Victory Parade Trading 74 Proprietary t/a Agri-Best SA v Tropical Paradise 93 ProprietaryLimited t/a Vari Foods (13641/2006) [2007] ZAWCHC 32 (12 June 2007)

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[2007] ZAWCHC 32
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Victory Parade Trading 74 Proprietary t/a Agri-Best SA v Tropical Paradise 93 ProprietaryLimited t/a Vari Foods (13641/2006) [2007] ZAWCHC 32 (12 June 2007)

IN
THE HIGH COURT OF SOUTH AFRICA
(CAPE OF GOOD HOPE
PROVINCIAL DIVISION)
REPORTABLE
CASE NO. 13641/2006
In
the matter between:
VICTORY
PARADE TRADING 74
PROPRIETARY
t/a AGRI-BEST SA APPLICANT
And
TROPICAL
PARADISE 93 (PROPRIETARY)
LIMITED
t/a VARI FOODS RESPONDENT
JUDGMENT DELIVERED ON 12
JUNE 2007
DLODLO,
J
[1] This is an opposed
application for the provisional winding up of the Respondent. The
Applicant is Victory Parade Trading 74 (Proprietary)
Limited trading
as Agri-Best SA and is a company with limited liability registered
and incorporated (under registered number 2005/014054/07)
as such in
accordance with the Company Laws of the Republic of South Africa with
its principal place of business at 2
nd
Floor, 97 Loop Street, Cape Town, Western Cape. The Applicant carries
on business as an importer and wholesale distributor of bulk
butter
and related dairy products. The Respondent is Tropical Paradise 93
(Proprietary) Limited trading as Vari Foods, a company
with limited
liability, registered and incorporated as such in accordance with the
Company Laws of the Republic of South Africa with
its principal place
of business at Unit 5, Corner Linton and Jan Smuts Drive, Beaconvale,
Parow, Western Cape. Mr. Selikowitz appeared
for the Applicant. Mr.
Izak Jacobus Potgieter, the sole shareholder and director of the
Respondent company, purported to appear for
and on behalf of the
Respondent in these proceedings. The Respondent attorneys of record
filed and served a Notice of Withdrawal
as attorneys of record on 23
May 2007 and fully complied with the provisions of Rule 16 of the
Uniform Rules of Court. The issue
for determination is whether the
Applicant has established the requirements for a provisional winding
up order sought. A new issue
for determination is whether a
shareholder and/or director of a registered company can represent
and/or act on behalf of the company
in litigation wherein relief is
sought against the company concerned.
BACKGROUND
[2] As at 27 October 2006, the
Respondent was truly and lawfully indebted to Applicant in the sum of
R1 158 012.00 being in respect
of bulk butter sold and delivered by
the Applicant to the Respondent from time to time (and on open
account) at the latter’s special
instance and request. Save for a
cession of the Respondent’s debtors, the Applicant holds no further
security for its claim against
the Respondent or any part thereof.
[3] The Respondent finds itself
in a precarious financial position in that it is unable to make
payment of its debts as and when such
debts fall due for payment
within the ordinary course of its business. The Respondent has, over
an extended period of time, failed
to make timeous payment of its
indebtedness to the Applicant on account and has repeatedly been
compelled to seek the indulgence
of time from the Applicant within
which so to do. Despite repeated assurances and promises that payment
would be forthcoming, the
Respondent has failed to effect payment of
its admitted indebtedness to Applicant, as a result whereof the
Applicant has ceased supplying
the Respondent on open account,
requiring the Respondent to effect any and all purchases from a “cash
on delivery” basis.
[4] The Respondent’s
financial difficulties first appeared in and during approximately
December 2005 when, despite various undertakings,
the Respondent
failed to make payment of its then outstanding indebtedness to the
Applicant, and was required to effect payment by
means of a series of
instalments. In this regard I have been referred to annexure
“DB2”
and
“DB3”
,
copies of certain correspondence between the parties, the contents
whereof are self-explanatory. In and during January 2006, and
in the
light of the Respondent’s repeated failure to make payment of its
indebtedness to the Applicant (and the Respondent’s
account having
increased substantially from approximately R608 890,43 to the sum of
R938 117,40), the Applicant sought security from
the Respondent in
the form of a cession and pledge of the Respondent’s book debt and
any other claims of whatsoever nature unto
and in favour of the
Applicant. A copy of the said Deed of Cession (“the Deed of
Cession”) is annexed in the Founding Papers.
[5] On or about 19 January
2006, the Respondent addressed correspondence to the Applicant, a
copy whereof is annexed to the Founding
Papers marked
“DB5”
wherefrom it was apparent that:
The Respondent was unable to
make payment of its admitted indebtedness to the Applicant and
required the indulgence of time within
which so to do.
The Respondent required to
receive payment from its debtors prior to being in a position to
effect payment of its then outstanding
indebtedness to the
Applicant.
The Respondent had sought to
procure additional finance from a third party and, upon receipt of
approval therefore, would furnish
Applicant with “a payment
schedule”.
The amount of loan finance to
be procured by the Applicant from the third party would not be
sufficient to cover the Respondent’s
admitted indebtedness to the
Applicant.
The Respondent was in need of
the introduction of further working capital.
The Respondent acknowledged
that the Applicant, as a creditor, was partially financing the
Respondent’s debtors and thus, in effect,
funding the Respondent’s
trading activities.
The Respondent requested that
pending approval for the additional loan financing and/or the
raising of capital to be secured by
the Respondent, the Applicant
continued to supply the Respondent on a cash delivery basis.
[6] In the light of the
admission on the part of the Respondent that the Applicant was in
effect funding the ongoing trading activities
of the Respondent, the
Applicant requested that, as a show of good faith, the director of
the Respondent, Mr. Izak Jacobus Potgieter
(“Mr. Potgieter”),
execute a Deed of Suretyship in terms whereof he bind himself as
surety and co-principal debtor, jointly and
severally with the
Respondent up to and in favour of the Applicant. Having furnished Mr.
Potgieter with a Deed of Suretyship, he
refused to execute same –
despite his prior undertaking to do so. As a result of the
Respondent’s failure to honour its numerous
undertakings to settle
its indebtedness to the Applicant, the Applicant on or about 8 March
2006, sought to enforce its rights in
terms of the Deed of Cession.
To this end, the Applicant requested the Respondent to furnish the
Applicant with a schedule of debtors
and the amounts outstanding by
each debtor, pursuant to the provisions of the Deed of Cession.
[7] In and during March 2006,
Mr. Potgieter, on behalf of the Respondent, advised the Applicant
that the Respondent had entered into
discussions and negotiations
with a third party financier with a view to securing the necessary
working capital finance to restore
the business of the Respondent to
a sound financial footing. Mr. Potgieter requested that the Applicant
desist from contacting the
Respondent’s creditors pursuant to the
provisions of the Deed of Cession, pending the outcome of the
discussions with the proposed
third party financier. The Applicant
had, however, already contacted certain of the Respondent’s
creditors, many of whom placed
in dispute the extent of their
indebtedness to the Respondent as alleged by the Respondent. Further
thereto, the Applicant established
that Pick–‘n-Pay had effected
payment to the Respondent of an amount of approximately R1 174 403,03
on 3 March 2006, although
the Respondent failed to utilize any
portion of such funds in reduction of the Respondent’s admitted
indebtedness to the Applicant.
The Applicant has no knowledge as to
the manner in which the aforesaid funds were utilized and accordingly
the Applicant contended
this is a matter which falls to be
investigated by a duly appointed liquidator in the fullness of time.
Clearly should the aforesaid
funds have been utilized to effect
payment to any of the Respondent’s creditors, such payments would
have been prejudicial to the
remaining creditors (including the
Applicant) and may constitute impeachable transactions, which fall to
be investigated and set
aside by a duly appointed liquidator.
[8] Similarly, and on 15 March
2006, the Applicant’s erstwhile attorneys Messrs. Schneider,
Shargey and Klitzner addressed a letter
to the Respondent pursuant to
the provisions of Section 345 (1) (a) of the Companies Act, No. 61 of
1973 (as amended) (“the Act”).
The aforesaid letter incorporates
a demand for payment of the Respondent’s indebtedness to the
Applicant in the sum of R1 193 924,86.
Pursuant to the Applicant
seeking to enforce the terms of the Deed of Cession referred to
hereinabove, it contacted certain of the
alleged creditors of the
Respondent (as alleged by the Respondent), including Jersey Fresh
(Proprietary) Limited (“Jersey Fresh”),
an alleged debtor of the
Respondent. On or about 23 March 2006, the applicant received a
telefax from Jersey Fresh, a copy whereof
is annexed to the Founding
Papers marked
“DB8”
,
wherein they recorded as follows:
“
We do not owe any
amounts to Tropical Paradise or Vari Foods whatsoever. Actually
Tropical Paradise owes us an amount of R17 244,11,
as per copy of
first page of Summons which was issued against Tropical Paradise,
attached hereto.”
[9] On or about 30 March 2006,
and at Mr. Potgieter’s request, a meeting was held at the offices
of the Applicant’s erstwhile
attorneys as aforesaid together with
Mr. Potgieter and Mr. Duncan Barrat (of the Applicant Company). At
this meeting, Mr. Potgieter,
on behalf of the Respondent,
acknowledged that the Respondent was indebted to the Applicant and
that the Respondent was furthermore
unable to make payment of its
admitted indebtedness to the Applicant. Mr. Potgieter, on behalf of
the Respondent, advised that the
Respondent required an extended
period of time in order to allow it to generate the necessary income
so as to enable it to make payment
of its indebtedness to the
Applicant. The Respondent’s proposals in this regard was described
by the Applicant as vague and were
predicated upon the Respondent’s
future trading success and the said proposals were not acceptable to
the Applicant. As alternatives,
Mr. Potgieter, on behalf of the
Respondent, suggested that should the Applicant not be agreeable to
the proposed payment schedule,
he would be required to sell the
business of the Respondent, alternatively seek to liquidate the
Respondent.
[10] Subsequently in an
endeavour to assist the Respondent with its financial difficulties,
the Applicant agreed to grant the Respondent
certain further
indulgences in order to afford it yet a further opportunity to
liquidate its admitted indebtedness to the Applicant.
On or about 12
April 2006, the Respondent addressed a telefax to the Applicant’s
erstwhile attorneys, a copy whereof is annexed
hereto marked
“DB9”
.
The aforesaid telefax records,
inter
alia,
as follows:
“
The time loss in our
negotiations and correspondence has had an influence on the cash flow
as previously discussed. We have not been
producing any stock as it
would have been ludicrous for us to buy butter for cash, produce
stock, invoice the sale and the debtor
would have to pay Agri-Best.
In the meantime the monthly costs of electricity, phones, insurance,
rental and repayment to business
partners have been met, which has
absorbed whatever cash flow there was.”
[11] It is apparent from the
aforesaid telefax that the Respondent ceased trading, albeit for a
limited period, and was unable to
make payment of its debts. Inasmuch
as the Respondent requires the proceeds of future trading activities
so as to enable it to make
payment of historical debt, the question
which arises is in what manner the proceeds of historical trading
(resulting from the incurrence
of the historical debt), were
utilized, and why such proceeds have not been available to the
Respondent to proceed with its commercial
activities. These are
aspects once more which fall to be investigated by a duly appointed
impartial liquidator in due course. In
and during October 2006, it
emerged that the proposed restructuring of the business of the
Respondent whereby a third party financier
would procure equity in
the Respondent and provide much needed working capital, did not
materialize. Furthermore, no further attempts
emanated from the
Respondent as to the manner in which it would liquidate its admitted
indebtedness to the Applicant as aforesaid.
In the event, and on or
about 27 October 2006, the Applicant’s erstwhile attorneys
addressed a telefax to the Respondent annexed
to papers, marked
“DB10”
,
calling upon the Respondent to revert with suitable proposal to bring
the matter to a head.
[12] On 7 November 2006, Mr.
Potgieter, on behalf of the Respondent addressed an e-mail to the
Applicant (a copy whereof is annexed
to the papers and marked
“DB11”)
wherein he records as follows:
“
There is no way at
present that any commitment can be made on paying any debt off. For
your info, Dairybelle have dropped their tapped
prices to the Bidvest
Group…At this price, I have to buy the best available butter price
and extend the product to at least break
even. … The only way I am
able to accommodate you is to sell part of all of the business to
you, I would prefer to then get out
of this business entirely and
therefore propose that you buy me out for say 75% of my loan account
(approx R1 mill). …At least
this way, you would be able to recoup
some/all of your debt over a period and be able to make the required
decision without having
to accommodate me – maybe move the plant to
Fidji (sic) or whatever.”
REQUIREMENTS FOR A
PROVISIONAL WINDING-UP ORDER
[13] In the instant case, the
Applicant must, prima facie establish:
That it is a creditor of the
Respondent; and
That the Respondent is unable
to pay its debts.
An application to Court for the
winding-up of a company may be made inter alia, by one or more of its
creditors, including contingent
or prospective creditors. See:
Section 346(1)(b) of
the Companies Act
,
No. 61 of 1973 (as amended).
The issue is thus whether the
Applicant has established these requirements, and if so, whether or
not the Court should exercise its
discretion in favour of the
Applicant. It cannot be disputed that an amount of R1 158 012, 00 is
owed to the Applicant by the Respondent.
The Respondent denied the
indebtedness in an Answering Affidavit. However, this denial is
predicated upon the identity and citation
of the Applicant and not
upon the allegation that no amount is owing. The Respondent alleged
that it carried on business and purchased
bulk butter with an entity
described as “Agri-Best South Africa”. The latter is the trading
name under which the applicant carries
on business.
[14] The Respondent’s denial
can be described as disingenuous, opportunistic and entirely without
merit. I say so because papers
reveal that the denial arises from:
the incorrect recordal insofar
as the Applicant’s registration number is concerned in paragraph 3
of the Applicant’s Founding
Affidavit. Due to an apparent
typographical error an additional “4” was inserted in the
Applicant’s registration number;
and
the invoices and statements
issued by the Applicant (which reflect the Applicant’s correct
registration number) refer to the Applicant
only by its trading name
“Agri-Best Dairy Products”, there being no reference thereon to
the name by which the Applicant is
registered, namely “Victory
Parade 74 (Proprietary) Limited”.
The Respondent’s contention
flies in the face of the countless discussions and correspondence
between the parties as referred to
in the Applicant’s Founding
Affidavit, including the various admissions and acknowledgements on
the part of the Respondent insofar
as its indebtedness to the
Applicant is concerned.
[15] Further thereto, Mr.
Potgieter admits having executed the Cession of Book Debt appearing
at annexure
“DB4”
to the Applicant’s Founding Affidavit which records a cession in
favour of “Victory Parade Trading 74 (Pty) Ltd t/a Agri-Best
SA”.
The aforesaid Cession plainly identifies the Applicant as “the
creditor” and serves to secure the Respondent’s indebtedness
to
the Applicant. The Respondent’s (and Mr. Potgieter’s) denial that
the Applicant is the entity to which the Respondent is indebted,
is
simply inconsistent and irreconcilable with Mr. Potgieter having
executed the aforesaid Cession on behalf of the Respondent, same
serving as security for the Respondent’s indebtedness to the
Applicant – Victory Parade Trading 74 (Proprietary) Limited.
Furthermore,
the Respondent admits that, given time, it will be in a
position “whereby it can pay Applicant all amounts owing.”
A Respondent obviously does not
discharge the aforesaid duty merely by asserting that the
indebtedness is disputed. It has to set
out the grounds upon which
the indebtedness is disputed, in order to enable the court to adjudge
the extent to which such grounds
are
bona
fide
and reasonable.
[16] In
Kalil
v Decotex (Pty) Ltd and Another
1988 (1) SA 943
(A) Corbett JA referred with apparent approval to the
earlier decision of Hiemstra AJ (as he then was) in
Badenhorst
v Northern Construction Enterprises (Pty) Ltd
1956 (2) SA 346
(T) at 348, where the learned Judge approved a
passage from
Buckley
on Companies
, which
included the following statement:
“
But, for course, if
the debt is not disputed on some substantial ground, the court may
decide it on the petition and make the order”.
(
Kalil v Decotex
supra
at
979 B-C).
The learned Judge went on to
add the following at 1165:
“…
a bare denial of
applicant’s material averments cannot be regarded as sufficient to
defeat applicant’s right to secure relief
by motion proceedings in
appropriate cases. Enough must be stated by respondent to enable the
Court (as required in Petersen’s
case (supra)) to conduct a
preliminary examination of the position and ascertain whether the
denials are not fictitious, intended
merely to delay the hearing. The
respondent’s affidavits must at least disclose that there are
material issues in which there is
a bona fide dispute of fact capable
of being decided only after viva voce evidence has been heard.”
In
Meyer NO v Bree
Holdings (Pty) Ltd
1972 (3) SA 353
(T) at 354 D-H. Margo J accepted the court’s
reasoning in the
Room
Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd
1949 (3) SA 1155
(T)
case as
applying, equally, to winding up proceedings and the application of
the Badenhorst Rule.
[17] The above approach is
sometimes referred to as the Badenhorst Rule, a reference to the case
of
Badenhorst v
Northern Construction Enterprises (Pty) Ltd
1956 (2) SA 346
(T) where it was formulated and adopted. Professor
Blackman in “Companies” in Joubert
The
Law of South Africa
(Vol 4, Part 3, paragraph 113) describes the meaning of
“a
bona fide dispute on reasonable grounds”
as
follows:
“
A debt is not bona
fide disputed simply because the respondent company says that it is
disputed. The dispute must not only be bona
fide or genuine
but
must be on good, reasonable or substantial grounds
.
The expression ‘genuine dispute’ connotes a
plausible
contention
requiring the same sort of consideration as a ‘serious question to
be tried’. It is not sufficient for the company merely to
establish
that there is a serious question to be tried as to whether the
dispute over the debt is genuine in that the debt is disputed
on the
basis that an honestly held belief that it is not payable and is not
disputed merely for the purposes of delay or obstruction.
‘Genuine’
in this context does not mean
not
fabricated for the purposes of the proceedings
or not just thought up or brought forward without genuine belief:
there can be no genuine dispute if there are not
substantial
grounds for disputing the debt
.”
(Emphasis
supplied) I fully align myself with all the above reasoned
formulations from legal writings and case law. The Respondent’s
denial falls well short of that which is required to establish that
the Applicant’s claim is subject to a material, reasonable,
and
bona fide
dispute.
THE
SECOND REQUIREMENT – (RESPONDENT’S FINANCIAL PREDICAMENT)
[18] What appears from the
Affidavits filed of record is that the Respondent finds itself in a
precarious financial position. The
Respondent admits receipt of
demand addressed to it by the Applicant pursuant to the provisions of
Section 345 (1) (a) of the Companies
Act. The Respondent elected not
“to pay the sum, or to procure or compound for it to the reasonable
satisfaction of the creditor”
as required by the provisions of the
Act. The failure by the Respondent to act accordingly upon receipt of
a so-called “statutory
demand” within the meaning prescribed
thereto in Section 345 of the Companies Act is to deem the company
unable to pay its debts.
(See: Section 345 (1) (a) read together with
Section 344 (f) of the Companies Act). It can hardly be suggested
that either of the
Respondent’s response to the aforementioned
demand or its Affidavit filed of record comes close to rebutting the
deeming provision
contained in Section 345 of the Companies Act.
[19] In addition to the
statutory deeming provisions referred to hereinabove, a consideration
of the Affidavits filed of record plainly
reveals that the Respondent
finds itself in a precarious financial position, its trading
activities having failed dismally and it
having been required to fund
its normal trading expenses by means of loan capital. It is apparent
from the aforegoing that the Respondent
is commercially, insolvent
and thus liable to be wound up. The Court has,
inter
alia
, taken the
following factors into consideration when determining whether a
company is unable to pay its debts:
Whether there are liquid
assets or readily realizable assets available out of which, or the
proceeds of which, the company is in
fact able to pay its debts;
(
Rosenbach &
Co (Pty) Ltd v Singh’s Bazaars (Pty) Ltd
1962 (4) SA 593
(D) at 597)
Any delay in settlement of its
debts; (
Ebrahim
(Pty) Ltd v Pakistan Bus Services (Pty) Ltd
1964 (4) SA 146
(N) at 148H)
Whether the assets of the
business are needed by the Respondent to carry on its business and
for the purposes of acquiring funds
with which to pay its ordinary
day to day cash commitments; (
Ebrahim
(Pty) Ltd
supra
at 148)
Whether the debt can be
liquidated within a reasonable time (
Rosenbach
& Co
supra
at 597)
A distinction is drawn between
a company which can realize assets and can still carry on its
business in a case where the realization
of the assets would result
in the company being unable to do so. (
Irvin
& Johnson Ltd v Oelofse Fisheries Ltd
1954 (4) SA 231
(E) at 238-239).
Each of these
indicators/factors is present in the current matter.
[20] A company’s inability to
pay its debt may be proved in any manner. Evidence that a company has
failed on demand to pay a debt
of which payment is due, is cogent
prima facie
proof of its inability to pay debts. “…
for
a concern which is not in financial difficulties ought to be able to
pay its way from current revenue or readily available resources”
.
(
Rosenbach &
Co (Pty) Ltd v Singh’s Bazaars (Pty) Ltd
1962 (4) SA 593
(D) at 597)
As stated by Caney J in the
Rosenbach & Co
(Pty) Ltd v Singh’s Bazaars (Pty) Ltd
1962 (4) SA 593
(D) at 597),
“
the
proper approach in deciding the question whether a company should be
wound up on this ground appears to me… to be that, if it
is
established that a company is unable to pay its debts, in a sense of
being unable to meet current demands upon it, its day to
day
liabilities in the ordinary course of its business, it is in a state
of commercial insolvency.”
As with the remaining
“defences” raised by the Respondent, the Respondent’s answer to
the averment that it is unable to pay
its debts comprises nothing
more than an unsubstantiated and unfounded denial of an inability to
do so. In this regard, the Respondent
fails to take me into its
confidence in providing any financial information or documentation to
substantiate the suggestion that
it is able to make payment of its
debts as and when such debts fall due for payment in the ordinary
course of its business.
[21] In the current matter the
Respondent,
inter
alia
, admits that:
It is commercially insolvent
in that it is unable to make payment of its debts as and when such
debts were due for payment in the
ordinary course of its business;
It has over an extended period
of time failed to make timeous payment of its indebtedness to the
Applicant;
It has been required to seek
the indulgence of time from the Applicant within which to make
payment;
It advised the Applicant that:
it is unable to make payment
of its admitted indebtedness to the Applicant and requires the
indulgence of time within which to do
so;
it is required to seek payment
from its debtors prior to being in a position to effect payment of
its indebtedness to the Applicant;
it has sought to procure
additional finance from third parties, whereupon it would be in a
position to furnish the Applicant “with
a payment schedule”;
the proposed amount of the
third party loan financed to be procured would however not be
sufficient to cover the Respondent’s
admitted indebtedness to the
Applicant;
the Respondent required
introduction of further working capital;
the Applicant is a creditor
who was partially financing the Respondent’s debtors and thus in
effect funding the Respondent’s
trading activities.
The Respondent was compelled
to advance a “payment schedule” which, if not acceptable would
require the sale of the business
of the Respondent, alternatively
the liquidation thereof.
In the light of the aforegoing,
it is apparent that on the Respondent’s own version, the Applicant
has discharged the onus which
it bears to satisfy the Court that the
Respondent is commercially insolvent and is accordingly liable to be
wound up pursuant to
the relevant provisions of the Companies Act.
(Section 344 (f) read with Section 345 (1) (c) of Act 61 of 1973).
[22] In his well-known dictum
in
DE WAAL V ANDREW
THIENHAUS
, Innes CJ
stated:
“
Speaking for myself, I
always look with great suspicion upon, and examine very narrowly, the
position of a debtor who says, ‘I am
sorry that I cannot pay my
creditor, but my assets far exceed my liabilities.’ To my mind the
best proof of solvency is that a
man should pay his debts; and
therefore I always examine in a critical spirit the case of a man who
does not pay what he owes.”
(
MacKay
v Cahi
1962 (4)
SA 193
(O) at 194 F-H, 195 C-E and 204 F-H;
Ter
Beek v United Resources CC & Another
1997
(3) SA 315
(C) at 339 A-B.
The
above lucid observation, to my mind, summarizes and puts to
perspective the issues involved in this matter. The Respondent
clearly
cannot pay its debt and there is one inescapable conclusion I
reach, namely that it is insolvent. Commercial entities demonstrate
their solvency by paying their debts as same fall due for payment.
The annual financial statements of the Respondent, appearing as
annexure
“IP4”
to the Respondent’s Answering Affidavit, offer no comfort to the
Applicant (understandably) whatsoever. The annual financial
statements
are for the year end 28 February 2006, and are accordingly
in excess of a year old.
[23] During the period under
consideration, the extent of the Respondent’s trade creditors
increased from R592 683,00 to R2 980
485,00 – an increase of
liabilities in excess of 500%. During the period under consideration
the Respondent made a nett trading
loss before tax in the sum of R77
543,00. Certain of the Respondent’s expenses increased by
substantial and significant amounts
during the financial year under
consideration (a matter which requires further investigation by a
duly appointed liquidator). It
is apparent from the aforegoing that
the Respondent’s audited financial statements raise more questions
than answers and serve
to confirm the Applicant’s suspicion that
the Respondent continues to trade in insolvent circumstances.
RESPONDENT’S ADDITIONAL
“DEFENCES”
[24] The Respondent seeks to
raise two further defences, to wit, an alleged damages claim against
the Applicant, and the absence of
any advantage to creditors flowing
from the liquidation of the Respondent. As regards the alleged
damages claim, such alleged damages
claim is denied by the Applicant.
Moreover, the suggestion that the Respondent has an alleged damages
claim against the Applicant
is inconsistent and irreconcilable with
the correspondence between the parties – the Respondent has never
sought to suggest that
it suffered any damages as a result of any
conduct on the part of the Applicant, let alone that it has an
actionable cause against
the Applicant for damages. The Respondent
fails to refer to or adduce a single piece of correspondence wherein
the Respondent sought
to deny its indebtedness to the Applicant
either on the basis of an alleged counterclaim or damages. Indeed,
the Respondent suggests
it ought to be entitled to continue to trade
in insolvent circumstances so as to afford it time to raise funds to
effect payment
to the Applicant.
[25] Any such damages claim
(denied by the Applicant) is in any event unliquidated. The
Respondent fails to provide the details of
any attempt to even
quantify its alleged damages claim, let alone, allege that any such
damages claim serves to extinguish the Respondent’s
admitted
indebtedness to the Applicant. Whilst a genuine unliquidated claim
exceeding the claim on which the Applicant’s
locus
standi
as creditor
is founded may serve as a defence to a winding up application, this
approach was subject to qualification, namely:
there could be no room for an
argument that the Applicant was seeking to enforce a disputed debt
by means of winding up proceedings;
that the Respondent bore the
onus to show why the Court should exercise its discretion not to
grant the winding up order in its
favour (
Ter
Beek v United Resources CC & Another
supra
.
[26] Regard being had to the
aforegoing, it is apparent that the defences postulated by the
Respondent in the current matter, to wit,
that the Respondent had a
counterclaim against the Applicant on the one hand and, that the
Applicant was seeking to enforce a disputed
debt by means of winding
up proceedings on the other hand are mutually exclusive and cannot be
advanced by the Respondent simultaneously.
In considering the nature
of the dispute raised by the Respondent, the Court in
Ter
Beek
supra
at 336 stated the following guiding formulation:
“
In view of the
aforementioned dispute between the applicant and first respondent,
this matter can be decided on a consideration of
the probabilities
only if I am satisfied that there is no real genuine dispute of fact;
that the first respondent’s allegations
are so far-fetched or
untenable that their rejection merely on the papers is warranted; or
that viva voce evidence will not disturb
the probabilities appearing
from the affidavits. … Although it is undesirable to endeavour to
resolve disputes of fact on affidavit
without the hearing of evidence
and seeing and hearing witnesses before coming to a conclusion … it
is equally undesirable to accept
disputes of fact at their face
value, because if that were done an applicant could be frustrated by
the raising of fictitious issues
of fact by a respondent (see
Petersen v Cuthbert & Co
1945 AD 420
at 428). Accordingly a Court
should in every case critically examine the alleged issues of fact in
order to determine whether in
truth there is a dispute of fact that
cannot be satisfactorily determined without the aid of oral
evidence.”
(
South Peninsula
Municipality v Evans and Others
2001(1) SA 271 (c) at 238G);
Nampesca
(SA) Products (Pty) Ltd and Another v Zaderer and Others
1999 (1) SA 886
(C).
[27] The Respondent’s third
and final “defence” is predicated upon the allegation that “the
liquidation of Respondent would
be to no one’s benefit, lest of all
Applicant’s.” The Respondent appears content to suggest that it
ought to be allowed to
continue to trade in insolvent circumstances
such as to enable it to “repay whichever indebtedness it may have.”
The Respondent
appears to labour under the misapprehension that an
advantage to creditors is a prerequisite for the grant of a winding
up order.
The requirement for an “advantage to creditors” is
prescribed in Section 10 (c) of the Insolvency Act, No. 24 of 1936
(as amended),
and is of no relevance in the current application for
the winding up of the Respondent [which application is governed by
the provisions
of the Companies Act, No. 61 of 1973 (as amended). It
is apparent from the aforegoing that the defences relied upon by the
Respondent
are without merit. By contrast, the undisputed and common
cause facts appearing in the Applicant’s Founding Affidavit
constitute
compelling evidence such as to entitle the Applicant to
the relief which it seeks, namely, the winding up of the Respondent.
DISCRETION
[28] Whilst it is trite that
our Courts have a discretion as to whether or not to grant a winding
up order, such discretion must be
exercised judicially. Regard being
had to the nature of the defence postulated by the Respondent and the
complete and utter absence
of any evidence to substantiate either the
existence of a counterclaim or the financial soundness on the part of
the Respondent,
it cannot be suggested that the Respondent has placed
before me any evidence to warrant the Court exercising its discretion
in favour
of the Respondent. Where it is established that a creditor
has a debt which a company cannot satisfy, the unpaid creditor is
ex
debito justitiae
entitled to a winding up order. The discretion of a Court to refuse a
winding up order at the instance of the creditor is, in these
circumstances, very limited. (See:
Absa
Bank Ltd v Rhebokskloof (Pty) Ltd and Others
1993 (4) SA 436
(C) at 440H-441B;
Service
Trade Supplies (Pty) Ltd v Dasco & Sons (Pty)
Ltd
1962 (3) SA 424
(T) at 428 D-E;
Rosenbach
& Co (Pty) Ltd v Singh’s Bazaars (Pty) Ltd
1962
(3) SA 593
(N) at 597C-H;
Absa
Bank Ltd v Rhebokskloof (Pty) Ltd
(
supra
)
) at 440H-441B;
Coughlin
Ward & Son (Pty) Ltd
1931
NPD 153
at 153;
Service
Trade Supplies (Pty) Ltd v Dasco & Sons (Pty) Ltd
1962 (3) SA 424
(T) at 428 B-G;
Sammel
v President Brand Gold Mining Co. Limited
1969 (3) SA 629
(A) at 662 D-F.
The legal position in this
regard and is very simple, namely where it is established that a
creditor has a debt which a debtor cannot
satisfy the unpaid creditor
is
ex debito
justitiae
entitled
to a winding up order.
DOES A SHAREHOLDER AND/OR
DIRECTOR HAVE LOCUS STANDI IN LITIGATION WHEREIN RELIEF IS SOUGHT
FROM HIS COMPANY?
[29]
Section
33
of the Companies
Act 61 of 1973 (as amended) is a statutory statement of the
ultra
vires
doctrine and
it is not the only limitation on the capacity of this legal entity.
There are some acts which a company cannot perform.
The company
cannot, for example marry or make a will. At common law, a company
cannot appear in Court through one of its office bearers.
This
remains the position even if such office bearers are authorised by
the directors or even members in general meeting. The company
is
obliged to conduct its case through a legal practitioner. (See: Re
London County
Council and London Tramways Co.
(1897) 13 TLR 254
;
Scriven
v Jescott (Leeds) Ltd
(1908) 53 SJ 101;
Tritonia
Ltd v Equity & Law Life Assurance
(1943) AC 584
586;
Arma
Carpet House (Jhb) (Pty) Ltd v Domestic and Commercial Carpet
Fittings (Pty) Ltd
1977 (3) SA 448
;
Forhat
Stud Farm (Edms) Bpk v Barclays Nasionale Bank Bpk
1978 (3) 118 (O);
Ramsey
v Fuchs Garage (Pty) Ltd
1959 (3) SA 949
(C);
Yates
Investments (Pty) Ltd v CIR
1956 (1) SA 364
(A)).
[30] In
Yates
Investments (Pty) Ltd v Commissioner for Inland Revenue
case
supra
,
one Prior, who was the sole beneficial shareholder (virtually like
Mr. Potgieter in the instant matter) in the appellant company,
appeared to argue the appeal. The Court held that he was not entitled
to do so. Notably at page 365C, Centlivres, CJ said the following:
“
Mr. Prior and the
appellant are different personae. A litigant is entitled to appear in
person in any Division of the Supreme Court.
The appellant, being an
artificial person, cannot appear in person and must be represented by
a duly admitted advocate. Apart from
certain statutory provisions
which allow attorneys in very exceptional circumstances to appear in
a Superior Court on behalf of a
litigant, only a duly admitted
advocate can represent a litigant in a Superior Court. As far as the
Appellate Division is concerned
there are no statutory provisions
which allow anybody who is not a duly admitted advocate to appear on
behalf of a litigant.”
[31] The above formulation
represents the legal position which remains correct even today in
company law. Thus Mr. Izak Jacobus Potgieter,
the sole shareholder
and director of the Respondent company has no
locus
standi
to appear
before this Court and present an argument on behalf of the
Respondent. If in these proceedings he was sued in his private
capacity and the Respondent had nothing to do with the matter, indeed
he would have had his constitutionally enshrined right to defend
himself including presenting his side of the case and arguing in
person without the aid of Counsel. The Respondent, however, is not
a
natural person. The Respondent is an artificial person. It was given
status of a legal entity by law. It cannot represent itself
in a
Court of law. The law requires that an admitted advocate must argue
on behalf of an entity like the Respondent. The second question
must
therefore also be answered in the negative. It was for this reason
that I pointed out to Mr. Potgieter that he may not argue
(in person)
this matter on behalf of the Respondent.
[32] The Respondent suffered no
prejudice whatsoever when Mr. Potgieter was barred from arguing on
its behalf. All opposing papers
supported by Annexures had already
been filed of record prior to the “departure” of the Respondent’s
legal team. I proceeded
to decide the matter on the papers before me.
Any conceivable prejudice on the part of the Respondent is ‘wiped
clean” in that
the decision at this stage is of a provisional
nature. The Respondent can still have the matter revisited on the
return date (if
it then shall have grounds sound enough as to enable
the Court to discharge the
rule
nisi
). Even though
on 28 May 2007 I granted the order (without reasons) I proceed to
repeat the terms of the order
infra
for the sake of completeness.
ORDER
[33] In the result I grant the
following order:
The Respondent is placed under
provisional order of winding-up in the hands of the Master of this
Court.
A
Rule
Nisi
is issued
calling upon the Respondent to show cause, if any, to this court, on
17 July 2007, as to why a final order of winding-up
should not be
granted and why the costs of this application should not be costs in
the winding-up of the Respondent.
Service of this order is to be
effected as follows:
Upon the Respondent at its
principal place of business by the Sheriff of this Court;
Upon employees of the
Respondent in the manner prescribed;
By one (1) publication in each
of the Cape Times and Die Burger newspapers;
On the South African Revenue
Services by the Applicant’s attorneys of record.
___________________
DLODLO, J