IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE DIVISION, CAPE TOWN)
JUDGMENT
Not Reportable
Case no: 25789/2024
In the matter between:
JAKOBUS ALEXANDER VAN DYK APPELLANT
and
DKD MACHINE SERVICES (PTY) LTD RESPONDENT
(REG NR: 2013/179612/07)
Neutral citation:
Coram: ROUX AJ
Heard: 26 May 2025 and 18 June 2025
Delivered: 30 JULY 2025
Summary: Mere f actual insolvency does not, without more , establish c ommercial
insolvency. The proper enquiry is not confined to a balance sheet analysis, but rather
whether the company has accessible or realizable assets or means to discharge its
obligations as they arise.
Where an application for the winding -up of a company is brought in terms of section
344(h) of the Companies Act 61 of 1973 , under the established categor y that the
company falls to be characterised as a corporate quasi -partnership, founded on an
informal arrangement of trust and confidence , it is implicit in such a relationship that
the parties intended to confine their association exclusively to themselves.
Consequently, in circumstances where the applicant has resigned as a directo r, the
conduct of the only remaining director in declining to procure the appointment of
another director in the applicant’s s tead, is consistent with the parties’ personal
relationship of trust. Accordingly, the applicant’s exclusion from participation in the
management of the company as a result of such refusal, without more, is insufficient
to establish a prima facie case that it is just and equitable to wind-up the company.
In such circumstances – namely where the applicant’s exclusion from participation in
the management of the company is without any fault on the part of the ot her
shareholder and remaining director – the mere fact that the applicant is locked into
the company without a reasonable exit offer, is insufficient to establish a prima facie
case for a winding-up order on the just and equitable ground.
Furthermore, the complete breakdown in trust between the shareholders , without
more, is also insufficient to justify the grant of a winding -up order on the just and
equitable ground.
ORDER
(a) The application is dismissed.
(b) The applicant is ordered to pay the respondent’s costs, including the
costs of counsel on scale B, except for the costs occasioned by the
postponement of the matter on 26 May 2025, in respect of which each
party shall pay its own costs.
JUDGMENT
ROUX AJ:
[1] This is an application for the provisional winding -up of the respondent
company. The application is brought in terms of the provisions of chapter 14
of the Companies Act 1973 (“the Companies Act 1973”) , which continue to
apply to the winding-up and liquidation of companies pursuant to item 9(1) of
Schedule 5 of the Companies Act 2008 (“the Companies Act 2008”) , save for
certain sections relating to the winding-up of solvent companies, which are not
applicable to the present matter.
[2] The application is founded on two distinct grounds: (a) firstly, that the
respondent company is commercially insolvent, within the meaning of section
344(f), read with section 345(1)(c) of the Companies Act 1973; and (b)
secondly, and in the alternative, that it is just and equitable that the
respondent company be wound up, within the meaning of section 344(h) of
the Companies Act 1973.
[3] The respondent company opposes the applicat ion on four grounds: (a) it is
alleged that t he applicant has failed to establish locus standi to bring th is
application on the basis of commercial insolvency ; (b ) the respondent
company denies that it is commercially insolvent; (c) it is further denied that
the applicant has made out a case that it is just and equitable to wind up the
respondent company ; ( d) additionally, it is contended that the applicant has
not approached the Court with clean hands, has abused the legal process and
has engaged in conduct that is prejudicial to the respondent company.
FACTS AND CIRCUMSTANCES
[4] The respondent company conducts business as a distributor of woodworking
machinery and consumables. It was incorporated in 2013, with the applicant,
Mr Van Dyk, and Mr De Klerk appointed as co -directors, each holding an
equal 50% shareholding in the company . Prior to the establishment of the
respondent company, the applicant and Mr De Klerk were jointly employed at
another entity operating in the same industry. Accordingly, they formed the
respondent company based on a pre -existing relationship. The respondent
company’s financial statements reflect that both were remunerated equally as
directors, and that, when necessary, each made loans to the respondent
company in identical amounts . Furthermore, the memorandum of
incorporation (“the MOI”) is in the standard f orm, and no bespoke
modifications were made to reflect any special arrangement s between the two
shareholders. There is also no shareholders’ agreement regulating the
relationship between the parties.
[5] The respondent company bears the hallmarks of a typical small company
established by two former colleagues on the strength of a personal
relationship founded on mutual trust and confidence. The parties saw no need
to formalize their understanding in writing, which reinforces the inference that
their working relationship was premised on trust rather than legal formality.
[6] It is common cause that the parties agreed to participate equally in the
business: they each rendered servi ces, advanced shareholder loans in equal
amounts, and exercised equal voting power — each holding 50% of the
shares and board representation.
[7] In the circumstances, I am of the view that the respondent company operates
in substance as a corporate quasi -partnership, despite its formal
incorporation.
[8] The applicant’s primary role within the respondent was in the area of sales
and client development , which necessitated extensive travel . Over time, the
demands associated with this role became increasingly bur densome,
particularly as the applicant sought to spend more time with his family . As a
result, Mr Van Dyk formed the intention to resign as director.
[9] One of the main issues in dispute concerns the question whether Messrs Van
Dyk and De Klerk reached an agreement with a certain Mr Els to each transfer
10% of the shareholding in the respondent company to Mr Els. In March 2023
the respondent company approached attorneys to draft a sale of shares
agreement to provide for the transfer of 20% of th e shareholding in the
respondent company to Mr Els , 10% from each of Messrs Van Dyk and De
Klerk. Provision was made for the payment of a nominal amount. However,
the said draft agreement was never signed by any of the parties thereto. No
explanation was given by Mr De Klerk for the failure to do so or why the
matter remained unresolved.
[10] In or about April 2023 the applicant advised Mr De Klerk of his intention to
resign as director of the respondent and requested him to prepare the
necessary documents to give effect thereto . This was not done. The applicant
also requested that arrangements be made for the appointment of a director
to replace him, which is denied by the respondent.
[11] Shortly after 2 November 2023 Mr Van Dyk informed M r De Klerk that he
would not sign the draft agreement for the transfer of shareholding to Mr Els .
Most notably, on 6 November 2023, Mr Van Dyk sent an email to Mr De Klerk
in which he proposed that Mr De Klerk acquire his shareholding, and that they
should meet to discuss the way forward. They held a meeting that evening.
On 7 November 2023 Mr De Klerk through an email confirmed the contents of
their discussion. It appears from the said email that it was agreed that: (a) the
applicant would sell his shares to Mr D e Klerk for R360 000; (b) Mr Els would
acquire 10% of the shareholding in the respondent company from Mr Van
Dyk, the amount payable to be determined in accordance with a valuation that
had already been carried out ; (c) Mr Van Dyk would finalise service
agreements with two of the respondent company’s tier one clients located in
the Cape Town region.
[12] On 7 November 2023, Mr Van Dyk replied to the aforesaid email, indicating
that Mr De Klerk should defer any payments, as he first wi shed to consult the
respondent company’s external accountant in relation to the matter, and in
particular, needed to obtain advice regarding the tax implications thereof.
[13] It is apparent from the said email exchanges that the parties agreed in
principle to the proposed share acquisition . However, it appears that despite
the existence of a broad understanding regarding the applicant’s exit, the
parties failed to conclude a final and binding agreement on all the material
terms.
[14] Two issues remain ed unresolved: (a) the purchase payable for the
shareholding;1 and (b) the identity of the tier one clients to whom services
would be rendered.
[15] It is clear from the papers that had Messrs Van Dyk and De Klerk been able to
resolve the aforesaid issues or at least came to an agreement on the
purchase price pa yable for the acquisition of Mr Van Dyk’s shares , that there
would have been no need for a winding-up application.
[16] The path to such agreement was obstructed by two core disputes , which
drove a wedge between Messrs Van Dyk and De Klerk.
[17] The first of the two principal disputes concerns the question concerning the
acquisition of shareholding by Mr Els, referred to hereinabove. The
disagreement regarding Mr Els’ alleged entitlement to a 10% shareholding
from each of the parties created uncertainty as to whether the applicant’s
shareholding available for sale to Mr De Klerk amounted to 50% or 40%,
which in turn made it very difficult for the parties to agree on the purchase
price payable.
[18] The second issue relates to the alleged effect which the applicant’s
resignation as director had on the respondent’s ability to secure credit . Mr De
Klerk alleges that the applicant acted in breach of a prior agreement not to
resign as director until such time as the necessary funding was secured for
the acquisition of new machinery . The applicant disputes that any such
agreement was concluded.
[19] The combined effect of these disputes was to derail the negotiation process
concerning the proposed sale of the applicant’s shares , resulting in the
1 The reference to the sale of shares is somewhat of a misnomer, in the sense that in proper legal
terms such a transaction amounts to a cession of the rights attached to the shares concerned. (See:
Independent Community Pharmacy v Clicks Group Ltd and others 2023 JOL 58358 CC at par a 233.)
However, for ease o f reference the parties’ description of their contemplated transaction as being a
sale of shares will be used.
complete breakdown of trust and confidence between Messrs Van Dyk and
De Klerk.
[20] The first cracks in the relationship became evident when Mr Van Dyk re-
approached Mr De Klerk towards the end of the 2024 financial year
concerning his resignation as director and the arrangements made for his
replacement as such. It is alleged that Mr De Klerk became visibly hostile and
aggressive in his response.
[21] While Mr De Klerk does not dispute that his conduct may have appeared
aggressive, he justifies it on the basis that the applicant was acting selfishly
and in a manner contrary to the best interests of the company, its staff, and its
clients. As stated, it is d isputed that any request was made for the
appointment of a director in the applicant’s stead.
[22] The applicant, Mr Van Dyk, formally resigned as a director of the respondent
company with effect from 4 March 2024, but retained his 50% shareholding in
the company. Following his resignation, the relationship between the parties
deteriorated rapidly.
[23] Mr Van Dyk subsequently established a competing business, and alleges that
Mr De Klerk, acting on behalf of the respondent company, engaged in conduct
aimed at undermining or interfering with his new business operations.
Specifically, Mr Van Dyk alleges that Mr De Klerk warned certain customers
that the respondent company would reconsi der its commercial relationship
with them should they continue to procure services from Mr Van Dyk.
[24] In support of this allegation, Mr Van Dyk relies on an email sent by Mr De
Klerk to a customer, in which it was conveyed that the respondent was
dissatisfied with the customer’s decision to engage Mr Van Dyk without first
affording the respondent the opportunity to provide the relevant services. The
email further suggested that such conduct was not conducive to a “productive
business relationship” and reque sted clarity on the nature of the commercial
relationship going forward.
[25] The respondent denies any unlawful interference in the applicant’s business
and alleges that its communications with customers were undertaken in the
legitimate protection of its own commercial interests. It alleges that customers
were merely advised not to bypass the respondent company by approaching
Mr Van Dyk directly in respect of machines that had been sourced by the
respondent company.
[26] The legal issue that arises from the aforesaid communication is whether the
respondent company’s conduct amounts to unlawful interference with the
applicant’s newly formed business, or whether it constituted a lawful assertion
of its own commercial rights. It is not alleged or contended that the respondent
has interfered with any contractual relationship which the applicant may have
with any of his customers. It is also not alleged or contended that the applicant
lost or will lose customers as a result of the alleged interference . No attempt
was made by the applicant to connect the alleged interference with any of the
tier one clients which he allegedly by agreement could render services to. The
applicant me rely alleged that the said conduct constituted proof that the
respondent had no intention to collaborate in future , which is insufficient to
establish the necessary causal link with the parties’ broad agreement on the
applicant’s exit from the respondent. The applicant also fai led to show why
such alleged interference in law could be regarded as unlawful. No legal
argument was advanced in support thereof. In the circumstances, the
applicant failed to establish any unlawful act of interference.2 Moreover, and in
any event, the alleged interference appears to be irrelevant to the applicant’s
objection to being locked in the respondent company without the prospect of a
reasonable offer for his shareholding.
[27] Irrespective of the legal characterization of the aforesaid conduct, the
exchange underscores the escalation in hostilities between Messrs Van Dyk
and De Klerk and serves as further evidence of the breakdown in the
2 Van Heerden Neethling, Unlawful Competition, 2nd edition, at pp 78-82; 245-252.
relationship of mutual trust and confidence which had previously underpinned
their corporate association.
[28] It is alleged that on 5 June 2024 Mr Van Dyk attended the respondent’s
premises to collect parts and made threatening remarks to the staff members
to the effect that they should begin seeking alternative employment as he
intended to close down the respondent company within two months . Notably,
the said allegation is not supported under oath by any of the staff members .
On the fac e of it, the allegation appears to be based on hearsay evidence,
alternatively relates to a factual dispute in respect of which the probabilities
could easily have been tilted in one or the other direction thr ough the
confirmatory affidavits of the relevant staff member s.3 No explanation was
offered for the failure to introduce available evidence from persons who would
probably be regarded as neutral witnesses . Not surprisingly, the applicant
denies the said allegation . In the circumstances the said issue cannot be
decided on the probabilities.
[29] Moreover, t he said conduct, even if true, appears to be a once -off incident,
precipitated by the dispute concerning the terms of the applicant’s exit from
the respondent. It is not alleged that the said incident led to the loss of any
employees or otherwise had an effect on the respondent company’s business.
At best, it amounted to an unsuccessful attempt by Mr Van Dyk to unlawfully
interfere with the respondent’s relatio nship with its employees, which conduct
thereafter came to an end.
[30] In the circumstances , even if the probabilities on the issue favoured the
respondent, the said conduct cannot fairly be described as the cause of the
breakdown in the parties’ relationship and at best shows that the applicant
was partly to be blamed for the said breakdown. For the reasons stated, the
said conduct does not justify a finding that the applicant approached the Court
with ‘unclean hands’.
3 It is trite that an application for a provisional order is decided on the probabilities. See: Kalil v
Decotex (Pty) and Another 1988 (2) All SA 159 A.
[31] On 18 June 2024 the respondent company , through its attorneys, informed
the applicant that a sale of shares agreement would be prepared by its
attorneys and that the 2024 financial statements would be used as the basis
for obtaining a more accurate equity valuation of the company. In the same
correspondence Mr Van Dyk was urged to cease making false
representations concerning the respondent company’s financial position to
employees or third parties. Most importantly, Mr Van Dyk was invited to attend
a meeting with the respondent company’s accountants during the week of 29
July 2024, at which meeting the 2024 financial statements would be discussed
with a view to facilitate the negotiations concerning the sale of shares.
[32] The applicant, through his attorney, responded to the aforesaid
communication on 18 June 2024. The reply was measured and constructive,
and it appeared, at that stage, that both parties, acting through their attorneys,
were amenable to resolving the impasse.
[33] It was agreed that the 2024 financial statements would serve as the basis for
valuation. It was further proposed that Mr Smith, the respondent’s external
accountant, would be best placed to explain the financial statements to the
parties. In addition, an undertaking was furnished to encourage Mr Van Dyk to
maintain a peaceful relationship with the respondent company and, by
implication, its employees.
[34] On 30 July 2024 Messrs Van Dyk and De Klerk signed the financial
statements of the respondent company for the financial year ending February
2024. Notably, notwithstanding Mr Van Dyk ’s resignation as director with
effect from 4 March 2024,4 both he and Mr De Klerk were willing to jointly sign
the respondent’s financial statements. The said act demonstrates that, even
amidst a deteriorating relationship, the parties remained aligned in their
objective to resolve the principal issue confronting them, namely the
negotiation and conclusion of a sale of shares agreement.
4 See: section 70(1)(b)(i) of the Companies Act.
[35] The 2024 financial statements reflect a mixed financial position and results .
On the one hand, the respondent’s total liabilities exceeded its total assets by
R6 879 279, resulting in a negative equity position. Similarly, the respondent’s
total current liabilities exceeded its total current assets by R4 842 006. Of
particular note - though not mentioned by the applicant – is the fact that the
trade payables had escalated to R14 007 981 that is an increase of more than
R10 milli on compared to the previous financial year . Notwit hstanding the
above, the respondent company still managed a net profit of R2 229 557.
Apart from listing the aforesaid results, neither the applicant nor any other
deponent on his behalf attempted to explain or interpret the said results in the
context of the respondent company’s ability to pay its current deman ds in the
normal course of business.
[36] On 22 August 2024 Mr Smith furnished a valuation of the equity value of the
shareholders’ interest in the respondent company , which he quantified at
R2 935 00 0. Based on that valuation, Mr Van Dyk’s legal representatives
demanded payment from Mr De Klerk in the sum of R1 467 500 representing
the alleged value of his 50% shareholding.
[37] It was at this juncture that the two co re disputes, referred to hereinabove,
came to the fore and effectively derailed the negotiation process. In particular,
on 16 September 2024, the attorneys for Mr De Klerk sought to whittle down
the valuation by raising two objections. First, it was alleged that Mr Van Dyk
had previously agreed to dispose of 10% of the shareholding in the
respondent to Mr Els, and that his effective stake was therefore only 40%, not
50%. Second, it was alleged that, following Mr Van Dyk’s untimely resignation,
the respondent was cons trained to procure funding from Vodalend at an
onerous interest rate of 28%. It was alleged that this financing arrangement
occasioned financial loss to the respondent in the amount of R560 000, being
the cost of the loan, which amount it was asserted shou ld be deducted from
Mr Smith’s valuation. Importantly, the valuation itself was not impugned;
rather, Mr De Klerk contended that it required adjustment to account for the
abovementioned factors.
EVALUATION OF CORE DISPUTES
[38] It is questionable on what basis the alleged full cost of the loan obtained by
the respondent company can be justified as a basis for a deduction to be
made from the value of Mr Van Dyk’s shares. Both parties failed to deal with
the said issue with any particularity.
[39] Essentially, it is alleged that Mr Van Dyk’s resignation as director on 4 March
2024 in the face of the bank’s warning that it would result in the reduction of
the respondent ’s credit facilities and render it difficult for the company to
obtain finance for the purchase of new machines - which appears to be the
life-blood of the respondent company - constituted a breach of a prior
agreement to delay such resignation until the necessary funding had been
procured. It is reiterated that Mr Van Dyk denies the conclus ion of the alleged
prior agreement.
[40] In terms of the correspondence received from the bank – on which the
respondent company relies to establish the said breach – it is clear that the
bank informed the parties that if there were to be any change in the
shareholding – not the directorship – it would result in the review of the credit
facility and there was a risk that the respondent company might not qualify for
the same credit amount or even might not qualify for any credit. It was also
reiterated that bot h shareholders were required to sign as sureties.
Accordingly, the bank foresaw a potential risk in the case of a change in
shareholding, not in directorship. In my view, it is unlikely that a prior
agreement would have been concluded on terms inconsistent with the bank’s
correspondence.
[41] However, t he respondent’s contention that Mr Van Dyk ’s act of resignation
caused the respondent some financial strain, in a limited sense , is supported
by the facts. I n this regard it was alleged that the bank withdrew the
respondent’s overdraft facility as a result of Mr Van Dyk’s resignation. It
appears from the 2024 financial statements that the respondent company had
a credit facility with an outstanding amount to the tune of R567 573. However,
in terms of the 2025 management statements no credit facility is indicated,
which is indicative of the fact that the full ou tstanding amount was paid.
Accordingly, the financial statements provide some indication that the credit
facilities of the respondent company came to an end between the period 1
March 2024 and 28 February 2025 , which is consistent with the respondent’s
allegation that the bank withdrew the respondent’s credit facilities as a result
of Mr Van Dyk’s resignation.
[42] Accordingly, on the probabilities Mr De Klerk succeeded in establishing a
causal connection between Mr Van Dyk’s resignation as director and the
acquiring of the Vodalend loan.
[43] However, the amounts involved do not tally, in the sense that the Vodalend
loan amount of R2 000 000 by far exceed the credit facility amount of R567
573, which without explanation cannot simply be assumed to rel ate to the
credit amount which was required by the respondent company. As a matter of
fact, no particulars of same were given in the papers. It is noteworthy that the
replacement of one credit facility with another will ordinarily only result in
additional costs incurred insofar as the one facility is more costly than the
other; similarly, if the incurring of further credit was inevitable, any loss
occasioned would be based on the difference in costs between the actual
costs incurred and the costs which would have been incurred had Mr Van Dyk
not resigned.
[44] It is further noteworthy that the costs of the Vodalend loan was connected to a
loan period of about 1 year. However, the loan was fully repaid o n or before
31 October 2024, which equates to a loan period of about 7 months and 11
days. That means the full cost of the loan was probably substantially less than
R560 000 – being the alleged full cost of the loan -, to the knowledge of Mr De
Klerk, and that he failed to adjust his demands accordingly.
[45] As a result, the allegation that Mr Van Dyk’s resignation as director caused
the respondent company a loss of R560 000 and that he thereby breached the
prior agreement , is not supported by the facts and is also improbable.
Conversely, it rather appears that Mr Van Dyk’s resignation as director caused
the respondent some financial strain and necessitated the procurement of
another loan. However, there is insufficient particulars about the extent of th e
loan required due to Mr Van Dyk’s resignation, as well as the additional costs
incurred as a result thereof. Furthermore, it is clear that Mr Van Dyk’s
impending exit from the respondent company through the disposal of his
shareholding may potentially have an adverse effect on the respondent
company’s ability to obtain credit facilities.
[46] In the circumstances, Mr De Klerk acted unreasonably in attempting to reduce
the value of Mr Van Dyk’s shares by deducting the full amount of the
Vodalend loan on the basis of the alleged prior agreement or any alleged
breach thereof . However, he is not unreasonable in contending that the
respondent did and will suffer some financial strain for which a deduction may
have to be made. However, there are insufficient facts on the papers to decide
the extent, if any, of such deduction. Accordingly, Mr De Klerk’s conduct in
contending for a deduction cannot be characterized as unreasonable or mala
fide.
[47] The other thorny issue relates to the transfer of 20% of the shareholding to Mr
Els, 10% from each of Messrs Van Dyk and De Klerk. The said issue is the
subject of another High Court application instituted by Mr Els against Mr Van
Dyk.
[48] As stated previously, Mr De Klerk alleged that a s part of the offer of
employment made to Mr Els he was also offered 20% shareholding in the
respondent company. He was employed with effect from September 2021.
Furthermore, it is alleged that the respondent’s main supplier made it a pre-
condition for doing business with the respondent company – on the strength of
a distribution agreement - that the said shares had to be transferred to Mr Els.
[49] As stated , in March 2023 attorneys were approached to prepare a sale of
shares agreement to give effect to the sale of 20% of the shareholding to Mr
Els. In support of the said allegation, the respondent company attached an
email from the said attorneys which was addressed to both Messrs Van Dyk
and De Kle rk. It appears from the email that Messrs Van Dyk and De Klerk
each intended to sell 10% of the shareholding in the respondent company to
Mr Els. The email also contained a statement to the effect that Mr Els would
add value as a skilled employee, as well as a director and shareholder.
Attached to the said email was a draft sale of shares agreement.
[50] It is noteworthy that the attorneys who drafted the sale of shares agreement
advised the parties that the intended sale would have tax obligations for all
concerned. In respect of Mr Els, it was advised that the true value of the
shares would be considered taxable income in his hands. The attorneys, as
an example , stated that if the true value of the shares w as R1 000 000, it
would mean that Mr Els would be liable for income tax on the said amount. In
respect of the respondent company, it was advised that if PAYE was deducted
it would be liable to collect and pay the PAYE on the sum of R1 000 000 to
SARS.
[51] Notwithstanding the fact that the draft sale of shares agreement was provided
to the parties on 14 June 2023 it was never signed by any of the parties
thereto. No explanation was offered by Mr De Klerk for Mr Van Dyk’s refusal
to sign. It is simply alleged that he in November 2023 indicated his refusal to
sign. No explanation was also given why the matter remained unresolved for
such a long period.
[52] Lastly, it is alleged by Mr De Klerk that Mr Els in January 2025 instituted legal
proceedings against Mr Van Dyk to enforce transfer of 10% of the
shareholding to him. Although the affidavit filed by Mr Els in the said
proceedings was attached to the answering papers, no reference was made
to any allegation made therein.
[53] Mr Van Dyk in his founding papers described Mr De Klerk’s attempt to rely on
a contractual right to acquire 10% of the shareholding in the respondent
company from Mr Van Dyk as an act of bad faith and an excuse to reduce the
value of his shares. However, nothing more was said about the issue.
[54] In reply, Mr Van Dyk added more flesh to his version. He disputed that Mr Els
was employed by the respondent company only with effect from September
2021, as alleged by Mr Van Dyk . To the contrary, it is alleged that Mr Els
already joined the respondent company from September 2020 on a consulting
basis. The said allegation is supported by an extract from the respondent
company’s general ledger. This was not disclosed by Mr De Klerk. It is
contended that the said fact provides proof that Mr Els’ employment was
initially not tied to the procurement of a distribution agreement with Biesse, the
overseas supplier.
[55] Furthermore, it is alleged that Mr Els was in fact employed on a full -time basis
with effect from 1 March 2021 and not from September 2021. He was paid a
salary and also earned substantial commission. Again, the said allegation was
supported by written pro of reflecting Mr Els’ earnings for the period March
2021 to February 2022.
[56] In light of the aforesaid allegations, which are duly supported by written proof,
Mr De Klerk’s allegation that Mr Els was employed with effect from September
2021 appears to be i ncorrect. It is however questionable whether the
aforesaid error and omission on its own are sufficient to warrant an inference
that Mr Els’ employment was not connected to the Biesse distribution
agreement. The omissions on the part of Mr De Klerk – to de al with the
correct dates and the commencement of the employment relationship with Mr
Els more than a year before the business proposal was sent to Biesse - must
be seen in the context of Mr Van Dyk’s failure to deal with this thorny issue
head-on in the founding papers. He must have known that Mr De Klerk would
raise it as justification for the derailment of the negotiations pertaining to the
sale of Mr Van Dyk’s shares. Accordingly, from Mr De Klerk’s perspective
there was very little to answer to.
[57] Furthermore, the fact that Mr Els’ employment is in time further removed than
alleged by Mr De Klerk does not take away the fact that the parties appeared
to believe that they would have stood a better chance to secure the
distribution agreement if they repres ented to Biesse that Mr Els was in fact a
shareholder of the respondent company. Mr Van Dyk alleged that the said
representation was Mr De Klerk’s idea and not his. Conversely, Mr De Klerk
alleged that the said representation was made on the strength of th e parties’
agreement to transfer 20% of the shareholding to Mr Els. Irrespective of the
said dispute, it is clear that the representation was made at a time when the
parties were working in unison and that either Mr De Klerk or both of them
truly believed that the said representation would significantly improve their
prospects of securing a distribution agreement. It is unlikely that such a
significant document did not carry the approval of both parties or at the very
least was not acquiesced to by Mr Van Dyk.
[58] It is alleged by Mr Van Dyk that he was under the impression that Biesse
would enter into a distribution agreement with the respondent company the
moment Mr Els was fully employed by the respondent company. From his
perspective, the distribution agreement was the ultimate goal.
[59] Although not referred to by any of the parties, it is striking that Mr Els, in the
affidavit filed in his matter against Mr Van Dyk and which is attached to the
answering papers, al leged that he finalized and presented the business
proposal to Biesse, that is the proposal in which the representation was made
that he was a 20% shareholder. That, in a limited sense, supports Mr Van
Dyk’s version that he was not party thereto. However, if it is true that Mr Els
was entrusted with the preparation of the proposal it also, in a limited sense,
supports Mr De Klerk’s version , in that it is unlikely that a new appointee like
Mr Els would make a false representation of 20% shareholding without the
approval of the other directors. Furthermore, if he was entrusted with the said
duty, it confirms that the parties at the time believed he possessed knowledge
and experience which made him more equipped than themselves to do such a
proposal, which ties in with the version that his appointment was causally
connected to his relationship with Biesse.
[60] More importantly, Mr Els alleged that he was appointed by the respondent
company on the understanding that Biesse would accept the said business
proposal. In terms of the proposal Biesse is invited to appoint the respondent
company as its preferred agent for the whole region or the coastal parts
thereof.
[61] It is in this context that Mr Van Dyk alleged that no distribution agreement was
ever concluded with Bie sse. In support of the said allegation Mr Van Dyk
attached an email from Mr Stefano and a WhatsApp message from Ms
Monceri, both of whom are employees from Biesse.
[62] It is instructive that Mr De Klerk simply made a bald allegation that a
distribution agre ement was entered into with Biesse. Similarly, it is baldly
alleged that Biesse insisted that the transfer of shares to Mr Els was a pre -
condition for doing business with them, as Mr Els’ shareholding was
apparently crucial to acquiring Biesse’s business. However, without any
explanation no written distribution agreement was attached, nor was any
explanation offered why Biesse for years carried on doing business with the
respondent company without fulfilment of the alleged pre -condition. It is self -
evident that bald allegations which are vitiated by obvious inconsistencies left
unexplained must carry very little, if any, weight and do not create real
disputes of fact. Accordingly, it appears that Mr Van Dyk’s version that no
formal distribution agreement was concluded is more probable.
[63] Most significantly, no attempt was made by Messrs De Klerk or Els to explain
why the simple act of transferring 20% shareholding to Mr Els never took
place. It is understandable that once Mr Van Dyk decided to sell his shares ,
which seem to have occurred in April 2023, that it would not have been in his
best interest to sell 10% of the shareholding in the respondent company to Mr
Els for a song, that is not for its true value but for a nominal value of R10. In
this regard the sale of shares agreement made provision for a nominal
amount of R10. However, from March 2021 (or September 2021 on Mr De
Klerk’s version) to April 2023 no steps were taken to complete the simple act
of transferring shares to Mr Els. Clearly, there must ha ve been a reason for
the failure to do so.
[64] A plausible inference from the evidence seems to be that the offer made to Mr
Els may have been subject to a term or condition that a formal distribution
agreement had to be concluded with Biesse. This never happened, which may
be the true reason why Mr Els never attempted to enforce the offer made to
him and/or why Messrs Van Dyk and De Klerk never took steps to complete
the transfer. However, neither of the parties properly dealt with this issue.
[65] It is also noteworthy that no formal employment agreement for Mr Els was
produced by any of the parties.
[66] Most significantly, Mr De Klerk attached an email to his papers addressed to
Mr Van Dyk in which he recorded the parties’ conversation about Mr Van
Dyk’s plan to sell his shares and where he reiterated that Mr Els still had to
pay for 10% of the shareholding in the respondent company as per the
valuation that was done. It is instructive that Mr De Klerk failed to deal with the
said statement at all. S urprisingly, Mr Van Dyk also did not deal with the said
statement in reply. The statement is clearly relevant, at it conveys the notion
of an agreement to the effect that Mr Van Dyk would sell shares to Mr Els in
accordance with some or other valuation that was done.
[67] It is in this context that the draft sale of shares agreement must be evaluated.
The said agreement only provides for payment of a nominal sum of R10,
which clearly does not represent an amount arrived at through a valuation.
Accordingly, Mr De Klerk’s reliance on the draft sale of shares agreement is
inconsistent with his statement made in the aforesaid email and for that
reason very little, if any, weight can be attached thereto, and it is insufficient to
create any real dispute of fact.
[68] Most interesting is the fact that the draft sale of shares agreement was sent
under cover of an email by an attorney who advised the parties of what he
understood the tax implications of the transfer of shares would be. Suffice to
say, it appears that acc ording to the attorney it would have significant tax
implications.
[69] Surprisingly, none of the parties made any attempt to explain their response to
the said potential tax implications.
[70] In conclusion, the thorny issue concerning Mr Els’s right to acquire 10% of the
shareholding in the respondent company from Mr Van Dyk has not been
properly dealt with by either party, for the reasons stated hereinabove.
Furthermore, there are a number of probabilities and/or inferences drawing in
opposite directions. In the circumstances, it is not an issue that the Court can
decide on the probabilities without the aid of oral evidence, which was not
requested by any of the parties.
[71] On 4 November 2024 Mr Els, through his attorneys, reiterated its client’s
entitlement to 20% of the shareholding in the respondent company and
demanded transfer of 10% of such shareholding from Mr Van Dyk. No doubt,
the said demand increased the pressure on Mr Van Dyk, who perceived it as
being part of a tactic employed to reduce the valuation of his shareholding.
The battle lines were drawn and Mr Van Dyk must have known that no
agreement would be concluded facilitating his exit without giving away 10% of
his shareholding for a song. This appears to have been the final straw and
resulted in the winding-up application being issued on 29 November 2024.
LAW APPLICABLE TO COMMERCIAL INSOLVENCY AND THE APPLICATION
THEREOF TO THE FACTS
[72] The applicant, Mr Van Dyk, relies on the provisions of section 346(1)(c) of the
Companies Act 1973 in order to establish the necessary locus standi to bring
the winding -up application. The said section, inter alia , provides that one or
more of a company’s members may apply for the winding-up of such
company. It is not in dispute that the applicant is a member and shareholder
of the respondent company and therefore falls within the category of persons
contemplated in the aforesaid sub-section. However, the respondent correctly
points out that section 346(2) of the Act imposes a limitation on such a
member’s right to apply for winding-up, by providing that a member may do so
only on one or more of the grounds set out in section 344(b), (c), (d), (e) or
(h). The ground r elied upon by the applicant, namely that the respondent
company is unable to pay its debts, falls within the ambit of section 344(f) read
with section 345 of the Companies Act 1973. On this basis, it was contended
on behalf of the respondent that the appli cant lacks locus standi as a member
to bring the application on the basis of commercial insolvency.5
[73] In an attempt to overcome this difficulty, the applicant contended that the
respondent company is indebted to him by virtue of a loan account in his
favour, and that he is accordingly entitled to apply for winding-up as a creditor.
However, this contention is not supported by the facts. Nowhere in the
founding or replying affidavits is it alleged that the applicant relies on such
loan account for purposes of establishing standing as a creditor. The said
allegation was made for the first time in a supplement ary affidavit filed on 12
June 2025. Although it is common cause that the respondent’s financial
statements reflect a material loan account in favour of the applicant, it
appears—on the respondent’s version, supported by the confirmatory email of
the company’s accountant annexed to the answering affidavit —that the said
loan account was not regarded as legally enforceable. The applicant, tellingly,
did not meaningfully dispute th e said allegation in reply or in the
supplementary affidavit.
[74] In the result, i t is held that the applicant has not succeeded in establishing
locus standi to apply for the winding -up of the respondent on the basis that it
is unable to pay its debts as contemplated in section 345 of the Companies
Act 1973.
[75] To the extent that such finding may be incorrect, it is deemed appropriate to
consider the applicant’s case on the merits concerning the respondent
company’s alleged inability to pay its debts. It bears noting, and is in any
event common cause, that the ap plicant has the requisite locus standi to
pursue the application for winding -up on the alternative ground that it is just
5 Wiseman v Ace Table Soccer (Pty) Ltd 1991 (4) All SA 317 W.
and equitable to do so, as contemplated in section 344(h) of the Companies
Act 61 of 1973.
[76] It is trite that the test for commercial insolvency is whether a company is
unable to meet its current liabilities, inclu sive of contingent and prospective
liabilities, as and when they fall due in the ordinary course of business. The
enquiry is not directed at a balance sheet analysis — i.e., whether the
company’s liabilities exceed its assets on paper —but rather whether the
company has accessible or realizable assets or means to discharge its
obligations as they arise. These means may include available cash resources,
anticipated receipt s in the ordinary course of trading, or credit facilities that
may be utilized to settle debts. It may also extend to readily realizable assets
such as shares, book debts or other instruments convertible into cash in the
short term. The test is to be applied with reference to the financial position of a
company at the time of the application, and into the immediate future, in order
to determine whether the company is capable of continuing with normal
commercial operations.6
[77] As stated hereinabove, the applicant based his case for commercial
insolvency mainly on factual insolvency. It is trite tha t factual insolvency may
be indicative of a company’s inability pay its debts and clearly is a relevant
and material factor in deciding whether a court should exercise its discretion
to grant a winding -up order .7 However, the mere fact that the respondent’s
total liabilities exceed ed its total assets , or that its total current liabilities
exceeded its total current assets, is insufficient to establish commercial
insolvency. As stated, the enquiry is not directed at a balance sheet analysi s,
but rather whether the company has accessible or realizable assets or means
to discharge its obligations as they arise.
[78] An applicant who relies on the financial results of a company to establish
commercial insolvency should at the very least interpret such results or
6 Murray NO and others v African Global Holdings (Pty) Ltd and others 2020 (2) SA 93 S CA at para
28-31; ABSA Bank Ltd v Rhebokskloof (Pty) Ltd and others 1993 (4) SA 436 (C) at 440-441.
7 Johnson v Hirotec (Pty) Ltd 2000 (4) SA 930.
otherwise explain why it justifies an inference of commercial insolvency.8 The
applicant not only failed to interpret or explain the results on which he relies ,
but co -signed the 2024 annual financial statements in which he positively
stated that the respondent was not commercially insolvent. In particular, under
the directors’ section of the said stat ements it was confirmed that the fact that
the total liabilities exceeded the total assets did not hinder the company’s
ability to pay its debts as they became due in the normal course of business. It
was further recorded that the company had access to suf ficient borrowing
facilities to meet its foreseeable cash requirements.
[79] It is self -evident that the mere analysis of a company’s assets and liabilities,
non-current and current , does not account for the availability of all accessible
or realizable means to discharge its ob ligations as they may arise. For
instance, it is a common occurrence for a private company to finance its
business operations by way of shareholders’ loans or to otherwise raise loans
secured by the personal suretyship of one or more of its shareholders.9 In this
matter i t was not even necessary for the shareholders to put their hands in
their pockets . In fact , following the applicant’s resignation as director, t he
respondent company obtained a loan from Voda lend and fully repaid it before
the due date. That is not consistent with an inability to pay it s current
demands.
[80] The only outstanding debt referred to by the applicant relates to commissions
owed to Mr Els to the tune of R 3 015 568.20 . However, Mr De Klerk denies
the correctness of the said outstanding amount and alleges it does not
account for deductions. Furthermore, it is alleged that R2 600 000 was paid to
Mr Els. The applicant in reply did not deal with the issue in a meaningful way.
Accordingly, on the probabilities it cannot be found that any commission
amount is due and payable to Mr Els.
8 Wiseman v Ace Table Soccer (Pty) Ltd 1991 (4) All SA 317 W.
9 Ex parte De Villiers & another NNO: In re Carbon Developments (Pty) Ltd (in liquidation) 1993 (1) All
SA 441 A at 502E.
[81] Apart from the aforesaid, no other allegations were made concerning a
particular debt that was not paid, or that the respondent company was called
upon by any of its creditors to pay a particular debt and refused to do so or
that there is any impending or pending legal proceedings concerning any
outstanding debt. Accordingly, the financial results and position, as per the
respondent company’s financial statements, have not translated into any
evidence of an inability to pay current demands. 10
[82] The applicant in his replying affidavit contended that a negative inference
ought to be drawn from the respondent company’s failure to provide up to
date financial information and annual financial statements , as well as
management accounts. In response, the respondent filed a supplementary
affidavit in which it gave reasons for its failure to file the 2025 annual financial
statements, citing the alleged unavailability of its accountant, Mr Smith, and
alleging that as a result it engaged the services of another accounting firm.
Although no formal application was made for the filing of the said
supplementary affidavit, the contents thereof are clearly relevant and it is in
the interests of justice that it should be admitted.
[83] The applicant in response t o the said supplementary affidavit also filed a
supplementary affidavit in which it fairly replied to the allegations made by the
respondent. The reply is also relevant. Accordingly, on the said basis, the
filing of the applicant’s supplementary affidavit is admitted.
[84] In particular, the applicant attached the respondent’s management accounts
for the year 2025, drafted in the form of annual financial statements. The said
statements reflect a most unusual entry under trade payables, to it deposits
received in the amount of R23 692 627. However, no attempt was made to
interpret the said entry or to explain it in the context of the respondent’s
business operations. The respondent filed a further supplementary affidavit in
which it was stated that Mr Smith, the accountant, agreed that further
information was required from the respondent about the said entry and that it
10 Wiseman (supra) at p180.
was clearly incorrect. The said response was clearly relevant and constitutes
a fair reply to the applicant’s int roduction of the management accounts.
Accordingly, it is admitted.
[85] In summary, the contentions advanced with reference to the said
management accounts are tainted by the same fundamental deficiency: no
effort was made to interpret or contextualize the fi nancial results with
reference to the alleged state of commercial insolvency on the part of the
respondent.
[86] As a result, the late flurry of supplementary affidavits did not advance the
applicant’s case . In the premises, the applicant failed to establish that the
respondent is commercially insolvent.
LAW APPLICABLE TO THE JUST AND EQUITABLE GROUND FOR WINDING -
UP
[87] It is trite that se ction 344 (h) postulates as a ground for winding -up a broad
conclusion of law, namely justice and equity . Accordingly, it postulates a
general legal conclusion grounded in equitable considerations. The statutory
language imposes no restriction on the nature of the circumstances which
may give rise to such a conclusion, nor is the phrase "just and equitable" to be
interpreted in a confined or restrictive manner. The court’s discretion under
this provision is accordingly a wide one, guided by the interests of fairness
and equity.11
[88] In Rand Air (Pty) Ltd v Ray Bester Investments (Pty) Ltd 1985 (2) SA 345
(W) at 350 C -H the Court considered the just and equitable ground to be
falling into five broad categories , to wit: (a) disappearance of the company’s
substratum; (b) illegality of the objects of the company and fraud committed in
connection therewith; (c) deadlock in the management of the company ’s
11 Apco Africa (Pty) Ltd and another v Apco Worldwide Inc 2008 (5) SA 615 SCA.
affairs; (d) grounds analogous to those for the dissolution of partnerships; and
(e) oppression.
[89] It is trite that the said categories do not constitute any kind of numerus
clausus. South African courts have long accepted that the development of this
area of the law has been strongly influenced by English jurisprudence. Under
English law, a clear distinction is drawn between functional and non -functional
deadlock. Functional deadlock applies where an inability of
shareholders/members to co -operate in the management of the company ’s
affairs leads to an inability of the company to act at board or shareholder level.
It is not limited to a deadlock a t board level and applies regardless of the
nature of the company, that is irrespective whether the company is in the
nature of a partnership or not. It is a remedy for paralysis. Accordingly,
breakdown of trust is not a re quirement, albeit breakdown of tr ust and
functional deadlock may exist together and frequently do.12
[90] In this regard, the description of deadlock adopted in category (d) of Rand Air
(supra) – namely deadlock in the management of the company’s affairs,
should be understood in accordance with the broad approach reflected in
English law. Given the wide discretionary powers conferred by section 344(h)
of the Companies Act, there is no principled reason to exclude th e wider
operation of this principle from the scope of circumstances in which a winding -
up may be deemed just and equitable.13
[91] It is trite that in the context of a domestic company which is in the nature of a
partnership a co urt is guided by two distinct principles in exercising its
discretion to wind-up a company on the ground that it is just and equitable to
do so.14
[92] The first principle finds application where there is a justifiable lack of
confidence and/or lack of probity in the conduct and management of the
12 Chu v Lau 2020 UKPC 24 at para 14-17, 24.
13 Thunder Cats Investments 92 (Pty) Ltd and Another v Nkonjane Economic Prospecting and
Investment (Pty) Ltd and Others (2014) 1 All SA 474 (SCA); 2014 (5) SA 1 (SCA).
14 Apco (supra) at para 19-21.
company’s affairs grounded on conduct of the directors in regard to the
company’s business.
[93] The second principle finds application where the shareholders stand in a
relationship of personal trust and confidence —arising from an express, tacit,
or implied arrangement or understanding akin to that of partners in a
partnership—and such relationship is destroyed by conduct that is wrongful or
inconsistent with that understanding or arrangement .15 Notably, the
application of the second principle does not require the existence of an actual
or functional deadlock . It is sufficient if it is impossible for the
members/shareholders to place that confi dence or trust in each other which
each has a right to expect and that such impossibility has not been caused by
the person seeking advantage of it .16 The last-mentioned proviso is described
as ‘the clean hands principle’ , which precludes a party responsible for the
breakdown from relying on it to seek winding-up relief.
[94] The underlying r ationale for the second principle is that parties do not enter
into quasi-partnerships unless there is mutual trust and confidence. Once this
trust/confidence has irretrievably broken down and the parties can no longer
work together as originally intended as per their informal arrangement , the
relationship ought to be brought to an end —save where the party seeking
termination is solely to blame for the breakdown.17
[95] The importation of equitable, partnership -like principles into the realm of
company law —where the relationships among shareholders are regulated
primarily through the memorandum of incorporation (previously the
memorandum and articles of association) and shareholders’ agreements —
gives rise to an inherent tension. This is the tension between formal legal
rights enforceable in law and informal understandings which, though not
ordinarily enforceable, may be given ef fect to inequity through the application
of section 344(h).
15 Apco (supra); Rentekor (Pty) Ltd and others v Rheeder and Berman NNO and others 1988 (4) SA
469 T at p500-501.
16 Apco (supra) at par 21.
17 Ebrahimi v Westbourne Galleries Ltd 1973 AC 360 HL; Chu (supra) at par 19;
[96] Fortunately, the jurisprudence under both South African and English law
provides substantial guidance on the circumstances under which the breach
of an informal arrangement of trust/confidence in a corporate qua si-
partnership may render it just and equitable to grant a winding -up order ,
despite the absence of any breach of a strict legal right, or even in the fac e of
the exercise of such strict legal right , if the manner in which it is exercised
renders the granting of a winding-up order just and equitable, as contemplated
in terms of section 344(h).
[97] It falls to be emphasized that the breakdown in the relationship between
shareholders is not in itself sufficient justification for the winding -up of a
company. An applicant is required to establish facts and circumstances
justifying the legal conclusion that it is just and equita ble for the company to
be wound up. Such facts and circumstances include, but are not limited to, a
breach of the shareholders’ informal arrangement of trust/confidence or a
justifiable lack of confidence/trust or probity in the conduct and management
of the company’s affairs. The scope of the requirement is sufficiently broad to
include a change in circumstances under which the parties entered into the
informal arrangement of trust/confidence - beyond the parties’ control - and
which results in mistrust, which cannot fairly be described as unreasonable .18
The informal arrangement of trust/confidence has been held to give rise to a
duty to act reasonably and honestly towards one another and with friendly co -
operation in running the company’s affairs, which duty may fairly be described
as a duty of trust , the breach of which would ordinarily justify a winding -up
order.19
[98] It must also be recognized that in the context of small, closely held companies
with characteristics resembling partnerships, n o aspect of the members’
business relationship is irrelevant. The Court in Ebrahimi (supra)
emphasized that "just and equitable" considerations are not confined to the
shareholder’s formal rights but may encompass any matter affecting the
18 Chu (supra) at para 15 and 24; Apco (supra) at par 19.
19 Rentekor (supra) at pp500-501.
relationship betw een the shareholder and the company or among the
shareholders. In the matter of Rentekor (supra) the Court even went so far
as to hold that conduct occurring outside the formal affairs of the company
and which had the effect of destroying the relationship of trust may, in certain
cases, justify a winding-up order.20
[99] In the oft -quoted21 case of Ebrahimi v Westbourne Galleries Ltd (supra)
Lord Wilberforce explained that the just and reasonable ground for winding-up
does not entitle a shareholder to disregard the statutory regime or the articles
of association by which shareholders agree to be bound. However, equity (as
understood in the context of English law) permits a court to impose equitable
considerations that may render the exercise of strict legal rights unjust in a
particular context. He cautioned that the mere fact that a company is a small
one does not of itself give rise to equitable considerations . In many cases the
relationship is purely commercial and adequately and comprehensively dealt
with in the articles . He reiterated that some additional element must be
present - such as : (a) an association for med on the basis of a personal
relationship involving mutual trust/confidenc e; (b) an agreement or
understanding that all or some of the shareholders would participate in the
conduct of the business ; (c) a restriction on the transfer of the members’
interest in the company – so that if confidence/trust is lost , or one member is
removed from management , such member cannot take out his or her stake
and go elsewhere.
[100] In Technology Corporate Management (Pty) Ltd and others v De Sousa
and others 2024 ZASCA 29 the Supreme Court of Appeal was tasked with
interpreting section 252 of the Companies Act 1973. It had to decide whether
a case had been made out that the affairs of the company had been
conducted unfairly prejudicial to the plaintiff on the basis that there was a
breakdown in the relationship between or among the shareholders giving rise
to a right to exi t and imposing an obligation on the remaining shareholders to
make a reasonable offer to acquire the shares of the disaffected shareholder.
20 Rentekor (supra) at p500.
21 Apco (supra) and numerous other cases.
In the said context the court was required to give meaning to the words
‘unfairly prejudicial’. The judgment is inst ructive for its analysis of the tension
between formal legal rights and informal arrangements, and while the context
was unfair prejudice within the meaning of section 252 , the court’s
observations are illuminating in relation to winding-up under section 344(h).
[101] The Court noted that in some instances irreconcilable differences between
shareholders may justify an order for winding up the company, but such
differences may not without more amount to unfair prejudice. The contrary
position seems less troubles ome. It is difficult to think of a situation where
unfairly prejudicial conduct resulting in the breakdown of trust will not also
constitute just and equitable grounds for winding -up22, although it may
possibly give rise to an argument that such unfairly p rejudicial conduct may
provide such member with an alternative remedy, which may be a ground for
the refusal of a winding-up order under section 347(2) of the Companies Act.
[102] The S upreme Court of Appeal in Technology Corporate Management
(supra) identified two recurring factual situations that frequently ground claims
of unfair prejudice by minority shareholders.
[103] First, where there is a tacit or informal understanding that shareholders will
contribute labour or capital and participate in manage ment, and a shareholder
is later excluded - whether by removal, dismissal, or marginalisation - from
fulfilling such a role. In such cases, the exclusion itself may constitute unfair
prejudice.23
[104] These principles apply with equal force in the context of small, domestic
companies that operate in substance as quasi -partnerships. They resonate
with the requirements stated in Ebrahimi (supra) for the imposition of
equitable considerations. Accordingly, by parity of reasoning , where a
shareholder is excluded from fulfilling the role contemplated in terms of the
shareholders’ informal understanding or arrangement , it should generally be
22 Chu (supra) at par 58.
23 Technology Corporate Management (supra) at para 87-91.
sufficient to establish a prima facie case for the winding -up of a company on
the ground that it is just and equitable to do so.
[105] Notably, the Court in Technology Corporate Management (supra) held that
such informal arrangements may evolve or change over time. It is therefore
necessary to establis h not only the existence of an informal understanding at
inception, but also that it continued to operate at the time the breakdown in
trust occurred. By parity of reasoning, the said principle should apply with
equal force in the case of winding-up applications premised on section 344(h).
[106] The Supreme Court of Appeal further re affirmed that although shareholders
may regulate their relationship through a memorandum of incorporation o r a
shareholders’ agreement, it is not ordinarily unfair to conduct the affairs of a
company in conformity with those instruments . The Court, however, drew a
distinction between, on the one hand, overriding an otherwise lawful exercise
of a right on account of the manner in which it was exercised - particularly
with reference to an informal arrangement or understanding between
shareholders24 - and, on the other, conferring rights beyond those agreed or
imposing obligations which were not consented to by the other shareholders.25
By parity of reasoning , it follows that a shareholder ought not to be denied
relief merely because another shareholder acted within the bounds of their
strict legal rights, if it is established that the manner in which such rights were
exercised, when viewed in light of the shareholders’ informal arrangement or
understanding, renders it just and equitable for the company to be wound up.
[107] The second situation identified by the S upreme Court of Appeal in
Technology Corporate Management (supra) concerns minority
shareholders who are effectively “locked in” and unable to realise their
investment in the absence of a share disposal mechanism. The Court
endorsed the reasoning in the well -known English case of O’Neill and
another v Phillips and others 26, which draws a distinction between cases
24 Technology Corporate Management (supra) at 82 and 90.
25 Technology Corporate Management (supra) at para 93-94.
26 1999 UKHL 24; 1999 2 All ER 961 at 972.
where a shareholder has been excluded and those cases where no exclusion
has occurred. The Court in O’Neill (supra) remarked that in the case where a
breakdown in relations occurred it would usually be a waste of time to try to
investigate who caused the breakdown , which seem s to suggest that
irrespective of who caused it , it would be considered unfair to keep a
shareholder loc ked in who was excluded from participating in the
management of the company or who was dismissed. However, the Supreme
Court of Appeal in Technology (supra) dispelled any possible uncertainty by
unequivocally affirming that, absent unfairness in the exclusion itself, the mere
failure to extend a reasonable offer to a shareholder who finds themselves
effectively locked in does not, without more, amount to unfairness. Perforce, in
the case where a shareholder has not been excluded and merely allege d a
loss of confidence, it was held that such loss did not, without more, entitle that
shareholder to demand a buy-out.
[108] The Court in Technology Corporate Management (supra) expounded on
the said reasoning by stating that one of the risks of conducting business with
others in a small private company was that leaving the business and
disposing of one’s interest in it m ight be difficult or practically impossible. It
also cautioned that where the memorandum of incorporation or shareholders’
agreement dealt with the disposal of a shareholder’s shares a court cannot
simply ignore such provisions because the departing shareholder declared his
or her loss of trust in the majority. The Court explained that if the loss of faith
in the majority on its own would give rise to a right to demand that the majority
acquire the minority’s shareholding, it would effectively confer a right to exit
the company at will and at the expense of the remaining shareholders . It
cautioned that such a right might even imperil the future of a company and
prejudice its creditors and remaining shareholders.27
[109] The said principle should apply with equal force where a shareholder seeks to
invoke section 344(h) to obtain a winding -up order on the basis that such
shareholder has lost confidence in a co -shareholder and/or co -director and
27 Technology Corporate Management (supra) at para 102-108.
cannot exit the company. Without more, such loss of confidence ought not to
be sufficient to establish a prima facie case.
[110] Conversely, where the loss of trust/confidence is attributable to misconduct,
and/or exclusion contrary to the informal arrangement or understanding
between or among the shareholders, and such shareholders are locked in and
cannot sell their shares and/or are not presented with a reasonable offer , it
should be sufficient to establish a prima facie case for the winding -up of a
company on the ground that it is just and equitable to do so . In the l eading
English case of O’Neill (supra) it was stated even more emphatically . It was
described as almost invariably unfair for a minority shareholder to be excluded
without an offer to buy their shares or some other fair arrangement. However,
the making of a reasonable offer may, in appropriate circumstances, cure the
inequity.28
[111] While it is a requirement that an applicant must not be solely responsible for a
breakdown in trust , it does not follow that partial responsibility disqualifies
such a shareholder from obtaining relief. In Knipe and others v Kameelhoek
(Pty) Ltd and another 2014 (1) SA 52 FB the Court, relying on English law,
held that blameworthiness is not a bar , unless the applicant caused the
breakdown. English authorities recognise that disputes often arise over time,
and few parties are entirely blameless. Accordingly, criticism of an applicant’s
conduct without more does not preclude relief . By example , where all the
shareholders are equally to blame it cannot be said one is solely to blame.29
[112] It is trite that, even where the applicant establishes entitlement to a winding-up
order, the court retains a discretion to refuse the relief under section 347(2),
where the respondent shows, on a balance of probabilities, that an alternative
remedy is available and that the applicant is acting unreasonably in seeking
winding-up rather than pursuing that remedy.30
28 Bayly and others v Knowles 2010 (4) SA 548 SCA at para 23 -24; Technology (supra) at par 109;
Chu (supra) at p8.
29 Dosanjh v Balendran and another 2025 EWHC 507 (Ch) at para 13 and 15; Chu (supra) at par 15.
30 Moosa NO v Mavjee Bhawan (Pty) Ltd 1967 (3) SA 131 (T) at 152.
[113] The legal position under section 344(h) may thus be summarised as follows:
(a) Section 344(h) confers a wide discretion on the court, unconstrained
by any closed list of circumstances.
(b) Case law has developed guiding principles for particular categories
of cases.
(c) One such category arises where a functional deadlock exists within a
company, whether at board or shareholder level. In such cases , the
deadlock alone may justify a winding-up order, regardless of whether
the company is a corporate quasi-partnership or not.
(d) Another established category arises where a breakdown in
trust/confidence occurs, in which event a winding -up order may be
granted if the company falls to be characterised as a corporate
quasi-partnership.
(e) In such cases, the applicant must establish:
(i) the existence of a corporate quasi -partnership based on an
informal arrangement of t rust/confidence, including the nature
and scope of the arrangement and any variation thereof;
(ii) a breakdown in trust /confidence attributable to misconduct
and/or a breach of the terms of the arrangement of
trust/confidence and/or a justifiable lack of trust in the probity of
those conducting the company’s affairs and/or any other
circumstance which render s it just and equitable to grant a
winding-up order;
(iii) that the impugned conduct affects the applicant ’s relationship
of trust/confidence with the company (acting through its board)
or other shareholders;
(iv) in the case of exclusion from participation in the management
or conduct of the company’s affairs, either by way of removal
as director, or dismissal or marginalisation of an anticipated
and accepted role , and/or which has the effect that the
applicant is locked in without a reasonable exit , that such
exclusion and/or locking -in is attributable to misconduct and/or
a breach of the terms of the informal arrangement of
trust/confidence and/or a justifiable lack of confidence/trust or
probity in the conduct and management of the company’s
affairs and/or any other circumstance which would render it just
and equitable to grant a winding-up order;
(v) where such exclusion and/or locking -in resulted from the
exercise of strict legal rights derived from formal instruments of
agreement (MOI/shareholders’ agreement) , that it is just and
equitable to grant a winding -up order , having regard to the
manner in which such rights were exercised in the light of the
informal arrangement of trust/confidence;
(vi) that such override of strict legal rights does not have the effect
of conferring new rights which the shareholders agreed not t o
have or imposing new obligations which the shareholders did
not undertake to bear.
APPLICATION OF THE LAW TO THE FACTS AND CIRCUMSTANCES
[114] The respondent company is a typical example of a corporate quasi -
partnership. From the respondent’s inception in 2013 Messrs Van Dyk and De
Klerk each held 50% of the shareholding in the respondent company and both
were directors until Mr Van Dyk’s resignat ion on 4 March 2024. Accordingly,
at shareholder and board level they had equal voting rights. The dispute
concerning Mr Els’ right to receive 20% of the shareholding only came to the
fore in November 2023 and does not detract from the fact that prior ther eto
the relationship between Messrs Van Dyk and De Klerk – who in the context
of their shareholding dispute is referred to as “the parties” – was similar in
nature to that of a 50/50 partnership. It is also doubtful that the inclusion of a
third shareholder would have detracted from the corporate quasi -partnership
nature of the respondent company.
[115] It is common cause that the relationship of trust/confidence between Messrs
Van Dyk and De Klerk has completely broken down.
[116] Although the applicant did not ex pressly allege the existence of an informal
arrangement of trust/confidence, it is clear that his case is premised on such
an arrangement. In terms thereof it was agreed that Messrs Van Dyk and De
Klerk would participate equally in the conduct and management of the
business, both a t shareholder and board leve l. As a result, they owe each
other a duty to act reasonably and honestly in their dealings towards one
another and with friendly co -operation in running the company’s affair s, which
duty may properly be characterised as a duty of trust.31
[117] It is further clear that the parties, upon being called up to deal with Mr Van
Dyk’s impending exit, spontaneously agreed in broad terms that his
shareholding would be acquired by Messrs D e Klerk and Els. 32 However, no
final agreement was concluded. In the context of the parties’ relationship of
trust, it appears that both Messrs Van Dyk and De Klerk instinctively knew that
it would be fair and just to agree on a reasonable price for Mr Van Dyk’s
shares. Furthermore, although they were unable to agree on a reasonable
price, they subsequently agreed that the respondent’s external accountant
would be best placed to carry out a valuation of Mr Van Dyk’s shares. Notably,
Mr De Klerk did not impugn the said valuation itself, but contended that two
additional factors had to be taken into account , being the core disputes in this
31 Rentekor (supra).
32 Although it was also agreed that Mr Van Dyk could render services to tier one clients of the
respondent company located in the Cape region, there was a clear dispute whether the said
arrangement would extend to all or only some of the clients. However, the said dispute clearly falls
outside any formal agreement. Furthermore, none of the parties attempted to establish that it formed
part of their informal arrangement of trust/confidence or any variation thereof.
matter, which have the effect of substantially reducing the said valuation. In
this context, it is alleged that Mr De Klerk acted maliciously.
[118] It is clear from the facts that there is no reasonable prospect that the parties
would come to an agreement on the price to be paid for Mr Van Dyk’s shares.
Accordingly, Mr Van Dyk is locked in the company, with no prospect of being
able to sell his shares to Mr De Klerk, whilst at the same time being excluded
from participation in the management of the company. This is clearly
inconsistent with the parties’ informal arrangement of trust/confidence.
[119] Having regard to the aforesaid, t he question arises whether Mr De Klerk
breached his duty of trust in his dealings with Mr Van Dyk in two respects: (a)
Mr Van Dyk’s exclusion due to his resignation and Mr De Klerk’s subsequent
failure to arrange for another dire ctor to replace Mr Van Dyk. (b) The fact that
Mr Van Dyk appears to be locked in the company.
[120] It is common cause that the informal arrangement of trust/confidence was
materially altered when Mr Van Dyk, due to personal reasons unrelated to any
misconduct or breach of duty of trust on the part of Mr De Klerk, informed Mr
De Klerk of his intention to resign as director in April 2023 and in fact resigned
as director with effect from 4 March 2024. As such, it was never the
applicant’s case that his resignation as director and therefore his exclusion
from participation in the management of the company affairs was attributable
to any misconduct or breach of duty of trust.
[121] Moreover, and in any event, Mr Van Dyk’s communication of his intention to
resign as director did not cause the breakdown of the parties’ relationship of
trust, nor did the act of resignation cause it. As a matter of fact, the
respondent company has continued its operations to the date hereof without
any evidence of paralysis. Furthe rmore, even if it were to be found that any of
the said acts caused the breakdown, it would follow that Mr Van Dyk was the
sole cause of such breakdown. For the reasons given hereinabove, Mr Van
Dyk would in such a case not be entitled to rely on section 3 44(h) for the
winding-up of the respondent company.
[122] Mr Van Dyk alleged that he on more than one occasion requested Mr De
Klerk to arrange not only for his resignation , but also for the appointment of
another director in his stead. This was met with a bare denial.
[123] The applicant contends that upon a proper construction of the MOI the
respondent company is required to have two directors. It is further alleged that
due to the breakdown in trust/confidence the parties would be unable to agree
on the appointm ent of a director to fill the alleged vacancy. However, the
provisions of the MOI do not bear the meaning contended for by the applicant.
In fact, it contains the standard provision that if the company at any time only
has one director, as contemplated in section 57(3) of the Companies Act
2008, the authority of that director to act without notice or compliance with any
other internal formalities, as set out in that section , is not limited or restricted
by the MOI.
[124] However, the absence of a strict legal right is not necessarily fatal to the
applicant’s case. As stated, Mr Van Dyk is locked in the company, whilst at
the same time being excluded from participation in the management of the
company. In terms of the parties’ informal arrangement of trust/confidence, Mr
Van Dyk would ordinarily be entitled to participate in the management of the
company at board level, unless Mr De Klerk can show that his refusal to agree
thereto is not unfair or inequitable in the circumstances.
[125] It is self -evident that Mr De Klerk cannot be blamed for Mr Van Dyk’s
resignation as director. The applicant did not attempt to make out a case that
Mr Van Dyk , as a consequence of the parties’ failure to reach agreement on
the price to be paid fo r his shares, is entitled to be re -appointed as director. It
is conceivable that Mr De Klerk would be able to mount strong objections to
Mr Van Dyk’s re-appointment. As a result of the applicant’s failure to deal with
this issue front-on in his papers, Mr De Klerk was deprived of the opportunity
to raise any such objection. The applicant wisely did not pursue this avenue.
[126] Instead, the applicant contends that the parties find themselves in a deadlock
because they will not be able to agree on the appointment of another director.
However, the appointment of a person other than one of the parties, is the
antithesis of a personal relationship founded on mutual trust and confidence. It
is implicit in such a relationship that the parties intended to confine their
association exclusively to themselves.
[127] In the result, Mr De Klerk cannot be faulted for ignoring the request for the
appointment of a replacement director, if such request was indeed made.
[128] Moreover, and in any event, Mr Van Dyk did not attempt to make out a case
that another director be appointed because he is locked in. His request was
made at a time when the parties were still negotiating the sale of his shares.
The negotiation only failed much later. It is self-evident that if the parties
managed to come to an agreement concerning the sale of the shares, there
would have been no need for the appointment of another director.
Accordingly, at the time that the request was made , Mr Van Dyk was not yet
locked in with no prospect of being able to dispose of his shares. As a result, it
cannot be said that Mr De Klerk acted unreasonably in ignoring the request for
the appointment of another director, if such request was in fact made.
[129] In the result, the applicant failed to establish any misconduct or breach of duty
of trust on the part of Mr De Klerk insofar as it is alleged that he refused to
arrange for the appointment of another director in Mr Van Dyk’s stead.
[130] As stated hereinabove, absent unfairness in the exclusion itself, the mere
failure to extend a reasonable offer to a shareholder who finds themselves
effectively locked in does not, without more, amount to unfairness. In the
premises, the applicant ’s failure to establish that hi s exclusion from
participation in the management of the respondent was the result of any
misconduct or breach of duty of trust on the part of Mr De Klerk - whether in
relation to his resignation as director or his request for the appointment of
another director in his stead - is fatal to his cause, unless the applicant is able
to establish other circumstances which would , independently, render it just
and equitable for a winding-up order to be granted.
[131] In this regard, it is contended that Mr De Klerk acted in bad faith by raising the
two core disputes with the intent to reduce the valuation of Mr Van Dyk’s
shares, as carried out by Mr Smith.
[132] In essence the said contention amounts to an assertion that Mr De Klerk failed
to exten d a reasonable offer, which does not, without more, amount to
unfairness.
[133] It bears emphasis that the applicant failed to allege or establish that the
parties’ broad agreement in terms whereof Mr Van Dyk’s shareholding would
be acquired by Messrs De Klerk an d Els constituted a variation of their
informal arrangement of trust/confidence. Similarly, it is also not alleged that
the parties’ conduct pursuant to the said broad agreement , including the
procurement of the valuation carried out by Mr Smith, constituted a variation
of their informal arrangement. Accordingly, the alleged bad faith of Mr De
Klerk is not founded on any breach of the parties’ informal arrangement of
trust.
[134] Furthermore, the respondent company’s memorandum of incorporation does
not contain any provision regulating the exit of a shareholder. In addition, no
shareholders’ agreement was concluded. Accordingly, the alleged mala fides
of Mr De Klerk cannot be founded on any breach of a strict legal right
regulating a shareholder’s exit.
[135] In the circumstances, the applicant’s reliance on the alleged mala fides of Mr
De Klerk is fundamentally flawed and unsustainable in law.
[136] Furthermore, the said contention is also not sustainable on the facts.
[137] Despite the parties’ broad agreement on 6 November 2023 and their conduct
pursuant thereto in procuring a valuation , they remained in splendid
disagreement. Mr De Klerk contended that the valuation had to be adjusted
downwardly to account for two factors: (a) the fact that Mr De Klerk was only
acquiring 40% of the shareholding in the respondent , due to Mr Els’ alleged
entitlement to 10% of such shareholding ; (b) the alleged los s suffered by the
respondent as a result of Mr Van Dyk’s alleged breach of the so-called prior
agreement.
[138] For the reasons stated, Mr De Klerk was unable to establish the conclusion of
the so -called prior agreement or any breach thereof. He also failed to
establish that the respondent suffered a loss of R560 000 as a r esult of the
Vodalend loan. Mr De Klerk’s unilateral deduction of the full cost of the said
loan from Mr Smith’s valuation was clearly unreasonable.
[139] However, as demonstrated hereinabove, Mr De Klerk was correct in asserting
that Mr Van Dyk’s resignation resulted in the withdrawal of the respondent’s
credit facility and therefore necessitated the procurement of another loan.
Although the respondent was unable to establish the extent of the loan
required t o replace the withdrawn credit facility and the additional costs
incurred as a result thereof, Mr De Klerk cannot be faulted for contending that
some deduction may have to be made therefore. Furthermore, the disposal of
Mr Van Dyk’s shares may potentially have an adverse effect on the
respondent’s ability to secure credit in future, which may also justify a possible
downward adjustment of the valuation of Mr Van Dyk’s shares.
[140] Accordingly, Mr De Klerk’s overall conduct in contending for a downward
adjustment of the valuation on account of Mr Van Dyk’s resignation and exit
cannot be characterised as unreasonable . Notably, neither party took the
manifestly reasonable and obvious step of referring the issue to Mr Smith,
whose involvement could have resolved the impasse.
[141] Moreover, for the reasons stated , the issue concerning Mr Els’ acquisition of
10% of the shareholding in the respondent company cannot be decided on the
probabilities. If anything, the facts support a finding that it was agreed that Mr
Els would acquire some shares from Mr Van Dyk, but not for a song, as
alleged by Mr De Klerk. However, for the reasons stated, there is clearly a
bona fide dispute concerning Mr Els ’ alleged contractual right . Accordingly,
irrespective of the resolution of the dispute concerning the potential downward
adjustment of the valuation , Mr Van Dyk would in any event have remained
locked in, until the dispute concerning Mr Els’ entitlement has been resolved.
CONCLUSION
[142] In the result, the applicant has failed to make out a case for the winding -up of
the respondent company. There is no reason why costs should not follow the
result, except for the costs occasioned by the postponement of the matter on
26 May 2025, in respect of which each party shall pay its own costs. The said
postponement was by agreement to enable Messrs Van Dyk and De Klerk to
put in one last effort to come to an agreement on Mr Van Dyk’s exit, which is
consistent with their duties of trust owed to each other.
[143] Accordingly, the following order is issued:
(a) The application is dismissed.
(b) The applicant is ordered to pay the respondent’s costs, including the costs of
counsel on scale B , except for the costs occasioned by the postponement of
the matter on 26 M ay 2025, in respect of which each party shall pay its own
costs.
_____________________________
W ROUX
ACTING JUDGE OF THE HIGH COURT
Appearances
For Applicant: Adv. Potgieter
Instructed by: Mr Hannes Zwiegers of Hannes Zwiegers Inc.
For respondent: Adv. Hamers
Instructed by: Ms Grobbelaar of STBB Attorneys