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[2011] ZAKZPHC 41
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Heyns NO and Others v Stars Away Investments 102 (Pty) Ltd and Another (9178/2010) [2011] ZAKZPHC 41 (14 September 2011)
19
IN THE KWAZULU-NATAL HIGH COURT,
PIETERMARITZBURG
REPUBLIC OF SOUTH AFRICA
Case
No: 9178/2010
In
the matter between:
HENDRIK DANIEL HEYNS N.O.
…............................................................
First
Applicant
SALLY CHRICHTON VERSVELD N.O.
(formally HEYNS)
…...............................................................................
Second
Applicant
QUINTON DUDLEY HEYNS N.O.
….........................................................
Third
Applicant
TARYN LISA HEYNS N.O
…...................................................................
Fourth
Applicant
TIMOTHY ELLIOT HEWAN N.O.
…............................................................
Fifth
Applicant
and
STARS AWAY INVESTMENTS 102 (PTY) LTD
…........................................
Respondent
DALE FEASEY FAMILY TRUST
…........................................................
Intervening
Party
JUDGMENT
SEEGOBIN J
[1] This is an application for the
provisional winding-up of the respondent company in terms of s344(h)
of the Companies Act No.61
of 1973 (“the Act”), on the
basis that it is
just and
equitable
to do so.
[2] The application was brought by the
first to fifth applicants in their capacities as co-trustees of the
Quintara Trust. An application
was made by the Dale Feasey Family
Trust for leave to intervene in this application and to oppose it.
There was no opposition to
this application which was granted at the
commencement of the argument on 22 August 2011. The Dale Feasey
Family Trust will hereafter
be referred to either as the “
Feasey
Trust
”
or the “
Feasey
Group
”
. The various
individuals who seem to play a significant role in these proceedings
will be referred to as follows: The first applicant
as “
Heyns
”
,
the fifth applicant as “
Hewan
”
,
Tony Feasey as “
Feasey
”
,
Geoffrey Clifford Little as “
Little
”
and Karen Rudolf Willem Louw as “
Rudi
Louw
”
. Mr
Harcourt
SC
(together with Mr
van
Rooyen
) appeared on behalf
of the applicants while the Feasey Trust was represented by Mr
Hartzenberg SC
.
I am indebted to both counsel for their comprehensive heads of
argument and oral submissions made on 22 August 2011.
[3] Some background is necessary. The
respondent was registered and incorporated by the Registrar of
Companies on 7 April 2003 and
at that stage was a shelf company. On
15 April 2005 a Shareholder’s Agreement was concluded to
acquire and develop some residential
properties and some hectares of
agricultural land at Lynnfield Park, Camperdown, KwaZulu-Natal, as an
upmarket equestrian estate.
The respondent acquired a number of
properties listed in the Shareholders Agreement for approximately R12
million and presently
owns the land having taken transfer of the
properties. On 6 February 2006 Feasey was appointed Chief Executive
Officer (CEO) of
the residential development and Heyns was appointed
CEO of the agricultural development.
[4] On 17 April 2005 the other
shareholders of the respondent furnished the Quintara Trust with a
suretyship in terms of which they
bound themselves as sureties and
co-principal debtors to the Quintara Trust for the due and punctual
performance by the Feasey
Group of their obligations for every claim,
indebtedness, liability or other commitment to the Quintara Trust.
[5] At the time of the conclusion of
the agreement it was clear to everyone concerned that this would be a
long term project. The
agreement recorded that the shareholders and
the respondent were aware that land claims for the restitution of the
property had
been lodged with the Land Claims Commission and
published in the Government Gazette. They were also aware that the
entire development
was subject to and dependent upon a number of
approvals, authorizations and consents being obtained. These
included,
inter alia,
obtaining the consent of
the Minister of Land Affairs for the release of the land from the
provisions of the Sub-division of Agricultural
Land Act No.70 of
1970; obtaining environmental authorization from the KwaZulu-Natal
Department of Environment Affairs and Rural
Development; and
obtaining the necessary approval for the development from the
Development Facilitation Tribunal in terms of the
Development
Facilitation Act or in terms of the Natal Planning Ordinance No. 27
of 1949.
FACTS THAT ARE COMMON CAUSE OR NOT
DISPUTED
[6] The applicants as trustees of the
Quintara Trust hold 51% of the shares in the respondent whilst the
remaining 49% is owned
by the other shareholders.
[7] It was envisaged in terms of the
agreement that the respondent would secure bank finance and loan
finance from third parties
for purposes of the development.
[8] On 15 September 2008 the
shareholders concluded an Addendum to the Shareholders Agreement in
terms of which it was agreed that
a bond for the total amount of R25
million would be registered over the properties in favour of the
Quintara Trust as security
for the company’s indebtedness to
that Trust. In terms of Clause 2.9 of the Addendum, a restriction was
agreed on the amount
which the Quintara Trust could require the
respondent to pay for it. The respondent itself has not taken up any
bank finance or
loans from third parties. A covering mortgage bond in
favour of the Standard Bank of South Africa Limited for an amount of
R4.4
million was registered over the land owned by the respondent.
[9] As at 28 February 2009 the loan
account of the Quintara Trust (funds advanced to purchase and finance
the development) stood
at R18 million and interest has been accruing
at the rate of 1.67% per month since 28 February 2009. [It bears
mentioning that
the other shareholders, including the Feasey Group,
dispute this amount and contend that it is approximately R13
million].
[10] None of the authorizations and/or
approvals: [see para. 5
supra
]
which are pre-requisites for the development to take place, have yet
been finalized. None of the land claims have been resolved.
These are
set down for further hearing in November 2011. A pre-requisite to an
application to the DFA Tribunal is the approval
of an environmental
assessment report by the Department of Agriculture, Environmental
Affairs and Rural Development. [While this
approval was only just
given on 15 August 2011 as evident from a supplementary affidavit
filed on behalf of the Feasey Trust on
16 August 2011, the approval
is itself subject to a number of conditions itemized in the record of
decision as well as to appeals
in terms of sub-regulation 10(2) of
the Environment Impact Assessment Regulations, 2010]. Approval by the
DFA Tribunal has not
yet been obtained as a hearing by that body is
scheduled for 30 September 2011. The National Department of
Agriculture has not
provided consent for the release of agricultural
land for the proposed development as it is concerned that this will
lead to the
creation of a new residential node.
[11] Feasey has resigned as director
of the respondent and as CEO of the residential component of the
development.
[12] At the Annual General Meeting of
the respondent which took place on 29 June 2011, attorney Mr OD Hart,
was appointed director
of the respondent in place of Feasey.
THE APPLICANT’ CASE FOR A
WINDING-UP
[13] The applicants as the trustees of
the majority shareholder viz the Quintara Trust, contend that it is
“
just and equitable”
that the respondent be wound up on the
following grounds:
[13.1] Since the formation of the
respondent, the South African property market collapsed in 2008 and
there is no commercially realistic
prospect of the development
succeeding. The applicants are of the opinion that the respondent
should cut its losses and sell for
the best price it can but, despite
the Quintara Trust being the majority shareholder, it cannot achieve
this because in terms of
the old and new Companies Act, as the
property is the main asset of the respondent, it’s sale
requires the approval of 75%
of shareholders. With the deadlock that
currently prevails between the two groups, it is unlikely that the
Quintara Trust will
be in a position to obtain the requisite support
for such approval.
[13.2] The applicants aver that they
have lost confidence and trust in the ability of the CEO, Feasey,
which Feasey acknowledged
by resigning and although
Hart
was appointed as an independent
director for the respondent, the applicants contend that there is no
adequate management of the
respondent.
[13.3] The Feasey Group cannot justify
the loan accounts they claim in the respondent and the auditors are
unable to prepare audited
financial statements for the years 2007,
2008 and 2009.
[13.4] The development has been
substantially financed by the Quintara Trust and although the Trust
has a Second Bond for R25 million,
there is a serious risk that the
security will not be adequate. The other shareholders who want to
continue with the development
do not share this risk.
[13.5] The Feasey Group who wish to
continue with the development cannot afford to buy out the Quintara
Trust or find a third party
buyer.
[14] The applicants contend that it is
highly unlikely that the respondent will be able to achieve the
purpose for which it was
formed. Six years later there is no
certainty that all of the approvals, authorizations and consents
referred to above will be
obtained. Even if the
substratum
of the company has not disappeared in
the sense that the land continues to exist, they contend that the
commercial reality is that
the prospects of a successful development
at a profit
are
remote.
[15] The applicants are concerned
about the finances of the respondent. They aver in this regard that
during the financial years
2007, 2008 and 2009, Feasey (as CEO of the
residential component) presented the respondent with a demand to be
credited with R2.7
million to his loan account for expenses which
could not be vouched. During the same period Feasey incurred
expenditure purportedly
on behalf of the company which has been
funded by the Quintara Trust and cannot now account for it to the
auditors. The auditors
themselves are unable to prepare audit reports
for the financial years 2007, 2008 and 2009 (let alone a qualified
audit report)
because they were not furnished with the necessary
financial information and vouchers. Additionally, the auditors are
owed the
sum of R217 578,64 and there is now an impasse as to
whether they should be paid or whether new auditors should be
appointed.
As far as the applicants are concerned, they have
confidence in the present auditors and will not agree to a
substitution of auditors
which requires a special resolution with the
support of 75% of shareholders.
[16] The applicants aver that they
have lost all confidence and trust in Feasey and this in turn has led
to a loss of confidence
and breakdown of trust between the applicants
as trustees of the Quintara Trust on the one hand and other
shareholders, including
the Feasey Group, on the other.
[17] The applicants contend that the
Quintara Trust has advanced enough money and in its opinion has
“
burnt its fingers
”
and will not advance any more finance.
In any event, it seems that commercial banks will not advance finance
unless there are pre-sales
of not less than 50% of the sites. This is
compounded by the reality that commercial banks are unlikely to even
look at financing
a development where the development company cannot
even produce audited balance sheets.
[18] According to the applicants, even
if they as the majority shareholders, wanted to dispose of the main
asset of the company,
they would require a special resolution i.e.
75% of shareholders support. This would not be achieved as the Feasey
Group which
holds 49% of the shares would oppose such a move, hence
the deadlock between the parties.
[19] The applicants contend that the
existence of a deadlock and breakdown of confidence due to Feasey’s
financial mismanagement,
was acknowledged by the Feasey Group when
Feasey proposed that he be mandated to find a buyer for the shares of
the Quintara Trust,
which came to nothing. The applicants aver that
the Feasey Group does not have the funds to purchase the shares and
loan account
of the Quintara Trust. Despite the efforts of the
parties, there are no buyers who wish to acquire the shares of the
Quintara Trust.
THE INTERVENOR’S CASE RESISTING
A WINDING-UP
[20] The Feasey Group has resisted the
application on a number of grounds. The full extent of the opposition
is set out in the founding
affidavit put up in support of the
application to intervene. For the purposes of this judgment, what
follows is a summary of the
defenses raised.
[21] In the main they contend that the
applicants have failed to make out a case that it is
just
and equitable
to wind-up
the respondent. In particular they aver that the applicants have
failed to establish that the
substratum
(purpose) of the company
has disappeared. They assert that the proposed development of the
land, physically, legally and in every
other way remains possible.
They maintain that the alleged
deadlock
between the shareholders (and
directors) of the respondent
per
se,
is not sufficient
justification for the winding of the company. According to them the
probabilities indicate that such deadlock
has been exploited and
unjustifiably perpetuated by Heyns. All reasonable efforts to address
the deadlock have met with a negative
and intractable response.
[22] With regard to the absence of
audited financial statements, the Feasey Group aver that the position
is the following: First,
responsibility for the preparation of
accounting records and annual financial statements is a collective
responsibility resting
on all the directors of the company. According
to them Feasey’s wife would, on a regular monthly basis,
prepare a schedule
of expenses on the property to which there would
be attached copies of the relevant vouchers and invoices. She would
then provide
same to Rudi Louw (a shareholder of the company), who
was the bookkeeper. Rudi Louw would verify same and would send it to
the
company’s auditors. Little also liaised with the company’s
auditors, and more recently Hewan as well. It was contended
that the
auditors themselves and in particular a Ms Lynda Muella performed
basic account work and functions on behalf of the company,
including
the preparation of VAT returns. The auditors, RMS Betty and Dickson
were, as evident from their letters dated 20 May
2010, addressed to
the company’s directors, prepared to finalize audited financial
statements for the company, on the basis
of certain undertakings and
assurances to be given by the directors. The Feasey Group avers that
such efforts were thwarted by
Heyns. According to them the latest set
of queries raised by the auditors which affect the 2006 annual
financial statements which
were audited by KPMG, were duly approved
by Heyns and Feasey and other matters which must have been addressed
previously, more
especially by 20 May 2010. They contend that the
reluctance of the auditor, Mr Jason Howitz, to furnish the applicants
with a confirmatory
affidavit can only be explained on the basis that
he does not support Heyn’s version. They accordingly submit
that it suits
Heyns and the Quintara Trust to perpetuate the dispute
with regard to the absence of audited financial statements for the
company
and the dispute over shareholders loan accounts and that all
reasonable efforts to overcome same would be resisted. Such conduct,
so they submit, is oppressive.
[23] It was submitted on behalf of the
Feasey Group that the parties have contractually bound themselves to
having any serious deadlock
as defined in Clause 32 of the
Shareholders Agreement to be determined by an expert. It was
submitted that the disputes of the
kind that exist between the
parties herein are suitable for resolution in terms of Clause 32.
They contend that while these disputes
have been extensively
discussed and debated among members as is
inter
alia
evident from the
minutes of directors’ and shareholders’ meetings, it does
not suit Heyns and accordingly the Quintara
Trust’s agenda, to
invoke the provisions of Clause 32.
[24] As far as the applicants concerns
raised with regard to the approvals, authorizations and consents
referred to above, the Feasey
Group maintain that these formalities
are all on track to be achieved. They accept however that there have
been huge delays in
this regard as the processes are involved and
cumbersome.
[25] Finally, it was submitted that
the applicants have not discharged the
onus
of showing, as they set out to do,
that the deadlock which has resulted, has come about as a result of
some improper conduct on
the part of Feasey. They contend that in any
event, justice and equity dictate strongly against the winding-up of
the company for
the following reasons: First, liquidation will result
in the forced sale of the property. The proceeds from such sale will
be less
than what ought to be realized for the properly in the normal
course. Second, winding-up introduces a further significant cost
component which otherwise can be avoided. Third, the only shareholder
who has any form of security in the winding-up is the Quintara
Trust.
Other shareholders will therefore be unduly prejudiced should a
liquidation ensue.
ONUS
[26] It is well established that an
applicant for a provisional order of liquidation need only make out a
prima facie
case.
The determination of the question as to whether the evidence adduced
by the party bearing the
onus
constitutes a
prima
facie
case is aptly set out
by Corbett JA
in Kalil v
Decotex (Pty) Ltd
1
as
follows:
“
Where
the application for a provisional order of winding-up is not opposed
or where, though it is opposed, no factual disputes are
raised in the
opposing affidavits, the concept of the applicant, upon whom the
onus
lies,
having to establish a
prima
facie
case
for the liquidation of the company seems wholly appropriate; but not
so where the application is opposed and real and fundamental
factual
issues arise on the affidavits, for it can hardly be suggested that
in such a case the court should decide whether or not
to grant an
order without reference to respondents rebutting evidence.”
DISPUTES OF FACT
[27] There is no doubt that there are
a considerable number of facts in dispute on the affidavits and many
of these disputes relate
to material points in issue between the
parties. Mr
Harcourt
was fully alive to this but urged that
the disputes of fact need not be resolved because their very
existence justifies a provisional
winding-up order. In addition he
submitted that most of the disputes on the papers are not disputes of
act but disputes of opinion
as to the viability of the development of
the property which the respondent purchased and which development was
the main purpose
for which the respondent was established.
[28] Mr
Hartzenberg
on the other hand submitted that the
disputes in this matter constitute material and fundamental disputes
of fact which cannot be
resolved on the papers. He accordingly urged,
at the commencement of the argument on 22 August 2011, that the
matter be referred
for the hearing of oral evidence on certain
defined issues contained in a draft order which was handed up. The
defined issues contained
in the draft order are the following:
“
(1) Whether the
substratum
(purpose) of the company has
disappeared;
(2) The competence or lack of
competence of Feasey, the CEO of the residential development;
(3) What the reasons are for the delay
in the company securing development approval for the land which it
owns;
The reasons for the company’s
auditors not preparing audited annual financial statements for the
company for the years 2007
to 2009;
What legitimate loan account claims
of the Quintara Trust and the Dale Feasey Family Trust, in the
respondent are.
Whether the applicants are using the
winding-up procedure as a means of oppression
vis-à-vis
the other shareholders of the
company.”
Mr
Hartzenberg’s
approach in this regard is in line
with a number of cases which hold that an application to refer a
matter to evidence should be
made at the outset and not after
argument on the merits
2
.
Commenting on this approach Corbett JA in
Kalil
v Decotex (Pty) Ltd and Another, supra,
at
page 981, said the following:
“
This
is no doubt a salutary general rule, but I do not regard it as an
inflexible one. I am inclined to agree with the following
remarks of
Didcott J in the
Hymie
Tucker
case
supra
at
179 D:
‘
One
can conceive of cases on the other hand, exceptional perhaps, …
when to ask the Court to decide the issues without oral
evidence if
it can, and to permit such if it cannot, may be more convenient to it
as well as the litigants. Much depends on the
particular enquiry and
its scope’.”
[29] The proper approach to be adopted
in determining whether an application for a provisional order of
winding-up should be referred
to oral evidence is that set out by
Corbett JA in
Kalil v
Decotex (Pty) Ltd, supra,
at
page 979 B-I where the learned Judge said the following:
“
Where
on the affidavits there is a
prima
facie
case
(i.e a balance of probabilities) in favour of the applicant, then, in
my view, a provisional order of winding-up should normally
be granted
and, save in exceptional circumstances, the Court should not accede
to an application by the respondent that the matter
be referred to
the hearing of
viva
voce
evidence.
This does no lasting injustice to the respondent for he will on the
return day generally be given the opportunity, in
a proper case and
where he asks for an order to that effect, to present oral evidence
on disputed issues. As it was put in the
Wackrill
case
supra
at
285H-286A:
‘
Ordinarily
the consequences of a final winding-up order are drastic indeed, and
it could not have been intended that proof of all
the allegations
necessary for such an order should be anything less than that
required generally in civil cases, that is proof
on a clear balance
of probabilities, with the admission of
viva
voce
evidence,
where that may be necessary, to resolve material disputes on the
affidavits. That also appears to be the standard of proof
required
for a final sequestration order in terms of
s 12
of the
Insolvency
Act 24 of 1936
, according to which the Court must be “satisfied”
that the petitioning creditor has established the elements of his
case.’
Where,
on the other hand, the affidavits in an opposed application for a
provisional order of winding-up do not reveal a balance
of
probabilities in favour of the applicant, then clearly no
prima
facie
case
is established and a provisional order cannot at that stage be
granted. The applicant may, however, apply for an order referring
the
matter for the hearing of oral evidence in order to try to establish
a balance of probabilities in his favour. It seems to
me that in
these circumstances the Court should have a discretion to allow the
hearing of oral evidence in an appropriate case.
The alternative, viz
refusal of the provisional order of winding-up, represents a final
decision against the applicant and, if
such a decision is always made
purely on the affidavits, injustice may be done to the applicant. (Cf
the general reluctance of
the Court in motion proceedings to decide
finally genuine and fundamental disputes of fact purely on the basis
of probabilities
disclosed in contradictory affidavits: see
Trust
Bank van Afrika Bpk v Western Bank Bpk en Andere NNO
1978
(4) SA 281
(A) at 294D-295A, 299H-300A.) Naturally, in exercising
this discretion the Court should be guided to a large extent by the
prospects
of
viva
voce
evidence
tipping the balance in favour of the applicant. Thus, if on the
affidavits the probabilities are evenly balanced, the Court
would be
more inclined to allow the hearing of oral evidence than if the
balance were against the applicant. And the more the scales
are
depressed against the applicant the less likely the Court would be to
exercise the discretion in his favour. Indeed, I think
that only in
rare cases would the Court order the hearing of oral evidence where
the preponderance of probabilities on the affidavits
favoured the
respondent.”
JUST AND EQUITABLE PRINCIPLE
[30] It is convenient at this stage to
decide, in the context of the present case, how the courts have
interpreted the “
just
and equitable
”
principle.
The principles of winding-up a company on the grounds that it is just
and equitable can be summarized as follows:
The words “
just
and equitable
”
are
not to be regarded as being
eiusdem
generis
with the
situations contemplated in the preceding sub-sections of
section
344
3
anc" HREF="#sdfootnote3sym">
3
.Rather
the words confer a discretionary power of the widest character on
the court
4
.
The sub-section is a recognition that
a company like other entities, commercial or non-commercial may
become dysfunctional and
that, being artificial persons, when that
happens their existence should be brought to an end
5
.
In the nature of things the facts
giving rise to such circumstances in different cases fall into a
number of similar broad categories
but those categories do not
constitute a
numerus
clausus.
[see: Apco Africa
(Pty) Ltd & Ano,
supra
.]
As a generalization, the only
limitations in the exercise of the discretion is where:
A minority of shareholders seek
relief from majority shareholders where they are not entitled to
relief from minority oppression
and there has not been a lack of
probity on the part of the majority shareholders, in other words,
where a minority seeks to
overturn a commercial democracy
6
.
[There are, however, borderline cases
where a majority has taken an opportunistic and unfair advantage of
the minority.]
7
The cause of the corporate problem is
the wrongful conduct of the applicant himself
8
.
This ground also postulates, not
facts, but a broad conclusion of law, justice and equity as a ground
for winding-up. The power
is to be exercised judicially with due
regard to justice and equity of the competing interests of all
concerned.
[31] The five broad categories that
have evolved through the cases are conveniently summarized by Coetzee
J in
Randair (Pty) Ltd v Ray
Bester Investments (Pty) Ltd, supra
at
page 350, as being the following:
“
The
type of case in which it would apply is very adequately described by
Pennington in Company Law 4
th
ed
at 691 et seq. The learned author points out that this is an
independent and separate ground for a winding-up order and that
it is
no longer, as it used to be, necessary that the circumstances should
be analogous to those which justify an order on one
or more of the
specific grounds which precede this one; that consequently new kinds
of cases may be brought under this head by
judicial interpretation,
but the cases which have so far been decided, the author points out,
in England, and that is also the
position in South Africa, have
fallen into only five broad categories. It should be emphasized that
these categories may be extended
by the Courts in the future, but
more about that later. Only a very broad description of these
categories is called for. They are
the following:
The
first is the disappearance of the company’s substratum. Where
the company was formed for a particular purpose for instance,
and
that purpose can no longer be achieved at all, its
raison
d’être
,
its substratum has gone and it may be fair and equitable to the
incorporators under those circumstances to wind it up. There are
a
variety of circumstances which can possibly lead to the disappearance
of a company’s substratum.
Secondly,
illegality of the objects of the company and fraud committed in
connection therewith …
The
third is that of deadlock which results in the management of
companies’ affairs, because the voting power at board and
general meeting level is so divided between dissenting groups that
there is no way of resolving the deadlock other than by making
a
winding-up order. The kind of case which falls most frequently to be
dealt with under this heading is the one where there are
only two
directors or only two shareholders, usually in a private company, who
hold equal voting shares or rights and have irreconcilably
fallen
out.
Fourthly,
grounds analogous to those for the dissolution of partnerships. Where
the company is a private one and its share capital
is held wholly or
mainly by the directors and it is in substance a partnership in
corporate form, the Court will order its winding
up in the same kind
of situation that it would order the dissolution of a partnership on
the ground that it is just and equitable
to do that.
Fifthly,
there is oppression. Where the persons who control the company have
been guilty of oppression towards the minority shareholders
whether
in their capacity as shareholders or in some other capacity, a
winding up order in suitable cases may be made. This is
in addition
to other remedies in the Companies Act, which are available to
oppressed minorities to obtain not only dissolution,
but also a money
judgment.
Now,
whilst it is true that these categories certainly do not constitute
any kind of
numerous
clausus
,
leaving it open to the Courts to devise other categories in future,
it is nevertheless useful and instructive to list them in
this
fashion so as to illustrate the kind of thing which can be complained
of under this heading.”
[32] In
Emphy
and Another v Pacer Properties (Pty) Ltd
,
supra
,
Leon J at page 366 said the following:
“
The
cases also show that the just and equitable clause must not be
limited to cases where the
substratum
of
the company has disappeared or where there has been a complete
deadlock. Where, as here, there is in substance a partnership
in the
form of a private company, circumstances which would justify the
dissolution of the partnership would also justify the winding-up
of
the company under the just and equitable clause. Thus in
Marshall
v Marshall (Pty) Ltd and Others 1954(3) SA 571 (N)
Broome
JP followed
Lawrence
v Lawrich Motors (Pty) Ltd 1948(2) SA 1029 (W)
and
applied what was said by Lindley on
Partnership
11
th
ed
at 691
:
‘
Keeping
erroneous accounts and not entering receipts … continued
quarrelling, and a state of animosity as precludes all reasonable
hope of reconciliation and friendly co-operation, have been held
sufficient to justify a dissolution … It is not necessary,
in
order to induce the court to interfere, to show … any gross
misconduct as a partner. All that is necessary is to satisfy
the
court that it is impossible for the partners to place that confidence
in each other which each has a right to expect, and that
such
impossibility has not been caused by the person seeking to take
advantage of it.’
EVALUATION
[33] The present case seems to fall
into more than one of the categories referred to above and such facts
also overlap the different
categories. This being the case, I find
myself in agreement with the submission by Mr
Harcourt
that the discretion conferred on the
court should be exercised viewing the facts: cumulatively rather than
attempting to assess
whether the facts satisfy one or other of the
different categories.
[34] A reading of the papers in this
matter leaves one in no doubt that much has changed since the
conclusion of the Shareholders
Agreement in April 2005. What started
out as a rather ambitious project to establish an up-market
equestrian estate has now degenerated
into a sorry tale of acrimony,
distrust, lack of confidence and extreme disappointment. The
shareholders are split into two camps
– the trustees of the
Quintara Trust on the one hand and the other shareholders which
include the Feasey Group on the other.
The applicants are of the
opinion that since the collapse of the South African property market
in 2008, the proposed development
has become a financial failure and
the company should cut its losses and sell for the best possible
value because the holding costs
are increasing incrementally. On the
other hand the Feasey Group are still optimistic that the development
will be approved by
the DFA Tribunal and the development will
eventually succeed.
[35] The reality, however, is that six
(6) years down the line not a single approval/authorization/consent
which are prerequisites
for the development to commence, have been
finalized. While the Feasey Group argues that much time and effort
have been spent in
trying to obtain these approvals, there is no
guarantee that these will be in place anytime soon. In the meantime
the Quintara
Trust has continued to provide the finance which runs
into millions of rands. Except for acquiring the land and the sale of
some
residential sites, the Quintara Trust itself has nothing else to
show for the huge investment it has made into the development.
One
thing is certain and that is that the Quintara Trust will no longer
fund the development. In these circumstances, it seems
to me that if
the
substratum
of
this company has not already disappeared because the land continues
to exist, the unfortunate commercial reality is that the
prospects of
a successful development at a profit are becoming remote as the days
pass.
[36] Parties who are prepared to
engage in long term investments must undoubtedly appreciate and
accept the risks that go with it.
No investment can be said to be
completely risk free. However, having the ability to stand together
to deal with whatever risks
that arise in the hope of making a profit
should be paramount. This is so in the present case. This case is
replete with allegations
and counter-allegations of financial
mismanagement, lack of confidence and trust by one group of
shareholders against the other.
This state of affairs has resulted in
a deadlock and a complete breakdown of the relationships between the
two groups. This is
much like the situation described by Ponnan JA in
Apco Africa (Pty) Ltd and
Another v Apco Worldwide Inc. supra,
at
page 628, para [28] where the learned Judge said the following:
“
[28]
The true factual position, however, that may have arisen, is that
there is a deadlock and a complete breakdown in the relationship
which makes the company unable to function in its current
configuration. If there were reasonable hope of tiding over the
period
of deep depression and of the company emerging from its
current malaise to carry on at a profit, there may well have been
insufficient
reasons for a court to wind up the company on the just
and equitable provision. But that is not what one encounters here.
Here,
the parties are hopelessly at loggerheads
…”
[my emphasis]
[37] It is plain, in my view, that a
relationship of trust, integrity and confidence between shareholders
is integral to the success
of the business of the company as well as
the continuation of that relationship. Failure in this regard
seriously jeopardizes and
puts at risk any prospect of a successful
development.
[38] It is not clear on the affidavits
(and nothing emerged in argument) on how the company would be able to
convince a financial
institution to lend it money in the absence of
properly audited financial statements. Whatever explanations that the
Feasey Group
may wish to advance for the failure of the auditors to
finalize the financial statements for 2007, 2008 and 2009, the
factual position
is that these statements remain incomplete. In my
view, it is highly improbable that the company would be able to
secure finance
either from a financial institution or a third party
without properly audited financial statements.
[39] Additionally, I consider that the
resignation of Feasey as CEO of the residential component does not
bode well for the company.
This single act, in my view, sends out a
message to people on the outside that there is something amiss in the
affairs of the company.
[40] Inasmuch as the Feasey Group may
wish to assert that Feasey resigned “
in
order to defuse the conflict between him and Heyns”,
the
fact remains that Feasey’s resignation amounts to an
acknowledgement on his part and the Feasey Group itself of the
existence
of a deadlock and breakdown of confidence. Continuing
conflicts, animosity and constant bickering amongst shareholders
signifies,
in my view, the end of what once was a healthy
relationship working for the common benefit of everyone concerned.
[41] Given the deep-seated acrimony
and conflict which currently prevails between the two groups, it
serves no purpose, in my view,
to refer the various disputes which
have arisen for the hearing of oral evidence. The hearing of oral
evidence in these circumstances
will only serve to further entrench
the conflict and polarise the shareholders even more. It is clear
from all the affidavits filed
in this matter that the parties have
reached a deadlock. However, it must be emphasized that generally a
court is concerned with
what is just and equitable, not with whether
there is a deadlock
per se
or not. The existence of a deadlock is
but one example of what might be regarded in a proper case as just
and equitable but a court
must always have regard to all the
circumstances of the case. This was the approach of the court in
K
anakia v Ritzshelf, supra,
and
Apco
Africa (Pty) Ltd
and
Another v Apco Worldwide Inc. supra,
and
which recently found approval by the SCA in
Smith
v Mew
9
.
[42] The inclusion of Clause 32 in the
Shareholders Agreement means that the parties had envisaged the
possibility of a deadlock
and conflict in their future dealings with
each and sought to regulate their relationships by stipulating a
deadlock-breaking mechanism.
That this mechanism was never resorted
to is again testament to the fact that they are unable to agree on
anything.
[43] The respondent company was formed
for a specific purpose. Unfortunately, however, the internal
disputes, mutual disillusionment,
distrust and lack of confidence and
the consequent breakdown of the relationship between the shareholders
have paralyzed it. Perhaps
the time has come to put an end to this
misery. Additionally, I consider that parties should have the freedom
to contract with
whoever they want to and if relations break down due
to a lack of confidence and trust they should be afforded the freedom
and
choice to end such a relationship.
[44] I accordingly conclude that the
applicants have established a
prima
facie
case
(based
on the probabilities) for the provisional winding-up of the
respondent.
ORDER
[45] For all the reasons set out
herein, I grant the following order:
1. The respondent is provisionally
wound-up in the hands of the Master of the High Court,
Pietermaritzburg.
2. A rule
nisi
is hereby issued calling upon the
respondent and all other interested parties to show cause before this
Honourable Court on the
14
th
day of October 2011 at 09h30 or so
soon thereafter as the matter may be heard why a final winding-up
order should not be made.
3. A copy of the provisional
winding-up order shall:
be published once in the Government
Gazette and The Witness on the 30
th
day of September 2011.
be served in compliance with the
provisions of section 346A of the Companies Act, 1973, on or before
the 30
th
day
of September 2011.
4. The costs of this application will
be costs in the winding-up of the respondent.
JUDGMENT RESERVED 22/08/2011
JUDGMENT HANDED DOWN 14/09/2011
COUNSEL FOR APPLICANTS A W M HARC OURT SC
R M VAN ROOYEN
(Instructed by Login Attorneys)
COUNSEL FOR INTERVENOR C J HATZENBERG SC
(
Instructed by Tatham Wilkes
Inc)
1
1988(1)
SA 943 (A) at 976 H-I
2
See:
Di Meo v Capri Resturant 1961(4) SA 614 (N) at 615H-616A; De Beers
Industrial Diamond Division (Pty) Ltd v Ishizuka 1980(2)
SA191 (T)
at 204C-206D; Spie Batingnolles Societe Anonyme v Van Niekerk: In re
Van Niekerk v SA Yster en Staal Industriele Korporasie
Bpk en Andere
1980 (2) SA441 (NC) at 448E-G; Erasmus v Pentamed Investments (Pty)
Ltd (supra at 180H); Hymie Tucker Finance Co
(Pty) Ltd v Alloyex
(Pty) Ltd 1981(4) SA 175 (N) at 179B-E; cf Klep Valves (Pty) v
Saunders Valve Co Ltd 1987(2) SA 1 (A) at
24I-25D
3
Re
Yenidje Tobacco Co.
[1916] 2 Ch 426
; [1916-17] All SA ER Rep. 1050
(CA); Emphy v Pacer Properties (Pty) Ltd 1979(3) SA 363 (D) at 565;
Rand Aiv (Pty) Ltd v Ray Bester
Investments (Pty) Ltd 1985(2) SA 345
(W)
4
See:
Sweed v Finbain 1967(3) SA 131 (T) at 136; Erasmus v Pentramed
Investments (Pty) Ltd 1982(1) SA 178 (W) at 181
5
See:
Apco Africa (Pty) Ltd & Ano v Apco Worldwide Inc. 2008(5) SA 65
SCA
6
See:
Hart v Pinetown Drive-Inn Cinema (Pty) Ltd 1972(1) SA 464 (D)
7
See:
Tjospomie Boerdery Bpk v Drakensberg Botteliers (Pty) Ltd 1989(4) SA
31 (T)
8
See:
Emphy’s case, supra, at 467
9
2010(6)
SA 537 SCA