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[2013] ZAFSHC 168
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Pearl Construction (Pty) Ltd v Seabo Construction, Plumbing and Business Ventures CC (1597/2013) [2013] ZAFSHC 168 (26 September 2013)
FREE STATE HIGH
COURT, BLOEMFONTEIN
REPUBLIC OF SOUTH
AFRICA
Case No: 1597/2013
In
the matter between:-
PEARL
CONSTRUCTION (PTY) LTD
...........................................
Applicant
and
SEABO CONSTRUCTION,
PLUMBING AND BUSINESS
VENTURES CC
.........................................................................
Respondant
_________________________________________________________
JUDGMENT BY:
THAMAGE, AJ
_________________________________________________________
HEARD ON:
12 SEPTEMBER 2013
_________________________________________________________
DELIVERED ON:
26 SEPTEMBER 2013
_________________________________________________________
[1] This is an opposed
application for provisional liquidation of the respondent together
with ancillary relief.
[2] Respondent had
sub-contracted applicant for the supply and installation of
electrical works at the Bloemfontein Public Library
and there was a
further contract of the supply and installation of air-conditioning
of the same library.
[3] Applicant’s
version is to the effect that there is an undisputed amount of at
least R40 296,06 in respect of air-conditioning
contract and
R45 285,48 in respect of electrical work. These figures were
highlighted in the applicant’s replying affidavit.
Respondent’s
version is that an amount of R72 416,03 which represent the
balance owed to the applicant was paid and
that an amount of
R10 633,00 was outstanding pending the issuing of Certificate of
Compliance.
[4] This application is
based on three grounds, namely that the respondent must be deemed to
be unable to pay its debts in terms
of section 69(1) of the Close
Corporation Act, read with Act 71 of 2008 (“the Companies
Act”), secondly that the respondent
is insolvent, and lastly
that it is just and equitable that the respondent be liquidated. The
respondent is disputing the said
three grounds and further state that
applicant had cited the wrong respondent as the close corporation was
converted into a company
on the 11 July 2012.
[5] It is thus prudent to
consider the issue of conversion from a close corporation to a
company before venturing into the merits
of this application.
Schedule 2,
section 2
of the
Companies Act 71 of 2008
provides as
follows:
“
All
the assets, liabilities and obligations of the close corporation
forthwith (after conversion) rest in the company.
Any legal proceedings
instituted before the registration by or against the corporation, may
be continued by or against the company,
including that any other
thing done by or in respect of the company. Any enforcement
procedures that could have been commenced
with in respect with the
close corporation in terms of the Close Corporation Act 1984, for
conduct occuring before the date of
registration, may be brought
against the company on the same basis, as if the conversation had not
occurred.
The juristic person that
existed as a close corporation before the conversion continues to
exist as a juristic person, but in the
form of a company.”
[14] Respondent counsel
argued that this application was launched approximately nine months
after the conversation of the respondent
from close corporation to
company and the application is destined to fail. It is interesting to
note that on the 21 March 2013,
a letter was written by the
respondent’s attorney to applicant’s attorney
inter
alia
stated
“
We
confirm that we are acting on behalf of Seabo Construction Plumbing &
Business Ventures CC”.
This letter was written
almost eight months after the conversation. Again on the 26 March
2013, another letter was written by respondent’s
attorney to
applicant’s attorney stating as follows:
“
We
confirm that the
Close Corporation
is doing well
.” (my emphasis)
These two letters in contrast with the respondent counsel argument,
is irreconcilable because on the correspondence,
the respondent also
refers itself as a close corporation.
[7] The argument of
counsel for the respondent has no merits if one has to consider the
provisions of schedule 2 of section 2 of
the new
Companies Act. The
application for liquidation is an enforcement measure that could have
been commenced with against the close corporation (even if
it was
converted) in terms of the Close Corporation Act, for conduct
occurring before the date of registration, as if the conversion
had
not occurred. It is thus my view that the issue of conversion does
not make any difference and it cannot be said that a wrong
party has
been cited. Respondent further argued that applicant should at least
after reading the respondent affidavit wherein it
was indicated that
the respondent is a company, withdrew the application and serve
another application citing the company. This
is unnecessary taking
into consideration the provisions of schedule 2 of section 2 of the
new
Companies Act.
[8
] Coming now to the
merits of the application, as aforesaid, applicant is proceeding on
three grounds. The first ground is respondent
to be deemed to be
unable to pay its debts. The respondent disputes the applicant’s
claim and further submits that such disputed
liability is
bona
fide
based on reasonable grounds. Applicant
in this regard relied on section 69(1)(a) of the Close Corporation
Act read with section
345 of the Old Companies Act 1973.
[9] The deeming
provisions comes into effect when the “solvent” company,
i.e. although its assets exceed its liability
but does not have
liquidity or cash resources to meet its debt obligations or when they
are due, i.e. it becomes commercially insolvent.
The onus is thus on
the applicant to prove that the respondent is unable to pay its
debts. In instances of the company, a minimum
debt of R100 over a
period of three weeks is sufficient for applicant to acquire
locus
standi
and in instances of close corporation, a debt of R200 over
a period of twenty one days is sufficient for purposes of
locus
standi
, see section 345 and 69(1) referred to
supra.
[10] Counsel for the
respondent argued that for the fact that a wrong party has been cited
and thus the service of demand was done
in terms of section 69(1) of
the Close Corporation Act and not section 345 of the Companies Act,
it is inappropriate for the applicant
to rely on the deeming
provision. I have already dealt with the provisions of schedule 2 of
section 2 of the new Companies Act
and consequently this argument
falls off.
[11] From the written
heads of argument as well as oral submissions made by both counsel,
it is clear that they are
ad idem
that commercial insolvency
is one of the grounds upon which a creditor may bring the application
for liquidation of a company or
a close corporation. I thus will not
venture into section 81(1)(c) of the new Companies Act. It is
apposite to mention that the
judgment of this division of Zietsman,
AJ in
HBT Construction and Plant Hire CC v Uniplant Hire CC
2012 (5) SA 197
(FB) was overruled by the judgment of Snellenburg AJ
in
Scania Finance Southern Africa (Pty) Ltd v Thomi-Gee Road
Carriers
2013 (2) SA 439
(FB). I thus concur with the latter
judgment in that the winding-up of a close corporation or even a
company can be sought and
granted on the deeming provision
irrespective of section 81(1)(c) mention
supra
.
[12] On 30 October 2012
and 20 November 2012 amounts of R109 545,00 and R192 746,77
were due by the respondent to the
applicant according to the invoices
sent to the respondent. The respondent through Martin Koster replied
after receipt of the invoices,
as follows:
“
I
received the final account that you had sent to me. Everything looks
in order … I will proceed to draw up a payment certificate
and
forward it to the guantity survey to be processed.”
Respondent however denied
that he admitted liability in that Mr Koster is not his employee but
the employee of Public Works.
[13] Section 69(1)(a) of
the Close Corporation Act demand was issued on the 30 January 2013
and was served upon the respondent on
the 7 February 2013. On the 21
February 2013, respondent through its attorney disputed applicant’s
claim and stated that
the only amount outstanding was an amount of
R72 416,08 and that same was to be paid on the 8 March 2013.
This amount was
however paid on the 9 March 2013. Applicant requested
respondent financial statement, but same was not provided, respondent
indicated
that it is solvent. According to the respondent, the only
outstanding amount was R72 416,08 which was paid and that
R10 633,00
was a retention money pending the issuing of
certificate of compliance, that the above calculation was done by the
quantity surveyor
and even invited the applicant for a round table
conference to sort out the dispute. Such round-table conference was
never held.
Applicant in his replying affidavit, indicated that there
are certain amounts which are not disputed i.e. R45 285,00 and
R40 296,06.
[14] From the
respondent’s evidence it is clear that there is a dispute over
the amount and the applicant became aware of
the dispute as far back
as when the amount of R72 416,08 was paid and the respondent
made suggestion of round-table conference
to iron out the dispute.
[15] In
Kali v
Decotex and Another
1988 (1) SA 943
AD Corbit JA (as he then
was) stated as follows on page 980 A – C:
“
As
in the present case, the disputes which arise on the affidavits may
relate to
locus
standi
of the applicant, either as a member or creditor, or as to whether
proper grounds for winding-up have been established. In regard
to
locus
standi
as a creditor, it has been held, following certain English authority,
that an application for liquidation should not be resorted
to in
order to enforce a claim which is
bona
fide
disputed by the company. Consequently, where the respondent shows on
a balance of probability that its indebtedness to the applicant
is
disputed on
bona
fide
and reasonable grounds, the Court will refuse a winding-up order.
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
.”
(Own underlining)
[16] Respondent indicated
in his affidavit that applicant failed to take into consideration the
deduction based on saving and prolongation,
and such amounts are not
for the account of the respondent. Applicant then brought a
reconciled account on his replying affidavit
and thus by implication,
the respondent could not have challenged or concurred with the
reconciliation. In motion proceedings,
applicant must stand and fall
with his papers. See
National Council of Societies for the
Prevention of Cruelty to Animals v Openshaw
[2008] ZASCA 78
;
2008 (5) SA 339
(SCA) at 349. The necessary allegations upon which the applicant
relies must appear on its founding affidavit.
[17] The question to be
decided is whether there is a
bona fide
dispute of claim and
whether such dispute is based on reasonable grounds. It is sufficient
if the respondent
bona fide
alleges facts which, if proved at
a trial, would constitute a good defence to the claim made against
it. See
Heidelberg Laboratories CC and Others v Sola
Technologies
2008 (2) SA 627
at 634. It is both unnecessary
and undesirable to come to any final conclusion as to the legal
validity of the defence once there
is evidence that the debt is
disputed on
bona fide
and reasonable grounds. See
Investec
Bank Limited v Lewis
2002 (3) SA 111
C at 119.
[18] The existence of the
dispute on applicant’s claim is a factor to be taken by this
court when exercising its discretion
as to whether to grant a
provisional winding-up order or not. From the evidence and documents
before me, I am satisfied that the
claim is disputed on
bona fide
and reasonable grounds, and it was so disputed as far back as the 7
February 2013 where upon applicant was invited to a round-table
conference to sort out the dispute. The dispute thus has to be
ventilated and argued by means of a trial action. The winding-up
of
the corporation or the company should be the very last resort, having
taken all the circumstances into consideration when the
court
exercises its discretion.
[19] The other ground
upon which applicant relied on for the liquidation of respondent is
that respondent is insolvent. This I take
it to mean actual
insolvency as opposed to commercial insolvency. Actual insolvency
involving a comparison of the value of company’s
assets
vis-à-vis its liabilities. From the founding affidavit of the
applicant, there is no evidence shown that the respondent’s
liabilities exceed its assets, save to say that applicant requested
the financial statements from the respondent with no success.
In the
circumstances, I come to the conclusion that applicant had not make
out a case.
[20] Lastly, applicant
relied on the ground that it is just and equable for the liquidation
of the respondent. Applicant stated
as follows in his affidavit:
“
6.5.
It will also kindly be submitted that (notwithstanding the fact that
the respondent is unable to pay its debtor) that it will
also be just
and equitable that the respondent be liquidated. Reason for this
averment, I humbly submit, is because of the fact
that when pressure
was put on the respondent to effect payment, since December 2012, the
respondent although its members, is carrying
on business while the
respondent is not in a viable position to do so.”
Respondent refuted this
averment and also stated that it is unsubstantiated.
[21] Applicant submitted
that respondent is venturing into reckless trading by being unable to
pay its debts in the normal course
of business as they became due,
hence it is just and equitable that the respondent be liquidated.
[22] Five broad
categories upon which reliance on “just and equitable”
grounds have been developed by courts. See
Rand Air (Pty) Ltd v
Ray Bester Investments (Pty) Ltd
1985 (2) SA 345
(W). It is
my view that applicant did not satisfy any of the categories
developed over the years by the courts in respect of section
344(h)
of the old Companies Act. I must say that the decision in Rand Air
(Pty) Ltd
supra
, was based on companies liquidation but same
is applicable to close corporations. In the circumstances, applicant
failed to make
a case under this heading.
ORDER
[23] The following order
is made.
23.1. Application is
dismissed.
23.2. Applicant to pay
costs.
_________________
S. J. THAMAGE, AJ
On behalf of applicant:
Adv. N. Snellenburg
Instructed by:
Honey Attorneys
BLOEMFONTEIN
On behalf of respondent:
Adv. P. Zietsman SC
Instructed by:
P D Yazbek
BLOEMFONTEIN
/eb