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[2016] ZAGPPHC 615
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Motor Industry Bargaining Council v Botha and Another (34198/2013) [2016] ZAGPPHC 615 (10 June 2016)
SAFLII
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Certain
personal/private details of parties or witnesses have been
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SAFLII
Policy
IN THE
HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
CASE
NO,: 34198/2013
DATE:10/6/2016
In the matter between:
MOTOR INDUSTRY
BARGAINING
COUNCIL Plaintiff
and
R F
BOTHA First
defendant
(ID:4…)
R F
BOTHA Second
defendant
(ID: 7…)
JUDGMENT
VAN DER
WESTHUIZEN, A J
1.
The plaintiff is the MOTOR INDUSTRY BARGAINING COUNCIL, duly
registered in the office of the Registrar of Labour Relations in
terms of
section 29(15)(a)
of the
Labour Relations Act, No. 66 of
1995
, as amended, (the Act).
2.
The first defendant is Roelof Frederik Botha, a qualified chartered
accountant and former director of Wildcat Performance Exhausts
(Pty)
Ltd, registration number 2000/000492/07 (the Company).
3.
The second defendant is Roelof Federik Botha, the son of the first
defendant and former director of the Company.
4.
The plaintiff instituted action proceedings against the defendants in
their capacities as erstwhile directors of the Company
in respect of
unpaid statutory obligatory deductions as prescribed in the
Collective Agreement referred to below.
5.
It is common cause that:
(a)
The first and second defendants were the active directors of the
Company since 2000, the date of registration of the Company,
until 16
October 2012;
(b)
In terms of
section 32
of the Act, collective agreements were
concluded and were declared to be binding upon all employers and
employees in the motor
industry;
(c)
The Company was registered with the plaintiff in terms of the
appropriate Collective Agreement, as it was obliged to do.
(d)
The Company was voluntary liquidated by special resolution on 16
October 2012;
6.
The aforesaid collective agreements included:
(a)
A Main Collective Agreement;
(b)
An Administrative Collective Agreement;
(c)
An Autoworkers Provident Fund Collective Agreement; and
(d)
A Mibco Auto Workers Provident Fund Collective Agreement.
7.
The Company was further obliged in terms of the Collective
Agreements, unless specifically exempted by the plaintiff, to make
certain contributions and to deduct from the employees' salaries,
certain amounts of money towards the employees provident funds.
The
Company was not exempted. The Company was to pay the amounts over to
the plaintiff, as well as the plaintiff’s levies,
on a monthly
basis on/or before a certain date.
8.
It is further common cause that the Company failed to make the
required payments to the plaintiff as an when it was obliged to
do
so. Consequently, arbitration awards were made against the Company in
that regard. In total seven arbitration awards were made
against the
Company over the period 2009 to 2012. None of the awards were opposed
by the Company and the Company consented to an
award made on 10
October 2010.
9.
It is also common cause that the Company never complied with the
aforesaid awards and made no payments in respect thereof.
10.
The defendants do not dispute that in terms of the aforementioned
awards, the Company, as at 16 October 2012, was indebted to
the
plaintiff in an amount of R1 512 336.60.
11.
The proceedings instituted against the defendants for payment of the
aforesaid amounts are in terms of the provisions of section
424 of
the Companies Act, No. 61 of 1973 (the repealed Act), alternatively
in terms of section 218(2) read with section 22(1) of
the Companies
Act, no. 71 of 2008 (the Act) and further in the alternative in terms
of section 20(9) of the Act.
12.
In their defence against the plaintiff’s claims, the defendants
raised a special plea of prescription in respect of some
of the
awards. Its defence on the merits related mainly to a denial that the
defendants had recklessly or fraudulently carried
on the business of
the Company. The defendants alleged that the Company was unable to
sustain itself in a financially viable manner
due to trading losses
it suffered. The defendants further averred that due to the adverse
financial position of the Company, it
was unable to pay its debts and
thus it was voluntarily liquidated on 16 October 2012.
13.
Before dealing with the question of whether the plaintiffs claim as
pleaded falls to be decided under the provisions of section
424 of
the repealed Act or under section 218 read with section 22 of the
Act, it is necessary to set out the relevant facts.
14.
The crux of the matter relates to the Company's failure to pay over
the statutory obliged deductions and the alleged reasons
for not
complying with its obligations in that regard.
15.
The reasons advanced by the defendants in their evidence in respect
of the failure to pay over the obligatory deductions, are
varied and
contradictory.
16.
Initially, the first defendant stated that the reason for not paying
over the obligatory deductions to the plaintiff was that
the Company
had experienced cash flow problems.
17.
The company, so testified the first defendant, had chosen to pay the
more pressing creditors to enable it to keep its doors
open and in an
attempt to trade out of its poor financial position.
18.
The first defendant further testified that, although the obligatory
deductions were shown in the Company's books, it was in
actual fact
not deducted, as there were insufficient funds available. The
employees were merely paid their nett salary. In other
words, there
were no deducted monies to be paid over.
19.
Mr. Botha senior, the first defendant, further stated in his
explanation that the monies meant to be paid over to the plaintiff,
i.e. the deductions, were "loaned" from the plaintiff to
expand the business of the Company. This evidence implies that
there
were in fact sufficient funds to pay over, but that the plaintiff
unknowingly assisted the Company to expand its business.
He conceded
that the plaintiff was oblivious of such "loans". This
evidence is contradictory to his earlier evidence
that there were
merely "insufficient" funds. The first defendant's
explanation that it was necessary to expand the business
of the
Company did not explain how that would assist the Company.
20.
The first defendant testified that the intention was at all times to
pay the unpaid creditors, however only once the Company
was
financially able to do so. In this regard, Mr. Botha senior conceded
that the Company at first never paid its dues in respect
of SARS and
the UIF, until it was caught out. Only then did the Company pay those
due or the agreed amounts. That approach is difficult
to reconcile
with an intention to pay, once the Company was in a financial
position to pay unpaid creditors. The Company simply
had no intention
to pay the unpaid creditors, until steps were taken to enforce their
rights in that respect.
21.
Mr. Botha senior further testified that whenever the plaintiff sought
to enforce payment of the monies due to it, the Company
would seek
leniency in that regard by pacifying the plaintiff in alleging that
the Company would soon make payment. In this regard,
counsel for the
defendants submitted that such approach was acceptable business
practice and evidence of an intention to pay the
plaintiff.
22.
However, the numerous arbitration awards granted against the Company
that remained unpaid since 2009, gainsays such an intention.
There
was a deliberate intention not to pay the plaintiff. This is evident
from what follows.
23.
The Company never responded to any of the notices of arbitration
proceedings (bar the proceedings of 10 October 2012) nor to
any of
the awards. Counsel for the defendants submitted that such conduct
indicated that the Company acknowledged that it was obliged
to pay
the dues. There is no merit in that submission. That submission by
counsel is no support of a view that the Company at all
times
intended to pay its creditors.
24.
On behalf of the Company, the second defendant attended the
arbitration proceedings on 10 October 2012. Mr. Botha junior
consented
to the award that was made on that day. This consent was
made with full knowledge that the Company had ceased to trade, at the
latest on 30 September 2012, and that a decision had been taken to
voluntary liquidate the Company. The voluntary liquidation occurred
on 16 October 2012, a mere six days after the consent to the
arbitration award on 10 October 2012. It was clear that the Company
had no intention to pay the plaintiff.
25.
Mr. Botha junior faintly testified that he had advised the plaintiff
and the arbitrator on 10 October 2012 of the fact that
the Company
had ceased to trade by 30 September 2012. It is glaring that that
evidence was not put to the plaintiff's witness who
testified that he
was present at the arbitration proceedings on 10 October 2012. The
veracity of Mr. Botha's evidence in that regard
could not be tested
and is rejected.
26.
The second defendant further testified that no decision was ever
taken to not pay a creditor. He testified that the decision
was taken
in respect of which creditor should be paid. This implies that a
decision was taken not to pay other creditors despite
their
entitlement to payment.
27.
In this regard, it is telling that the landlord was not paid which
inevitably resulted in the "lock-out" of the Company
from
the premises. One would have thought that a landlord would be a
"pressing" creditor, for without premises, the Company
would not be able to trade. The non-payment in respect of the
landlord is indicative of a decision not to pay.
28.
The defendants were hard pressed to explain why, when financial
assistance was obtained from the Frik Botha Familie Trust, the
creditors were not paid when the indebtedness to them fell due. The
explanation that it was important to expand the business of
the
Company is more a ruse than an indication of an intention to
"eventually" pay the creditors. It is clear the Company
was
unable to pay its debts as and when such fell due. Regardless of the
Company's inability to pay its debts, the business of
the Company was
being extended. According to the evidence of Mr. Botha, the expanding
of the Company's business extended since
its inception.
29.
From the first defendant's evidence, it is clear that since its
inception the Company was unable to pay its debts as and when
such
fell due. The submission by counsel for the defendants that what in
fact occurred was preference of a creditor over another,
is without
merit. There were deliberate decisions and an intention not to pay
all the Company's creditors.
30.
The concession that the company had "loaned" the obligatory
deductions from the plaintiff to expand the business of
the Company
clearly indicates that there was no intention to pay the plaintiff
its dues.
31.
Further in this regard, it is telling that when there was unhappiness
on the part of the employees in respect of the non-payment
to the
plaintiff of the deductions made, they were pacified by being
directly paid by the Company. The explanation that, had those
monies
been paid over to the plaintiff, it would "go into the pool"
and the employee would not receive it when claimed,
is a further
indication that there never was any intention to pay the monies over
to the plaintiff. The Company would merely pay
those amounts when
claimed by the employees.
32.
The defendants admit that, in the books of the Company, the
impression is created that the obligatory deductions were in fact
made. This impression is further supported when regard is had to the
salary payslips of the employees. Mr. Zwane, an employee of
the
Company, testified in respect of the payslips. He testified that it
was indicated on the payslips that there had been a deduction
of the
Autoworkers provident fund. It could be gleaned therefrom, in
particular with reference to the deductions relating to the
provident
fund, that the deductions were in fact made.
33.
Mr. Zwane further testified that on enquiry at the plaintiff, the
plaintiff apparently had not received such deductions. Mr.
Zwane
testified that at no stage were the employees advised that the
deductions in respect of the provident funds were not being
paid over
to the plaintiff and for what reason it was not so paid over. Mr.
Zwane was adamant that no explanation was forthcoming.
34.
Only when the second defendant was confronted by the employees in
that regard, was it admitted that the provident deductions
were not
paid to the plaintiff. The second defendant confirmed that when being
confronted by the employees about the non-payment
to the plaintiff,
he merely admitted that fact and did not explain to them the effect
thereof on the employees and their rights
in that regard.
35.
The defendants did not deny that when the plaintiffs officials
visited the Company in order to reconcile the deductions made
in
respect of the salaries of the Company's employees and the monies
paid over to the plaintiff, those officials were
inter alia
privy
to the payslips of the Company's employees. I have already dealt with
what those payslips reflect.
36.
Not only were the Company's employees induced to accept that the
monies were in fact deducted, but also the said officials of
the
plaintiff.
37.
Mr. Botha senior was at a loss explain why the monies advanced by the
Trust could not be utilised to pay the Company's debt
toward the
plaintiff.
38.
The first defendant attempted to rely on preliminary discussions
entered into with the Midas Group during the middle of 2012.
Those
discussions were with a view of supplying the Company's products to
the Midas Group outlets. According to Mr. Botha senior
those
discussions were undertaken to enable the Company to trade out of its
hopeless financial position.
39.
However, it is clear from Mr. Botha's evidence that those discussions
were in its infancy and much had to happen before serious
negotiations would ensue. The first hurdle that the Company had to
overcome was its incapability of achieving the demand set by
the
Midas Group in respect the required volume of products. The target
was way beyond what the Company could handle. Mr. Botha
senior
conceded that the Company was obliged to undergo a financial
restructuring before it could address the demand set. Only
once that
could be achieved, would serious negotiations ensue. It was no quick
fix.
40.
The conduct of the landlord referred to above that led to the closure
of the Company's business and the subsequent voluntary
liquidation,
put paid to that dream.
41.
On the evidence of Mr. Botha junior, it is clear that the Company's
employees were dismissed a week before 30 September 2012,
the date
set by the landlord for the Company to evacuate the premises. The
defendants were acutely aware that the company would
not trade after
30 September 2012.
42.
The defendants' assertion that the value of the Company's assets were
sufficient to cover the Company's debt owed to the plaintiff
should
the plaintiff have enforced its rights at any time, is of no
consequence as the defendants were astute to point out that
should
any creditor of the Company attach the Company's assets and sell it
in execution to satisfy the Company's indebtedness to
that creditor,
the Company would not be able to trade further. The second defendant
testified that, had the plaintiff attached
the Company's assets and
sold them in execution, the inevitable result would have arisen that
arose due to the landlord's actions.
43.
The reasons offered by the defendants for the voluntary liquidation
of the Company, namely that it was purely due to the poor
financial
position of the Company, is only a half-truth. It is not reconcilable
with the objective facts dealt with above. If the
Company had at all
times the intention to pay its creditors, and in particular the
plaintiff as suggested by the defendants, it
does not follow why:
(a)
the plaintiff is not told on 10 October 2016 that the Company had
been locked out of its trading premises;
(b)
that its work force had been dismissed;
(c)
that the Company would not trade after 30 September 2012; and
(d)
that the Company would enter into voluntary liquidation.
Yet
the Company consents to an arbitration award it has no intention to
pay.
44.
Subsequent to the voluntary liquidation of the Company in October
2012, a liquidator was appointed in February 2013.
45.
However, the landlord of the premises upon which the Company
conducted its business had arranged a sale in execution of the
Company assets that was held during January 2013. The first defendant
testified that the landlord had sold the Company's assets
as scrap
metal. Those assets mainly consisted of the manufacturing equipment
used in the conduct of the Company's business. In
this regard, the
defendant's evidence that the value of the Company assets were
sufficient to defray the Company's indebtedness
to the plaintiff is
in stark contrast with the assets being sold as scrap metal.
46.
Despite indicating to the plaintiff that no financial documents
relating to the Company were available as these were held at
the
trading premises of the Company and were lost and/or destroyed as a
result of the lock-out by the landlord, some financial
documents
miraculously appeared and were made available to the plaintiff, eight
days prior to the commencement of this trial.
47.
The defendants sought to rely upon those document to show that the
Company was in fact growing as the "sales were up"
every
year. That alleged "growth" did not reflect well on the
Company's debt profile. The value of the assets of the
Company
reflected in those financial documents mirrored the indebtedness of
the Company to the Trust.
48.
In view of all of the foregoing, the defendants' evidence as to the
manner in which they as directors had conducted the business
of the
Company barely bears scrutiny. The impression is created that the
evidence was carefully presented to avoid a finding of
recklessness
or gross negligence or an inference of fraudulent conduct to be drawn
therefrom.
49.
The objective facts clearly override any purported subjective view of
what was happening in the company. Subjectively, the directors
could
not truly have believed that the Company would trade out of its
financial mess in the manner in which the financial aspects
were
being handled. The reasonable person or business, in the position as
director of the Company, would in the particular circumstances,
not
have held that view. Their
[1]
evidence does not support such finding and is contrary thereto. The
defendants were acutely aware of what the true position was.
Their
evidence in that regard is rejected.
50.
The enquiry in respect of the premise of the plaintiff's claim,
involves a consideration of the provisions of section 424 of
the
repealed Act, section 218(2), read with section 22(1) of the Act and
section 20(9) of the Act.
51.
The plaintiff's reliance upon section 20(9) of the Act can be
summarily dealt with. That section finds application where on
application by any person or in any proceedings in which a company is
involved, the court finds that the incorporation of the company
or
any act on behalf of the company constitutes an unconscionable abuse
of the juristic personality of the company as a separate
entity, a
court may
inter alia
declare that the company is to be deemed
not to be a juristic person.
52.
In casu,
there is no application nor is the Company involved
in any proceedings. Furthermore, on the evidence presented, no
finding as contemplated
in section 20(9) of the Act can be made.
Section 20(9) of the Act simply finds no application.
53.
Mr. Mushet, counsel for the defendants, submitted that section 424 of
the repealed Act finds no application in the present matter
as that
section had been repealed on 1 May 2011 being the effective date of
the commencement of the current Act. Counsel for the
defendants
further submitted that the action was instituted post the date of
repeal. Plaintiff instituted these proceedings on
3 June 2013. Thus,
counsel for the defendant submitted, section 424 of the repealed Act
does not apply. In this regard, Mr. Mushet
relied on the judgment in
Graney Property Limited et al v Gihwala et al
(1961/10:
12193/11)
[2014] ZAWCHC 97
(26 June 2014). That judgment finds no
application in this matter for what follows.
54.
In terms of the Transitional Arrangements contained in Schedule 5 of
the Act, item 2 thereof provides that pre-existing companies
incorporated under the repealed Act continue to exist under the Act
as if it had been incorporated under the Act.
55.
Item 9 of Schedule 5 of the Act provides that despite the repeal of
the previous
Companies Act, Chapter
14 of the repealed Act continues
to apply in respect of pre-existing companies, but only with
reference to the winding-up and liquidation
of companies under the
current
Companies Act.
56.
It
is common cause that the Company was voluntary liquidated on 16
October 2012 and that a liquidator was appointed during February
2013. It follows that the Company was being wound-up when the present
proceedings were instituted.
57.
The
Graney-matter
dealt with the provisions of Items 10(1) and
13(1)(c) of schedule 5 of the Act, the Transitional Provisions.
58.
It follows that section 424 of the repealed Act applies
in casu.
59.
The plaintiff relies in the alternative on the provisions of section
218(2) of the Act when read with section 22(1). Section
22(1)
provides as follows:
"(1)
A company must not carry on its business recklessly, with gross
negligence, with intent to defraud any person or for any
fraudulent
purpose."
Section
218(2) of the Act provides as follows:
"(2)
Any person who contravenes any provision of this Act is liable to any
other person for any loss or damage suffered by
that person as
a
result of that contravention."
60.
Section 218(2) of the Act provides a general remedy to any person,
including a creditor to sue any person who contravenes any
provision
of the Act for any loss or damage suffered as a result of the
contravention.
[2]
61.
The provisions of the aforementioned sections of the Act are similar
to the provisions of section 424 of the repealed Act and
only differ
where section 218(2) requires the element of causation.
[3]
62.
The Learned authors of
Henochsberg
on the
Companies Act, 71 of 2008
in
their commentary under
section 22(1)
state that the law relating to
section 424
of the repealed Act applies when interpreting section 22
of the Act.
[4]
63.
The aforesaid authors deal with the concepts of recklessness, gross
negligence and intent to defraud when dealing with the provisions
of
section 424 of the repealed Act in the context of decided cases on
the said concepts.
[5]
64.
The non-payment of the obligatory deductions to the plaintiff, and
the apparent use thereof to expand the business of the Company,
clearly constitutes gross negligence on the part of the defendants as
directors of the Company. It was clearly done with disregard
to the
rights of the plaintiff and of the rights of the Company's employees.
It follows that the Company itself was prejudiced
thereby.
65.
The representation on the payslips of the Company's employees that
the statutory obligatory deductions were in fact made was
intentionally made to defraud, not only the employees, but also the
plaintiff.
66.
The directors of the Company, the first and second defendants,
intentionally did not pay creditors as and when the creditors'
entitlement to payment fell due. In not paying over to the plaintiff
the statutory obligatory deductions,
inter alia
those relating
to the
Companies'
employees provident fund, the defendants acted in a reckless
manner.
[6]
67.
It is further clear from the evidence that the conduct of the first
and second defendants resulted in the plaintiff suffering
the loss or
damage complained of.
68.
Accordingly, the provisions of section 218(2), read with section
22(1) of the Act apply.
69.
It follows that the defendants had acted recklessly, with an
intention to defraud, not only the plaintiff, but also the Company's
employees and had acted in a gross negligent manner.
I
grant the following order:
1.
It is declared that the first and second defendants, the erstwhile
directors of Wildcat Performance Exhausts (Pty) Ltd, registration
number 2000/000492/07 (the Company) are personally responsible for
the Companies indebtedness to the plaintiff in the amount of
R1 512
336.60 (One million five hundred and twelve thousand three hundred
and thirty six rand and sixty cents) plus interest thereon
at the
applicable rate from 16 October 2010 to date of payment;
2.
The first and second defendants are to pay to the plaintiff the
amount of R1 512 336.60 (One million five hundred and twelve
thousand
three hundred and thirty six rand and sixty cents), plus interest
thereon at the applicable rate from 16 October 2010
to date of
payment, jointly and severably, the one paying the other to be
absolved;
3.
Costs of suit on the scale as between attorney and own client scale.
---------------------------------------
CJ
VAN DER WESTHUIZEN
ACTING
JUDGE OF THE HIGH COURT
GAUTENG
DIVISION
On
behalf of Plaintiff: A
Greyling
Instructed
by: Lingenfelder
Baloyi Attorneys
On
behalf of Defendant: S
J Mushet
Instructed
by: Klapper
Jonker Inc.
[1]
Fourie
v Newton
[2011]
2 All SA 265
(SCA) [28]
[2]
Sanlam
Capital Markets (Pty) Ltd v Mettle Manco (Pty) Ltd et al
[2014]
3 All SA 454
(GJ) par [40] - [43];
Rabinowitz
v van Graan
2013
(3) SA 315
(GSJ) par [22]
[3]
Rabinowitz
v van Graan
2013
(3) SA 315
(GSJ) par [9] - [10]
[4]
op cit,
at pp
104 - 105
[5]
op cit,
at pp
APPI -296 - APPI - 300
[6]
Ebrahim
et
al
v Airport Cold
Storage
(Ply)
Ltd
2008(6)
SA 585 (SCA) at [15); See also the authorities dealt with in
Henochsberg,
referred
to in footnote 4
supra