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[2012] ZAFSHC 155
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Lidino Trading 580 CC v Cross Point Trading (Pty) Ltd , In re: Mabe v Cross Point Trading 215 (Pty) Ltd (2130/2012) [2012] ZAFSHC 155 (23 August 2012)
FREE STATE HIGH
COURT, BLOEMFONTEIN
REPUBLIC OF SOUTH
AFRICA
Case No: 2130/2012
In the matter between:
LIDINO TRADING 580
CC
........................................................
Applicant
and
CROSS POINT TRADING
(PTY) LTD
..................................
Respondent
IN RE:
TSHEGOFATSO
PRUDENCE MABE
.......................................
Applicant
and
CROSS POINT TRADING
215 (PTY) LTD
...........................
Respondent
_____________________________________________________
JUDGMENT BY
:
KRUGER, J
_____________________________________________________
HEARD ON:
16 AUGUST 2012
_____________________________________________________
DELIVERED ON
:
23 AUGUST 2012
_____________________________________________________
[1] This judgment
concerns a liquidation application and a business rescue application
under
section 131
of the
Companies Act 71 of 2008
, both brought under
the same case number.
[2] The following
entities and persons feature in these proceedings:
Lidino Trading 580
CC
(“Lidino”)
Elizabeth Geldenhuys =
sole member
Cross Point Trading
315 (Pty) Ltd
(“Cross Point”)
Directors:
(1) Tshegofatso Prudence
Mabe (daughter of Orid Daddy) (“Ms Mabe”)
(2) Elizabeth Geldenhuys
(wife of J.H.) (“Mrs Geldenhuys”).
The two persons who were
responsible for the creation of Cross Point and who appear to have an
interest in whether Cross Point is
liquidated or placed under
business rescue are:
Mr J. H. Geldenhuys (“Mr
Geldenhuys”)
Mr Orid Daddy Mabe (“Mr
Mabe”).
[3] Lidino brought an
application for the liquidation of Cross Point on 25 May 2012. Mr
Mabe was the deponent to the answering affidavit
opposing the
liquidation application, filed on 20 June 2012.
[4] In the answering
affidavit Mr Mabe says that he has instructed his attorneys to bring
an application in terms of
section 131
of the
Companies Act 71 of
2008
for business rescue. In the answering affidavit Mr Mabe alleges
that Cross Point is not commercially or factually insolvent and
“may
be rescued by the commencement of business rescue proceedings.”
Lidino’s replying affidavit was served and
filed on 13 July
2012. Mrs Geldenhuys, deponent to Lidino’s replying affidavit
says that no application for business rescue
has been launched.
[5] The answering
affidavit was served on the day set down for the hearing of the
matter before Murray AJ, 21 June 2012. She postponed
the matter to 26
July 2012 and ordered Cross Point to file a condonation application
for the late filing of the answering affidavit
and ordered Cross
Point to pay the costs on an attorney and client scale. No such
condonation application was ever filed.
[6] On 25 July 2012, the
day before the date the matter was postponed to, Ms Mabe caused a
business rescue application, in which
she was the applicant and Cross
Point the respondent, to be issued and served at 15h01 on Lidino’s
attorneys. I received
that application shortly before 16h00 on 25
July 2012.
[7] On 26 July 2012 I
postponed both applications to 16 August 2012 and determined times
for the filing of further papers. I ordered
Mr and Ms Mabe to pay the
costs occasioned by the hearing on 26 July in their personal
capacities on the attorney and own client
scale.
[8] On 1 August 2012 Mrs
Geldenhuys and Lidino filed an application to intervene and oppose
the business rescue application, together
with an affidavit by Mrs
Geldenhuys also serving as an answering affidavit to the business
rescue application. A replying affidavit
in the business rescue
application was deposed to by Mr Mabe on 10 August 2012. No objection
was raised to the intervention application
of Mrs Geldenhuys and
Lidino.
[9] On 10 August 2012 the
attorney of Cross Point and Mr Mabe withdrew as attorney of record.
Mr Mabe requested leave to present
the case on behalf of his
daughter, Ms Mabe and Cross Point on 16 August 2012. Mr Tsangarakis,
for Lidino, properly and correctly
pointed out that there was no
basis upon which Mr Mabe, not being an attorney or advocate, could
appear, but stated that it was
important for Lidino to bring this
matter to finality. I deemed it in the interests of justice to allow
Mr Mabe to present the
case for Ms Mabe. The two persons who have an
interest in these proceedings are Mr Geldenhuys and Mr Mabe.
[10] The events leading
to the creation of Cross Point are set out in the founding affidavit
to the liquidation application. In
February 2011, Mr Geldenhuys
approached Mr Mabe to start a BEE Compliant Construction Company. It
was decided that Ms Mabe and
Mrs Geldenhuys would be the directors of
the new company, Lidino. Lidino would apply for specifically (but not
only) tenders by
local and national government. In the founding
affidavit Mrs Geldenhuys says:
“
7.4.2 It was
agreed that my husband and Daddy Mabe had the necessary knowledge and
expertise required by the Respondent [Cross Point]
to perform in
terms of its anticipated contractual obligations in the event that a
tender was awarded to it. To this end, I would
be supported and
represented by my husband and Me Tshegofatso Prudence Mabe would be
supported and represented by her father, Daddy
Mabe in conducting the
affairs of the Respondent.”
[11] In March 2011 Cross
Point was awarded a sub-contract in what is described as the Cell C
project. The contract had a total value
of R1 083 000,00. Mr
Geldenhuys attended at the sites and started with the erection of
cell phone reception towers, while Mr Mabe
was still involved in
another project. On 15 June 2011 Cross Point was awarded another
sub-contract relating to roofing at C-Max
Prison in Pretoria. The
sub-contract was awarded to Keren Kula Construction (Pty) Ltd and was
for R2 289 440. Because Mr Geldenhuys
could not continue to oversee
both projects, it was agreed that Mr Geldenhuys would attend to the
C-Max project, and Mr Mabe would
supervise the Cell C project.
[12] In the answering
affidavit Mr Mabe says that problems arose because employees of Cross
Point were not paid in time whereas
employees working for Lidino CC,
of which Mrs Geldenhuys was the sole member, were paid. Mrs
Geldenhuys was in control of the finances
of Cross Point, and Mr Mabe
says she was biased towards Lidino’s employees to the prejudice
of other employees. Mr Mabe contends
in the answering affidavit that
Mr Geldenhuys and Mrs Geldenhuys used Cross Point to get contracts,
using his daughter’s
favourable BEE status, then Mr and Mrs
Geldenhuys took over those contracts into Lidino. The thrust of Mr
Mabe’s opposition
to the liquidation application is that Lidino
(i.e. Mr & Mrs Geldenhuys) have taken over the contracts and
money due to Cross
Point. Mr Mabe seemed to realise that the business
rescue application is not an appropriate remedy in the circumstances
prevailing
here. He even went so far as to say in argument (without
prompting) that the remedy under
section 163
of the
Companies Act 71
of 2008
dealing with the relief from oppressive or prejudicial
conduct or from the abuse of the separate juristic personality of a
company
might have been more appropriate than a business rescue
application in these proceedings.
[13] The founding
affidavit in the business rescue application is made by Ms Mabe. She
describes herself as a director and shareholder
of Cross Point,
residing at Meadowlands, Soweto. In March 2011 Cross Point was bought
as a shelf company. Ms Mabe was at that time
a full time student at
Boston College Westgate. The arrangement between Mr Geldenhuys and Mr
Mabe was that each would contribute
R50 000 as well as their
expertise in the construction industry. Since she was a student at
the time, she would not participate
in the day-to-day management of
Cross Point. Cross Point would tender for projects “since my
participation would give the
company a favourable Black Economic
Empowerment rating. This included tenders by Local, Provincial and
National Government.”
She goes on to state that she did not
have any experience in the management of a company or construction
projects. She says in
October 2011 she had a break in her studies and
started actually participating in the day-to-day administration of
the company.
In answer to this allegation, Mrs Geldenhuys says in the
answering affidavit:
“
15.3 The
deponent attended the business of the Second Respondent for two days
in the month of October 2011 whereafter she became
bored and was
never to be seen again.
15.4 The deponent is invited to place
before the Honourable Court any documentary proof which substantiates
the allegation that
she was ‘…
actively participating
in the day-to-day administration of the Respondent’.
“
No such proof was
advanced by Ms Mabe.
[14] Ms Mabe says Mrs
Geldenhuys refused to make invoices and bank statements available to
her and Mr Mabe. In the answering affidavit
Mrs Geldenhuys says she
gave Ms Mabe the bank statements F8 and F9 attached to the founding
affidavit. In the replying affidavit
Ms Mabe says:
“
These bank
statements are not reflective of all the finances of Cross Point.”
She says she queried the
bank statements in her e-mail of 9 November 2011 (General
Statements). Ms Mabe does not dispute the allegation
of Mrs
Geldenhuys that Ms Mabe has a bank card of the banking account of
Cross Point and is entitled to the bank statements.
[15] In the founding
affidavit Ms Mabe says:
“
12.
The following projects are still to be
completed by the respondent:
Remainder of the C-Max contract and
other Cell C towers.
”
[16] The answering
affidavit by Mrs Geldenhuys records that no further contracts exist
for Cross Point to complete, and refers to
the affidavit of Pieter
Gouws, who is the project manager in the employ of Keren Kula
Construction (Pty) Ltd, and he states:
“
There are no
projects whatsoever to which the second respondent is entitled in
respect of the C-Max prison project.”
He says annexure F7,
attached to the founding affidavit, is not a subcontract. That
statement is correct. Further Gouws says that
no contracts totalling
R13 million, as contended by Ms Mabe in the founding affidavit, have
at any stage been awarded to Cross
Point. He says Cross Point has no
right to additional construction works whatsoever.
THE LAW ON BUSINESS
RESCUE APPLICATIONS
[17] A number of reported
cases deal with business rescue applications. In spite of the fact
that all the judgments make it clear
that the test for granting a
business rescue application is lighter than was the case with
judicial management, none of the applications
for business rescue in
the reported cases I have read was successful.
(i)
SWART v BEAGLES
RUN INVESTMENTS 25 (PTY) LTD (FOUR CREDITORS INTERVENING)
2011 (5) SA 422
(GNP)
Makgoba J held that the
test is whether a case has been made out (1) that the company will be
able to carry on business on a solvent
basis and/or (2) that the
granting of business rescue will result in creditors being in a
better position than under liquidation
(par [37]).
SOUTHERN PALACE
INVESTMENTS 265 (PTY) LTD v MIDNIGHT STORM INVESTMENTS 386 LTD
2012 (2) SA 423
(WCC). Eloff AJ pointed out that the business rescue
application must address the cause of the demise or failure of the
company’s
business, and offer a remedy therefor that has a
reasonable prospect of being sustainable (par [24]).
OAKDENE SQUARE
PROPERTIES (PTY) LTD AND OTHERS v FARM BOTHASFONTEIN (KYALAMI) (PTY)
LTD AND OTHERS
2012 (3) SA 273
(GSJ). Claasen J says that
the applicant must place facts before the court to indicate that
creditors will get a better return
than under liquidation. He also
points out that liquidation is more appropriate in the case of
deadlock. Where there are many
disputes, mediation by a business
practitioner will not be appropriate (289D – G).
(iv)
PROSPEC
INVESTMENTS (PTY) LTD v PACIFIC COAST INVESTMENTS 97 LTD AND ANOTHER
(Free State case 5000/2011, judgment by Van der Merwe, J on
28 June 2012). Vague averments and speculative suggestions will not
be sufficient for a court to grant an application for business rescue
(par [117]). The applicant did not show a reasonable prospect
of a
better return than would be the case in liquidation (par [27]).
ONUS
[18] Before granting a
business rescue application, the court must be satisfied that there
is a reasonable prospect for rescuing
the company
(section
131(4)(a)(iii)
, apart from the other requirements listed in
section
131(4)(a)).
It has been held that a prospect here means an
expectation, which in turn signifies a possibility. A possibility is
reasonable
if it rests on a ground that is objectively reasonable –
per Van der Merwe J, in
PROSPEC INVESTMENTS
(PTY) LTD AND ANOTHER v PACIFIC COAST INVESTMENTS 97 LTD,
(
supra
)
par [12].
EMPLOYEES
[19] The interest of
employees is prominently featured as an object of business rescue
proceedings. The rights of employees are
secured by business rescue
proceedings. Payments due to employees are given super-preference
rights
(section 135(1)
and
135
(3)(a);
ANNELI
LOUBSER,
“
The business rescue
proceedings in the
Companies Act of 2008
: concerns and questions
(part 1)
”
(2010) TSAR 501
at 509 –
510). In response to the repeated statement that Cross Point has no
employees, in the very last affidavit which
was filed in these
proceedings, the replying affidavit of Ms Mabe to the business rescue
application, deposed to on 10 August 2012,
she says “There are
still employees for the Cross Point. ‘See annexure 10’”.
There is no annexure 10 to
the replying affidavit.
[20] One fact which is
common cause is that there is a deadlock between the directors –
be that the nominal Ms Mabe and Mrs
Geldenhuys, or the persons doing
the work, Mr Mabe and Mr Geldenhuys. In the case of deadlock
liquidation is more appropriate than
business rescue (
OAKDENE
supra
289E – F).
[21] A serious problem
with the business rescue application is that no concrete plan is put
forward. Mr Mabe’s view is that
the business rescue
practitioner will deal with the specific contracts and decide on a
way forward. The answer to this argument
is that, should there be a
liquidation, the liquidator would be able to consider the particular
contracts and determine what to
do.
NAMING OF A
PRACTITIONER
[22]
Section 131(5)
provides that, when granting a business rescue application, the court
may appoint an interim business rescue practitioner.
LOUBSER
,
(
supra
) at 513 points out that in practice the court will have
to appoint such person, because there is no provision for the
temporary
custody of the company’s assets (unlike the
proceedings for an interim judicial management order). In
SWART
v BEAGLES RUN INVESTMENTS 25 (PTY) LTD (FOUR CREDITORS INTERVENING)
2011 (5) SA 422
(GNP) the applicant named a person to be appointed as
interim practitioner in its Notice of Motion (par [1]). In this
matter, Ms
Mabe asks that the Companies and Intellectual Property
Commission be ordered to appoint an interim business rescue
practitioner.
During argument Mr Mabe informed the court that he has
been to the offices of the Commission, and the officials there
indicated
to him that they would be able to give him the particulars
of a suitable person who could be appointed in this case, should this
court grant the order.
[23] Mr Tsangarakis says
that Cross Point is factually and commercially insolvent. It has not
done business since May 2012. Mr Mabe
contends that the claim upon
which Lidino bases its application is not a proper one. On these
papers, the claim is
prima facie
in order. Upon investigation,
a liquidator may find that Lidino has not proved a claim. Cross Point
is a company, and all that
needs to be established is commercial
insolvency, being an inability to pay its day-to-day expenses. The
allegations of commercial
insolvency in the founding papers have not
been rebutted on substantial grounds.
[24] The purpose of a
business rescue is to grant an essential breathing space while a
business rescue plan is being implemented
(
SOUTHERN PALACE
par [3]). In this case there is no question of a breathing space
needed or the implementation of a business plan. There is no need
for
a breathing space – nothing is happening. In this case a
business plan will simply prolong the agony (
SOUTHERN PALACE
par [24]). There is no indication of the likely cost of the business
rescue, and where the money to pay the business rescue practitioner
will come from. No concrete reasons are suggested as to why the
business rescue plan has a reasonable prospect of success (
SOUTHERN
PALACE
par [24]). A liquidator’s fees are subject to
taxation (
OAKDENE
290D-E). The two directors of Cross
Point, Ms Mabe and Mrs Geldenhuys are at loggerheads as to the need
for a business rescue practitioner.
In such circumstances it is
difficult to see how any business rescue plan can succeed (
OAKDENE
290G- H).
[25] Cross Point was
formed to do contract work. The initial disputes have led to a state
of dormancy. Having regard to the letter
by Gouws of Keren Kula
Construction that there is no contract for further work to Cross
Point, the state of dormancy of Cross Point
at this stage has no
prospect of coming to an end. To try and establish that there is a
future for Cross Point, Mr Mabe handed
in a letter dated 8 August
2012, addressed to Mercfang Facade CC (NB: not to Cross Point)
stating the availability of sub-contract
work. Cross Point was formed
for a specific purpose, namely to do contract work. That purpose can,
on these papers, no longer be
achieved. (See
APCO AFRICA (PTY)
LTD AND ANOTHER v APCO WORLDWIDE INC
[2008] ZASCA 64
;
2008 (5) SA 615
(SCA)
par [20]).
[26] Mr Mabe contends
that Lidino is hijacking the work which belongs to Cross Point. He
says the workers who work for the two entities
are the same people.
He says, as appears from Cross Point’s papers, that initially
Lidino helped to get Cross Point’s
work done; then instead of
giving the work over to Cross Point, Lidino kept the work. This may
be so, although there is no evidence
on the papers thereof. A
liquidator is the obviously correct person to get to the bottom of
such allegations and to determine what
is to be done.
[27] Looking at the
requirement of it being just and equitable to liquidate a company –
as the court has to do in all cases
under the 2008
Companies Act (see
HBT CONSTRUCTION AND PLANT HIRE CC v UNIPLANT HIRE CC
2012 (5) SA 197
(FB) par [6] (viii)):
[28] Categories of
circumstances where it will be just and equitable to wind up a
company are set out in the leading case of
RAND AIR (PTY) LTD v
RAY BESTER INVESTMENTS (PTY) LTD
1985 (2) SA 345
(W) at 350C
– H. The first is the disappearance of the company’s
substratum, where the company was set up for a particular
purpose and
that purpose can no longer be achieved. In this case Cross Point was
set up to do contract work, and that can no longer
be done due to
lack of co-operation and trust between the directors. The second
point refers to illegality of the objects of the
company. Here both
Mrs Geldenhuys and Ms Mabe say that it was important to create a
company with a favourable BEE profile. It appears
that to date that
profile has not been needed or used, but the point remains that the
company was created with that aim. The third
category is a deadlock
which results in the management of the company’s affairs being
so divided as not to be able to do
proper business. Here the two
directors are hopelessly at loggerheads, litigating against each
other. The authorities are clear
that in a deadlock situation
liquidation is the correct and proper remedy. The fourth category
mentioned is the grounds analogous
to the dissolution of a
partnership. Cross Point is essentially a partnership between the
Geldenhuyses and the Mabes. Each contributed
R50 000, as one would
expect of a partnership. Had Cross Point been a partnership, there is
no doubt that it would have to be terminated.
The fifth category
mentioned in the
RAND AIR
- case is oppression.
Interestingly Mr Mabe referred in argument to section 163 of the 2008
Companies Act, dealing
with oppression. He feels he and his daughter
are being oppressed by the Geldenhuyses. According to the
RAND
AIR
-case, oppression is one of the grounds upon which it will
be just and equitable to issue a winding up order.
[29] In this case one is
essentially dealing with a dispute between Mr Mabe and Mr Geldenhuys.
They started Cross Point with the
intent to make money out of
ventures they would jointly do through the vehicle of Cross Point.
Somewhere along the line their relationship
soured, and in November
2011 Geldenhuys wanted to terminate the relationship. Mr Mabe feels
there is value in Cross Point and wants
to continue. What is clear is
that the parties are hopelessly at loggerheads, and that there is no
current or definite future business.
Mr Mabe feels that Mr and Mrs
Geldenhuys have through Lidino taken money paid by clients for the
benefit of Cross Point, and used
that money, through Lidino for their
own benefit. The liquidator will investigate those claims and the
costs pertaining to them,
if need be, by means of an insolvency
inquiry, and ensure that Mr Mabe (Cross Point) gets what is due. The
liquidator has the ability
to consider invoices and payments, and to
follow paper trails and other evidence as to where funds originated
and where the money
ended up. On the facts the business rescue
application has to fail, and a provisional liquidation order is to be
issued.
ORDER
1. Leave is granted to
Elizabeth Geldenhuys and Lidino Trading 580CC to intervene in the
business rescue application brought by
Tshegofatso Prudence Mabe
against Cross Point Trading 315 (Pty) Ltd.
2. The application of
Tshegofatso Prudence Mabe to place Cross Point Trading 315 (Pty) Ltd
under business rescue as contemplated
in section 131 of the Companies
Act 71 of 2009 is dismissed.
3. Cross Point Trading
315 (Pty) Ltd is placed in provisional liquidation in the hands of
the Master of the High Court with the
return date 27 September 2012.
4. The costs of the
liquidation application, and the costs of the business rescue
application are costs in the liquidation.
_____________
KRUGER, J
On behalf of the
applicants: Adv. S. Tsangarakis
(Lidino Trading 580 CC)
Instructed by:
Honey Attorneys
BLOEMFONTEIN
On behalf of Ms T.S.
Mabe: Mr O.D. Mabe in person
(Applicant in the
Business Rescue
Application)
/EB/wm