this regard, the respondent relied on
Misnun’s
Hailbron Roller Mills Holdings (Pty) Ltd v Nobel Street Central
Investments (Pty) Ltd
1979 (2) SA 1127
(W) and Meskin et al
Henochsburg on the
Companies Act
(volume
1) at 692. In
view of this, it was submitted that a sequestration application did
not interrupt prescription. In
Collier v
Redler and Another
1923 AD 640
at 643
Solomon JA relying on
Gillingham v
Transvaalsche Koelkamers
1908 TS 964
stated that a suit or action is a legal proceeding where one party
sues something from the other. To sue is to bring action demanding
something being either for a declarator or an order that the opposing
party does something or give something to the plaintiff.
See also
Prudential Shippers SA Ltd v Tempest
Clothing Co (Pty) Ltd
and
others
1976 (2) SA 856
(W) and
WP
Koöperative Bpk v Louw
1995 (4) SA
978
(C).
[23]
The respondent argued that the claim has prescribed in terms of
section 10
and
11
of the
Prescription Act, 1969
. The respondent
relied on
Meskin: Insolvency Law
at 2-3,
Jhatam & Others v Jhatam
1958 (4) SA 36
(N) and
Louw
at 986-987 to support their submission
that where a claim has prescribed, sequestration proceedings must
fail once prescription
is successfully pleaded and that the court
should refuse such application since the claim will not be proven in
the sequestration.
The respondent argued that the applicant no longer
qualified as a creditor in terms of
section 345(1)(a)
of the old Act.
The Respondent argued further that the court should exercise its
discretion to refuse the winding up even where
prescription was not
raised as a defence where
prima facie
the debt has prescribed.
[24]
In
Minister of Justice &
Constitutional Development v Mathobela & others
(1185/05)
[2007] ZANWHC 5
(25 January 2007) which was followed in
Technikon
Pretoria (Now Tshwane University of Technology) v Nel NO & others
[2011] JOL 27827
(LC), the court after having regard to the
provisions of
section 17
of the
Prescription Act, 1969
, found that
the requirement that a party to a suit raising prescription shall do
so in the pleadings is peremptory and that this
was intended by
section 14
of the
Prescription Act. See
also
Living
Hands (Pty) Ltd and Another v Ditz and others
2013
(2) SA 368
(GSJ)
.
It
is apparent from the pleadings that this was not raised. A reading of
Henochsburg
also suggests that it is a condition precedent that the issue of
prescription should be raised in the pleadings before the court
can
determine the application of prescription in any suit.
[25]
Mr
Topping
correctly argued that the issue of prescription should be raised in
the pleadings and that the respondent failed to do this. The
contention that the claim prescribed is therefore not an issue before
court. It is trite that for a court to consider prescription,
it must
be pleaded or raised as a defence. Prescription cannot be raised for
the first time in court. While it is correct that
liquidation
proceedings do not interrupt prescription, the respondent failed to
raise this in its pleadings. In view of this, the
point in limine is
dismissed.
The
Compounding
[26]
The fourth point raised by the respondent is that
section 345(1)(a)
allows a creditor to apply for a winding up order only after three
weeks following a demand, if the company neglects to pay the
sum or
secures or compounds it to the reasonable satisfaction of the debtor.
The phrase ‘compound to it’ being defined
as concluding
an agreement in terms of which the claim is to be discharged.
(
Henochsberg
at 709 and
Ottawa Rhodesia (Pty) Ltd v
Burger
1975 (1) SA 462
(R).) It
submitted that compounding occurred on 1 November 2011 following from
which payment in the amount of R50 000. It
can be inferred from
a reading of the applicant’s papers that the agreement was
concluded on 20 January 2012 with certain
conditions not complied
with by the respondent. It was agreed that the entire debt would
remain owing due and payable if one instalment
was not paid. The
respondent withdrew the compounding point
in
limine
.
The
Stale Proceedings
[27]
The fifth point
in limine
was
that the application was more than three years old having been issued
on 29 March 2012. The founding affidavit explained the
facts prior to
26 March 2012. The last affidavit in the matter was filed on 12
February 2012. As the application related to status,
the applicant
should not be allowed to rely on facts that are more than three years
old. This is because commercial solvency is
in nature not static. The
initial facts relied on may have changed. The determination of a
winding up order requires a consideration
of the company’s
financial status at the relevant time.
[28]
Liquidation applications are in their nature urgent. In view of the
nature of the application and the fact that it is based
on the
company’s financial position at the relevant time, it is
essential that these proceedings are dealt with and finalised
within
a reasonable time. This is because of the frequency within which a
company’s financial position changes. Any delay
in instance
where a company is insolvent may be to the detriment of creditors. In
some instances, a company which was insolvent
may have become solvent
at the time when the application is dealt with. In view of this, the
court must be loath to deal with and
grant order in liquidation
applications that have not been dealt with and finalised within a
reasonable period.
[29]
There are several formalities which are to be met when bringing a
liquidation application. Amongst others is that employees
of the
company must be served with the application papers. Where an
application is only heard three years after it was filed, it
is
highly probable that the company would have changed or replaced some
of its employees. The effect is that some of the new employees
would
not be aware of the application and could be prejudiced by any
liquidation court order granted. The requirement that employees
be
served was intended to protect the interest of employees as provided
for in
Section 197
of the
Labour Relations Act 66 of 1995
, as
amended.
[30]
I therefore agree with the respondent that the applicant should not
be allowed to rely on facts that are more than three years
old and
find that this application is stale. This point
in
limine
is therefore upheld.
The
Exceptio
[31]
The sixth point was that of
exceptio.
In
this regard, it was argued that it would be inappropriate to grant an
order for winding up where there is a risk that the winding
up
proceedings are commenced to enforce payment of a disputed debt. The
respondent submitted that on the applicant’s version,
the
project was incomplete. The respondent’s defence is that in
terms of the agreement, the final contract price was to be
effected
once the commissioning of the air conditioning units was complete.
Progress payments had to be equal to the value of the
work completed
and that the work completed did not result to the amount claimed. The
claim was therefore
bona fide
disputed,
and in such instances, the court should dismiss the application. See
Exploitatie-en
Beleggingsmaatschppij Argonauten 11 BV and another v Honig
2012
(1) SA 247
(SCA).
[32]
As
Henochsberg
states at page 694(1), winding up proceedings must not be used a
means to enforce payment of a debt which is bona fide disputed.
(See:
Badenhorst v Northern Construction
Enterprises (Pty) Ltd
1956 (2) SA 346
(T) at 347-348). In
Mann and another v
Goldstein and another
[1968] 2 All ER
769
(Ch) the court held that even if it appears that a complaint is
unable to pay its debts, a winding up application must fail where
the
debt is disputed. In this regard the respondent’s point
in
limine
is upheld.
The
Formalities
[33]
The seventh point
in limine
related
to the formalities in respect of a winding up application. The
Respondent submitted that security must be given before the
application is served and filed and a certificate must accompany the
application. Secondly that service on South African Revenue
Service
is peremptory. Also, it is peremptory that service be effected on
employees of the company. The applicant undertook to
file security
prior to the hearing of the application but failed to demonstrate
whether this has been done. The applicant undertook
to serve a copy
of the application papers on SARS and the company employees but
failed to file proof of compliance except for old
service on
employees. Counsel advised that this point was not persisted with. I
will therefore not consider this point.
[34]
The basis upon which the respondent succeeds was raised in its
answering affidavit. Despite this, the applicant persisted with
its
application causing the respondent to incur unnecessary costs. I see
no reason why I should deviate from the norm that costs
follow the
result.
[35]
In the result, the following order is made:
1.
The respondent’s points
in
limine
raised and pursued in argument
are upheld.
2.
The applicant’s application is
refused.
3.
The applicant is to pay the respondent’s
costs including costs for senior Counsel.
MASIPA
J
APPEARANCES
:
For
the Applicant: Adv. I Topping SC
Instructed
by: Livingston Leandy Incorporated
For
the Respondent: Adv. J
Marais
SC
Instructed
by: Johan Oberholzer & Co
Matter
heard on: 12 February 2016
Judgment
delivered on: 25 July 2016