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[2012] ZAFSHC 58
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Herman and Another v Set-Mak Civils (5495/2011) [2012] ZAFSHC 58; 2013 (1) SA 386 (FB) (5 April 2012)
FREE STATE HIGH
COURT, BLOEMFONTEIN
REPUBLIC OF SOUTH
AFRICA
Case No. : 5495/2011
In
the case between:-
KRUGER
HERMAN
...........................................................
First
Applicant
UTOPIA
CONSTRUCTION CC
....................................
Second
Applicant
Reg
no 2002/001529/23
en
SET-MAK CIVILS
.................................................................
Respondent
_____________________________________________________
JUDGMENT BY:
DAFFUE, J
_____________________________________________________
HEARD ON:
22 MARCH 2012
_____________________________________________________
DELIVERED ON:
5 APRIL 2012
_____________________________________________________
INTRODUCTION
[1]
Applicants instituted winding-up proceedings against respondent,
claiming the provisional winding-up of respondent close corporation
and ancillary relief. Respondent opposes the application and filed an
opposing affidavit to which applicants responded in a replying
affidavit. It is applicants’ case that respondent is unable to
pay its debts. In addition to several allegations in this
regard,
they rely on respondent’s failure to settle their claim on
receipt of a written demand in terms of section 69 of
the Close
Corporation Act, 69 of 1984 (the CC Act). Applicants aver that the
respondent is deemed unable to pay its debts. Alternatively,
it is
alleged that it is just and equitable for respondent to be wound up.
Oral arguments were presented to me on 22 March 2012.
Mr P J J
Zietsman appeared for applicants and Mr C D Pienaar on behalf of
respondent.
IDENTIFICATION
OF ISSUES
[2]
The following issues appear from the papers and need to be
adjudicated:
2.1
Whether second applicant has
locus standi
in these
proceedings. It was deregistered prior to institution of the
proceedings although its registration has been restored a
few days
before the hearing of the application.
2.2
Whether respondent’s alleged indebtedness to applicants is
disputed on
bona fide
and reasonable grounds.
2.3
In the event of a finding that applicants’ claim is not so
disputed, whether it is still possible to obtain a winding-up
order
based on the deeming provision in section 69 of the CC Act,
particularly if the respondent is a solvent close corporation.
2.4
On the basis of a finding that the claim is not so disputed, whether
a proper case has been made out for winding-up of respondent
based on
the just and equitable ground.
I
shall firstly deal with the applicable law, then the facts and
finally I shall apply the law to the facts.
APPLICABLE
LAW
[3]
The approach in dealing with factual disputes in winding-up
applications differs from applications in general and it is apposite
to quote the dictum of Brand J (as he then was) in
PAYSLIP
INVESTMENT HOLDINGS CC v Y2K TEC LTD
2001 (4) SA 781
(CPD) at
783 G – I:
“
Guidelines
as to how factual disputes should be approached in an application
such as the present were laid down by the Appellate
Division in
KALIL
v DECOTEX LTD AND ANOTHER
1988 (1) SA 943
A. According to these guidelines a distinction is to
be drawn between disputes regarding the respondent’s liability
to the
applicant and other disputes. Regarding the latter, the test
is whether the balance of probabilities favours the applicant’s
version on the papers. If so, a provisional order will usually be
granted. If not, the application will either be refused or the
dispute referred for oral evidence, depending on,
inter
alia
,
the strength of the respondent’s case and the prospects of
viva
voce
evidence tipping the scales in favour of the applicant. With
reference to disputes regarding the respondent’s indebtedness,
the test is whether it appeared on the papers that the applicant’s
claim is disputed by respondent on reasonable and
bona
fide
grounds. In this event it is not sufficient that applicant has made
out a case on the probabilities. The stated exception regarding
disputes about an applicant’s claim thus cuts across the
approach to factual disputes in general.”
[4] The Companies Act, 71
of 2008 (the 2008 Act) commenced on 1 May 2011. It changed our
company law extensively and several sections
of the CC Act have been
amended, repealed and/or substituted. Chapter 14 of the Companies
Act, 61 of 1973 (the 1973 Act) dealing
with liquidation of companies
is however still applicable in respect of winding-up of companies
after introduction of the 2008
Act, but subject to item 9 of Schedule
5 of the 2008 Act. This schedule deals with transitional arrangements
to which I shall later
return.
[5] The relationship
between the CC Act and the 1973 Act on the one hand and the 2008 Act
on the other, must be considered. Section
66(1) of the CC Act, prior
to its amendment, stipulated that the provisions of the 1973 Act
relating to the winding-up of a company
with the exception of the
sections quoted, applied
mutatis mutandis
insofar as they
could be applied to the liquidation of a close corporation in respect
of a matter not specifically provided for
in the CC Act. Subsection
66(1) has now been amended to read as follows:
“
66.
Application
of Companies Act, 1973 –
(1) The laws mentioned or contemplated
in item 9 of Schedule 5 of the Companies Act, read with the changes
required by the context,
apply to the liquidation of a corporation in
respect of any matter not specifically provided for in this Part or
in any other provision
of this Act.”
Furthermore, a new
section 66(1A) has been inserted which reads as follows:
“
(1A) The
provisions of Chapter 6 of the Companies Act, read with the changes
required by the context, apply to a corporation, but
any reference in
that Chapter to –
a company must be regarded as a
reference to a corporation; or
a shareholder of a company, or the
holder of securities issued by a company, must be read as a
reference to a member of a corporation.”
Chapter 6 of the 2008 Act
deals with business rescue and compromise with creditors.
[6] Section 68 of the CC
Act dealing with liquidation by the court and the grounds for
liquidation has been repealed. Section 68(c)
provided that a
corporation might be wound-up by a court if it was unable to pay its
debts. This subsection imitated section 344(f)
of the 1973 Act.
[7] Section 69 dealing
with the circumstances under which a close corporation is deemed
unable to pay its debts, the counterpart
of section 345 of the 1973
Act, has not been repealed. In short and in terms of this section and
for the purposes of section 68(c)
(prior to its repeal) a corporation
shall be deemed to be unable to pay its debts if a creditor with a
claim of not less than R200
has served a demand on the corporation
and it has for 21 days thereafter neglected to pay the sum or to
secure or compound for
it to the reasonable satisfaction of the
creditor, secondly in the event of a
nulla bona
return being
issued or thirdly if it is proved to the satisfaction of the court
that the corporation is unable to pay its debts.
The
raison d’être
of section 69 was obviously to assist an applicant in its
endeavour to obtain winding-up of its debtor on the basis of section
68(c),
being its inability to pay its debts. In the light of the
provisions of the 2008 Act it might be argued that there is no valid
reason for section 69 to be retained. This shall be considered later
herein.
[8] Prior to the
substitution of section 26 of the CC Act, subsection 26(7) provided
that in the event of the restoration of the
registration of a close
corporation by the Registrar (after it has been deregistered
earlier), it “shall continue to exist
and be deemed to have
continued in existence as from the date of deregistration as if it
were not deregistered”. Section
26 in its present format does
not refer to this deeming provision at all and merely reads as
follows:
“
26.
Deregistration
–
Sections 81(1)(f), 81(3), 82(3) to (4)
and 83 of the Companies Act, each read with the changes required by
the context, apply with
respect to the deregistration of a
corporation, but a reference in any of those provisions to a company
must be regarded as a reference
to a corporation for the purposes of
this Act.”
[9] Prof. JJ Henning
published an article prior to the commencement of the 2008 Act
wherein he indicated that the Department of
Justice and
Constitutional Development had been developing uniform insolvency
legislation for a considerable period of time which
might conflict
with the regime set out in the 1973 Act for dealing with and
winding-up insolvent companies. He submitted that in
order to avoid
any future conflict, the 2008 Act provides for transitional
arrangements that retain the current disposition set
out in chapter
14 of the 1973 Act for the winding-up and liquidation of companies
until such time as the new uniform insolvency
legislation is enacted.
See
The Impact of South African Company Law reform on Close
Corporations: Selected issues and perspective,
2010 Acta
Juridica, 456
at 478.
[10] The continued
application of Chapter 14 of the 1973 Act to winding-up and
liquidation is specifically provided for in item
9(1) of Schedule 5
to the 2008 Act, subject to sub-items (2) and (3) which read as
follows:
“
(2) Despite
sub-item 1, sections 343, 344, 346, and 348 to 353 do not apply to
the winding-up of a
solvent
company
,
except to the extent necessary to give full effect to the provisions
of Part G of Chapter 2.
If there is a conflict between a
provision of the previous Act that continues to apply in terms of
sub-item (1), and a provision
of Part G of Chapter 2 of this Act
with respect to a
solvent company
, the provision of this Act
prevails.”
(Emphasis added)
[11] It is immediately
apparent from sub-item 9(2) above that section 344 dealing with the
grounds upon which a company may be wound
up and in particular
sub-section 344(f) pertaining to a company being unable to pay its
debts, is not applicable to solvent companies.
Also Part G of Chapter
2 of the 2008 Act, being sections 79 – 83 thereof, deals
specifically with the winding-up of solvent
(not insolvent) companies
and the deregistering of companies.
[
12] Although a
close corporation that has not been converted in terms of Schedule 2
of the 2008 Act is not defined as a company
in this Act, the
amendment of section 66(1) of the CC Act to which I have referred
above, makes it clear that a close corporation
shall be dealt with in
the same manner as a company and therefore item 9 of Schedule 5, read
with Part G of Chapter 2, being sections
79 – 83 of the 2008
Act are applicable to close corporations as well.
[13] As stated earlier
section 68 of the CC Act and in particular section 68(c) referring to
the inability of a close corporation
to pay it debts as a ground for
winding-up, has been repealed. At this stage of our jurisprudence a
solvent close corporation can
only be wound-up and liquidated by a
court order as contemplated in section 81 of the 2008 Act, to wit on
application by (a) the
close corporation upon a special resolution
that it be wound-up by the court; (b) the business rescue
practitioner of such close
corporation on the grounds that no
reasonable prospects of it being rescued exist; (c) one or more of
its creditors on the grounds
that its business rescue proceedings
have ended in the manner contemplated in section 132(2)(b) or (c)(i)
and it appears to the
court that it is just and equitable in the
circumstances, or if it is otherwise just and equitable for it to be
wound-up; (d) one
or more of its directors or shareholders on the
basis that the directors are dead-locked in the management of the
company in certain
circumstances or when the shareholders are
dead-locked in certain circumstances; (e) a shareholder, with leave
of the court, on
the grounds that the directors or prescribed
officers of other persons are acting in a manner that is fraudulent
or otherwise illegal
or if assets are being misapplied or wasted; (f)
the Commission or Panel in certain circumstances.
[14] If the 2008 Act is
considered in context the legislature most probably intended to
provide for efficient rescue of financially
distressed companies,
including close corporations, in order to ensure that winding-up and
liquidation should be a creditor’s
last resort. A solvent close
corporation can therefore only be wound-up by the court on
application of a creditor thereof if business
rescue proceedings have
ended and it is just and equitable, alternatively if it is otherwise
just and equitable to be wound-up.
[15] A creditor who
cannot prove any of the two grounds stated in section 81(1)(c) and
referred to in the previous paragraphs, will
probably have to resort
to prove factual insolvency. However factual insolvency is not a
ground for winding-up in terms of section
344 of the 1973 Act. See:
EX PARTE
DE VILLIERS AND ANOTHER NNO v
IN
RE
CARBON DEVELOPMENTS
1993(1) SA 493 (AD)
at 502 C – E. It has been accepted that factual insolvency may
be indicative of a respondent’s
inability to pay its debts and
it may also be a relevant and material factor in deciding whether a
court should exercise its discretion
to grant a winding-up order.
See:
JOHNSON v HIROTEC (PTY) LTD
2000(4) SA 930 SCA at
par 6, 933-4. In my view the just and equitable ground will have to
be construed more widely to cater for
a situation where a close
corporation, or a company, even if it cannot be proved to be
factually insolvent, continues to trade
in dire financial
circumstances and/or with total disregard to the rights and claims of
its creditors and/or is shown to be unable
to pay its debts in
certain circumstances. For other examples see:
SUNNY SOUTH
CANNERS (PTY) LTD v MBANGXA
[2001] 1 ALL SA 474
(SCA) at 481
and
KIA INTERTRADE JOHANNESBURG (PTY) LTD v INFINITE MOTORS
(PTY) LTD
[1999] 2 ALL SA 268
(W) at 276-7. It should
therefore still be possible to rely in certain circumstances on the
inability of a respondent to pay its
debts. If not, the logic of
retaining section 69 of the CC Act and section 345 of the 1973 Act
escapes me. In saying this I am
mindful of the case law warning
against regarding the just and equitable ground as a catch-all
ground. Fact is that factual insolvency
has never been a separate
ground for winding-up and now the respondent’s inability to pay
is also not a ground to rely on
anymore, particularly in respect of
solvent close corporations and companies.
[16] Subsections
81(1)(c)(ii) and (d)(iii) read exactly the same i.e. “it is
otherwise just and equitable for the company
to be wound-up”.
An alternative ground for winding-up is created in both subsections
which strengthens my viewpoint that,
save for those situations which
have been identified thus far in our case law as just and equitable,
other situations may very
well arise in future. Again it must be
borne in mind that the mere inability of a solvent company/close
corporation to settle the
debts of creditors is not sufficient for
winding-up purposes and is rather indicative of a financially
distressed company/close
corporation that needs to be rescued and
placed under business rescue.
[17] It is not necessary
for a respondent in winding-up procedure to prove that it is not
indebted to the applicant. It merely needs
to prove that the debt is
disputed on
bona fide
and reasonable grounds. See:
DESSERT
STAR TRADING 145 (PTY) LTD AND ANOTHER v FLAMBOYANT EDLEEN CC &
ANOTHER
2011 (2) SA 266
(SCA) at par 16, 273-4.
THE FACTUAL MATRIX
Applicants’
undisputed allegations
[18] Few of the
allegations made by applicants are undisputed. First applicant and
respondent’s particulars are not in dispute
and it is also not
disputed that this court has jurisdiction to adjudicate the
application. It is not disputed that some of the
amounts payable to
first applicant were paid into second applicant’s bank account
and that for purposes of payment, second
applicant presented
invoices, not to respondent, but a joint venture of which respondent
is a partner. It is also not in dispute
that applicants complied with
the formalities pertaining to winding-up proceedings.
Respondent’s
version and facts in dispute
[19] The letter of demand
in terms of section 69 of the CC Act served on respondent on 25
August 2011 indicates the creditor as
Herman Kruger, the first
applicant in this application. It is alleged that the debt of R95
521,64 is due and payable to him personally
without any reference to
his close corporation, the second respondent. The amount claimed in
the letter of demand is not reconcilable
with the invoices attached
to the founding affidavit. Furthermore it is applicant’s case
in this application that the amount
claimed is due and payable to
both applicants and not to first applicant only.
[20] The respondent’s
case is that first applicant was appointed as site agent by the
Border Kei/Set-Mak Joint Venture of
which joint venture respondent is
one of the partners. The employer is thus the joint venture and not
respondent. The appointment
as site agent related to a contract for
the construction of the Butterworth Public Transport Interchange.
Respondent not only relies
on documentation in support of its
version, but its version is also confirmed under oath by Mr Fourie,
the project manager of the
joint venture who was involved in the
appointment of first applicant as site manager. For clarity, the
Amathole District Municipality
awarded the contract for the aforesaid
construction to the joint venture.
[21] Although salaries
were initially paid directly into the account of first applicant, at
his request, payments were later on
deposited into second applicant’s
bank account. For purposes hereof second applicant provided the joint
venture with tax
invoices. It is not disputed that some payments were
made by respondent, but it was explained on behalf of respondent that
these
payments were made on behalf of the joint venture and that the
parties later on settled the issue insofar as payments or
transferrals
were made by the joint venture to respondent’s
account.
[22] Respondent not only
disputes the identity of the debtor, but also the amount of the
claim. On his resignation first applicant
sent an e-mail to the joint
venture on the 18 July 2011, indicating that an amount of R29 328,00
only was due and payable. The
amount consisted of salary of R21
026,36 and petty cash due in the amount of R8 293,64. All amounts due
to first applicant (and/or
second applicant) were paid to it by the
joint venture and the last amount of R11 048,00 was paid after
institution of the present
proceedings. It is emphasised that the
amount was owed by the joint venture to first applicant and was duly
paid.
[23] Confronted with the
allegations contained in the answering affidavit, applicants dealt in
reply in detail with the amount allegedly
due. Contrary to the
invoices relied upon in the founding affidavit, being in respect of
salaries only, the claim is now compounded
as follows: R21 668,00 for
salary, short payment of salary in the amount of R18 780,00, petty
cash of R8 573,64 and overtime and
travel of R46 500,00. This is in
total contrast with the claim respondent had to meet. It is not even
applicants’ case in
the founding affidavit that they would be
entitled to overtime. It is apparent from the papers that there is a
serious dispute
as to what amounts, if any, are due and who are the
creditor(s) and debtor.
[24] Respondent took a
point
in limine
to the effect that when these proceedings were
instituted, second applicant was deregistered as close corporation.
In the replying
affidavit applicants alleged that restoration of
second applicant’s registration has taken place since filing of
the answering
affidavit. It was therefore contended that second
applicant’s status has been restored and that it has
locus
standi
in judicio
.
[25] Although several
allegations were made in the founding affidavit to show that
respondent could not meet its obligations, even
relying on summonses
and correspondence as so-called proof, it is apparent that these
claims related to the joint venture and not
respondent, but in any
event, as shown, all creditors were duly paid.
EVALUATION OF THE
EVIDENCE AND APPLICATION OF LEGAL PRINCIPLES
[26] Mr Zietsman
submitted that once it has been shown that second applicant’s
registration has been restored, its
locus standi
cannot be
attacked with success. I considered his submission, but must point
out that section 26 has been substituted as set out
above. Neither
the present section 26, nor the sections of the 2008 Act referred to
therein, contain a provision similar to the
deeming provision
previously found in section 26(7). Mr Zietsman’s argument would
have been sound prior to the amendment,
but it does not seem to be so
anymore. However I do deem it is necessary to make any pertinent
finding in this regard, save to
mention that the deeming provision of
the former section 26(7) has been done away with and not substituted.
For purposes hereof
I’ll accept however that second applicant
has
locus standi
in judicio
.
[27] I do not have to
find that respondent is not indebted to applicants. Respondent merely
has to prove that the debt is disputed
on
bona fide
and
reasonable grounds. I am so satisfied. The different versions
referred to above speak for themselves.
[28] Even if I am wrong
in my conclusion that the debt is disputed on
bona fide
and
reasonable grounds, the inability of a solvent close corporation to
settle its debts is not a ground for winding-up anymore.
As indicated
section 68 of the CC Act has been repealed and section 344 of the
1973 Act does not apply to solvent companies or
close corporations.
Mr Zietsman has conceded this and accepted the correctness of the
conclusions arrived at by Zietsman, AJ in
an unreported judgment of
this Division in the matter between
HBT CONSTRUCTION &
PLANT HIRE CC v UNIPLANT HIRE CC
, case number 5083/2011
delivered on 1 December 2011.
[29] Mr Zietsman argued
that the deeming provision found in section 69 of the CC Act
pertaining to a respondent’s inability
to pay its debts might
be of assistance in finding that it is just and equitable to wind-up
such respondent. The following should
be recorded. This deeming
provision cannot assist applicants
in casu
. Firstly, first
applicant only is identified as creditor in the letter of demand.
Secondly, the debt is disputed on
bona fide
and reasonable
grounds. It might have been argued with success that the respondent’s
inability to settle its debts, which
I indicated earlier is not the
case
in casu
, should be taken into consideration to prove that
it is just and equitable to be wound-up. If such a finding could be
made, a winding-up
order might have been issued even if it was found
that respondent is solvent. However no acceptable evidence is
available to make
such a finding
in casu
. The applicant’s
have not made out a case for winding-up based on the ground of just
en equitable or any other ground.
[30] Mr Zietsman wisely
declined to argue factual insolvency. The acceptable evidence
demonstrates quite the opposite and that is
that respondent is
solvent. Much was made in the replying affidavit of the cancellation
of the contract between the joint venture
and the Amathole District
Municipality and penalties to be incurred by the joint venture due to
breach of contract. These are irrelevant
now in that the parties by
agreement handed in a letter from the said Municipality indicating
that the termination of the contract
was withdrawn.
[31] My finding does not
close the doors of the court for applicants. They would be fully
entitled, if so advised, to institute
action in the Magistrate’s
Court to claim what they believe is due and payable to them. The
costly machinery of winding-up
procedure is not available to them
in
casu
.
ORDER
[32] Therefore the
application is dismissed with costs.
______________
J. P. DAFFUE, J
On
behalf of applicants: Adv. P J J Zietsman
Instructed
by:
Honey
Attorneys
BLOEMFONTEIN
On
behalf of respondent: Adv. C D Pienaar
Instructed
by:
Naudes
BLOEMFONTEIN
/eb