Kalil v Decotex (Pty) Ltd. and Another (158/87) [1987] ZASCA 156; [1988] 2 All SA 159 (A) (3 December 1987)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
1987
>>
[1987] ZASCA 156
|

|

Kalil v Decotex (Pty) Ltd. and Another (158/87) [1987] ZASCA 156; [1988] 2 All SA 159 (A) (3 December 1987)

IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE
DIVISION
)
In the matter between:
ROY EDWARD BRIAN KALIL
Appellant
and
DECOTEX (PROPRIETARY) LIMITED
First respondent
and
CHARLES BECKER
. Second respondent.
CORAM
: CORBETT, VILJOEN, SMALBERGER, NESTADT, JJA et STEYN
AJA.
DATE OF HEARING
: 5th November 1987
DATE OF JUDGMENT
: 3 December 1987
JUDGMENT
CORBETT
JA:
The appellant applied to the Witwatersrand Local
Division for the winding up of a company known as Decotex (Proprietary) Limited
("Decotex").
He applied in
/ two '.
2
two different capacities and upon two separate grounds: (i) in his
capacity as a shareholder of Decotex on the ground that it was
just and
equitable that the company be wound up; and (ii) in his capacity as a loan
creditor of Decotex on the ground that the company
was unable to pay its debts.
He cited Decotex as first respondent and one Charles Becker as second
respondent. Second respon-dent
is the registered holder of two of the four
issued shares in Decotex, the other two being registered in the name of the
appellant.
The directors of Decotex are appellant and second respondent. The
application which was filed on 2 January 1986 was opposed by second
respon-dent
in his personal capacity and on behalf of Decotex.
When the matter came before Grosskopf J the appellant asked for a provisional
order of winding up. Having heard argument, the learned
Judge dismissed the
application with costs. With leave of the Court a
quo
/ appellant
3
appellant now appeals to this Court against the whole of the judgment and
order of Grosskopf J. At the hearing before us, however,
respondents' counsel
argued in
limine
that no appeal lay against the order of the Court a
quo
. This was disputed by appellant's counsel. It is the first matter
which I must consider.
I might mention that this point in regard to appealability was not raised at
the stage of the appli-cation for leave to appeal, which
was opposed by the
res-pondents. Counsel admitted that the point had only occur-red to him
later.
Respondents' argument on appealability turns on whether the provisions of
sec
150
of the
Insolvency Act 24 of 1936
as amended ("the
Insolvency Act") are
made
applicable to orders granting or refusing the winding up of a company which is
unable to pay its debts by reason of the provisions
of sec 339 of the Companies
Act 61 of
/ 1973
4
1973 as amended ("the 1973 Companies Act"). The relevant portions of sec 150
read:
"(1) Any person aggrieved by a final order of sequestration or by an order
setting aside an order of provisional sequestration may
appeal against such
order.
(5) There shall be no appeal against any Order made by the court in terms of
this Act, except as provided in this section."
And sec 339 provides:
"In the winding-up of a company unable to pay its debts the provisions of the
law relating to insolvency shall, in so far as they
are applic-able, be applied
mutatis mutandis
in respect of any matter not specially provided for by
this Act."
It is cardinal to the respondents' argument that the opening words of sec
339, viz: "In the winding-
up of a company ", be read as referring not only
to
(a) the process of liquidation which commences once an order of winding up
has been granted, but also to (b) the legal proceedings
which lead to the grant
or refusal of
/ such
5
such an order. In my view, the words in question refer
to (a), but not to
(b). It seems to me that the ordi-
nary meaning of the words "winding-up of a
company" impel
one to this conclusion. They refer to the liquidation
of
the company, not to the legal proceedings giving rise to
the
liquidation order; and, a
fortiori
, not to proceedings
giving rise to
the refusal of a liquidation order. In the
case of
Lawclaims (Pty) Ltd v
Rea Shipping Co SA:
Schiffscommerz Aussenhandelsbetrieb Der VFB
Schiffbau
Intervening
1979 (4) SA 745
(N) James JP,
delivering
the judgment of the Full Bench of the Natal Provincial
Division
(Van Heerden and Milne JJ concurring) stated (at 750 B-C)
"Section 339 lays down that the pro-visions of the
Insolvency Act only
apply in
the
winding-up
and that stage is only reached when the order to wind up
has been granted in terms of the Companies
Act".
He went on further to hoid that
the 1973 Companies Act itself did not prohibit an appeal against an order
/ refusing
6
refusing an application to wind up: that consequently the right to appeal was
governed by the Supreme Court Act 59 of 1959; that an
application for winding up
was a civil proceeding and, in the absence of any spe-cific limitation, a
judgment or order made in such
a proceeding was appealable; and that, in the
case before the Court, there being no such specific limitation, the order
refusing
an application to wind up was appealable. (The reference to a "specific
limitation" arose from the provisions of sec 20(2)(c) of
Act 59 of 1959, in the
original form, to which I shall make further reference later). I am in full
agreement with what was stated
and held in the
Lawclaims
case in regard
to the interpretation of sec 339 and the appealability of a decision refusing a
winding up order. Naturally this must
now be read subject to the requirements
relating to leave to appeal as laid down by sec 20 of the Supreme Court Act in
its
/ present
7
present form, ie as amended by sec 7 of the Appeals Amendment Act 105 of
1982. (See also the remarks (
obiter
) of Smuts J, with whom Klopper JP and
Erasmus J concurred, in
Du Plooy and Another v Onus (Edms) Beperk and Two
Others
1981 (1) PH E2.)
In the course of his argument respondents' coun-sel referred to sec 348 of
the 1973 Companies Act which provides as follows:
"A winding-up of a company by the Court shall be deemed to commence at the time
of the presentation to the Court of the application
for the
winding-up".
He conceded, however, in
view of the authority of
Vermeulen
and Another v C C Bauermeister
(Edms) Bpk and Others
1982
(4) SA 159 (T), that since no winding up order was in fact
made in this
case, sec 348 did not come into operation.
Nevertheless, in my view, the
provisions of sec 348 tend
to controvert, rather than advance, the argument of res-
/ pondents'
8
pondents' counsel. The purpose and effect of sec 348 was considered by the
Full Bench of the Transvaal Pro-vincial Division in
Vermeulen
's case
(
supra
) at pp 161 F - 162 B. Clearly the effect of the section is to
antedate, by means of a deeming provision, the commence-ment of a winding
up by
the Court to the time of the presentation of the application for winding up.
And, in my opinion, the time from which the commencement
of winding up was
intended to be antedated by this deeming provision was the date of the grant of
the winding up order. It seems
implicit in this that the Legislature regarded a
winding up as ordinarily commencing with the order for winding up.
Respondents' counsel placed considerable re-liance on the English case of
In re A I Levy (Holdings) Ltd
1964 Ch.19 as authority for the proposition
that
the words "In the winding-up " in sec 339 included the
/ legal
9
legal proceedings leading to the grant, or refusal, of the winding up order.
I have read the case care-fully. It deals with sec 227
of the English Companies
Act of 1948 and the question as to when the Court may exercise the jurisdiction
granted to it by that section.
Section 227 and sec 339 of the 1973 Companies Act
are not in
pari materia
and I do not find the decision to be of any
assistance in resolving the question now under consideration.
In
Rex v City Silk Emporium (Pty) Ltd and Meer
1950 (1) SA 825
(GWL)
the question arose as to whether a company which was under provisional
liquida-tion and was unable to pay its debts was indictable
for certain offences
under the
Insolvency Act. The
State relied upon sec 182 of the Companies Act 46
of 1926 ("the 1926 Companies Act"), which was the predecessor
/ of
10
of sec 339. The Court held that the State was not
en-
titled to rely on sec 182 since (at p 834) —
".... the section is merely adminis-trative. It provides that the law relating
to insolvent estates is to apply to the
process
of
winding
up
a
company
"
(My emphasis.)
This decision was
followed in
R v Schreuder
1957 (4)
SA 27
(0) and
Cooper and Cooper
v Ebrahim
1959 (4)
SA 27
(T). It may be that the use of the words
"merely administrative" in this
dictum
placed too con-
fined a construction on the effect of sec 182 (see the
discussion of these
cases and of another in which the
dictum
was applied in a civil
matter, viz
Ex parte
Mallac: In re L D De Marigny (Pty) Ltd (In
Liq.):
De Charmoy Estates (Pty) Ltd Intervening
1960 (2) SA
187
(D), by Colman J in
Woodley v Guardian Assurance Co
/
of SA Ltd
11
was because the right of appeal in winding up applications had been placed on
the same footing as that in sequestration applications
by virtue of sec 339.
This argument is, in my view, not well founded. A provision in terms
virtually identical to sec 159 of the 1926 Companies Act was
to be found in sec
155 of the Companies Act 1909 (Tvl); and a provision in substantially similar
terms was to be found in sec 195
of the Companies Act 1892 (Cape). It appears
from
Collier v Redler and Another
1923 AD 64O
that this latter section
was taken over almost verbatim from sec 124 of the English Companies Act 1862
"without.... proper consideration"
(see pp 645, 652). In
Collier
's case
this Court held that no appeal lay as of right against a winding up order
granted by two judges of the Cape Provincial Division
inasmuch as a petition for
the winding up of a company was not a "civil suit or action" within the meaning
of sec 50
/ of
12
of the Charter of Justice of the Cape of Good Hope, read
with sec 104 of
the South Africa Act, 1909. In coming
to this conclusion the Court adopted
the general inter-
pretation placed upon these words in
Gillingham v
Trans-
vaalsche Koelkamers Beperkt
1908 TS 964
, which had to
do
with the appealability of a sequestration order. For the
reasons to be
found at pages 645 and 652 of the report this
Court held in
Collier
's
case that sec 195 of the Companies
Act 1892 (Cape) did not assist the
applicant on the question
of appealability and indeed Kotzé JA
remarked apropos
thereof (at p 652):
"It is also remarkable that the introduction of this unnecessary section
should have escaped the notice of the legal mind in both
Houses of the
Legislature".
Sec 159 was nevertheless included in the
1926
Companies Act. Whether the Legislature
considered that
this would result in a winding up order becoming appeal-
/ able
10
of SA Ltd
1976 (1)SA758 (W)), but it seems to me that the
interpretation that the relevant words in sec 182 ("In the case of every
winding-up
of a company....") referred to "the process of winding up" is
consistent with the meaning which I have placed upon the correspond-ing
words in
sec 339. I should add that there are dif-ferences in the wording of secs 182 and
339, but none of these appears to me to
have any bearing upon the question
presently being discussed.
Respondent's counsel also referred to sec 159
of the
1926 Companies Act, which read:
"An appeal from any order or decision made or given for or in the winding-up of
a company by the Court under this Act shall lie in
the same manner and subject
to the same conditions as an appeal from any order or decision of the Court in
cases within its ordinary
jurisdiction".
He drew attention to the
fact that there was no equivalent
provision in the 1973 Companies Act and he
argued that this
/ was
13
able as of right or whether its inclusion was simply an instance of
legislative inertia is uncertain. At all events, the decision
in
Collier
's case as to the meaning of "civil suit or action" having been
followed in a number of cases coming before this Court (see
Collett v
Priest
1931 AD 290
and the cases there cited:
Lebedina v Haskel and
Another
1932 AD 354
;
Dreyer and MacDuff v New Marsfield Collieries
Ltd
1935 AD 318)
, in 1935 the Legislature stepped in and enacted that for
the purpose of determining whether an appeal lay from any order or judg-ment
of
a Judge or court the words "civil case" or "civil suit" or "civil action" in any
law should, subject to the provisions of any
law which specially limited the
right of appeal in any particular matter, be deemed to include "any civil
proceedings whatsoever"
(see sec 3(c) of Act 1 of 1911, introduced by sec 106 of
Act 46 of 1935). As pointed out in
Service Trade Supplies (Pty) Ltd v
Dasco
and
/
Sons
14
Sons (Pty) Ltd
1962 (3) SA 424
(T), at p 425 E, this enact-ment
"considerably enlarged the range of appealable orders". Furthermore, this
enlargement was maintained
in sec 20 of the Supreme Court Act 59 of 1959, which
replaced the earlier legislation dealing with appeals in civil matters (see
Dasco's case,
supra
, at p 425 F-H). The result was that the former
limitation on appealability inherent in the words "civil suit or action"
disappeared.
In the circumstances, sec 159 of the 1926 Companies Act, considered
"unnecessary" in 1923 (see the quoted remarks of Kotzé
JA in
Collier
's case
supra
), became redundant, since an application for
the winding up of a company was clearly a "civil proceeding" (
Dasco
's
case,
supra
: cf.
Mahomed v Kazi's Agencies (Pty) Ltd and Others
1949 (1) SA 1162
(N), at p 1166). The only problem which remained was,
whether in the light of sec 159 - which re-ferred only to "an order or decision
made or given for or
/ in
15
in the winding-up of a company" - an appeal lay against an order refusing an
application for winding up. This was the question which
arose in
Dasco
's
case,
supra
, the pro-blem being whether sec 159, because it did not
specifically include an order refusing a winding up, should be con-strued
as
specifically excluding it and as thus constitu-ting a provision which
"specifically limits" the right of appeal (see sec 20(2)(c)
of Act 59 of 1959,
as origi-nally enacted). In
Dasco
's case the Full Bench of the Transvaal
Provincial Division, following the Full Bench of the Natal Provincial Division
in
Mahomed v Kazi's Agencies (Pty) Ltd and Others
,
supra
, held
that sec 159 did not so limit the right of appeal against an order refusing a
winding up and that such an order was appeal-able
(see pp 426 A - 427 A).
This being the state of the law at the time when the 1973 Companies Act was
passed, it seems to me
/ that
16
that the most probable reason why sec 159, or a similar provision, was not
incorporated in the new Act was that it had proved to be
redundant. All orders
made in winding up applications, including orders refusing a winding up,
constituted orders in civil proceedings,
in terms of sec 20 of the Supreme Court
Act, and there was consequently no need for a special provision in the 1973
Companies Act
relating to appeals. Moreover, this being the state of the law at
the time, it seems probable that, had the Legislature wished to
limit the right
of appeal in winding up applications, it would have done so
more explicitly than by the mere omission from the 1973 Companies Act of sec
159 of the 1926 Companies Act (or a like provision).
For these reasons, I hold that, the requisite leave having been given, the
order of the Court a
quo
dismissing the application for a provisional
order of liquidation is appealable in this Court. Respondents'
/ point
17
point in
limine
, which if successful would have led to the appeal
being struck off the roll, is therefore dismissed with costs.
I turn now to the merits of the appeal. The undisputed facts, as they appear
from the affidavits filed are shortly as follows. The
appellant is an interior
decorator and designer. Decotex was incorporated on 9 February 1982 and has at
all times carried on business
in Johannesburg as an interior decorator and
supplier of goods to the interior decorating and retail trade under the trading
style
of "Clothworks". It initially operated a shop in Norwood and a factory in
Doornfontein. The first share-holders in Decotex were appellant
and one Demitri
Theophano-poulos, appellant holding three and Theophanopoulos one of the four
issued shares.
Decotex acquired from a French textile manufac-turing firm, referred to in
the papers as Texunion, an
/ exclusive
18
exclusive licence entitling it to import and deal within the Republic
of South Africa in the designs and fabrics produced by Texunion.
Imported
fabrics were made up into finished products in the factory and the shop dealt in
the main with the retail trade. Decotex
also acquired cer-tain other licences
relating to printing designs.
In about June 1983 second respondent learned through an intermediary, one
Cyril Graff, that Theophano-poulos wished to sell his interest
in Decotex and
that appellant was looking for someone to take his place. Second respondent,
together with his father and his two
brothers,were shareholders in a company
known as Heidi Bee (Proprietary) Limited ("Heidi Bee"), which carried on
busi-ness in Johannesburg
as interior decorators in competition with Decotex. It
was put to second respondent by Graff that, for various reasons, it would
be to
his advantage, or that of Heidi Bee, to take over Theophanopouios's
/ interest ..
19
interest in Decotex. A meeting was arranged between appellant and second
respondent and negotiations ensued. On 23 September 1983
two agreements were
signed. The first, a tripartite agreement between appellant, Theophanopoulos and
second respondent, provided
that Theophanopoulos would sell his one share in
Decotex and his loan claim against Decotex, amounting to about R15 000, to
second
respondent and that appellant would sell one of his shares to second
respondent. Thus the effect of this agreement, when im—
plemented, would
be that appellant and second respondent would each hold two shares in the
company and second res — pondent
would become a loan creditor of the
company. The second agreement, entered into between appellant and second
respondent, was a shareholders
agreement regulating the
legal relationship
between the parties
inte
r se as share —
holders in Decotex. Each
of these agreements was made
conditional on the other being executed. The
agreement
were implemented.
/At........
20
At the time when these agreements were concluded
the
financial position of Decotex was not particularly
healthy. Second respondent
avers that it was then in
insolvent circumstances, but this is denied by appellant.
At all events it
is clear that its first year of trading
(which ended on 28 February 1983) produced a revenue loss
of R19 923 and
that it badly needed an injection of working
capital to enable it to conduct
business on a profitable
basis. In terms of the shareholders agreement of
23
September 1983 second respondent undertook to procure credit
facilities
for Decotex in the sum of not less than R100 000,
by way of overdraft
facilities for not less than R40 000
and by way of shipping and confirming
facilities for not
less than R60 000. In pursuance of the agreement
second
respondent arranged credit facilities which were actually
in excess
of these amounts. Appellant and second respon-
dent (and two other Beckers)
stood surety for these lia-
bilities.
/ The
22
During the 1985 financial year, despite cash flow problems and the need for
additional credit facilities, there appeared to be improvement
and second
respondent was convinced of the profitability of the business. He accordingly
sought to devise a merger between Decotex
and Heidi Bee. To this end a meeting
was arranged at the home of a certain Gerald Sacks. For various reasons
appellant decided that
such a merger would not be in his or Decotex's interests
and rejected the proposal. It is not clear exactly when this meeting took
place.
It seems probable that it was early in 1985.
During March 1985 the auditor for Decotex, a Mr Braude, produced a draft
trial balance for the finan-cial year ended 28 February 1985,
which showed a net
profit of R36 320. The figures used to produce this profit in-cluded stock in
hand to the value of R206 660. This
figure was arrived at on the basis of a
physical stock-
/ taking
21
The shareholders agreement also provided that appellant was to be the
managing director of the company and was to be responsible for
the day-to-day
running of its business. There is a dispute as to the actual extent of second
respondent's active participation in
the business when the agreement was
implemented, but nothing turns on this. Second respondent avers that from
reports received from
time to time from appellant and his wife (who was also
employed in the business) it appeared that profits were being made. This is
not
disputed. In spite of this the annual accounts for the year ended 29 February
1984 showed a tra-ding loss of R10 236. Second
respondent says that he was
surprised by this, but after discussing the matter with appellant he was
convinced that there would be
high-er profits in the 1985 trading period. This
is denied by appellant, but it is common cause that they were both optimistic
about
the year to come.
/ During
22
taking conducted by the appellant. Second respondent was
not
satisfied with this stock figure, contending that the
stock had been
over-valued and that were it valued at a
realistic figure the trial balance
would show a loss and
not a profit. There are various disputes on the
papers
in this connection, but it seems to be common cause that
owing to
second respondent's dissatisfaction with this
stock figure the appellant
agreed to write down the value
of certain stock items. It was also agreed
that certain
of the "slow-moving" stock be sold at cost in order to
im-
prove the liquidity of the business.
At this stage the respective versions of appellant and respondent begin to
diverge markedly and since this represents the core of
the dispute between the
parties I shall attempt to summarize separately what each has to say.
The appellant alleges that after the break-down of the merger talks early in
1985 second respondent —
/ " ....made
24
" made up his mind to push me out
of the business completely and to take it over for himself and his
family".
In about April 1985 he was told by second respondent that
the latter and
his family desired to merge the activities
of Decotex with those of Heidi Bee
and required that all
the stock in the shop be moved to Heidi Bee's
premises.
He agreed to accept these requirements because at that
stage
Heidi Bee had invested considerable funds in Decotex
and he was reluctant to
bring about a confrontation which
would lead to the withdrawal of these funds
and the resul-
tant paralysis of the business. The stock was
accordingly
moved over. At the same time the plant and equipment
at
Decotex's factory was also moved to the premises of Heidi
Bee and the fittings and fixtures of Decotex's shop were
taken to the
second respondent's residence.
Shortly after Decotex's stock had been moved to the premises of Heidi Bee
second respondent informed appellant
/ that
25
that Heidi Bee was going to retain 40% of the selling price of all stock sold
by Heidi Bee on behalf of Decotex. Appel-lant did not
agree to this, but second
respondent said that he was going ahead and appellant could do as he pleased.
Shortly thereafter, in about
June 1985, appellant was told by second respondent
that his services with Decotex were no longer required as there was no room for
him in the business. His employment was summarily terminated.
Appellant further alleges that the stock of
Decotex
has now been totally integrated with the stock of
Heidi Bee and that it will
be extremely difficult for any-
body to work out the prices at which such
stock has been
realized by Heidi Bee. As a result of the conduct of
second respondent, so it is alleged, a company which was
solvent as at 28 February 1985 is now clearly insolvent
and unable to pay
its debts. Appellant's loan account,
which as at 28 February 1985 amounted to
R46 628 is
irrecoverable.
/ Moreover,
26
Moreover, it is contended, second respondent and his family have succeeded in
preferring themselves and will continue to do so. They
have made a profit
through Heidi Bee disposing of Decotex's stock at a profit of 40%, which profit
should have accrued to Decotex.
According to appellant "the Beckers" (meaning second respondent and the other
members of his family) have copied and continue to copy
Texunion's designs and
fabrics and are dealing with the same in breach of Texunion's rights, thereby
endangering Decotex's sole franchise.
Appellant contends that it is just and equitable
be
that Decotex/wound up —
(a) so that an investigation can be made into the affairs of Decotex with a view
to ascertaining what has become of Decotex's assets,
particularly its stock, and
what amounts are owed to Decotex by Heidi Bee;
/ (b)
because,
27
(b) because, owing to the actions of second respon-dent, appellant no longer
trusts second respon-dent or has any faith or confidence
in him;
(c) because there is a deadlock between appellant and second respondent, the
sole directors and equal shareholders in the company,
with the result that no
proper decisions can be made for Decotex and it cannot be properly
adminis-tered;
(d) because second respondent has breached the shareholders agreement by
terminating appel-lant's employment by the company; and
(e) because there is tension and friction between appellant and second
respondent.
So much for the appellant's case.
Second respondent's version is that after it
had
been agreed that the "slow-moving" stock be disposed
/ of
28
of appellant did not appear to make any practical effort in this regard and
Decotex's financial position became more and more critical.
Decotex was unable
to meet its commit-ments and he (second respondent) refused to guarantee any
additional financial facilities.
A meeting was ac-cordingly called and this took
place over the Easter weekend in April 1985 at the home of Graff. The persons
present
at the meeting were appellant, appellant's wife, Graff, Braude, one
Isaac Gever, an alternate financial director of Heidi Bee, second
respondent's
father, his brothers, Alan Becker and Brian Becker, and second respondent
himself. According to second respondent, it
was common cause at the meeting that
Decotex was insolvent to the extent of about R65 000 and that it could not carry
on trading.
Second respondent's attitude was that there were two alternatives:
either Decotex should be wound up or it should be taken over by
Heidi Bee.
Second respondent was against the
/ first
29
first alternative as he did not wish to be associated with a company which
was placed in liquidation. The alternative suggestion was
fully discussed and
eventually an agreement was reached to which the appellant subscribed. The terms
of the agreement were as follows:
(1) That Heidi Bee would purchase all Decotex's
stock, it would sell the
stock at best and re-
tain for itself as its profit and to cover
overheads
a figure which would be equal to a
40% mark-up on the cost price:
(2) that Heidi Bee would purchase Decotex's motor
vehicles, plant and
machinery at book value, less
depreciation, and take over motor vehicles
which
were on lease and assume liability for the leas-
ing
instalments;
(3) that appellant and respondent would transfer
their shareholdings in
Decotex to Heidi Bee and
/ would
30
would cede their loan claims against Decotex to Heidi
Bee;
(4) that second respondent would "procure" Heidi
Bee to pay all Decotex's outstanding liabilities, including the bank, shippers
and other creditors, but excluding the shareholders'
loan claims;
(5) that Heidi Bee would employ appellant on the same terms and conditions as
the appellant's employment with Decotex:
(6) that appellant would be entitled to purchase 20% of the share capital in
Heidi Bee and that the shareholders in Heidi Bee agreed
to sell such shares to
appellant at book value as at 28 February 1985, such shares to be paid for in
cash; this right to purchase
being conditional upon appellant agreeing to be
em-
ployed by Heidi Bee and the appellant binding
/ himself
31
himself as surety and co-principal debtor with the other directors of the
company in favour of those creditors whose claims the other
direc-tors had
guaranteed;
(7) that appellant would be appointed a director of Heidi Bee when he purchased
the shares in terms of (6) above; and
(8) that the net purchase price of stock sold by Heidi Bee would be set off
against the moneys which Heidi Bee would disburse on
behalf of Decotex and, if
there was a surplus, this would be appropriated pro rata to the shareholders'
loan claims.
(For convenience I shall refer to this
as the "Easter agreement".)
According to second respondent the licences relating to printing designs held
by Decotex and the
/ trade
32
trade name "Clothworks" were extensively discussed during the negotiations
leading up to the conclusion of the Easter agreement. In
the result, however,
this matter became academic since, in terms of the agreement, Heidi Bee was to
become sole shareholder of Decotex
and thus would either use the licences and
the trade name in its own trading with the consent of Decotex or permit Decotex
to use
the same in its own trading operations. Another matter discussed at
length was the losses sustained by Decotex. These constituted
an "asset" of
Decotex in that a tax saving could be achieved thereby. It was contemplated that
Heidi Bee would cause profitable transactions
to be put through Decotex and the
profits thus achieved would enable Decotex to repay shareholders' loans which
were ceded to Heidi
Bee.
Second respondent further avers that the Easter agreement was duly
implemented. Stock, piant and machinery
/ of
33
of Decotex werephysically transferred to the premises of Heidi Bee. This was
personally supervised by appellant, who prepared lists
of the stock so
transferred. Appel-lant and the staff of Decotex entered the employ of Heidi
Bee. And in this connection second respondent
attached to his affidavit copies
of paid cheques to show that for the months of May, June and July 1985
appellant's salary had been
paid by Heidi Bee. Also attached were documents,
paid cheques and an income tax form, to show that Mrs E Ferney-Hough, the
factory
manageress of Decotex, entered the employ of Heidi Bee in May 1985 and
remained so em-ployed until 13 December 1985. Second respondent
and his family,
through Heidi Bee, paid all Decotex's creditors, apart from the shareholders'
loan claims, and in the pro-cess an
amount of Rl8l 016 was disbursed. The net
purchase price of stock sold by Heidi Bee over the period 30 April 1985 to
February 1986
turned out to be R56 773. Second respondent estimates that when
all the merchandise which
/ Heidi
34
Heidi Bee took over from Decotex is sold, Heidi Bee will have suffered a
shortfall in the repayment of its dis-bursements of approximately
R100 000.
As a result of the Easter agreement the wholesale and manufacturing side of
Decotex's business came to an end and only the retail
shop continued to operate.
Early on it became apparent that this part of the business was also sustaining
losses. It was thereupon
agreed between appellant and second respondent that the
retail business would be closed as at the end of July 1985. Although ap-pellant
continued to be employed by Heidi Bee it became apparent to second respondent
that he had lost his enthu-siasm for the business and
at the end of July he
tendered his resignation with immediate effect.
in the circumstances second respondent denies that Heidi Bee has in any way
misappropriated the stock of Decotex; or so arranged matters
that he and his
family
/ will
35
will be preferred; or that Heidi Bee is unlawfully using the licensed
designs and fabrics to which Decotex is en-titled; or that appellant
was
wrongfully dismissed; or that it is just and equitable that Decotex be wound up.
Second respondent avers that Decotex "....is
presently a shell of a company and
does not conduct any business whatsoever". Decotex's creditors have been paid in
full and no preference
has been given to any particular creditor.
During September 1985 appellant made an appoint-ment to meet second
respondent. There is a dispute as to what transpired at this meeting.
It is
common cause, however, that appellant was accompanied by his attorney and that
at the meeting the latter asked second respondent
what compensation he was
prepared to pay for having, as it was put, dispossessed appellant of his shares
and loan account. According
to second respondent he asked on what basis
appellant thought he was entitled to compen-
/ sation,
36
sation, but neither appellantnor his attorney was able to indicate any such
basis.
After and as a result of these discussions
second
respondent, according to him, became
concerned about the
fact that there was no written record of the Easter
agreement.
He considered that it was of practical importance to have
such
a record, particularly in regard to Decotex's stock
and the basis upon which
the purchase price of that stock
was to be determined. He was also aware that
when a com-
pany disposes of its major asset a resolution of
shareholders
is necessary. (Presumably he had in mind sec 228 of the
1973
Companies Act.) Accordingly on 21 November 1985 notice
was given of a
general meeting of the shareholders of the
company to be held on 6 January
1986 for the purpose of
considering the following general resolution:
"1. That the company confirm and ratify the Agreement of Sale in which the
company sold its Plant and Machinery and its Stock
/ situated
37
situated at KAHNS CORNER; and
OLGA BUILDINGS, 119 President Street,
Johannesburg to Heidi Bee (Proprietary)
Limited (Heidi Bee), as at 30 April
1985. The purchase consideration is
to be determined in the following manner.
a. Plant and Machinery - at the book
value thereof as at 30 April 1985.
b. The stock at the realisable value
thereof by Heidi Bee less its
normal
gross percentage mark up of 40%
(forty percentum).
c. Payment for the aforesaid goods
shall be made by way of set-off
against
such monies which the
company owes to Heidi Bee or such
monies as Heidi
Bee may be called
upon to pay to or on behalf of
the
company."
Although, according to second
respondent, appellant's
shares in Decotex had been ceded to Heidi Bee, they
had
never been transferred. Appellant accordingly remained
a registered
shareholder in Decotex. Notice of the pro-
posed meeting on 6 January 1986
was given to him. His
response was to institute the application for winding up.
/ According
38
According to appellant (as averred in his replying affi-
davit) the
meeting was held on 16 January 1986. His
attorney, Mr Melamed, attended on
his behalf, as his proxy
holder. Also present were second respondent and the
audi-
tor, Braude. Appellant's attorney voted against the reso-
lution and
it was, therefore, not carried. Appellant
says, with reference to the meeting
at which this draft
resolution was considered, that —
"[i]t is significant that at this meeting neither the Second Respon-dent nor
BRAUDE adopted the attitude to the said MELAMED that
my shares had been acquired
by HEIDI BEE or that I was not a
shareholder".
Finally, I would add that in his replying
affi-
davit the appellant flatly denied that any
agreement had
been concluded at any time between the parties along the
lines of the Easter agreement. According to him "a
great deal of
discussion took place on a great many issues",
but no final agreement was
reached. He described the alleged
/ terms
39
terms in regard to the set off of the purchase price of stock sold by Heidi
Bee against disbursements by Heidi Bee (see para 8 above)
as a "fabrication" on
the part of second respondent.
Near the beginning of his judgment the Judge
a
quo
stated —
"There are many disputes of fact, but it is common cause that the only real
issue which has to be decided at this stage, is whether
the appli-cant has
locus standi
to apply for the winding up of the first respon-dent. This
point has to be resolved at the outset".
The learned Judge proceeded to consider the question of
the appellant's
locus standi
and came to the conclusion
that he had not established
prima facie
that he had
locus
st
andi
, either on the
basis of a shareholder or as a
creditor. He accordingly dismissed the
application with
costs.
/ On
40
On appeal before us appellant challenged these findings on
locus
standi
. I shall deal first with appellant's position as a shareholder in
Decotex and then with his claim to be a creditor of Decotex.
It is common cause that when the application was launched in the Court a
quo
the appellant was still shown in the share register of Decotex to be
the holder of the two shares held by him immediately prior to
the Easter
agreement.
Prima facie
,therefore, he remained a member of the company
(sec 109 of the 1973 Companies Act). The Court is, however, entitled to go
behind
the register in order to ascertain the identity of the true owner (see
Randfontein Estates Ltd v The Master
1909 TS 978
, at pp 981-2;
Standard Bank of South Africa Ltd and Another v Ocean Commodities Inc and
Others
1980 (2) SA 175
(T), at p l8l G-H). Moreover, I shall accept, as was
argued on behalf of second respondent, that the ownership in
/ shares
41
shares can be transferred by way of a contract of
cession,
provided that there is the necessary intention to pass
ownership,
and that there is no need for the delivery of
the relevant share certificates
(see
Standard Bank of
South Africa Ltd and Another v Ocean
Commodities Inc and
Others
,
supra
, at p 180 F-H, but cf judgment on appeal at
1983
(1) SA 276
(A), at p 288 C-E). It is second res-
pondent's case that the
Easter agreement constituted such
a contract of cession and that as a result
thereof appel-
lant parted with the ownership of his shares in
Decotex
and, therefore, was no longer a member of the company when
the
winding up application was made. As I have indicated,
the conclusion of the
Easter agreement is a hotly contested
factual issue on the affidavits, it
being appellant's case
that no such agreement was ever reached and that he
never
ceded his shares.
The Court a
quo
assumed for the purposes of
the
/ application
42
application that appellant never ceded his shares and remained
the beneficial owner thereof throughout. It nevertheless came to the
conclusion
that, inasmuch as the shares held by appellant were fully paid up and Decotex
was insolvent, appellant had no tangible
interest in the liquidation of the
company and consequently had no
locus standi
to make the application.
Much of the argument on appeal centred on this requirement of a tangible
interest and on the further question as to whether it related
to the applicant's
locus standi
or was relevant rather to the question as to whether or not
the Court, in the exercise of the discretion which it has in terms of
sec
347(1), should make an order of winding up.
In
Burkhardt v Black Sands Reduction Co of SA Ltd
191( WLD 244
application was made for the winding up of the respondent company on the ground
that 75% of its paid-up
/ share
43
share capital had been lost or become useless for the
pur-poses of its business. The applicant was the holder of 30 fully-paid shares.
Respondent objected to the appli-cation on the ground that the applicant would
have no substantial dividend accruing to him in the
liquidation
and contended
that the application should be refused on
(at p 246)
that ground. The Court/referred to the following remarks
of Jessel MR in the English case of
In re Rica Gold Washing Company
(1879) H Ch D 36, at pp 42-3:
"Now I will say a word or two on the law as regards the position of a Petitioner
holding fully paid-up shares. He is not liable to
contribute anything towards
the assets of the company, and if he has any interest at all, it must be that
after full payment of all
the debts and liabi-lities of the company there will
remain a surplus divisible among the shareholders of sufficient value to
authorize
him to present a petition. That being his po-sition, and the rule
being that the Peti-tioner must succeed upon allegations which
are proved, of
course the Petitioner must shew the Court by sufficient
allegation
/ that
44
that he has a sufficient interest to entitle him to ask for the winding-up of
the com-pany. I say 'a sufficient interest', for the
mere allegation of a
surplus or of a probable surplus will not be sufficient. He must shew what 1 may
call a tangible interest. I
am not going to lay down any rule as to what that
must be, but if he shewed only that there was such a surplus as, on being fairly
divided, irrespective of the costs of the winding-up, would give him £5, I
should say that would not be sufficient to induce
the Court to inter-fere in his
behalf."
Accepting this principle the
Court in
Burkhardt
's case held that, since the most that the applicant
would receive by way of a liquidation dividend would be £3 or £4, he
had no such tangible interest as to entitle him to a winding up order. The
learned Judge expressed the feel-ing that the applicant
had some ulterior motive
and that the application was not
bona fide
. He refused to make an order.
Similar decisions were reached in
Williams v Williams & Co Ltd
1914
EDL 129
;
Fraser v Warmbaths Cotton Estates Ltd
1926 WLD 110.
These cases
appear to
/ establish
45
establish the principle that an applicant for the winding up of a company
must allege and prove, at least to the extent of a
prima facie
case, that
there are assets of the company of such amount as will give him a tangible share
in the event of the winding up (see
Fraser
's case,
supra
, at p
112).
On the other hand in
Clark and Plummer v
John
Clark Limited
1924 TPD 363
, Tindall
J doubted (atp 367) —
".... whether it was intended in the English cases to lay down that under no
circumstances is the holder of fully-paid shares entitled
to petition for
winding-up unless he proves that there will be assets available for distribution
in the winding-up";
and stated further
(at p 368):
"There seems to me no justification for laying down generally that a holder
of fully paid shares has no
locus standi
to present a petition for
winding-up unless he shows a probability of a sur-plus on liquidation. To lay
that down would be directly
in conflict with sec
/ 114 of
46
114 of Act 31 of 1909. In none of the cases quoted were the facts the same as
in the present application. There may be circumstances,
such for example as
those in the cases quoted, where the Court will not come to the assistance of a
shareholder unless he shows the
tangible interest referred to. But in this
case...."
(Sec 114 of the Companies Act 31 of 1909 (Tvl) referred
to above, is the
section which prescribed the various
parties who might present an application
for winding up;
cf. sec 346 of the 1973 Companies Act.) It was no
doubt
the judgment in
Clark
's case,
supra
, which led
Dowling J to
remark, apropos this principle —
"I should add that the authority is not all one way, there is authority in
our Courts to the effect that it cannot be laid down as
a hard and fast rule
that a petitioning contributory must necessarily show a tangible interest".
(See
Markus v Universale Produkte (Edms) Bpk
1962 (3)
SA 242
(W) at
p 243 E.) The point has never been con-
sidered, so far as I am aware, by this Court.
/ The
47
The position in England was reviewed relatively recently by Oliver J in the
case of
In re Chesterfield Catering Co Ltd
[1977] Ch 373.
In that case
the Court came to the following conclusions, which are relevant for present
pur-poses:
(i) that the rule stated in
Re Rica Gold Washing Co
,
supra
had
been established and followed for close on 100 years, despite the fact that in
terms of the Companies Act 1948 there was nothing
in sec 222 or 224 which stated
in terms that a contributory can present a pe-tition only if there are likely to
be surplus assets
available for distribution to shareholders and des-pite the
fact that sec 225 (1) of the Act (first introduced in the Companies Act
of 1908)
directs the court not to refuse a petition on the ground only that the company
has no assets: and that in the circumstances
it was too late for a departure
from the rule (see p 378 C-G);
/ (ii) that
48
(ii) that the rule related to the
locus standi
of the petitioning
contributory (see pp
379 F, 380
D, 381 C); (iii) that the only exception to the
rule was where the petitioner's inability to prove his
locus standi
was
due to the company's own default in providing him with information to which, as
a member, he was entitled (see p 379 P);
(iv) that the tangible interest of the fully paid share-holder had not
necessarily and in all cases to be restricted to the existence
or prospective
exis-tence of a surplus available for distribution amongst shareholders; cf, for
example, the interest of a fully
paid shareholder who petitioned on the ground
that the number of members of the company had fallen below the statutory
minimum; or
the interest of a fully paid shareholder in an
/ unlimited
49
unlimited company (see pp 379 H - 380 C); and
(v) that sufficient interest (or tangible interest)
nevertheless meant an interest by virtue of the
petitioner's membership of the company and not
some private advantage unconnected with such
membership;
"In order to establish his locus standi to petition a fully paid shareholder
must, as it seems to me, show that he will, as a member
of the company, achieve
some ad-vantage, or avoid or minimise some disad-vantage, which would accrue to
him by virtue of his membership
of the company."
(see p 380 D-G).
To sum up the position, it seems clear that what I shall
for convenience call "the tangible interest rule" was introduced into our
practice under the influence of English law and particularly the decision in
Re Rica Gold Washing Co
, supra; that in our practice the rule has not
been as consistently applied as in the English practice and cannot be said to be
firmly
entrenched;
/ that
50
that there is no decision of this Court in regard to the rule; and that even
in England the rule is not an inflexible one and the
concept of a tangible
interest is not restricted to the prospect of a surplus of assets on winding
up.
In
Henochsberg on the Companies Act
, 4th ed, Vol 2,
at p 601 the learned editors suggest that the position in
our law may be
stated as follows:
"There is nothing in s 346, or elsewhere in the Act, which qualifies a
member's right to apply for winding-up by reference to whether
or not he can
show an interest in the winding-up; and that accordingly where his shares are
fully paid-up, he nevertheless has
locus standi
to apply even if there
would be no surplus after payment of the debts because the company is actually
insolvent. He cannot, however,
apply on the ground that the company is un-able
to pay its debts (s 346 (2) ). In an application on any of the grounds upon
which
he can apply, ie those set out in s 344 (b), (c), (d), (e) and (h), the
winding-up may be contrary to the wishes of other members.
It is at the level of
the Court's exercise
/ of
51
of its discretion whether or not to wind up where the members are not ad
idem
on the destruction of the company at the time of the application
that the interest, if any, of the applicant
qua
member in the winding-up
is material. If the company is actually insolvent, so that the applicant as a
holder of the fully paid-up
shares can have no interest in the winding-up (his
capital is lost and he cannot be required to contribute), the Court may on that
ground refuse the application where the other members seek an opportunity to
preserve the life of the company, eg by investing further
capital so as to
enable it to pay its debts or by establishing a compromise with its creditors
under s 311. As pointed out by Tindall
J in the
Clark
case
supra
'[t]here may be circumstances .... where the Court will not come to the
assistance of a shareholder' who has no tangible interest
in the
winding-up."
Without necessarily endorsing every statement made in the passage quoted, I
am in general agreement with this ap-proach as to the
practice to be adopted in
our courts. It seems to me that the element of a tangible interest should not be
made a
sine qua non
of the
locus standi
of a shareholder who
applies for the winding up of a
/ company
52
company, but should rather be regarded as a factor to be taken into
account by the court when deciding, in the exercise of its discretion,
whether
or not to grant a winding up order. And, depending on the circumstances, the
absence of such a tangible interest may well
prove a decisive factor in the
exercise of the court's dis-cretion. Furthermore, I do not think that the
concept of a tangible interest
should be restricted to the pros-pect of a
surplus of assets upon liquidation. Here I am in general, and respectful,
agreement with
the approach of Oliver J in the
Chesterfield
case,
supra
, as outlined in paras (iv) and (v) above.
This was clearly not the approach of the Court a
quo
. It appears to
have equated tangible interest with the prospect of a surplus on winding up and
to have treated it as an essential
requirement relating to
locus standi
.
It did not, in my view, purport to exercise any discretion. In non-suiting the
appellant, in his
/ capacity
53
capacity as member of the company, on these grounds the
Court a
quo
therefore erred. This Court must, accordingly,
consider this aspect of the matter afresh.
This conclusion does not, however, bring to an end the question of
appellant's
locus standi
as a member for, as I have indicated, the
continuance of his membership of Decotex after Easter 1985 is a hotly dis-puted
issue on
the papers. Appellant's attitude is that no agreement was concluded
over the Easter weekend, or at any other time, in regard to the
disposal of his
shares to Heidi Bee and that he was the registered and beneficial shareholder as
at the time when the applica-tion
for winding up was launched. Second
respondent's attitude is that in terms of the Easter agreement appel-lant ceded
his shares to
Heidi Bee and that consequently as at the time when appellant made
the application, he no longer owned the shares, even though they
may still have
been registered in his name.
/ Before
54
Before us appellant's counsel sought to argue that the relevant terms of the
Easter agreement, as set forth in the opposing affidavit
of second respondent
amounted to no more than an agreement to cede, as dis-tinct from a cession; and
that, therefore, ownership in
the shares had not passed to Heidi Bee. I do not
think that this argument, founded as it is upon the fine distinction between an
agreement to cede and a cession, can be sustained. Reading the opposing
affidavit in its entirety, I am of the view that the substantial
averment is
that it was agreed that appellant cede his shares to Heidi Bee and as a result
Heidi Bee became the owner thereof.
One comes back, therefore, to the Easter agree-ment and the factual dispute
as to whether or not it was concluded. This dispute is
also of fundamental
relevance to two other aspects of the case. Firstly, appellant's
locus
standi
as a creditor depends upon
/ whether
55
whether or not the agreement was concluded. It is now conceded by
appellant that his only claim to be a cre-ditor of Decotex as at
the time when
the application for winding up was made is based upon his loan account, which
according to the trial balance as at
28 February 1985 then stood at R46 628. In
terms of the Easter agreement this loan account was also ceded to Heidi Bee. It
follows
that if second respondent's version in regard to this agreement and its
implementation is correct, the appellant had no status as
a creditor of Decotex
when he launched his application. Secondly, the Easter agreement and its
implementation would seem,
prima facie
, to provide a satisfactory answer
to appellant's various complaints in regard to the conduct of Heidi Bee and the
Becker family in
relation to Decotex and its assets; and would seem to
controvert the averment that it is just and equitable that the company be wound
up.
/ It
56
It is thus obvious that the existence or non-existence of the Easter
agreement is a crucial issue in this matter. Having carefully
considered this
issue I do not think that there is a preponderance of probabi-lities either way
on the affidavits. There are certain
probabilities favouring second respondent's
allegation that such an agreement was concluded, such as, for in-stance, (i) the
undisputed
evidence showing the take-over of the business of Decotex by Heidi
Bee, including the transfer of stock and other assets, the use
of licences, the
apparent employment by Heidi Bee of former employees of Decotex and so on, which
seems to be more readily explicable
on the basis of the Easter agreement than
any other; (ii) the fact that it is common cause that negotiations with a view
to such
an agreement did take place; (iii) the fact that second respondent's
version of what occurred at the Easter discussions is confirmed
/ by
57
by the other persons present(apart from appellant), including the
company's auditor; (iv) the reasons ad-vanced by Heidi Bee for wanting
to take
over Decotex - including the tax advantages of its assessed loss -which sound
plausible; (v) the advance by Heidi Bee of
a large sum of money to Decotex, viz
Rl8l 016, which seems more probable in the context of an agreement such as the
Easter agreement
than otherwise; and (vi) the talks in September 1985 concerning
compensation for appellant's
shares and loan account. Against this there are a num-ber of factors
favouring appellant's averment that no such agreement was concluded,
such as for
example (a) the fact that there is no written record of the
agreement;
(b) the fact that there is apparently no other documen-
tary
evidence in the records of either Decotex or Heidi
Bee to substantiate the
conclusion of such an agreement;
(c) the fact that no attempt was apparently made, prior
/ to
58
to the dispute arising between the parties, to arrange for the transfer of
the shares held by appellant and second respondent to Heidi
Bee; (d) the fact
that some, at any rate, of the developments after the Easter week-end might be
explicable on the basis of a "rationalization"
of the operations of Decotex and
Heidi Bee; and (e) the fact that the draft resolution in the notice of 21
November 1985 contained
no reference to a cession of shares and loan accounts.
But I cannot say that the one set of probabilities preponderantly outweighs
the
other.
The question then arises: how should the court deal with an opposed
application for a provisional winding up order where the affidavits
reveal
fundamental and crucial disputes of fact and there is no preponderance of
probability, either way, on the papers?
As was pointed out by Margo J in
Wackrill v
/
Sandton
59
Sandton International Removals (Pty) Ltd and Others
1984 (1) SA 282
(W) at p 285 B-D, the procedure in winding up appli-cations of granting a
provisional order of winding up and a rule
nisi
calling on all persons
concerned to show cause why a final order should not be granted, though not laid
down in the 1973 Companies
Act (or any of its predecessors), is well established
in our practice. (See also
Henochsberg, op cit
, p 604.) Normally the
application for a provisional order is made on notice to the company and
possibly certain other interested
parties and this may lead to the application
being op-posed and to affidavits in support of the opposition and affidavits in
reply
being filed. This, in turn, may bring in train fundamental disputes of
fact, as in the present case.
It has been held in a number of cases that an applicant for a provisional
order of liquidation need
/ only
60
only make out a
prima facie
case; and that the general approach of the
court in deciding whether to grant the application should be similar to that
suggested
by Trollip J, in relation to provisional orders of seques-tration, in
the case of
Provincial Building Society of South Africa v Du Bois
1966
(3) SA 76
(W) — see eg
Prudential Shippers SA Ltd v Tempest Clothing Co
Ltd and Others
1976 (2) SA 856
(W), at p 867 A - C;
Erasmus v Pentamed
Investments (Pty) Ltd
1982 (1) SA 178
(W);
Wackrill v Sandton
International Removals (Pty) Ltd and Others
,
supra
, at p 285 G.
The use of the words "
prima facie
case" in this context is somewhat
anomalous as this term is nor-mally used to denote the quantum of proof required
of a party upon
whom the onus rests, in
the absence
of
re-butting
evidence
, in certain situations, eg where at the end of the plaintiff's case
the defendant applies
/ for
61
for absolution from the instance; or where the defendant closes his case
without calling rebutting evidence; or in a criminal case
where the defence asks
for the discharge of the accused at the conclusion of the State case; or where
an accused has not given evidence
and the question arises as to whether there
was sufficient evidence led by the State to call for an answer from him: or
where in
proceedings instituted on notice of motion the respondent takes the
preliminary objection that the application does not make out
a
prima facie
case for the relief claimed. The determination of the question as to whether
the evidence adduced by the party bearing the onus constitutes
a
prima
facie
case is thus undertaken purely on a consideration of that evidence and
without regard to any evidence which may be, or may have been,
adduced in
rebuttal.
Where the application for a provisional
order
/ of
62
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
liquida-tion of the company seems wholly appropriate; but not so where the
application is opposed and real and funda-mental
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 respondent's
rebutting evidence.
Guidance on what is meant by a
prima facie
case in such circumstances
is, however, to be found in the aforementioned judgment of Trollip J in the
Provincial Building Society
case,
supra
, which, as I have
indicated, though dealing with sequestration proceedings, has been treated by
our courts as being definitive of
the approach in winding up applications.
/ In
63
In the
Provincial Building Society
case
the
issue arose as to whether the respondent was
insolvent
or not. Respondent's counsel conceded that the affi-
davits
showed, on a balance of probabilities, that the
respondent was insolvent, but
he argued that
viva voce
evidence might disturb that balance and
applied for an
order for the hearing of such evidence. Trollip J
re-
ferred to the fact that in terms of sec 10 of the Insolven-
cy Act 24
of 1936 an applicant for a provisional order
of sequestration need only
establish a
prima facie
case of insolvency and continued (at p 78 E)
—
"As it has been rightly conceded in this case that the balance of proba-bilities
is in favour of the applicants, I think it follows
that they have esta-blished
prima facie
that the respondent is
insolvent".
He then proceeded to
consider the question as to whether
the respondent was entitled to an order for the hearing of
viva voce
evidence in order to try to disturb that
/
prima facie
64
prima facie
case. He referred,
inter alia
, to the well-known
case of
Mahomed v Malk
1930 TPD 615
, which enunciated certain rules
relating to the hearing of
viva voce
evidence in insolvency proceedings,
but concluded that because of changes in the wording of
sec 10
of the
Insolvency
Act of 1936
, as compared with the corresponding section in the previous
Insolvency Act 32 of 1916 (in relation to which
Mahomed v Malk
was
decided), these rules did not apply to applications for provisional orders of
se-questration, but only to the final order stage
(see pp 78 G - 79 H). He
further concluded that at the stage of an application for a provisional order of
sequestra-tion the court
should permit the hearing of
viva voce
evidence
only in exceptional circumstances (p 80 A). He continued (at p 80 B-F):
"My reasons for expressing that view are that firstly, the whole procedure at
this initial stage is designed to afford the creditor
a simple and speedy remedy
for preserving the debtor's
/ estate
65
estate and enforcing his claim; in this regard it is noteworthy that no
provision is even made for the debtor to be served with the
petition; and if the
facility of
viva voce
evidence was generally to be accorded to the debtor
at this stage, it might well prolong the proceedings unduly and thus stultify
the whole object of the procedure. Cf., e.g.
Weinder Properties (Pty) Ltd v
Gutstein
,
1952 (4) SA 265
(C) at p 274;
Extension Investments (Pty) Ltd v
Ampro Holdings (Pty) Ltd
,
1961 (3) SA 429
(W), which, although they refer to
the procedure of provisional sentence, are also apposite to this present point.
Secondly, the
Act contemplates, as pointed out above, that at this stage the
matter should ordinarily be disposed of on the petition and affidavits
(cf too
Daitsch and Another v Osrin and Another
,
1950 (2) SA 343
(C) at p 346).
Thirdly, generally the hear-ing of oral evidence at an interlocutory or interim
stage of any proceedings is inappropriate
because it might involve giving
findings on credibility and other-wise prejudging issues which properly belong
to the Court of final
instance (
Zondo v Union & National & General
Assu-rance Co of SA Ltd
,
1954 (3) SA 541
(W) ).
I am not unmindful in arriving at the above conclusions that the granting of
a provisional order can have serious consequences to
the debtor, but that
con-sideration is offset by the facts that
/ the
66
the Court must first be satisfied that a
prima facie
case has been made
out; that even then it has a discretion to grant or refuse an order: and that in
any event in exceptional circumstances
it can hear
viva voce
evidence on
any relevant aspect of the
matter.
As appears from
the above, the
Provincial Building
Society
case,
supra
, dealt specifically with the
situation
where the balance of probabilities on the affidavits favour-
ed
the applicant. The learned Judge's view as to the
position where this is not
so is, however, to be gleaned
from another portion of the judgment. After
mentioning
a number of cases in which the "new wording" of sec 10
of the
1936 Act had been overlooked and which consequently
were not a "safe guide",
Trollip J stated (at p 81 A-B):
"The same applies to
Ex parte Berson, Levy & Kagan v Berson
,
1938
WLD 107
, and
Silver Trade Supplies (Pty) Ltd v Valley
,
1961 (4) SA 70
(W), in which the applicant's claim was also disputed. In the former case, the
Court found that the balance of probabilities was
against the applicant and
refused to order
viva voce
evidence and dismissed the petition, and in
the
/ latter
67
latter the Court found that there was no balance of probabilities either way
and also refused to order
viva voce
evidence but made a special order
postponing the hearing. In the result, therefore, both decisions were correct
and can be justi-fied
on the basis that the Court was not of the opinion that
the petitioning cre-ditor had
prima facie
established his claim against
the debtor in terms of sec 10 (a)."
This judgment would thus appear to lay down that in an opposed application
for a provisional order of sequestration the necessary
prima facie
case
is es-tablished only when the applicant can show that on a consideration of all
the affidavits filed a case for sequestration
has been established on a balance
of pro-babilities; and that, where the applicant does show this, an application
by the respondent
for the matter to be referred to
viva voce
evidence (in
order to en-deavour to disturb this balance) will, save in exceptional
circumstances, not be granted. The learned Judge
would
/ also
68
also seem to have expressed the view, obiter, that where on
the affidavits the balance of probabilities is against the applicant or
where
there is no balance either way, no
prima facie
case is established and
the court should refuse to order
viva voce
evidence.
In applying this general approach to applica-tions for a provisional order of
winding up it must be borne in mind that there are certain
differences between
the two procedures. A winding up, for example, may be obtained on grounds other
than the insolvency of the company.
Moreover, sec 347 of the 1973 Companies Act
does not contain wording similar to
sec 10
of the
Insol-vency Act of 1936
, which
requires merely a
prima facie
case when a provisional order is sought.
While, there-fore, it seems logical and desirable that similar approaches be
adopted when
provisional orders are sought either for the sequestration of an
individual or the winding up of a company, I do not think that in
regard to the
latter
/ the
69
the court is bound slavishly to follow practices
evolved in sequestration proceedings. The court has an inherent power to order
its
own procedures (see
Universal City Studios Inc and Others v Network Video
(Pty) Ltd
[1986] ZASCA 3
;
1986 (2) SA 734
(A), at p 754 G-H) and it does so having re-gard
generally to the fair and expeditious administration of justice. I proceed now
to
indicate, so far as may be necessary or desirable, what in my view the
approach should be in applications for a provisional order
of winding up. And
here I may mention that, so far as I am aware, there is no decision of this
Court upon these matters.
Although, as I have indicated, the term "
prima facie
case" seems
somewhat inappropriate in instances where the application for a provisional
order of winding up is opposed and there
are real and fundamental disputes on
the affidavits, it has been used for some years in this context and there seems
to be no reason
why it should
/ not
70
not continue to be so used provided that it is understood as denoting a
balance of probabilities on all the affida-vits, as explained
above.
Where on the affidavits there is a
prima
facie
case (ie a balance of probabilities) in
favour of the
applicant, then, in my view, a provisional order of
wind-
ing up should normally be granted and, save in
exceptional
circumstances, the court should not accede to an applica-
tion
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 pp 285 H - 286 A)—
"Ordinarily the consequences of a final winding-up order are drastic indeed, and
it could not have been intended that proof of all
the
alle-
/ gations
71
gations necessary for such an order should be anything less than that required
general-ly 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
re-quired 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 evi-
dence in order to try to establish a
balance of probabi-
lities in his favour. It seems to me that in
these
circumstances the Court should have a discretion to allow
/ the
72
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 appli-cant. (Cf. the general reluctance
of the court in motion proceedings to decide finally genuine and funda-mental
disputes
of fact purely on the basis of probabi-lities disclosed in
contradictory affidavits; see
Trust Bank van Afrika Bpk v Western Bank Bpk en
Andere NNO
1978 (4) SA 281
(A), at pp 294 D - 295 A, 299 H -300 A.)
Naturally in exercising this discretion the court should be guided to a large
extent by
the pros-pects 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
evi-dence than if the balance were against the
/ applicant
73
applicant. And the more the scales are depressed against the applicant the
less likely the court would be to exer-cise the discretion
in his favour.
Indeed, I think that only in rare cases would the court order the hear-ing of
oral evidence where the preponderance
of proba-bilities on the affidavits
favoured the respondent. The case of
Emphy and Another v Pacer Properties
(Pty) Ltd
1979 (3) SA 363
(D) represents an instance where the Court, unable
to resolve the disputed issues arising on an application for a provisional order
of winding up, referred the matter for the hearing of oral evidence. As I read
the judgment, the learned Judge appears to have found
no preponderance of
probabilities either way.
As in the present case, the disputes which arise on the affidavits may relate
to the
locus standi
of the applicant, either as a member or creditor, or
as to whether proper grounds for winding up have been
/ established
74
established. In regard to
locus standi
as a creditor, it has been
held, following certain English authority, that an application for liquidation
should not be resort-ed
to in order to enforce a claim which is
bona fide
disputed by the company. Consequently, where the res-pondent shows on a
balance of probability that its in-debtedness to the applicant
is disputed on
bona fide
and reasonable grounds, the court will refuse a winding up
order. The onus on the respondent is not to show that it is not indebted
to the
applicant: it is merely to show that the indebtedness is disputed on
bona
fide
and reasonable grounds. Though not always formulated in exactly the
same terms this rule appears from decisions such as
Badenhorst v Northern
Construction Enterprises (Pty) Ltd
1956 (2) SA 346
(T), at p 347 H - 348 B;
McLeod v Gesade Holdings (Pty) Ltd
1958 (3) SA 672
(W), at p 678 E;
Gillis-Mason Construction Co (Pty) Ltd v
/
Overvaal
75
Overvaal Crushers (Pty) Ltd
1971
(1) SA 524
(T), at
p 529 A-D;
Meyer NO v Bree Holdings (Pty) Ltd
1972
(3) 353 (T), at p 354 C - 355 B;
Walter McNaughtan
(Pty) Ltd v Impala Caravans (Pty) Ltd
1976 (1) SA 189
(W), at p 191 E-H;
Prudential Shippers SA Ltd v Tempest
Clothing
Co (Pty) Ltd and Others
,
supra
, at p 867 E-F;
Commonwealth
Shippers Ltd v Mayland Properties (Pty)
Ltd (United Dress Fabrics
(Pty) Ltd and Another Inter-
vening
)
1978 (1) SA 70
(D) at p 72
A-E: and
Machanick
Steel & Fencing (Pty) Ltd v Wesrhodan (Pty)
Ltd: Machanick
Steel & Fencing (Pty) Ltd v Transvaal Cold Rolling
(Pty)
Ltd
1979 (1) SA 265
(W), at p 269 A-D. For convenience
I
shall refer to this as the
Badenhorst
-rule. This rule
would tend to
cut across the general approach to appli-
cations for a provisional order of
winding up which I
have outlined above as it is conceivable that the
situa-
tion might arise that the applicant could show a balance
of
probabilities in his favour on the affidavits, while
/ at
76
at the same time the respondent established that its
indebtedness to the applicant was disputed on
bona fide
and reasonable
grounds. Whether the
Badenhorst
-rule should be accepted then as an
exception to the general approach relating specifically to the
locus standi
of an applicant as a creditor, and the further question as to whether it
should be applied inflexibly or only when it appears that
the applicant is in
effect abusing the winding up procedure by using it as a means of put-ting
pressure on the company to pay a debt
which is
bona fide
disputed (see
the Engiish case of
Mann and Another v Goldstein and Another
[1968] 2 All
ER 769
, at p 775 C-D) need not, however, be decided in this case. The point was
not argued before us and, as I shall show, it seems to me
that for various
reasons the
Badenhorst
-rule should not be applied here.
I return now to the facts of the present
case.
/ As
77
As I have shown, the issue as to whether the
appellant had
locus standi
, either as shareholder or as creditor, to
bring the application, as also the merits of the appli-cation, are vitally
dependent upon
how certain factual disputes, principally as to whether or not
the Easter agreement was concluded, are resolved. The probabili-ties
in regard
to the Easter agreement are, in my view, evenly balanced. No
prima facie
case (in the above-described sense) on these issues was thus established; and
consequently the Court a
quo
could not grant a pro-visional order of
winding up. Before us it was argued on appellant's behalf that the Court a
quo
ought to have referred the matter for the hearing of
viva voce
evi-dence and appellant's counsel submitted to us a draft or-der to this effect.
In answer to an enquiry from this Court as to whether
an application for the
hearing of
viva voce
evidence had been made to the Court a
quo
/ appellant's
78
appellant's counsel stated that appellant did ask, in the alternative and in
the event of the Court a
quo
not being prepared to grant a provisional
winding up order, that the matter be referred for the hearing of oral evidence.
It appears
from information subsequently placed before us, on the initiative of
respondents, that respondent's counsel states that he, too,
asked the Judge a
quo
for the matter to be referred to evidence, as an alternative to an
order for the dismissal of the applica-tion. Junior counsel for
appellant, who
appeared in the Court a
quo
, is unable to recall this, but does not
appear to dispute its correctness.
It has been held in a number of cases that an application to refer a matter
to evidence should be made at the outset and not after
argument on the merits
(see
Di Meo v Capri Restaurant
1961 (4) SA 614
(N), at pp 615 H - 616 A;
De Beers Industrial Diamond Division (Pty)
/
Ltd
79
Ltd v Ishizuka
1980 (2) SA 191
(T),
at pp 204 C - 206 D;
Spie Batignolles Société Anonyme v Van
Niekerk: In re Van Niekerk v S A Yster en Staal Industriële Korporasie Bpk
en Andere
1980 (2) SA 441
(NC), at p 448 E-G;
Erasmus v Pentamed
Investments (Pty) Ltd
,
supra
, at p 180 H;
Hymie Tucker Finance Co
(Pty) Ltd v Alloyex (Pty) Ltd
1981 (4) SA 175
(N), at p 179 B-E; cf
Klep
Valves (Pty) Ltd v Saunders Valve Co Ltd
1987 (2) SA 1
(A), at p 24 I - 25
D). 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 p 179 D):
"One can conceive of cases on the other
hand, exceptional perhaps, when
to ask the Court to decide the issues with-out 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".
At the end of his judgment the Judge a
quo
stated
/ the
80
the following:
"In view of the disputes of fact which cannot be resolved in the application
proceedings the applicant has in my opinion not established
prima facie
that he has
locus standi
, either on the basis of a shareholder or as
a creditor."
This would seem to amount
to a refusal of the application
for the hearing of
viva voce
evidence,
but it is not
clear to me upon what grounds the learned Judge came
to his
decision. It would seem that he took the view
that if an applicant fails to
establish
prima facie
(ie on a balance of probabilities) on the papers that he
has
locus
standi
, there is no room for a reference to
viva voce
evidence.
Leaving aside for a moment the
appellant's
locus standi
as a creditor,
it seems to me
that
locus standi
may be one of the very issues which
in
a particular case will have to be thrashed out by
viva
voce
evidence in order to determine whether an appli-
cant has a
prima facie
case and is therefore entitled
/ to
81
to a provisional order of winding up. In the applica-tion of the general
approach which I have outlined above there is no difference
between issues
relating to
locus standi
and other issues arising in the application. The
approach of the Judge a
quo
would appear, therefore, to have been
erroneous.
In view of my finding that the probabilities on the disputed issues are
evenly balanced, this is the type of case where the court
would normally be
inclined to accede to an application by the applicant for the hearing of
viva
voce
evidence. On the facts of this particular case I do not think that the
fact that appellant did not ask in
limine
in the Court below that the
matter be re-ferred to oral evidence should constitute a fatal obstacle. The
argument about
locus standi
seems to have been regard-ed by the Judge a
quo
as in the nature of a preliminary point to be decided at the outset.
If it could have
/ been
82
been correctly decided adversely to the appellant,
that would have been an end to the matter; and that in fact is how the learned
Judge saw the position. In the circumstan-ces it seems to me that the
convenience of the parties and the Court was served by adducing
argument as to
locus standi
first and making the application for remittal for oral
evidence on the disputed issues only in the alternative. It would seem, too,
that in the event of the Court not dis-missing the application respondents
themselves would have favoured a reference to
viva voce
evidence,
certainly in preference to the grant of a provisional order.
For these reasons, I am of the opinion that this Court, exercising the
discretion which was vested in the Court a
quo
, should allow the
application to refer the matter for the hearing of
viva voce
evidence on
the disputed issues. The one further point which arises in this connection is
whether such referral should include the
issue as to appellant's
locus
standi
as a creditor
/ or
83
or whether, applying the
Badenhorst
-rule,
this should be excluded. In my opinion, it should be included. Even though it
might be said that Decotex's indebtedness to
the appellant is disputed on
bona fide
and reasonable grounds, there are several reasons why in this
case the
Badenhorst
-rule should not be applied. It is not disputed that
Decotex was originally indebted to the appel-lant by way of his loan account.
The dispute is whether this indebtedness has been eliminated by cession in terms
of the Easter agreement. This is hardly a case of
a cre-ditor seeking to enforce
a disputed debt by winding up proceedings and thereby abusing the court process.
Moreover, since the
matter is being referred to oral evidence on the issues of
appellant's
locus standi
as a member and the merits of the application,
which are also dependent on the existence or non-existence of the Easter
agreement,
it seems to me that it would be the height of technicality to deny
appellant the opportunity of establishing
/ by
84
by the same evidence his
locus standi
as a
creditor.
For these reasons I have come to the conclu-sion that the appeal should be
allowed and the order of the Court a
quo
set aside in order to permit the
matter to be referred for the hearing of oral evidence under Rule 6(5)(g) of the
Uniform Rules of
Court. The draft order submitted by appellant's counsel, which
appears to be based upon the form adopted in
Metallurgical and Commer-cial
Consultants (Pty) Ltd v Metal Sales Co (Pty) Ltd
1971 (2) SA 388
(W),
vide
pp 396 G - 397 B, is in order and will be adopted, subject to minor
amendment.
As to costs, the appellant has been substan-tially successful on appeal. The
order of the Court a
quo
dismissing the application will be set aside and
in its place there will be substituted an order referring the matter for the
hearing
of oral evidence. It is true that the respondents' counsel suggested
oral
/ evidence
85
evidence in the Court a
quo
, but this was only as an alternative to a
main argument that the application should be dismissed because appellant had no
locus standi
, either as a member or as a creditor, and only in the event
of this main argument failing. Before this Court the same attitude was
adopted.
Accordingly I am of the opinion that appellant is entitled to his costs of
appeal. Furthermore, it seems to me that the
costs should be paid by second
respondent. Substantially this case is a dispute between appellant and second
res-pondent and, if
it is ultimately established that the appellant's version of
the facts is correct, then there would appear to be no basis upon which
second
respondent could claim to act on behalf of Decotex in opposing the application.
In regard to the costs in the Court a
quo
, these in my view should stand
over for determination by the Court which hears the matter, when oral evidence
is led.
/ The
86
The following order is made:
(1) The appeal is allowed and the order of the Court
a q
uo
is altered to read:
"(a) The application is
postponed to a
date to be arranged with the Registrar of the Supreme Court (Witwatersrand Local
Division) for the hearing of
viva voce
evidence.
(b) The issues to be resolved
at such
hearing are:
(i) Whether or not the appel-lant is a creditor of the first respondent.
(ii) Whether or not the appellant is a member of, or beneficial shareholder
of 50% of the is-sued shares in, the first respondent.
(c) The evidence to be adduced at the afore-
said hearing shall be that of
any wit-
nesses whom the parties or either of them
may elect to call,
subject however to
what is provided below.
/ (d) Save
87
(d) Save in the case of any persons who
have already deposed to
affidavits
in these proceedings, neither party
shall be entitled to call
any person
as a witness unless —
(i) it has served on
the other
party at least fourteen days before the date appointed for the hearing, a
statement by such person wherein the evidence to be given
in chief by such
person is set out; or
(ii) the Court, at the hearing, per-mits such person to be called despite the
fact that no such statement has been so served in respect
of his evidence.
(e) Either party may subpoena any person to give evidence at the hearing,
whether such person has consented to furnish a statement
or not.
(f) The fact that a party has served a statement or has subpoenaed a witness,
shall not oblige such party to call the witness concerned.
/ (g)
Within
88
(g) Within forty-five days of the making of this order, each of the parties
shall make discovery on oath, of all docu-ments relating
to the issues referred
to above, which documents are, or have at any time been, in the possession or
under control of such party.
(h) Such discovery shall be made in accordance with Rule 35 of the Uniform
Rules of Court and the provisions of that rule with re-gard
to the inspection
and production of documents discovered shall be operative.
(i) The costs of the hearing of the applica-tion before Grosskopf J are to be
deter-mined by the Court which hears the post-poned
application".
(2) Second respondent is to pay the costs of
appeal
(which include the costs of the point in
limine
),
such costs to be based upon the employment of
two counsel.
M M CORBETT.
VILJOEN JA)
SMALBERGER JA) CONCUR.
NESTADT JA)
STEYN AJA)