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[2016] ZAGPPHC 673
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Steloy Castings (Pty)Ltd and Others v B&K Castings (Pty)Ltd. (49326/2015) [2016] ZAGPPHC 673 (20 July 2016)
REPUBLIC OF SOUTH
AFRICA
HIGH
COURT
OF
SOUTH
AFRICA
(GAUTENG
DIVISION,
PRETORIA)
CASE
NO:49326/2015
DATE:
20 JULY 2016
In
the
matter
between
STELOY
CASTINGS (PTY) LTD First
Applicant
GERT
LOUWRENS STEYN DE
WET N.O
Second
Applicant
FRANZ
SERITHI N.O
Third
Applicant
and
B&K
CASTINGS (PTY) LTD
Respondent
JUDGMENT
MADIMA,
AJ
[1] The
first applicant seeks an order declaring that the acquisition by the
respondent of its assets is void against the creditors
of Bernades &
Kin Foundry CC (in liquidation) ("Bemades & Kin").
Further that the respondent not be deemed to
be a separate legal
entity or in any manner distinguishable from Bernades & Kin, as
well as ancillary relief.
[2]
On 18 May 2016 I made the following order:
1.
It is declared that the acquisition by the respondent of its assets
is void as against the creditors of Bernades & Kin
Foundry CC
(reg no: 2007/254461/23) (in liquidation) and/or B&K Foundry
CC (reg no: 2008/061083/23) (in liquidation}
and that the
respondent shall not be deemed to be a separate legal entity or in
any manner distinguishable from the said close
corporation (in
liquidation).
2.
The second and third applicants are ordered to liquidate and
distribute the estates of Bemades & Kin Foundry CC, B&K
Foundry CC and the respondent
as
one
economic entity.
3. The second and third
applicants, in their capacity as liquidators are authorised to take
control and administer all assets,
books and documents of the
respondent and to distribute and alienate the assets as if it were
the assets of Bemades & Kin
Foundry CC and B&K Foundry CC.
4. It is declared that
the respondent is liable towards the creditors of Bemades & Kin
Foundry CC (reg no: 2007/254461/23)
(in liquidation) and/or B&K
Foundry CC (reg no: 2008/061083/23} (in liquidation).
5. A copy of this
order is to be served upon all known creditors of the respondent,
who shall be permitted to submit and
prove their claims in the
joint administration of the said liquidated entities as one economic
unit.
6. The
costs of this application, including the reserved costs of 28 August
2015 and the costs under the interim application
under case number
49327/2015, including the costs of two counsel (where so
employed), to be paid on an attorney and client
scale, shall,
together
with the costs of the
administration of the aforesaid estates (in liquidation}, be costs
In the liquidation.
[3] Below are the reasons
for the order of 18 May 2016.
[4]
There are two issues in dispute. The first relates to the
locus
standi
of the applicants. The second is whether the transaction
whereby the respondent purchased the business assets from Bemades &
Kin Foundry CC (in liquidation) was fraudulent and therefore void on
the basis of the
actio
Paulina
and/or the
relevant provisions of the Insolvency Act.
The
parties
[5]
The first applicant is Steloy Castings (Pty) Ltd ("Steloy
Castings"), a creditor of B&K Foundry CC ("B&K
Foundry"), Bernades & Kin Foundry CC ("Bemades &
Kin") and Joachim de Oliviera Bernades ("Bernades").
The trio owe the first applicant the sum of R11.8 million. This debt
arises pursuant to an order granted by this court on 15 August
2014.
[6]
The second applicant is Gert Louwrens Steyn de Wet N.O, a male
liquidator, cited herein in his capacity as joint liquidator
of
Bernades & Kin Foundry CC and B&K Foundry CC (the close
corporations in liquidation).
[7]
The third applicant is Franz Serithi N.O, a male liquidator, cited
herein in his capacity as joint liquidator of the close corporations
(in liquidations).
[8]
The respondent is B&K Castings (Pty) Ltd. Johannes Hendrick
Bezuidenhout ("Bezuidenhoun . a businessman of Montana
Park,
Gauteng Province, is its sole director.
Background
[9]
Steloy Castings has been in the foundry business for thirty years. It
manufactures and supplies castings for various industries.
It also
supplies static and centrifugally cast high-alloy components locally
and internationally. Its procedures, works instructions
and recipes
are embodied in manuals which constitutes and embody trade secrets
and/or confidential information and/or confidential
knowledge and
which are susceptible for copyright protection. Joaquim de Oliveira
Bernades ("Bernades") was its customer
liaison manager from
October 2006 till November 2007.
[10]
Upon leaving the employ of Steloy Castings in December 2007, Bernades
founded Bernades & Kin Foundry CC ("Bernades
& Kin").
In March 2008 he founded B&K Foundry CC ("B&K Foundry").
Bernades is the sole member of both
close corporations.
[11]
Steloy Castings claims that as at the time of his resignation from
its employ, and/or at the time of founding his close corporations,
Bemades, personally or acting with other persons inter alia (a)
wrongfully misappropriated its trade secrets and/or confidential
information and/or confidential knowledge, (b) took or removed its
duplicate original file which contained melting instructions,
(c)
copied and reproduced the whole or substantial parts of one or more
of its manuals or caused such copies to be made and handed
over to
him, (d) provided and/or exchanged and/or distributed the original
and/or copies or reproductions of its manuals or parts
thereof to
another, and or (e) infringed its copyright in the manuals by copying
and/or reproducing, alternatively by making adaptations
of its
manuals or substantial parts thereof.
[12]
Upon obtaining the first applicant's manuals and trade secrets
Bernades & Kin Foundry commenced its foundry business in
unlawful
competition with the first applicant in supplying castings in all
grades of stainless steel, steel, low alloy steel and
cast irons for
heat, corrosion, wear and abrasion resistance, also to existing
clients of first applicant.
[13]
On 28 February 2012 Steloy Castings obtained an
anton piller
court
order against Bernardes and B&k Foundry. The order was executed
on 1 March 2012. During the execution of the
anton piller
documents were found which provided evidence of infringement of
Steloy Castings' manuals and/or infringement or misappropriation
of
its confidential information.
[14]
On 27 March 2012 the Anton Piller order was confirmed. The court also
granted an interim interdict in applicants' favour. Costs
were
reserved for determination in the action.
[15)
On 1 June 2012 the applicant issued summons against Bernardes and B&K
Foundry based on the infringement of the copyright
of its manuals,
unfair competition and breach of employment contract. In their plea
the defendant alleged that B&K Foundry
was dormant. The first
applicant amended its particulars of claim to join Bernardes &
Kin Foundry in the action. Before the
action could be heard,
Bernardes resolved to place the close corporations into voluntary
liquidation in terms of section 349 of
the Companies Act. His estate
had also been accepted as insolvent and placed under sequestration in
the hands of the Master on
7 August 2014.
[16]
On 15 August 2014, in the absence of any appearance or opposition on
behalf of the close corporation (in liquidation), or Bernardes
himself, the first applicant obtained judgment in the following
terms:
IT
I
S ORDERED
I
N FAVOUR OF THE
FIRST PLAINTIFF AGAINST FIRST DEFENDANT,
SECOND
DEFENDANT
(In
l
i
quidation) AND THE
FOURTH DEFENDANT
(in
l
i
quidation),
JOINTLY AND SEVERALLY THAT,
1.
First, Second and Fourth Defendants be interdicted and restrained
from infringing the Plaintiffs' copyright in the First
Plaintiffs
manuals by reproducing or adapting it or from distributing manuals.
The said manuals are the following:
1.1.
Policy and Procedures;
1.2.
Administration and Registration;
1.3.
Pattern Making;
1.4.
Moulding;
1.5.
Melting;
1.6.
Furnace and Spectrometer;
1.7.
Fettling and Welding; and
1.8.
Inspection
(First
Plaintiffs manuals)
2.
An order that First, Second and Fourth Defendants deliver up to the
Plaintiffs all copies, reproductions and adaptations
of the First
Plaintiffs manual (or part thereof) in their possession or under
their control or kept under attachment by the
Sheriff pursuant to
the execution of the Anton Piller order;
3.
An order that the First, Second and Fourth Defendants be interdicted
and restrained from using instruction, specifications,
recipes,
methods, processes, values, parameters and settings contained in
the First Plaintiff's manual in respect of which
Plaintiffs own
proprietary and confidential interest, in particular those aspects
set out in paragraph 88 of the founding
affidavit to the Anton
Piller Application, for the purpose of manufacturing castings;
4.
An order compelling First, Second and Fourth defendants to:
4.1.
Return to first Plaintiff all documents and materials pertaining to
the company , its employees, clients, business processes,
suppliers or any infonnation regarding the company, in whatever
material medium such company information exist;
4.2.
Delete and remove any company in fonnatlon of the First Plaintiff
from any computer onto which they may have loaded company
information and to destroy any copies, back-ups and documents
reflecting of any of the company's information after they have
ensured that copy of the company information have been transferred
on a computer system of the company or is available to
the company
in electronic or, where not applicable, in writing form.
5. An
order that the First Second and Fourth Defendants be interdicted and
restrained from using for their own benefit (or indulging
to the
other of his lits benefit), the secret of the company or any other
information which they may have received or obtained
in relation to
the
affairs
of the First Plaintiff or its customers or the
working of any processes or invention or to any marketing technique
which is
carried on or used by the company.
6.
An order that the First , Second, Fourth Defendants be
interdicted and restrained from competing unlawfully
with First
Plaintiff by:
6.1. Using
the First Plaintiffs proprietary and confldential information to
manufacture and supply castings;
6.2. Representing to their customers and potential customers that
the Second Defendant and/or Fourth Defendant has developed
its own
quality management system in respect of the manufacture of
castings;
6.3. Soliciting business from First Plaintiffs clients and by
manufacturing castings for them in accordance with their
unique
requirements by making use of the Plaintiffs
proprietary trade secrets and/or confidential information
and/or
confidential knowledge which were misappropriate from the Plaintiffs;
6.4. Soliciting business from the First plaintiffs customers in an
effort to divert the business of such clients away from
the First
Plaintiff and to generate income for the First and/or Fourth
Defendants by making use of the Plaintiff's proprietary
and
confidential information and manual in the manufacturing of
castings for such clients.
7.
Payment of damage in the amount of R10,836,638.00;
8.
Payment of additional damages in the amount of R1 000.000.00.
9.
Costs of suit on an attorney and client scale, including all the
costs incurred in the Anton Piller proceedings under case
number
11001/12, which costs shall include the costs of the supervising
attorneys and which are also to be paid on an attorney
and client
scale'.
[17]
Steloy Castings noted its claim with the liquidators of B&K
Foundry and Bernardes & Kin Foundry. It also investigated
the
affairs of the close corporations in order to establish whether any
part of its claim for damages would be met. During the
investigations
it learnt that Bemardes & Kin Foundry had sold the assets of its
business on 22 November 2013 to a new entity
called B&K Castings
(Pty)Ltd ("B&K Castings) for the sum of R1 050 000.00.[18]
As it turned out, Steloy discovered
that the respondent never paid
for its purchase. It acquired the assets on a fraudulent basis in
order to continue with the business
unhindered by the constraints of
liquidation and with the purpose of evading Bernardes & Kin
Foundry's creditors. Steloy Castings'
attorney could not find a sale
agreement in the files of the liquidators, and the liquidators
confirmed that no sale agreement
was ever provided to them. To
compound matters, Bezuidenhout ignored the request for access to the
records of the company. Importantly
neither Bezuidenhout nor the
respondent ever put up the capital for acquiring the business/assets
of Bemardes & Kin Foundry.
[19]
By the time the liquidators received their final appointment on 6 May
2014, the assets of Bernardes & Kin Foundry had already
been
transferred to the respondent. The respondent proceeded to utilise
the assets of Bernardes & Kin Foundry, to operate the
exact same
business from the same premises and employing the same personnel.
Bernardes continued as the manager of the "new''
business, his
wife, son and daughter-in-law were also appointed in the "new"
business.
[20]
Shortly before and even after the liquidation of the two close
corporations, Bernardes also extracted the from Bernardes &
Kin
Foundry's bank account the following amounts:
1.
R250 000.00 (transfer to
Linda Bemardes) on 12 October 2013.
R250
000.00 (transfer to Linda Bemardes) on 14 October 2013.
R250
000.00 (transfer to Linda Bemardes) on 16 October 2013.
R300
000.00 (Bemardes) on 29 October 2013.
R200
000.00 (Bemardes) on 29 October 2013.
6.
R375 000.00 (transfer to Linda Bernardes) on 30
October 2013.
7.
R450 000.00 (Bemardes) on 12
February 2014.
8.
R450 000.00 (Bemerdes) on 13 October 2014.
9. R200 000.00
(Bernardes) on 14 February 2014.
10.
R500 000.00 (Bernardes) on 1 March 2014.
11.
R600 000.00 (Bernardes) on 14 October 2014.
[21]
The above withdrawals and transfer of funds appear to accord with the
submissions of the applicant that the respondent had
been set up as a
vehicle to embezzle the business/assets of Bernardes & Kin
Foundry and to secure the financial survival and
prosperity of
Bemardes and his family. There is little doubt that all, including
the liquidators were duped by Bernardes.
[22)
The paper trail shows that Bemardes & Kin Foundry paid itself for
the business/assets which it then transferred to the
respondent. The
respondent stepped into the shoes of the insolvent close corporation,
Bernardes & Kin Foundry.
[23]
The bank accounts of Bernardes & Kin provide proof that Bernardes
& Kin itself put up the capital for the purported
sale by it of
its business/assets to the respondent and therefore has paid itself.
The flow of funds were structured thus:
1. An amount of R1
million was transferred on 15 March 2014 from Bernardes & Kin's
beleggingsrekening
account to its current account.
An
amount of R1 050 000.00 was transferred on 15 March 2014 from
Bernardes & Kin's
current
account to Venditor, the
agent who facilitated the transaction.
Venditor
then paid over the sum of R1 050 000.00 to the liquidators as the
sum purportedly received by them as agent for rendering
effective
a purported sale of business/assets between Bernardes & Kin
and B&K Castings.
[24]
This then makes it clear that the latter was set up for a purpose
other than noble. This makes the transfer of the business/assets
of
Bernardes & Kin to the respondent suspect as it is tainted with
deception and/or constitutes an alienation in
fraudem creditorum
for which the
actio Paulina
is a remedy.
[25]
The transaction would appear to be voidable as it violates the
provisions of section 34 of the Insolvency Act, and/or is an
impeachable transaction and/or improper alienation of property, which
can be set aside under either sections 26, 29, 30 or 31 of
the
Insolvency Act.
[26]
Steloy Castings submitted that the respondent was the alter ego of
Bernardes & Kin Foundry. For the liquidators to get
to the bottom
of the transaction between the two, they would need to liquidate the
respondent and Bernardes & Kin Foundry as
one economic unit.
The
case of the
respondent.
[27]
The respondent raises the point that the Steloy Castings does not
have
locus
standi
in these proceedings and that it has
failed to properly indemnify the liquidators.
[28]
In response to the respondent's preliminary point, the first
applicant pointed out
that section 32 of the
Insolvency Act provides that:
32.
Proceedings to set aside improper dispositions
(1)
(a) Proceedings to recover the value of property or a right in terms
of section 25 (4), to set aside any disposition of property
under
section 26, 29, 30 or 31, or for the recovery of compensation or a
penalty under section 31, may be taken by the trustee.
(b)
if the trustee fails to take any such proceedings they may be taken
by any creditor in the name of the trustee upon his indemnifying
the
trustees against all costs thereof.
(2)
in any such proceedings the insolvent may be compelled to give
evidence on a subpoena issued on the application of any party
to
the proceedings or he may be called by the court to give evidence.
When giving such evidence he may not refuse to answer
any question
on the ground that the answer may tend to incriminate him or on the
ground that he is to be tried on a criminal
charge and may be
prejudiced at such a trial by his answer.
(3) When
the court sets aside any disposition of property under any of the
said sections, it shall declare the trustee entitled
to recover any
property alienated under the said disposition or in default of
such property the value thereof at the
date
of the disposition or at the date on which the
disposition is
set aside
,
whichever is the higher.
[29]
Again there is little debate that the first applicant properly
indemnified the liquidators as is evident from the letter by
its
attorney and the affidavit deposed by him before the interim
attachment order was sought and granted by Bertelsmann J on 10
July
2015. The respondent consented to the order without raising the
point. The
locus standi point in
limine
has no
merit.
[30]
On the merits the respondent states that it has purchased the assets
of Bernardes & Kin and used its current bank account.
It admits
that it also failed to advertise the sale. It would have been
irregular to conduct the business of the respondent in
the existing
bank accounts of Bernardes & Kin...but no malfeasance was
intended and it was always intended to do an adjustment
account. The
respondent says that
"although it might
seem
on face
value that Bemardes
&
l(jn Foundry paid for the assets
....Respondent earned the income utilized to purchase
the
assets separately from the funds that
was
the property of
Bemardes
&
Kin
Foundry."
Bernardes
was not able to explain how the purchase of the assets by the
respondent had been funded.
[31]
As already stated above, it is clear that Bezuidenhout or his company
did not put up the funds for acquiring the assets of
Bernardes &
Kin. There is no proof that that the liquidators consented to the
sale and transfer of assets, if so, that they
were authorised by the
creditors to do so, or that the sale was valid.
[32]
It is false that the respondent has paid for the asserts purchased
from Bernardes & Kin. The assertions by the respondent
that
operating from the bank accounts of Bernardes & Kin was innocent
is not supported by the evidence.
[33]
At common law the
actio Paulina
is available to set aside an
alienation in
fraudem creditorium.
The requirements thereof
are per
Hockey NO v Rixom 1938, SR 107, Kerby 78 (Ply) Ltd v van
den Heever
&
Others NNO
2000 (4) SA 804
(WJ
the following: (a) that the alienation should be of such a nature
that the debtor's
assets
are diminished thereby (b)
that the person who
receives
from the debtor does not
receive
his own property (c) that there should be the intention to
defraud and (d) that the fraud should have its effect. All of the
above
requisites for the
actio Paulina
and those of the
Insolvency Act have been satisfied.
[34]
Further in Kerby supra the court held that a person who has been
party to a transaction in fraud of creditors is required to
deliver
to the creditors all the benefits that have accrued from the fraud
under the
actio
Paulina.
[35]
The instant application is a textbook example of when and why the
corporate veil ought to be pierced in order to establish
if the
company made fraudulent use of its legal personality, especially if
there was an element of fraud in the establishment or
use of the
company.
Cape Pacific LtD v Lubner Controlling Inv (Pty) Ltd
[1995] ZASCA 53
;
1995
(4) SA
790
(A) at
802-804
[36]
In summary therefore the following are factors that support the first
applicant's case against the respondent:
1.
Respondent has been established on 22 November 2013, some days
before the voluntary liquidation of B&K Foundry CC on
4
December 2013.
2.
Respondent had been established for the sole purpose of evading
Bemardes & Kin creditors...this fact is admitted by Bemardes;
3. Bernardes
& Kin fraudulently disposed of the corporation's main operating
assets and business to the respondent, who equally
fraudulently,
obtained possession thereof and continued with the business and
assets of Bernardes & Kin as if it was its
own.
4. The
business was continued at the same premises and with the same clients
and personnel.
5. All
existing clients were informed that the new business will start
operating from 1 March 2014.
6. Bernardes
was employed as the manager of the new business.
7. Bernardes'
wife and son were also employed in the new business.
8. Bezuidenhout,
the sole member and director who visits the foundry once a month
draws no salary or share dividends from the
respondent.
[37]
I therefore find little to support the respondent's defence in this
application and I
accordingly
hold that the first applicant must succeed.
TS
MADIMA
ACTING
JUDGE OF THE HIGH
COURT
On
behalf of the Appellant: ........................
Instructed
by: Geldenhuys
Malatji Pretoria
On
behalf of the First
Respondent:
Adv J.P Van der
Westhuysen
Instructed
by: P.J Klenyhans
Incorporated
Pretoria
012
332-1450
Dates
of Hearing:
18 May 2016
Date
of order:
18 May 2016
Date
of Judgment: 6 July 2016