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[2012] ZAFSHC 148
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Scania Finance Southern Africa (Pty) Ltd v Thomi-Gee Road Carrier CC, Absa Bank Ltd v Fernofire Betlhehem CC (958/2012, 4841/2012) [2012] ZAFSHC 148; 2013 (2) SA 439 (FB) (19 July 2012)
FREE STATE HIGH
COURT, BLOEMFONTEIN
REPUBLIC OF SOUTH
AFRICA
Case No. : 958/2012
In the matter between:-
SCANIA FINANCE
SOUTHERN AFRICA (PTY) LTD
…...............
Applicant
and
THOMI-GEE ROAD
CARRIERS CC
….....................................
Respondent
Case No. : 4841/2012
In the matter between:-
ABSA BANK LIMITED
…...............................................................
Applicant
and
FERNOFIRE BETHLEHEM
CC
….............................................
Respondent
DELIVERED BY:
SNELLENBURG, AJ
HEARD ON:
26 APRIL 2012
ORDERS:
7
JUNE 2012
_________________________________________________________
REASONS DELIVERED:
19 JULY 2012
[1] This judgment
concerns two unopposed motions for provisional orders of liquidation
on the ground that the respective respondents
failed to pay debts
owed to the applicants notwithstanding a written demand (by the
respective applicants) in terms of the provisions
of section 69 of
the Close Corporation Act 69 of 1984 [the Close Corporations Act],
read with the provisions of Schedule 5 of the
Companies Act 71 of
2008
[the 2008 Act].
[2] It is necessary to
deal with the delay from date of hearing of the matters to date of
this judgment. The provisional orders
were subsequently granted and I
indicated that my written reasons would follow. In light of the fact
that both applications involves
the adjudication of the same legal
principle, which had formed the subject of the judgment in this
division of Zietsman AJ in
HBT CONSTRUCTION AND PLANT HIRE CC v
UNIPLANT HIRE CC
(case number
5083/2011 FSB [
HBT
],
unreported), I requested that the motions be argued simultaneously at
the end of the motion court roll. Subsequent to the initial
arguments, I entertained further submissions from both counsel on
various occasions. I am indebted to counsel for their submissions.
The further submissions mainly relate to reported and unreported
judgments dealing with the same issue that I need to adjudicate,
which were delivered or became available in this and other divisions.
It will suffice to say that both Mr Tsangarakis on behalf
of Scania
Finance Southern Africa (Pty) Ltd [Scania] and Mr Zietsman on behalf
of Absa Bank Ltd [Absa] submits that notwithstanding
the provisions
of the current
Companies Act, section
69 of the Close Corporation Act
still constitutes a deeming provision and consequently that the
winding-up of a close corporation
(or company) can be sought and
granted on that basis alone which, as will appear, is contrary to the
findings in
HBT
.
[3] In
HBT
,
Zietsman AJ held that in light of the provisions of the new
Companies
Act, and
the interrelation with the provisions of the Close
Corporation Act, that if a company cannot prove just and equity in an
application
for winding-up, it shall be imperative for such an
applicant to prove insolvency of the company before the whole of
section 14
of the 1973 Act will be applicable. The effect of the
judgment is that section 69 of the Close Corporation Act is held to
no longer
constitute a deeming provision, in the sense that an
applicant can no longer rely solely on a debtor’s failure to
respond
to such demand, for the winding-up of the close corporation.
[4] It is apposite to
evaluate the existing legislative framework in order to consider the
ratio decidendi
of the
HBT
judgment as well as
the other judgments dealing with this question, which judgments are
not in harmony.
[5] The 2008 Act
commenced on 11 May 2011. In terms of section 224 of the 2008 Act the
Companies Act 61 of 1973 [‘the previous
Act’] is
repealed, subject to subsection (3) which provides that the repeal
does not affect the transitional arrangements,
which are set out in
Schedule 5. Section 9 of Schedule 5 in turn provides that:
‘
(1)
Despite the repeal of the previous Act, until the date determined in
terms of sub-item (4), Chapter 14 of that Act continues
to apply with
respect to the winding-up and liquidation of companies under this
Act, as if the Act had not been repealed subject
to sub-items (2) and
(3).
(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.
(3) 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.’
[6] Part G, Sections
78(1)(b) and 81 of the 2008 Act deals with the winding-up of
solvent
companies by court order. The provisions of the relevant sections
provide:
‘
79
Winding-up of solvent companies
(1) A solvent company may
be dissolved by-
(a) voluntary winding-up
initiated by the company as contemplated in section 80, and conducted
either-
(i) by the company; or
(ii) by the company's
creditors, as determined by the resolution of the company; or
(b) winding-up and
liquidation by court order, as contemplated in section 81.
(2) The procedures for
winding-up and liquidation of a solvent company, whether voluntary or
by court order, are governed by this
Part and, to the extent
applicable, by the laws referred to or contemplated in item 9 of
Schedule 5.
(3) If, at any time after
a company has adopted a resolution contemplated in section 80, or
after an application has been made to
a court as contemplated in
section 81, it is determined that the company to be wound up is or
may be insolvent, a court, on application
by any interested person,
may order that the company be wound up as an insolvent company in
terms of the laws referred to or contemplated
in item 9 of Schedule
5.
81 Winding-up of solvent
companies by court order-
(1) A court 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 continued 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) one or more of the
company's creditors have applied to the court for an order to wind up
the company on the grounds that-
(i) the company's
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 for the company to be wound
up; or
(ii) it is otherwise just
and equitable for the company to be wound up;
(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) a shareholder has
applied, with leave of the court, for an order to wind up the company
on the grounds that-
(i) the directors,
prescribed officers or other persons in control of the company are
acting in a manner that is fraudulent or otherwise
illegal; or
(ii) the company's assets
are being misapplied or wasted; or
(f) the Commission or
Panel has applied to the court for an order to wind up the company on
the grounds that-
(i) the company, its
directors or prescribed officers or other persons in control of the
company are acting or have acted in a manner
that is fraudulent or
otherwise illegal, the Commission or Panel, as the case may be, has
issued a compliance notice in respect
of that conduct, and the
company has failed to comply with that compliance notice; and
(ii) within the previous
five years, enforcement procedures in terms of this Act or the Close
Corporations Act, 1984 (Act 69 or
1984), were taken against the
company, its directors or prescribed officers, or other persons in
control of the company for substantially
the same conduct, resulting
in an administrative fine, or conviction for an offence.
(2) . . .
(3) . . .
(4) A winding-up of a
company by a court begins when-
(a) an application has
been made to the court in terms of subsection (1) (a) or (b); or
(b) the court has made an
order applied for in terms of subsection (1) (c), (d), (e) or (f).
[7] The salient
provisions relating to winding-up of companies in the previous Act
provided as follows:
‘
s
[a61y1973s343]
343(1)
A company may be wound up-
(a) by the Court; or
(b)
voluntarily.
(2) . .
.
s[a61y1973s344]
344
A company may be wound up by the Court if-
. . .
(f)
the company is unable to pay its
debts as described in section 345;
(g)
.. .;
(h)
it appears to
the Court that it is just and equitable that the company should be
wound up.
s[a61y1973s345]
345
When company deemed unable to pay its debts
A company or body
corporate shall be deemed to be unable to pay its debts if-
(a)
a creditor, by
cession or otherwise, to whom the company is indebted in a sum not
less than one hundred rand then due-
has served on the
company, by leaving the same at its registered office, a demand
requiring the company to pay the sum so due;
or
in the case of any body
corporate not incorporated under this Act, has served such demand by
leaving it at its main office or
delivering it to the secretary or
some director, manager or principal officer of such body corporate
or in such other manner
as the Court may direct,
and the company or body
corporate has for three weeks thereafter neglected to pay the sum, or
to secure or compound for it to the
reasonable satisfaction of the
creditor; or
(b)
any process
issued on a judgment, decree or order of any court in favour of a
creditor of the company is returned by the sheriff
or the messenger
with an endorsement that he has not found sufficient disposable
property to satisfy the judgment, decree or order
or that any
disposable property found did not upon sale satisfy such process; or
(c)
it is proved
to the satisfaction of the Court that the company is unable to pay
its debts.
(2) In determining for
the purpose of subsection (1) whether a company is unable to pay its
debts, the Court shall also take into
account the contingent and
prospective liabilities of the company.’
[8]
Section 66
of the
Close Corporations Act provides
that the laws mentioned or
contemplated in item 9 of Schedule 5 of the 2008 Act, read with the
changes required by the context,
apply to the liquidation of a close
corporation in respect of any matter not specifically provided for in
that part or in any other
provision of the
Close Corporations Act.
The
now repealed
section 68(c)
provided that a close corporation may
be wound-up if it was unable to pay its debts as described in section
69 which contains similar
provisions as
section 345
of the previous
Act.
[9] In
HBT
Zietsman AJ held that the grounds set out in section 81 only apply to
solvent companies. As stated, he held that in order to rely
on the
grounds in chapter 14 of the 1973 Act, the applicant must first (and
as
sine quo non
) prove insolvency, in other words that the
company is not solvent and therefore that section 81 is not
applicable. It follows that,
should an applicant be unable to prove
insolvency, such applicant must then make out a case for winding-up
in terms of section
81. The failure to respond to the demand in terms
of section 69 will in such event constitute a factor that may, or may
not, assist
such an applicant to rely on the ground that it is just
and equitable to liquidate.
[10] In another judgment
in this division Daffue J, in
KRUGER HERMAN UTOPIA CONSTRUCTION
CC v SET-MAK CIVILS
(case number 5495/2011 FSB, unreported)
had to consider,
inter alia
, whether it was still possible, in
terms of the provisions of the current Companies Act to obtain a
winding-up order based (solely)
on the deeming provisions of section
69 of the CC Act, particularly if the respondent is a solvent close
corporation. Daffue J
was also called upon to decide whether the
applicant in that matter had made out a case that the respondent
should be wound up
based on the just and equitable ground.
[11] Daffue J followed
the
HBT
ratio decidendi
and came to the
conclusion that if the 2008 Act be 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. According to the learned Judge a
solvent company can only be wound up by an order of
court if business
rescue proceedings have ended and it is just and equitable,
alternatively if it is otherwise just and equitable
to be wound up.
Daffue J further held that an applicant who cannot satisfy the
requirements in section 81(1)(c) will probably have
to prove factual
insolvency, although factual insolvency is not a ground for
winding-up in terms of section 344 of the 1973 Act.
Daffue J
concludes that in so far as neither factual insolvency, nor inability
to pay debts is a ground for winding-up [in terms
of the
2008
Act], the just and equitable ground should be construed more
widely, otherwise the retention of sections 345 of the Companies Act
(and
section 69
of the
Close Corporations Act will
be superfluous.
The Judge concludes that mere inability of a solvent company to
settle debts is not sufficient for winding-up purposes.
[12] I respectfully
disagree with the
ratio decidendi
, in so far as it relates to
the issue at hand, in both the well reasoned judgments in
HBT
and
SET-MAK CIVILS
. The misconception of requiring a
creditor to prove insolvency before being able to rely on Chapter 14
of the previous Act is apparent
merely from the provisions of section
345, read with 344 of the 1973 Act, which clearly does not provide
for factual insolvency,
merely a deemed inability to pay its debts
(and also if it is proved to the satisfaction of the court that the
company is unable
to pay its debts). The section has always brought
about a peculiar consequence, namely that the debtor was deemed to be
unable
to pay its debts, although it may well be able to pay other
debts. One of the grounds available to such debtor to oppose the
application
for winding-up on this basis was to prove solvency. Then
the court still retained its discretion.
[13] Professor P A
Delport, co-author of amongst other publications,
Henochsberg on
the Companies Act
, 2008 [Lexis Nexis, Durban] concludes in an
opinion of 15 May 2012 on this subject that the legislature intended
Part G of Chapter
3 of the 2008 Act to apply to winding-up of
‘solvent’ companies and Chapter XIV of the previous Act
to apply to ‘insolvent’
companies, subject to certain
exceptions that are not relevant for purposes hereof. Therefore
sections 344 and 345 of the previous
Act still applies to companies
and if a company is to be wound up due to inability to pay debts,
sections 344(
f
) and 345 can still be used. What the legislator
has in effect brought about, by the repeal of section 68 and the
amendment of section
66 (as set out above of the
Close Corporations
Act), is
that the grounds for winding-up ‘insolvent’
close corporations by order of court are now the same as the grounds
for
winding-up of ‘insolvent’ companies. Professor
Delport submits that if the application for the winding-up of an
‘insolvent’
company is made on the basis of
section
34
4(f), then the applicant may (obviously) rely on the deeming
provisions of
section 345.
Regarding close corporations, the same
ground will be used, to wit
section 344(f)
read with
section 69
of
the
Close Corporations Act.
[14
] As matters stand, to
my mind, both
section 69
of the
Close Corporations Act and
section
345
of the previous Act are still deeming provisions. I will
henceforth refer only to section 345 and that must be read to include
section 69
of the
Close Corporations Act. If
any of the statutory
elements are satisfied, for example the non payment after being duly
served with a demand in terms of
section 345
, the company is deemed
to be unable to pay its debts and the company may, as in the previous
disposition, be wound up solely on
this ground. Such applicant is
entitled to seek a winding-up order on that basis. The court retains
its discretion. Should the
respondent however prove that it is
solvent, then (and only then) the applicant will obviously have to
satisfy the requirements
of sections 79(2) and 81 of the 2008 Act.
But the onus on proving solvency means satisfying the requirements of
section 4(1) of
the 2008 Act. In such event the applicant may well
have only the just and equitable ground if no other grounds in terms
of Section
81 are available. The onus is however on the respondent
(debtor) to satisfy the solvency test. Obviously the applicant will
act
to his own peril if he approaches the court solely on the grounds
of sections 344(f) and 345 and the debtor proves that it is solvent.
Debatably, the fact that a company does not make use of business
rescue and similarly ignores its obligations owed to its debtors
may
very well constitute valid grounds in terms of the 2008 Act, to hold
that it is just and equitable that the company be wound
up. To this
end I agree with Daffue J that just and equitable will, in terms of
the 2008 Act, have a wider meaning.
[15] I am fortified in my
view in light of the following considerations.
[16] In the
SET-MAK
CIVILS
judgment at para [15], Daffue J correctly holds that
factual insolvency has never been a ground for insolvency, although
it may
be considered in general when exercising its discretion. See
EX PARTE DE VILLIERS AND ANOTHER NNO v IN RE CARBON
DEVELOPMENTS
1993 (1) SA 493
(AD) at 502C - E. The converse
has applied, namely factual insolvency may be indicative of the
debtor companies inability to pay.
JOHNSON v HIROTEC (PTY) LTD
[2000] ZASCA 131
;
2000 (4) SA 930
SCA at para [6].
[17] Professor JJ
Henning’s publication prior to commencement of the 2008 Act
(referred to in par 9 of the
SET-MAK CIVILS
judgment)
confirms that in order to avoid future conflict, the 2008 Act
provides for transitional arrangements that retain the
current
disposition, as provided for in Chapter XIV of the previous Act for
liquidation and winding-up 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.
[18] In unopposed
proceedings for winding-up, the court’s discretion is very
narrow where the applicant is an unpaid creditor
who cannot obtain
payment and who brings his claim within the Act. Such creditor is
entitled,
ex debitio justitiae
, to a winding-up order. He is
not bound to give the creditor time to effect payment. See
SAMMEL
v PRESIDENT BRAND GOLD MINING CO LTD
1969 (3) SA 629
(A) at
662E.
[19] In
FIRSTRAND
BANK LTD v LODHI PROPERTIES INVESTMENT CC AND OTHERS
(case
number 38326/2011 NGP, unreported) [
LODHI]
, Van der Byl
AJ held at p29 par 30:
(a) that in absence of an
express provision, there is no indication in the 2008 Act that the
legislator intended, particularly,
in so far as it left section 345
of the previous Act intact, to do away with the principle that a
company (or close corporation)
may be liquidated on the grounds of
its ‘commercial insolvency’.
(b) that the 2008 Act
refers to a ‘solvent company’ as a company that is either
not actually (factually) or commercially
insolvent to which Part G of
Chapter 2 (of the 2008 Act) will apply. Chapter XIV of the previous
Act (still) applies to ‘commercially
or actually (factually)
insolvent companies’.
I agree, subject to what
has been said regarding the fact that factual insolvency is neither
required nor a ground for winding-up
in terms of the previous Act.
The reasoning corresponds with the views expressed by the learned
Professors Delport and Henning,
as dealt with in paragraphs [12] and
[16] above, regarding the express intention to retain the previous
disposition until uniform
insolvency legislation is enacted.
[20] The findings in
LODHI
was confirmed by Van Oosten J in
FIRSTRAND
BANK LTD v BUNKER HILLS INVESTMENTS 499 CC
(case number
32130/2011 SGJ, unreported), at par [8] to the extent that the
legislator did not, in the 2008 Act, intend to do away
with a
liquidation on the grounds of commercial insolvency.
[21] I therefore hold
that an applicant may, in terms of Section 9 of Schedule 5 of the
2008 Act, approach the court for the liquidation
of a respondent
company (or close corporation) on the ground of its inability to pay
its debts in terms of section 344 (f) and
that section 345 (and
Section 69
of the
Close Corporations Act) is
still a deeming
provision. Such an applicant need not prove that the respondent
company is insolvent in order to rely on Chapter
XIV of the previous
Act.
[22] Insofar as necessary
for the purposes of the present applications, I agree with the
finding of Daffue J in the
SET–MAK CIVILS
judgment, that the ground of just and equitable as used in section 81
must be interpreted wider than was the case in the previous
disposition. The legislator has specifically included grounds, which
were traditionally considered grounds that made it just and
equitable
to grant a winding-up order, as substantial grounds on which a court
may liquidate a solvent company. Section 81(1)(
d
) now
specifically caters for directors that are deadlocked to apply for
the winding-up of a solvent company. Section 81(1)(d)(iii)
however
provides, in addition to the directors deadlock that prejudices the
company (irreparable harm as result of the deadlock),
that the court
may grant a winding-up order if it is otherwise just and equitable
for the company to be wound up. A similar provision,
in addition to
the provisions that only govern liquidation on application by one or
more creditors on the ground that:
(a) business rescue
proceedings have ended; and
(b) it appears that it is
just and equitable in the circumstances to wind-up, appears in
section 81(1)(c)(ii). This finding, to
my mind, is not at odds with
the finding in
HBT
. The use of the same words indicate
that the legislator intended the same test to be applied, namely the
term postulates a conclusion
of law, on the grounds of justice and
equity, as a ground for winding-up. See
RAND AIR (PTY) LTD v
RAY BESTER INVESTMENTS (PTY) LTD
1985 (2) SA 345
(W);
CUNINGHAME v FIRST READY DEVELOPMENT 249 (ASSOCIATION
INCORPORATED IN TERMS OF SECTION 21)
2010 (5) SA 325
(SCA);
[2010] 1 All SA 473
(SCA) at par 14.
[23] In both applications
the respective respondents’ indebtedness has been proven.
[24] In the SCANIA matter
the respondent owes the applicant the amount of R1 089 659.34.
This is a substantial amount
which is due and owing. It appears that
a certain payment was received during February 2012 from a debtor of
the respondent, which
was earmarked to be allocated on the
respondent’s arrears. This payment, not made directly by the
respondent, significantly
followed only after the section 69(1)(
a
)
demand was duly served on the respondent. No other response has been
forthcoming. I am satisfied that the respondent is unable
to pay its
debts and is in fact commercially insolvent. I am satisfied that the
applicant has made out a proper case for the provisional
liquidation
of the respondent.
[25] In the ABSA matter
the applicant relies, in addition to the section 69(1)(a) demand,
also on factual insolvency, but that has
to mind not been proven. The
applicant’s case in effect rests solely on the respondent’s
failure to secure or compound
for its indebtedness after receipt of
the said demand. As in the other matter, the respondent owes the
applicant a substantial
amount of money. The respondent was initially
represented by an attorney who subsequently withdrew. The respondent
did not oppose
the matter further (other than the notice of
opposition that was filed). Notwithstanding that the section 69
demand was served
approximately three months prior to the
application, the respondent likewise failed to secure or compound its
indebtedness to the
applicant. In fact, the respondent has not
responded in any manner after the demand was served. I am satisfied
that this applicant
has also made a proper case for the provisional
liquidation of the respondent.
[26] For these reasons I
granted the provisional orders of liquidation in both matters.
_________________
SNELLENBURG, AJ
APPEARANCES:
On
behalf of the applicant in Case 958/2012:
Adv S Tsangarakis
Instructed by:
Naudes
Bloemfontein
On behalf of the
applicant in case 4841/2011:
Adv PJJ Zietsman
Instructed by:
Naudes
Bloemfontein
NS/sp