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[2012] ZAKZDHC 69
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Standard Bank of South Africa Ltd v R-Bay Logistics CC (4165/2012) [2012] ZAKZDHC 69; [2013] 1 All SA 364 (KZD); 2013 (2) SA 295 (KZD) (31 October 2012)
REPORTABLE
IN THE KWAZULU-NATAL HIGH COURT, DURBAN
(REPUBLIC OF SOUTH AFRICA)
CASE NO: 4165/2012
In the matter between:
THE STANDARD BANK OF SOUTH AFRICA LIMITED
........................
Applicant
and
R-BAY LOGISTICS CC
.......................................................................
Respondent
(Registration No. 2003/010632/23)
JUDGMENT
Delivered : 31 October 2012
KING AJ
[1] On 16 October 2012, four interrelated applications were heard
before me. In all those matters, the Standard Bank of South Africa
Limited ("Standard Bank") is the Applicant.
[2] Under this case number, R-Bay Logistics CC ("R-Bay")
was the Respondent and Standard Bank applied for a winding-up
order.
Under Case No. 4166/2012, Cosmopolitan Transport CC ("Cosmopolitan")
was the Respondent and Standard Bank applied
for its winding-up.
[3] The other two matters (5847/2012 and 5848/2012) involved
applications brought by Standard Bank against R-Bay and Cosmopolitan
respectively, to obtain possession of various trucks which Standard
Bank had sold to those close corporations in terms of instalment
sale
agreements which Standard Bank alleged had been breached.
[4] All these matters came before me as opposed applications. Counsel
for the parties agreed that there was no need for me to decide
the
repossession applications because the relief sought therein was
predicated upon the outcome of the two winding-up applications.
Counsel also agreed that because the two winding-up applications were
virtually identical, only this application needed adjudication.
Whatever order was granted in this matter should be granted in the
other matter as well.
[5] Standard Bank's case in this matter is that it is entitled to
obtain a provisional winding-up order against R-Bay because R-Bay
is
unable to pay its debts. The application is brought pursuant to the
provisions of Chapter 14 of the Companies Act No. 61 of
1973 ("the
old Companies Act"). The essence of R-Bay's opposition to the
"merits" of the application is that,
because there exists a
dispute (raised
bona fide
and upon reasonable grounds) as to
whether Standard Bank's claims against R-Bay are due and payable,
winding-up proceedings are
not appropriate to resolve that dispute
and the application should therefore be dismissed.
[6] However, in Heads of Argument presented by Ms Lennard, R-Bay
raised a preliminary point which relates to the effect of the
provisions of Item 9 ("Item 9") of Schedule 5 to the
Companies Act 71 of 2008 ("the new
Companies Act"
;). The
point deals with whether Standard Bank must first show that R-Bay is
"insolvent" before it becomes entitled to
apply for R-Bay’
winding-up under the provisions of Chapter 14 of the old
Companies
Act.
[7
] At the commencement of the hearing, counsel also informed me that
a third issue, which related to the giving of notice of the
application to various parties, had fallen away. Accordingly, I am
required to decide the aforementioned preliminary point and the
"merits" of the case. It makes sense to deal with the
preliminary point first because, on R-Bay's contentions, if the
point
is well taken, this application must fail.
[8] Schedule 5 to the new
Companies Act deals
with transitional
arrangements. Item 9 thereof deals with the continued application of
the old
Companies Act to
the winding-up and liquidation of companies.
It reads as follows:
"(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 that
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.
(4) The Minister, by notice in
the Gazette, may –
(a) determine a date on which
this item ceases to have
effect but no such notice may be
given until the Minister is satisfied that alternative legislation
has been brought into force
adequately providing for the winding-up
and liquidation of insolvent companies; and
(b) prescribe ancillary rules as
may be necessary to
provide for the efficient
transition from the provisions of the repealed Act, to the provisions
of the alternative legislation contemplated
in paragraph (a)."
[9] The Respondent in this application is a close corporation and one
must look to the provisions of the Close Corporations Act
No. 69 of
1984 ("the
Close Corporations Act"
;) to find what it
provides about applications to wind-up close corporations.
Section
66(1)
thereof has been amended and now reads as follows:
"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."
[10]
Section 69
of the
Close Corporations Act provides
for the
circumstances under which a corporation shall be deemed to be unable
to pay its debts but that Act does not otherwise deal
with
applications for the winding-up of a corporation. Accordingly, the
present position is that an application for the winding-up
of a close
corporation falls to be dealt with on the same basis as an
application in respect of a company, having regard to the
provisions
of Item 9, namely, in accordance with the provisions of Chapter 14 of
the old
Companies Act. To
date, the Minister has not determined a
date as contemplated in Item 9(4) and, at present, no alternative
legislation exists for
the winding-up and liquidation of insolvent
companies.
[11] Part G of Chapter 2 of the new
Companies Act
("Part G")
deals with the winding-up of solvent companies. In the case of such a
winding-up by the Court, the only relevant
ground upon which a
creditor, such as Standard Bank, can apply is that it is just and
equitable for the company to be so wound
up. At least on the face of
it, a creditor cannot apply, under the new
Companies Act, for
the
winding-up of a solvent company upon the ground that such company is
unable to pay its debts, as contemplated by
Section 345
of the old
Companies Act. Having
regard to
section 66(1)
of the
Close
Corporations Act (as
it now reads), the winding up of a solvent close
corporation is also governed by Part G.
[12] In this case, the Respondent's argument may be summarised as
follows:
Because the application is based upon the ground that R-Bay is
alleged to be unable to pay its debts, the application
must be
treated as one which has been brought under the provisions of
Chapter 14 of the old
Companies Act which
relates only to
insolvent companies.
Standard Bank has failed to make any allegations in its papers
as to whether R-Bay is solvent or not.
In the absence of evidence to establish that R-Bay is insolvent,
Standard Bank cannot rely upon the provisions of the
old
Companies Act, in
bringing its application.
[13] The point raised by the Respondent has received judicial
attention in only a few cases because the new
Companies Act has
been
in force for only 18 months or so. During argument, I raised various
matters with counsel for the parties, and, because the
issue is
novel, I afforded both counsel additional time to file supplementary
arguments. They did so and I am grateful to them
both for their
input.
[14] Central to the issue raised by the Respondent is what is meant
by "solvent" and "insolvent" where those
terms
are used in Item 9 and Part G. It has long been accepted that, in our
law, a state of “insolvency” has two different
meanings.
Actual or literal insolvency involves a comparative measurement of
the value of a company’s assets and its liabilities.
If the
total value of those liabilities exceeds the total value of the
assets, the company is actually insolvent. However, “commercial
insolvency” recognises that, whether a company is actually
insolvent or not, if it does not have sufficient cash resources
to
make payment of its ongoing obligations, as and when they fall due,
the company is commercially insolvent.
Ex Parte
De
Villiers & Ano NNO: In re Carbon Developments
1993
(1) SA 493
(A) at 502
Johnson v Hirotec (Pty) Ltd
[2000] ZASCA 131
;
2000 (4) SA 930
(SCA) at 933
(para 6) to 934 (para 8)
[15] The two concepts (i.e. actual insolvency vs commercial
insolvency) are quite different. The former involves the mere
assessment
of the value of a company’s assets and liabilities.
The latter involves an assessment of the company’s cash flow,
to
determine whether it has the immediate wherewithal to pay its
current expenses, as they fall due.
[16] To my mind, the first question to answer is whether, in Part G
and Item 9, the reference to a “solvent” or “insolvent”
company is intended to relate to actual insolvency or so-called
commercial insolvency.
[17] It seems clear that the legislature was mindful of the
distinction between these two meanings when it passed the new
Companies Act. Section
4 thereof deals specifically with a “solvency
and liquidity test”. That test has to be applied in various
circumstances,
under the new
Companies Act, in
which, putting it
generally, the capital of a company is used or distributed for a
purpose other than the conduct of the company’s
ordinary
business. For present purposes, the details of the test, and the
circumstances in which it is applied, are not relevant.
What is
relevant is that Section 4 spells out that the test for solvency
involves a comparison of the value of a company’s
assets with
that of its liabilities whilst the test for liquidity involves a
consideration of the likelihood that the company will
be able to pay
its debts as they become due in the ordinary course of business.
[18] Sadly, the new
Companies Act does
not define “solvent”
or “insolvent” in relation to the winding-up of a
company. As far as I can detect,
those terms are used only in Part G
(dealing with the winding-up of “solvent” companies) and
in Item 9 which deals
with the law which is to apply to the
winding-up of “solvent” and “insolvent”
companies. Giving those words
their ordinary meaning, one might well
conclude that those terms refer to actual insolvency, as distinct
from commercial insolvency.
[19] However, one needs also to consider the context in which those
terms have been used in the new
Companies Act. For
many years, in our
Company law, a reference to its “solvency” encompassed
both actual insolvency and commercial insolvency,
depending upon the
context.
Ex Parte
De
Villiers & Ano NNO: In re Carbon Developments
1992
(2) SA 95
(W) at 112 – 113
Ex
Parte
De Villiers (On Appeal
: See para 14 above) at
pages 502 to 504
[20] What then did the legislature mean, in Part G and in Item 9,
when it referred to a “solvent” company? Did it mean
actual insolvency or commercial insolvency or, perhaps, both?
[21] To answer, I think it is first necessary to consider the
apparent intention behind the transitional provisions encapsulated
in
Item 9. It seems clear that the legislature's ultimate objective is
to replace the provisions of Chapter 14 of the old
Companies Act,
dealing
with the winding-up of companies, with new legislation which
would deal, separately, with "solvent" companies and
"insolvent"
companies. However, at the time that the new
Act came into force, it made provision (in Part G) only for the
winding-up procedure
for "solvent" companies. For reasons
which are not apparent, the legislature had not got round to creating
any new legislation
to deal with the winding-up of "insolvent"
companies.
[22] It is therefore clear that Item 9 is intended to serve only as a
stopgap, until such new legislation is passed. Item 9(4)(a)
specifies
that Chapter 14 of the old
Companies Act must
continue in force until
such new legislation, dealing with "insolvent" companies,
is actually in place.
[23] Nothing in the new
Companies Act has
changed any of the
provisions of Chapter 14 of the old
Companies Act. Accordingly
, for
the purpose of winding-up an "insolvent" company,
Section
344
thereof must still regulate the basis upon which it can be wound
up. Of particular relevance in this case is
Section 344(f)
which
requires an applicant to prove that the respondent company is unable
to pay its debts, as contemplated in
Section 345
of the old
Companies
Act.
[24] Accordingly, the legislature must have intended that, to wind-up
an "insolvent" company, between the date of commencement
of
the new
Companies Act, and
the implementation of intended new
legislation, an applicant would have to establish one or other of the
grounds for winding-up
contemplated by
Section 344
, including, in
particular, that the respondent company was unable to pay its debts.
[25] I have already said that the concept of "commercial
insolvency" in the sense that a company is unable to meet its
obligations when they fall due, is one which is well known in company
law and is enshrined in
Section 344(f).
I have also said that such
commercial insolvency requires the application of a test which is
quite different to that which one
must apply to establish actual
insolvency. That being so, it would be quite incongruous for the
legislators to require an applicant
to establish the actual
insolvency of a respondent company merely in order to entitle that
applicant to bring an application for
winding-up, making use of the
provisions of
Section 344(f)
, which requires the application of a
completely different test.
[26] To my mind, this offers compelling evidence that what the
legislature intended, when it used the term "solvent"
in
Item 9 was that a company must be solvent in at least the commercial
sense, before any winding-up of that company could take
place under
Part G. For present purposes, it is not necessary for me to determine
whether, for Part G of the new
Companies Act to
apply, it would have
to be established that the company was also actually solvent.
[27] There has been judicial debate about whether, for the purposes
of
Section 344(f)
of the old
Companies Act, it
is possible for the
Court to conclude, upon evidence of actual insolvency, that a company
is "unable to pay its debts".
Certainly, proof of the
actual insolvency of a respondent company might well provide useful
evidence in reaching the conclusion
that such company is unable to
pay its debts but that conclusion does not necessarily follow. On the
other hand, if there is evidence
that the respondent company is
commercially insolvent (i.e. cannot pay its debts when they fall due)
that is enough for a Court
to find that the required case under
Section 344(f)
has been proved. At that level, the possible actual
solvency of the respondent company is usually only relevant to the
exercise
of the Court's residual discretion as to whether it should
grant a winding-up order or not, even though the applicant for such
relief has established its case under
Section 344(f).
[28] I believe that my view is also reinforced by the provisions of
Section 79(3)
of the new
Companies Act (which
is in Part G), read
together with Item 9(2). It will be noted that, under Item 9, only
certain of the sections which form part
of Chapter 14 of the old
Companies Act are
said not to be applicable in the case of the
winding-up of a solvent company. What is noteworthy is that
Section
345
of the old
Companies Act still
applies even to the winding-up of
a solvent company under the provisions of the new
Companies Act.
Bearing
in mind that commercial insolvency (ie: inability to pay
current debts) is not one of the grounds mentioned in
Section 81
of
the new
Companies Act, for
the winding-up of a solvent company, the
question arises as to why the legislature saw fit to preserve the
operation of
Section 345
of the old
Companies Act even
when the
winding-up of a solvent company is under consideration by the Court.
The provisions of
section 69
of the
Close Corporations Act, which
mirror those of
section 345
of the old
Companies Act, were
also
preserved when the Close Corporation Act was amended, to take account
of the provisions of the new
Companies Act.
[29
] I believe that the explanation is contained in
Section 79(3)
of
the new
Companies Act. It
provides that, if during the course of an
application to wind-up a solvent company, brought under the
provisions of
Section 81
, it is determined that the respondent
company is or may be "insolvent" the Court may order that
the company be wound
up as an "insolvent" company in terms
of the laws referred to in Item 9. What the section contemplates is
that if the
"solvency" of the respondent company is in
doubt, its winding-up can be dealt with on the basis contemplated by
Section 344
of the old
Companies Act. The
only apparent purpose of
preserving the operation of
Section 345
of the old
Companies Act,
even
when one is dealing with the winding-up of a "solvent"
company is, it seems to me, that it provides the basis for a Court
to
come to the conclusion that the respondent company is or may be
"insolvent", as contemplated by
Section 79(3).
As far as I
can see,
Section 345
of the old
Companies Act has
no other relevance
in relation to any application to wind-up brought under the new
Companies Act. I
accordingly conclude that, in determining whether a
respondent company is, or may be, "insolvent" as
contemplated by
Section 79(3)
, the Court would be entitled to have
regard to evidence that the respondent company was unable to pay its
debts, as contemplated
by
Section 345
of the old
Companies Act. In
other words, the word "insolvent" in
Section 79(3)
is
intended to refer to a respondent company which is or may be
commercially insolvent. Again, whether that word also encompasses
the
notion of actual insolvency need not be decided for present purposes.
[30] I am further fortified in my views by the conclusions reached by
the Court in an unreported case in the North Gauteng High
Court.
Firstrand Bank Limited v
Lodhi 5 Properties Investment CC
(Case No. 38326/2011) and two
other related matters
[31] In the
Lodhi
case, the Court came to the conclusion that
the expression "solvent company" in Item 9(2) meant
companies which are neither
actually nor commercially insolvent and,
conversely, that insolvent companies are those that are either
commercially insolvent
or factually so.
[32] There is another aspect of the legislation which, to my mind,
also points in the direction that, in referring to a "solvent"
company, the legislature intended to refer to a company which was not
just actually solvent, but also commercially solvent.
Section
81(1)(c)
of the new
Companies Act sets
out the only grounds upon
which a creditor may apply for the winding-up of a solvent company.
One ground has to do with the circumstances
arising from the failure
of business rescue proceedings in respect of the respondent company
and the other is that it is "otherwise
just and equitable for
the company to be wound up".
[33] Bearing in mind that, as appears from
Section 4
of the new
Companies Act, the
legislature was clearly alive to the distinction
between actual insolvency and commercial insolvency, it seems to me
that the absence,
in
Section 81(1)(c)
, of an additional ground for
winding-up, namely, the inability of the respondent company to pay
its debts, is telling. The body
of law made pursuant to the
provisions of
Section 344(f)
of the old
Companies Act must
also have
been present to the mind of the legislature when it enacted
Section
81
of the new
Companies Act and
, if it intended that a "solvent"
company was one which was merely actually solvent, it would surely
have catered for
the prospect, in the new winding-up provisions, that
a company which is actually solvent might nevertheless be unable to
pay its
debts and therefore be liable to be wound up anyway on that
ground. Accordingly, the omission of any ground for winding-up which
relates to the ability of a respondent company to pay its debts leads
me to conclude that, in referring to a "solvent"
company,
the legislature intended to refer to a company which was both
actually and commercially solvent because only in that case
would
there be no need to cater for the possibility, in
Section 81
, that an
actually solvent company might not be able to pay its debts.
[34] In the
Lodhi 5
case, it was suggested to the Court that
the reference in Part G to a "solvent" company must mean
one which was actually
solvent because, if such a company was
actually solvent, but nevertheless commercially insolvent, the remedy
provided to an affected
creditor was to make use of the business
rescue provisions under Chapter 6 of the new
Companies Act, so
that
such creditor could, when those proceedings fail, then bring itself
within the provisions of
Section 81(1)(c)(i)
of the new
Companies
Act. The
Court rejected that contention, and correctly so, in my
respectful opinion.
[35] The contention postulates a situation in which a creditor has
reached the conclusion that, on the evidence available to it,
a
company is unable to pay its debts and should be wound up. I do not
understand how, in those circumstances, any such creditor
can be
expected to motivate business rescue proceedings. On the other hand,
for any such creditor to be expected simply to wait
for someone else
to propose business rescue proceedings is equally incongruous.
[36] In the circumstances, I am unable to agree with the Respondent's
submissions about the meaning of "solvent" in the
legislation under consideration. I conclude that "solvent"
includes the concept of commercial solvency. Correspondingly,
for as
long as the winding-up of an "insolvent" company is to be
dealt with under Chapter 14 of the old
Companies Act, that
word must
also be taken to include the concept of commercial insolvency.
[37] In the course of their submissions, counsel for the parties drew
my attention to other recent cases in which the same issue
arose. In
Firstrand Bank Ltd v Bunker Hill Investments 499 cc
[2012] JOL
29144
(GSJ), Van Oosten J agreed with the finding in the
Lodhi 5
case. In
Scania Finance Southern Africa (Pty) Ltd v Thomi-Gee Road
Carriers cc
and another related matter (Case No.958/2012),
Snellenburg AJ, in the Free State High Court reached the same
conclusion as the
court in the
Lodhi 5
case, and, in doing so,
rejected the opposite conclusion reached in
HBT Construction v
Uniplant Hire
2012 (5) SA 197
(FB). I respectfully agree with the
findings in the
Firstrand
and
Scania Finance
cases. In
the
HBT
case, it does not appear that the meaning of “solvent”
or “insolvent”, in the context of the new
Companies Act
was
debated and the court appears to have assumed that what the new
Act meant was actual solvency. I must respectfully disagree.
[38] I was also referred to the unreported judgment in this division
of
Business Partners Limited v Yellow Star Properties 1061 (Pty)
Ltd
(Case No.7188.2011) in which the court approached the matter
on the basis that “solvent” in the new
Companies Act
meant
actually solvent, but concluded (at para 21) that “the
onus
rests upon the Applicant to satisfy the court, that the
Respondent is insolvent and therefore unable to pay its debts”.
It
is thus not entirely clear from the judgment as to whether the
court accepted that commercial insolvency was still relevant to the
issue. To the extent that the judgment suggests that only actual
solvency is relevant, I must respectfully disagree. I am convinced
that such conclusion is incorrect.
[39] Having reached that conclusion, it does not matter which party
might bear the onus of establishing "insolvency"
in order
to justify the bringing of a winding-up application under the
provisions of Chapter 14 of the old
Companies Act. However
, it is
perhaps appropriate for me to consider the question of onus, if one
was to assume that, for the purposes of interpreting
Item 9, the term
"insolvent" is taken to mean actual insolvency.
[40] The effect of Item 9(2) is to create an exception or proviso to
the general rule expressed in Item 9(1) (namely, that Chapter
14 of
the old
Companies Act will
regulate the winding-up of companies under
the new
Companies Act). That
being the case, I take the view that if
the Respondent wishes to contend that the "general rule"
does not apply, because
the Respondent is "solvent" the
onus, at least to adduce evidence of such solvency, must rest upon
the Respondent. To
the extent that the
Business Partners
case
found otherwise, I must respectfully disagree again.
[41] The Applicant's papers do not deal at all with the Respondent's
actual insolvency. They deal only with its commercial insolvency.
What is quite plain is that
Standard Bank’s
case is
based on the proposition that the provisions of Chapter 14 of the old
Companies Act apply
to the application. From that, one must infer
that
Standard Bank’s
case is based upon the contention
that R-Bay is “insolvent”, whatever that term means in
Item 9. The Respondent's papers
are equally silent upon the subject
of its actual solvency. The Respondent's case, on the papers, rests
squarely on the proposition
that winding-up proceedings are
inappropriate because the indebtedness upon which the Applicant
relies is disputed,
bona fide
and upon reasonable grounds.
[42] Thus, even if solvency under the relevant legislation is to be
measured as actual solvency, the Respondent has not discharged
the
burden of proof which I believe rests upon it. Put at its lowest, and
if that burden amounts only to a duty to adduce some
evidence, the
Respondent has not even suggested, in its papers, that it is actually
solvent, still less has it supported any such
contention with
evidence.
[43] It follows that, even if solvency, for the purpose of the
legislation, was to be given the meaning contended for by the
Respondent,
I do not agree that any onus of proof in that regard
rests upon the Applicant. In the circumstances, the preliminary point
taken
by the Respondent is, in my view, without merit.
[44] Having reached that conclusion, it remains for me to deal with
the merits of the application. It is as well to first consider
the
standard of proof which the Applicant must meet in order to obtain a
provisional winding-up order.
[45] Put simply, the Applicant must establish that it is a creditor
of the Respondent, as contemplated by
Section 346(1)(b)
of the old
Companies Act and
that the Respondent is unable to pay its debts as
contemplated by
Section 344(f)
of the old
Companies Act.
[46
] When an application for winding-up is opposed, and even when
there are disputes of fact on the papers, the test to be applied,
in
considering whether to grant a provisional winding-up order is that
the Applicant must establish its case,
prima facie
, upon a
balance of probabilities and upon a consideration of all the
affidavits filed by the parties.
Kalil v Decotex (Pty) Ltd and
Another
SA
943 (A) at 978-979
[47] However, if the dispute on the papers concerns the existence of
the Applicant's claim, upon which the Applicant relies for
its
locus
standi
as a creditor, the onus rests upon the Respondent to show,
on a balance of probabilities, that its dispute in regard to that
indebtedness
is
bona fide
and founded upon reasonable grounds.
The Respondent is not required to prove that it is not indebted to
the Applicant: it must
merely show that the indebtedness is genuinely
disputed upon reasonable grounds.
Kalil
case
at 980
[48] As to Standard Bank's
locus standi
as a creditor of
R-Bay, the founding affidavit alleges that R-Bay is indebted to
Standard Bank in "various amounts, some as
principal debtor some
as surety and co-principal debtor for Cosmopolitan Transport CC..."
Standard Bank also alleges that
these debts consist of the amounts
owing under various instalment sale agreements and two overdrafts.
Under the instalment sale
agreements, the full balance outstanding is
claimed on the ground that R-Bay and Cosmopolitan failed to adhere to
the terms thereof,
with the result that such full balances became due
and payable.
[49] In the answering affidavit, there is no dispute that these debts
exist, nor any dispute as to the amount of the overdrafts.
Upon
grounds with which I shall deal later, the Respondent disputes that
these debts are actually due and payable.
[50]
Section 346(1)(b)
governs the establishment of Standard Bank's
locus standi
as a creditor. That section requires no more than
that Standard Bank should establish that it is a creditor and, in
doing so, it
would be entitled to rely upon a contingent or
prospective claim. Whether Standard Bank's claims are due and
payable, or not, is
not relevant to the determination of its status
as a creditor. Its claims are not disputed and I am satisfied that
its
locus standi
has been properly established.
[51] To establish that R-Bay is unable to pay its debts, Standard
Bank relies, in its founding affidavit, upon the delivery to
R-Bay of
a demand, in respect of its claims, delivered in terms of
Section
69(1)(a)
of the
Close Corporations Act. On
the papers, there is no
dispute that such demand was made and delivered properly to the
Respondent and that the Respondent has
not, within twenty one days
thereafter, paid, secured or compounded for the amounts so demanded.
Accordingly, Standard Bank has
adequately established, at least
prima
facie
, that R-Bay is deemed to be unable to pay its debts, as
contemplated by
Section 69
of the
Close Corporations Act.
[52
] But for the dispute raised by R-Bay in the answering affidavit,
that would be the end of the matter. Subject to the Court's residual
discretion in the matter, Standard Bank would otherwise be entitled
to a provisional winding-up order.
Rosenbach
& Co (Pty) Ltd v Singh's Bazaars (Pty) Ltd
SA 593 (D) at 597
[53] The dispute raised by R-Bay in its answering affidavit may be
summarised as follows:
(a) In February of 2011, an amount of R760,918.73 was paid to
Standard Bank from a call account held by Cosmopolitan with Standard
Bank, which amount was applied in payment of what Standard Bank said
was owed to it in respect of toll charges arising from the
operations
of the trucking businesses of both R-Bay and Cosmopolitan.
Apparently, for convenience, and with the consent of R-Bay
and
Cosmopolitan, all of these charges were debited to an account in the
name of Cosmopolitan.
(b) Although this payment was actually sanctioned by R-Bay's sole
member, (who is also the sole member of Cosmopolitan) that was
because, at the time, such member thought that this amount was in
fact due to Standard Bank. Subsequently, it is alleged, R-Bay
and
Cosmopolitan established that the amount was not due and a dispute
was raised with Standard Bank in regard thereto.
(c) R-Bay contends that, in those circumstances, the full amount of
the payment falls to be repaid by Standard Bank to Cosmopolitan.
[54] R-Bay contends that this dispute has the result that Standard
Bank's claims are not due, owing and payable. R-Bay's case is
that,
had these funds not been paid out from Cosmopolitan's call account,
those funds would have remained available to fund the
instalments
payable by R-Bay and Cosmopolitan under the terms of the various
instalment sale agreements. R-Bay further alleges
that, if the amount
of the aforesaid payment was still available to it, there would have
been more than enough funds to enable
R-Bay to repay the full amount
of its overdraft with Standard Bank, which Respondent says was "the
only amount the Applicant
may be entitled to call up on demand".
[55] It is therefore necessary to examine the dispute raised by the
Respondent to see whether it raises a genuine dispute of fact,
based
upon reasonable grounds, in relation to Standard Bank's claim. It
must first be noted that the dispute does not relate to
the existence
of those claims, as such. That is not disputed at all. What is said
to be disputed is whether those claims are due,
owing and payable.
R-Bay contends that, as a consequence of the dispute around the
payment from the call account, Standard Bank
was not entitled to
accelerate payment of the amounts owed under the instalment sale
agreements.
[56] What is perfectly obvious from the way in which R-Bay has
expressed the dispute is that it actually admits that instalments
payable under the instalment sale agreements were not paid when they
should have been. The inevitable consequence is that, on the
Respondent's own version, it must have fallen into breach of the
instalment sale agreements. What R-Bay is really saying is that,
but
for the payment out of Cosmopolitan's call account, those breaches of
the instalment sale agreements would not have occurred.
[57] The position is somewhat different in regard to R-Bay's
contentions about the two overdrafts. From the words used in the
answering affidavit, which I have quoted in paragraph 54 above, it is
clear that there is no real dispute that Standard Bank was
entitled
to insist upon repayment of the overdraft, upon demand, and that it
actually did so. I pause to mention that, in the application
for the
winding-up of Cosmopolitan, Cosmopolitan makes exactly the same
allegation, namely, that if the funds paid to Standard
Bank were
still available to Cosmopolitan, there would have been more than
enough money available to enable Cosmopolitan to pay
its overdraft.
There is accordingly no real dispute that Standard Bank was entitled
also to require repayment of Cosmopolitan's
overdraft, upon demand,
and that it actually did so.
[58] Thus, what emerges from R-Bay's version in the answering
affidavit is that the alleged dispute is not really what R-Bay
contends
it is. R-Bay is not saying that the instalments payable
under the instalment sale agreements were all paid up to date.
R-Bay's
case is actually that the required instalments were not paid.
Even on R-Bay's version, it thus follows that Standard Bank was
perfectly
entitled to call up the full balance outstanding in respect
of all the instalment sale agreements, as it did. All that R-Bay is
saying is that its failure to pay was caused by the failure of
Standard Bank to repay the sum paid to it out of Cosmopolitan's
call
account.
[59] It also follows that the dispute alleged by R-Bay does not
relate to the existence of Standard Bank's claim. Accordingly,
there
is no challenge to Standard Bank's
locus standi
as a creditor.
The challenge is actually directed at Standard Bank's case that R-Bay
is deemed to be unable to pay its debts because
of R-Bay's failure to
respond to the demand delivered to it under
Section 69
of the
Close
Corporations Act. The
Respondent's case is that the deeming provision
in
Section 69
cannot operate, in these circumstances, because the
debts demanded by Standard Bank were not "due, owing and
payable",
which is what is required, upon a proper construction
of the words of
Section 69(1)(a)
of the
Close Corporations Act.
Alton
Coach Africa CC v
Datcentre Motors t/a CMH Commercial
(6) SA 154 (D) at 163
The Respondent's own version does not, in my view, give rise to any
real dispute that Standard Bank's claims were not due and payable.
Hence, there is no real dispute that R-Bay is deemed to be unable to
pay its debts because it failed to respond to Standard Bank's
demand
in terms of
Section 69
of the
Close Corporations Act. Instalments
under the instalment sale agreements were unpaid and payment of the
full balance owed thereunder was accordingly accelerated. Despite
demand, the amounts owed under the two overdrafts were not paid and
they accordingly became due, owing and payable as well. All
that
R-Bay really says is that the fault for all this should be laid at
the door of Standard Bank because it failed to repay the
amount which
was paid to it from Cosmopolitan's call account. That fact does not,
in my view, change the fact that Standard Bank's
claims were due,
owing and payable. All that results from R-Bay's allegations is that
it has a counterclaim (disputed by Standard
Bank) for repayment of
the sum of R760,918.73.
[61] The existence of such a counterclaim by R-Bay against Standard
Bank may well be a factor relevant to the exercise of the Court's
discretion in regard to the grant of a provisional winding-up order
but it is not, of itself, an answer to Standard's Bank case.
Ter Beek v United Resources
CC and Another
SA 315 (C) at 333-334
[62] R-Bay has made no case for the exercise of any such discretion
in its favour. On the facts, it is difficult to see how it
could do
so, bearing in mind that the amount of the alleged counterclaim
against Standard Bank is a little less than R800,000.00
whereas
Standard Bank's claims exceed R4,5 million.
[63] That leads me to consider other facts which emerge from the
papers and which are, to my mind, relevant to the consideration
as to
whether the dispute raised by R-Bay on the papers is really genuine
and based upon reasonable grounds.
[64] R-Bay's own case is that initially, when it made payment to
Standard Bank out of Cosmopolitan’s call account, R-Bay
thought
that the amount of the payment was actually owed to Standard Bank. If
that was the case, then, at that time, R-Bay knew
that it would not
be able to rely upon the availability of those funds in order to fund
the payment of any of the instalments which
would become payable
under the various instalment sale agreements. It must follow, on
R-Bay's version, that without those funds,
it would not have been
able to pay the instalments which subsequently fell due under the
instalment sale agreement. R-Bay does
not explain how it could have
made these payments if it had turned out that the payment from the
call account was actually owed
to Standard Bank. It seems to me that
what R-Bay now says about its alleged dispute with Standard Bank is
really just a ruse to
try and explain the lack of funds to service
its debt.
[65] The matter goes further. R-Bay's case is that, had Standard Bank
repaid to Cosmopolitan the amount paid out from the call
account,
there would have been more than enough money to pay the overdrafts of
R-Bay and Cosmopolitan. The amount of the two overdrafts
total
R744,000.00. In reply, Standard Bank put up (as annexure VP24) a
letter from its attorneys to R-Bay’s attorneys, enclosing
a
schedule which recorded that, as at March 2012, the arrear
instalments on all the instalment sale agreements amounted to about
R350 000. R-Bay cannot have it both ways: either the money which
should have been available in Cosmopolitan's call account could
have
been used to pay instalments under the instalment sale agreements or
that money could have been used to repay the overdrafts,
but not
both.
[66] I am mindful of the fact that, even if one regards R-Bay's
allegations as generating a dispute as to whether Standard Bank's
claim is due, owing and payable (I have already said that this is not
the case) the test is whether the dispute is one which is
bona
fide
and raised on reasonable grounds. There is no onus upon
R-Bay to actually prove its case on the papers. However, the factors
which
I have already mentioned lead me to conclude that the dispute
is neither
bona fide
nor based upon reasonable grounds.
[67] Having regard to the test which I have referred to in paragraphs
46 and 47 hereof, it is not simply a matter of accepting
R-Bay's
allegations at face value. I am obligated to assess the genuineness
of the dispute, and the reasonableness of the grounds
therefor,
having regard to the contents of all the papers, including what is
said by Standard Bank in the replying affidavit.
[68] In this regard, it strikes me as improbable that, having raised
the dispute with Standard Bank as long ago as September 2011
(see
paragraph 29.6 of the answering affidavit), neither R-Bay nor
Cosmopolitan has ever instituted any proceedings against Standard
Bank to recover what is alleged to be owed by Standard Bank. In
circumstances in which R-Bay now contends that Standard Bank's
recalcitrance has left R-Bay and Cosmopolitan unable to pay
instalments under their instalment sale agreements that is
remarkable.
[69] R-Bay is also more than a little ambiguous about the true amount
of the alleged counterclaim against Standard Bank. On the
one hand,
it alleges that the whole amount paid to Standard Bank (in round
figures R760,000.00) falls to be repaid but, in analysing
the
dispute, R-Bay says, in paragraph 22 of its answering affidavit, that
Cosmopolitan "found that amounts had been incorrectly
debited
and/or claimed by the Applicant". In paragraph 27 of the
answering affidavit, R-Bay recorded that the documents attached
to
its answering affidavit were simply a random sample to illustrate the
nature of the dispute and that it would, if seriously
challenged,
make available supporting documentation relating to the details of
all the queries. In paragraph 30.1 of the answering
affidavit, R-Bay
says that "if the said withdrawal, alternatively amounts
overcharged were timeously refunded or credited
to the various
instalment sale agreements, R-Bay and Cosmopolitan would not be in
breach thereof."
[70] In the replying affidavit, Standard Bank did in fact "seriously
challenge" what R-Bay said about the alleged dispute
over what
should have been paid back by Standard Bank to Cosmopolitan. Standard
Bank contends that the alleged overcharge debited
to Cosmopolitan, in
respect of toll fees amounted only to some R15,000.00. In addition,
the total amount owed to Standard Bank,
and which was paid from the
call account, did not relate only to toll charges, but also to
quantities of diesel purchased with
the relevant fleet cards. Despite
the fact that R-Bay's allegations were so challenged, neither it nor
Cosmopolitan made any attempt
to produce the detail that R-Bay said
it would, to back up what it said about the full extent of the
dispute. Even in the context
of what is said in the answering
affidavit, it seems clear to me that R-Bay / Cosmopolitan do not, and
cannot, dispute every debit
on the fleet card statements. Only some
of the debits are disputed but R-Bay has chosen not to be specific in
circumstances in
which I believe it was obliged to be more
forthcoming, if it wished the Court to accept its
bona fides
and the reasonableness of its contentions.
[71] It is also more than strange that neither R-Bay nor Cosmopolitan
responded in writing or otherwise to the demands addressed
to them by
Standard Bank, pursuant to the provisions of
Section 69
of the
Close
Corporations Act at
a time when it is clear from the correspondence
referred to in the replying affidavit that R-Bay was already
represented by attorneys.
If R-Bay really believed in the dispute
which it now alleges, the overwhelming probability is that it would
have ventilated that
dispute in a written response to the
Section 69
demand. It did not do so and, save for admitting that the
Section 69
demand was sent and received, does not deal with that topic at all.
[72] Matters only become worse when one has regard to the documents
which were put up by Standard Bank in reply. I have no doubt
that, if
those documents were not what they are said to be, or have been taken
out of context by Standard Bank, R-Bay would have
sought to file a
further affidavit to explain itself. That did not occur.
[73] Standard Bank put up a copy of a letter, signed by both
Cosmopolitan and R-Bay, in March 2011, which recorded the extent of,
and terms applicable to, all of the finance facilities extended by
Standard Bank to those two close corporations, including the
overdrafts. That "facilities letter" makes it clear that
amounts owed to Standard Bank on overdraft are repayable upon
demand.
Standard Bank also put up a letter dated 28 September 2011, addressed
to the sole member of both close corporations, in
which Standard Bank
records that it had decided to terminate the banker/client
relationship between the parties and it required
both close
corporations to repay their overdrafts by no later than 31 December
2011. Standard Bank also put up correspondence dated
29 March 2012
addressed by Standard Bank's attorneys to the attorneys representing
both R-Bay and Cosmopolitan which enclosed a
schedule which recorded
that the then arrear instalments payable by R-Bay to Standard Bank,
under the various instalment sale agreements,
was over R300,000.00.
The covering letter threatened proceedings pursuant to the letters of
demand sent in terms of
Section 69
of the
Close Corporations Act,
unless
R-Bay and Cosmopolitan came up with arrangements which were
acceptable to Standard Bank. It is difficult to see how R-Bay could
have remained silent in the face of this correspondence. It said
nothing in its answering affidavit about these matters and did
nothing about it when confronted with this correspondence in the
replying affidavit.
[74] In all the circumstances, I conclude that R-Bay has failed to
discharge the onus which rests upon it to establish that its
alleged
dispute with Standard Bank is
bona fide
and raised on
reasonable grounds. In any event, the dispute, such as it is, does
not affect the conclusion, which I believe I am
entitled to draw,
that R-Bay is deemed to be unable to pay its debts. Having regard to
all the circumstances, and, in particular,
R-Bay's failure to pay
Standard Bank, and properly explain its failure to do so, I conclude
that R-Bay is in fact unable to pay
its debts.
[75] I still have a discretion in the matter, albeit a limited one.
There is nothing in R-Bay's papers which seeks to justify the
exercise of that discretion in favour of R-Bay, nor were any
submissions made to me which might justify that.
[76] I accordingly conclude that Standard Bank has made out a proper
case for a provisional winding-up order and I therefore grant
an
order in terms of paragraphs 1, 2, 3 and 4 of the Notice of Motion in
this matter. In paragraph 1 of such order, the date shall
be 12
December 2012 and, in paragraph 3, the date shall be 30 November
2012.
_______________________
J.C. KING AJ
DATE OF HEARING 16 OCTOBER 2012
DATE OF JUDGMENT 31 OCTOBER 2012
APPLICANT’S COUNSEL MR B S M BEDDERSON
APPLICANT’S ATTORNEYS GOODRICKES
RESPONDENT’S COUNSEL MS U LENNARD
RESPONDENT’S ATTORNEYS DERIK JAFTHA ATTORNEYS