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[2014] ZAGPPHC 385
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Botha and Another v Adroit Communications (Pty) Ltd (21203/2014) [2014] ZAGPPHC 385 (17 June 2014)
IN THE HIGH
COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
CASE NO:
21203/2014
DATE:
17/6/2014
In the matter between:
ANISSIA
BOTHA
.............................................................................................................
First
Applicant
PETRUS JOHANNES VAN
DYK
...............................................................................
Second
Applica
nt
and
ADROIT COMMUNICATIONS
(PTY)
LTD
.....................................................................
Respondent
“
A
house divided by itself
cannot stand”
Abraham
Lincoln
J U D G M E N T
Ismail J:
[1] The
applicants in this matter seek an order whereby the respondentis
liquidated. The applicants aver that the respondent is
factually
insolvent. They are also seeking the winding up of the respondent on
another
ground, namely that it would be just and equitable to do so, as the
directors of the respondent are at loggerheads and that
a situation
has prevailed where the directors are in deadlock.
[2] The
respondent has in total 6 directors and it appears that there are two
camps consisting of three directors in each camp.
[3] The
applicants are two directors as well as shareholders and they hold in
total 24 % of the companies shares and on the other
side two
directors, Mr Hall and Mr Munnnik, together with another director
hold a 48% stake in the company.
[4] At the
commencement of the proceedings Mr Smit, acting for the applicants,
informed me that the applicants will not pursue the
argument that the
respondent is factually insolvent. In fact they will accept that the
respondent is solvent.
[5]
Notwithstanding the admission that the respondent is solvent the
applicants will still seek an order that the respondent be
wound up
on the ground that it would be just and equitable to do so.
Background
[6] The
respondent is a company wherein various entities hold certain shares.
The companies and entities who are shareholders of
the respondent
have been specified in paragraph 22 of the founding affidavit. For
the purposes of this judgment I do not propose
to repeat the entities
who hold the relevant percentage of shares in the respondent.
[7] It might
be mentioned that there were several matters which found its way to
this court against the respondent. There was an
application brought
by an employee who sought an order that the company be placed under
business rescue which was opposed by the
company through the efforts
of Mr Munnik and Mr Hall without the approval of the other directors.
There was also an application
brought by messrs Munnik and Hall
whereby they sought the winding up of the respondent wherein they
averred that there was a deadlock
within the existing board of
directors.
[8] The
applicants are of the view that the company is being run by the
executive directors of the respondent namely Mr Munnik and
Mr Hall to
the exclusion of the non-executive directors. They have taken certain
decisions such as laying of employees of the company
unilaterally
without holding a board meeting to discuss such an issue or at the
least informing the other directors.
[9] Mr Munnik
and Mr Hall admit that there is a deadlock in the board and they have
decided that they would run and manage the company
on a day to day
basis without involving the other directors. This conduct on their
part the applicants submit on its own reflects
and signifies
mismanagement.
Legal
principles
[10] The
applicants case is based on section 81(1) (d) of the new Companies
Act. Weiner J in
Muller v Lilly Valley (Pty) Ltd
[2012] 1All
SA 187
(GSJ) stated that the legal basis for the winding up under
section81(1) (d) (iii) is the same as that that under s 344(h) of the
old Companies Act.
[11] Mr Smit,
submitted that there was authority that a company albeit be solvent
could be wound up on the just and equitable ground,
where the parties
lost faith in the management of the company. In
Budge and
Others NNO v Midnight Storm Investment 256 (Pty) Ltd and Another
2012
(2) SA 28
(GSJ) at para [5] of the judgment Meyer J deals with the
aspect ofwinding up of a company on this basis referring to what
Coetzee
J, in
Rand Air (Pty) Ltd v Ray Bester Investments (Pty)
Ltd
1985(2) SA 345 (W),at 349G-350H, stated, where he, referred
to the long history of the just and equitable ground for winding up
and to the five categories of cases that may be brought under it.
“
The first….
The
third is that of deadlock which results in the management of the
companies’ affairs, because the voting power at board
and
general meeting level is so divided between dissenting groups, that
there is no way of resolving the deadlock other than by
making a
winding up order. The kind of case which falls most frequently to be
dealt with under this heading is one where there
are only two
directors or only two shareholders, usually in a private company, who
hold equal voting shares or rights and have
irreconcilably have
fallen out.
Fourthly,
grounds analogous to those for the dissolution of partnerships. Where
the company is a private one and its share capital
is held wholly or
mainly by the directors and it is in substance a partnership in
corporate form, the Court will order its winding
up in the same kind
of situation that it would order the dissolution of a partnership on
the ground that it is just and equitable
to do that ….”
[12] Mr Smit
submitted that Mr Hall and Mr Munnik were running the company
unilaterally and without the other members of the board
being
consulted or resolutions, on important aspects, being taken at board
level. Munnik and Hall dismissed 28 employees in January
2014 without
board approval. Furthermore, they changed the core business
activities of the respondent without consulting the other
directors
or informing them thereof. In their response both Munnik and Hall
conceded that there is a deadlock at board level as
well as within
the general body of shareholders.
They seem to
labour under the belief that because the company is making a profit
it is permissible for the executive directors to
run the affairs of
the respondent to the exclusion of the non-executive directors. It is
quite apparent that all “ is not
well within Adriot “
[13] Mr Smit
relied upon King III in volume 2 of Henockberg , on the role and
function of the board. He also referred to various
aspects from
King III in chapter 2. Some of the points raised were:
“
2
the board should collectively provide effective corporate governance
that involves monitoring the relationship between
the board and
management of the company, and between the company and stakeholders;
19.
Directors should exercise objective judgment on the affairs of the
company independently from management, but with sufficient
management
information to enable a proper and objective assessment to be made
48.
The collective responsibility of management vest with the CEO and as
such the CEO bears the ultimate responsibility for all
management
functions. The board delegates to management via the CEO, who will
in turn delegate to those reporting to him.
Principle
2.18: The board should comprise a balance of power, with a majority
of non-executive directors.
The
majority of non-executive directors should be independent.
63.
The board should ensure that there is an appropriate balance of power
and authority on the board. No one individual or block
of individuals
should be able to dominate the board’s decision-making.
What appears,
above ,are some guidelines from King III. The list is not exhaustive.
Despite the
deadlock at the respondent the two directors are of the view that
they are entitled to run the day to day activities
of the company.
[14] Section
81 of the new Companies Act stipulate:
“
(1) A
may order a solvent company to be wound up if-
(a)the
company has-
(i)
resolved, by special resolution, that it be wound up by the court; or
(ii)
applied to the court to have its voluntary winding- up by the court;
(b)
the practitioner of a company appointed during business rescue
proceedings has applied for liquidation in terms of section
141(2)(a),on the grounds that there is no reasonable prospect of the
company being rescued; or
(
c) …
(d)
the company , one or more directors or one or more shareholders have
applied to the court for an order to wind up the company
on the
grounds that-
(i)
the directors are deadlocked in the management of the company, and
the shareholders are unable to break the deadlock, and-
(aa)
irreparable injury to the company is resulting, or may result, from
the deadlock; or
(bb)
the company’s business cannot be conducted to the advantage of
shareholders generally, as a result of the deadlock;
(ii)
the shareholders are deadlocked in voting power, and have failed for
a period that includes at least two consecutive annual
general
meeting dates, to elect successors to directors whose terms have
expired; or
(iii)
it is otherwise just and equitable for the company to be wound up;
(
e)….
(f)
…”
[15] Another
grievance which the applicants raised is that when business rescue
proceedings were brought against the respondent,
Munnik and Hall
opposed the application on behalf of the respondent without obtaining
a resolution of the board to do so.
In the matter
of
Gainsford and Others NNO v Haib AB
2000 (3) SA 635
(W) at 638I-640B the question of the applicants authority to act on
behalf of the respondent was questioned. The court stated:
“
the applicant raised the point
in limine
regarding the authority of Brian Kakn Inc to act on behalf of the
respondent herein and in terms of Rule 7 (1) called upon them
to file
a power of attorney indicating their authority so to act.
Rule 7
provides that:
‘
(1) Subject to the provisions of subrules (2) and
(3) a power of attorney to act need not be filed, but the authority
of anyone
acting on behalf of a party may, within 10 days after it
has come to the notice of the party that such person is so acting, or
with the leave of the Court on good cause shown at any time before
judgment, be disputed, whereafter such person may no longer act
unless he satisfied the Court that he is authorized so to act, and to
enable him to do so the Court may postpone the hearing of
the action
or application.
Mr Erasmus on
the other hand relied upon the matter of
Wolhuter Steel v Jatu
Construction
1983 (3) SA 815
(O) at 823 C where the court stated:
“
It would be quite ludicrous to hold that a director, or
a company acting through its directors, is not an interested party
when
it comes to deciding whether it and/or they have the right to be
heard on the return day of the rule nisi”
[16]
Ironically, Hall and Munnik themselves instituted proceedings by way
of motion for the winding up of the respondent. This application
has
not been enrolled. This begs the question what has changed since
theirinstitution for the winding up proceedings.
[17] Munnik
and Hall have applied to intervene in these proceedings. Itwas
submitted on behalf of the applicants that they have
not shown or
provided any information nor demonstrated any interest for
intervening apart from stating that they are directors
of the
respondent.
In
Erasmus
Superior Court Practice at B1-103, the authors state:
‘
It
is not sufficient for the applicant merely to state that (a) he or
she has an interest in the action: he or she must make such
allegations as would show, (b) that he or she has a
prima facie
case, (c) that his or her application is seriously made and (d)
is not frivolous. (see footnote 7 and the cases referred to there).
[18] Mr
Erasmus, acting for the intervening parties, submitted that the court
would be loathed to wind up a solvent company which
has people
working for it, who derive their livelihood from the company. That is
a consideration which any court in its discretion
would take into the
equation when determining the question of winding up or not. On the
other hand the court is bound to look at
all the surrounding factors,
more particularly the manner in which this company is functioning. It
is common cause that there is
a deadlock at both board and
shareholders level.
Counsel
suggested that the applicants who are not satisfied with the manner
in which the company is operated should resign as directors
and they
should sell their shares.
In my view
this would be nothing other than a hostile takeover by some directors
at the expense of others. In political terms a
coup d etat.
[19] In the
matter of
In re Yeninde Tabacco Comapany, Limited
1916 CD 426
the court ‘held, affirming the decision of Astbury J.,
that if this was a case of
partnership
there would clearly be a ground for dissolution, and that the same
principle ought to be applied where there was in
substance a
partnership in the guise of a private company. The p0osition amounted
to a complete deadlock, and it was “ just
and equitable”
that the company be wound up’.
See also
Moosa N.O v Mavjee Bhavan (Pty) Ltd & Another
1967 (3) Sa
131
at 137E-H.
[20] Mr
Erasmus submitted that the court should dismiss the application
alternatively it should wind up the respondent provisionally,
in
order to hold a general meeting of shareholders, where new directors
could be appointed. This suggestion could have been a plausible
solution, however, I am told that it is common cause that the
shareholders of the company is also deadlocked.
[21]
Accordingly I am of the view that in the exercise of my discretion it
would make no difference to order a provisional winding
up order in
the light of the prevailing situation.
[22] In the
circumstances I make the following order:
(1) the application for
intervention is dismissed with costs;
(2) The respondent company
is wound up with cost.
_________________________
I s m a i l J
APPEARANCES
:
For the
Applicants :
Adv J G Smit instructed by Natalie Lubbe
Attorneys,
Johannesburg
For the
fourth respondent:
Adv F J Erasmus instructed by Cillie and
Reyneke
Attorneys, Pretoria.
Date of
hearing:
5 June 2014.
Judgment
delivered
: 17 June 2014