SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document
in compliance with the law and SAFLII Policy
IN THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL LOCAL DIVISION, DURBAN
CASE NO: D6149/2024
MERCHANT COMMERCIAL FINANCE 1 (PTY) LTD APPLICANT
T/A MERCHANT FACTORS
Registration number: 2014/075671/07
and
KAIROS COMMUNICATIONS (PTY) LTD RESPONDENT
Registration number: 2013/007788/07
ORDER
The following order is granted:
1. The application is referred for the hearing of oral evidence on a date to be
fixed by the registrar, on the following issues:
(a) Was the ink supplied by Nano Inks defective?
(b) Did the respondent return any of the defective ink to Nano Inks?
(c) If so , in returning the defective ink, did the respondent discharge its
liability to the Applicant?
(d) Did the respondent send the correspondence in which it confirmed that
it had opportunity of examining the ink received and were satisfied that it
conformed t o the quality / workmanship that was expected upon purchase /
requesting the inks, and if so, when?
2. The evidence shall be that of any witnesses whom the parties, or any of them,
may elect to call, subject however to what is provided in paragraph 3 below.
3. Save in the case of the applicant and respondent, whose evidence is set out
in their respective affidavits filed of record, neither party shall be entitled to call any
witness unless:
(a) it has served on the other party, at least 15 days before th e date
appointed for the hearing (in the case of a witness to be called by the
applicant) and at least 10 days before such date (in the case of a witness to
be called by the respondent), a statement wherein the evidence to be given in
chief by such a witness is set out; or
(b) the court, at the hearing, permits such a person to be called despite the
fact that no such statement has been so served in respect of his or her
evidence.
4. The parties may subpoena any person to give evidence at the hearing,
whether such a person has consented to furnish a statement or not.
5. The fact that a party has served a statement in terms of paragraph 3 above,
or has subpoenaed a witness, shall not oblige such party to call the witness
concerned.
6. The provisions of Unif orm rules 35, 36, 37 and 37A shall apply to the hearing
of oral evidence.
7. The costs of this application are reserved for determination by the court
hearing the oral evidence.
JUDGMENT
Magwaza AJ
Introduction
[1] This is an application for the provisional winding -up of the respondent brought
by the applicant in terms of s 346(1)(b) of the Companies Act 61 of 1973 (“the Act”),
arising from the respondent’s failure to pay its debt due to the applicant. The
applicant relies on an undisputed irrevocable undertaking provided to the applicant
by the respondent to pay the applicant an amount of R9 944 672.45 within 60 days
of delivery of the goods. The respondent failed to pay the applicant this amount
within 60 days a nd the applicant delivered a demand notice in terms of s 345 of the
Act calling on the respondent to settle its liability within 21 days, failing which the
applicant would proceed with the liquidation of the respondent.
[2] Despite the demand the responde nt failed to pay its debt to the applicant and
as a result the applicant instituted these proceedings. In further support of this
application the applicant submits that over and above the respondent’s failure to
comply with the demand notice the respondent committed an act of insolvency when
it made a without prejudice proposal to settle its debt in instalments, which it
subsequently failed to do.
[3] In opposition, although admitting that it signed the irrevocable undertaking to
pay the applicant the amou nt of R9 944 672.45 the respondent has disputed its
liability to the applicant and submits that it has a bona fide defence to the applicant’s
claim as the goods which it had acknowledged liability for, were defective. The
respondent further disputes that t he applicant could place reliance on the without
prejudice offer of settlement as an act of insolvency as this was privileged
communication which should not be admissible in these proceedings.
[4] This court is therefore called upon to determine firstly w hether the applicant is
entitled to the liquidation of the respondent due to the respondent’s failure to comply
with the s 345 notice and the respondent’s act of insolvency contained in its without
with the s 345 notice and the respondent’s act of insolvency contained in its without
prejudice proposal to settle its debt to the applicant. Secondly, whether the
respondent disputes that indebtedness on bona fide and reasonable grounds.1
1 Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (T); Kalil
v Decotex (Pty) Ltd and Another 1988 (1) SA 943 (A) (‘Decotex’); Gap Merchant
Background
[5] On 23 March 2023, Nano Inks (Pty) Ltd (“Nano Inks”) agreed to sell and
supply its ink products to the respondent on credit. During the perio d of 28
September 2023 to 13 November 2023 Nano Inks sold, supplied and delivered ink
products to the respondent and issued four invoices for the total value of R9 944
672.45. Each of the four invoices were payable within 60 days of presentation.
[6] The respondent has not disputed concluding the credit facility agreement with
Nano Inks nor having received the ink products and invoices from Nano Inks. It is
also not disputed that the first invoice recorded that it was payable on 30 November
2025 with the last invoice being payable on 31 January 2025.
[7] On 30 October 2023 the applicant entered into a factoring agreement with
Nano Inks, in terms of which Nano Inks sold its present and future accounts
receivable (“invoices”) to the applicant, pursuant to wh ich sale all the right, title and
interest enjoyed by Nano Inks in respect of the invoices would be ceded to the
applicant as and when they came into existence. The ceded rights included the right
to payment, demand the return of the invoiced goods. In ret urn, the applicant would
advance to Nano Inks 70 percent of the value of each invoice issued by Nano Inks,
with the balance of 30 percent of the value of the invoice being retained to cover the
cost of financing and the various charges pursuant to the fact oring agreement. For
the purpose of this judgment the financial terms of the factoring agreement were not
disputed between the parties.
[8] On 30 October 2023 Nano Inks sent a letter to the respondent, in which it
informed the respondent of the conclusion of the factoring agreement between itself
and applicant. According to this letter the respondent was advised that the applicant
will collect all present and future debt, including those payable by the respondent.
The letter further informs the respondent of the new procedures that must be
The letter further informs the respondent of the new procedures that must be
Recycling CC v Goal Reach Trading 55 CC 2016 (1) SA 261 (WCC) (‘Gap Merchant
Recycling’).
followed in view of the factoring agreement. The letter records the following
procedures to be adopted:
‘…
Please ensure that the following procedures are adopted
(1) Orders and enquiries regarding your orders should, as before, be
addressed to us.
(2) Invoices will be issued by us. However, your future monthly statement
will be issued by MERCHANT FACTORS and payment should be made
directly to them. Please complete and return the remittance advice portion of
the MERCHANT FACTORS statement when making payment.
(3) Any notice of claims, complaints or disputes relating to your account
should be directed to MERCHANT FACTORS – telephone number (021) 4[...].
(4) Prior to the return of any goods for whatever reason, please contact
Merchant Factors at (021) 4[...], who will advise you where the goods are to
be returned to, as the goods are currently secured in fav our of MERCHANT
FACTORS in accordance with the provisions of this agreement.
As all present and future debts have been ceded to MERCHANT FACTORS,
only payment direct to them at:
P.O. Box
7[...]
Cape Town
8000
OR 4th Floor, Merchant
Place
5[...] L[...] Street
Cape Town
8001
OR By EFT or deposit to:
Account Name: Merchant
Commercial Finance 1
(Pty) Ltd
Bank: Capitec Business
Account No: 1[...]
Branch: Mid Commercial
Branch Code: 450105
(and NOT ourselves), will validly discharge your indebtedness. No set -off will
be recognized.
This notification of cession remains of full force and effect until
cancelled or varied in writing by MERCHANT FACTORS.
The procedure now coming into effect does not in any way change the
structure and management of the company an d, likewise, its policies remain
the same. The trading terms which you have been granted continue as before.
…’
[9] The letter sought to create a new procedure under which the payment of
invoices would now be handled through the applicant, and how the respondent ought
to deal with the return of goods through the applicant. More importantly, this letter did
not seek to exclude any other defence open to the respondent to raise against Nano
Inks.
[10] The respondent does not dispute having been notified of the new procedure, it
however disputed that the respondent was not entitled to withhold any payment or
claim any set-off against debt owed. This argument is without merit. In the letter it is
specifically recorded that no set-off will be recognized, and I will not make any further
reference to this defence in this judgment.
[11] On 16 November 2023 the applicant sent a letter to the respondent requesting
it to confirm by signature that the invoices recorded therein and the amounts were to
be paid into the applicant’s bank account in accordance with the payment terms of
60 days. The bottom of the letter contains the fo llowing undertaking by the
respondent:
‘By our signature below, we acknowledge and confirm that the balance owing
by ourselves to yourselves are due as follows:
1 December 2023 (R3 418 892.50)
1 February 2024 (R3 080 562.50)
1 February 2024 (R1 927 217.45)
1 February 2024 (R1 518 000.00)
And we irrevocably and unconditionally confirm and undertake that payment
thereof will be made, without (and free and clear of any deductions, set off or
counter claim) directly to yourself, to the abovementioned accoun t on or
before the due date for payment thereof, in accordance with the payment
terms granted by the abovementioned supplier.
For: Kairos Communications (Pty) Ltd – reg number 2013/007788/07
Full Names and Surnames – Mohammed Zakhir Ally (written in manu script)
designation Financial Manager,
Signature ____________________ (signature appears)
duly authorised thereto.’
[12] On 12 December 2023 Nano Inks sent an email to the applicant and copied
the respondent informing the applicant that there was a problem with the adhesion of
the ink on the substrate (which is the basic material the ink is applied to) and it was
reworking the ink. In response the applicant enquired from Nano Inks what was
required in reworking the ink and the time required to complete this exercise. It is
important to note that this exchange was between Nano Inks and the applicant and
not the respondent. No further evidence was provided by the applicant on when the
issue with the adhesion of the ink was raised by the respondent and whether it was
resolved at all. It is, I think significant that Nano Inks and the applicant first identified
what is a serious defect to the ink sold to the respondent.
[13] The respondent alleges that it returned 28 tons of the defective ink to Nano
Inks. As evidence of the alleg ed returns the respondent put up delivery notes issued
by the respondent on the respondent’s letterhead and addressed to Nano Inks. The
first delivery note was dated 14 December 2023, two days after the email exchanges
between the applicant and Nano Inks. The delivery note described the type of ink
and the quantity. Below the description of the ink and above the signatures two lines
were inserted with the words “defective inks returned” written between these lines.
The respondent also put up five other deli very notes dated between 5 February and
13 February 2024, which also contained the description of the different inks, various
13 February 2024, which also contained the description of the different inks, various
quantities with the same inscription “defective inks returned” contained in each
delivery note.
[14] In addition, the respondent submitted that Nano Inks had requested the
respondent to pay one of its suppliers, Chemipol, directly for certain material and set-
off this amount against the applicant’s claim. The applicant has disputed that the
respondent was entitled to set-off any amounts owed by Nano Inks to the respondent,
as in terms of the acknowledgment and undertaking, it was precluded from set -off.
The applicant further disputed that the respondent returned any of the inks and
dismissed the delivery notes as an attempt by the respondent at self -corroboration,
which it submits was impermissible.
[15] Although the first delivery note was purportedly issued on 14 December 2023,
nearly six weeks later on 31 January 2024 the respondent made a without prejudice
settlement proposal t o pay the outstanding amount by way of instalments,
commencing on 29 February 2024. The settlement proposal recorded the following:
‘Kindly be advised that we propose settlement of the amount as follows:
1. Payment of R500 000.00 for 3 months, commencing from 29 th
February 2024.
2. Thereafter R1 000 000,00 from the 1st May 2024 until settlement of this
account.
Kindly consider same and revert to us.
Our rights are reserved.’
[16] Despite the settlement proposal, the respondent failed to honour the terms
thereof. The applicant made no suggestion that this proposal was accepted, however
the applicant argued that this proposal constitut ed an act of insolvency by the
respondent which contained an admission by the respondent of its inability to pay its
debts as and when they arose.
[17] The respondent submitted that evidence of the settlement proposal is
inadmissible in these proceedings as it was sent on a without prejudice basis in
contemplation of settlement of the matter and the matter was not settled. The
applicant submits that it is entitled to rely on this proposal because in insolvency
proceedings any admissions contained in a sett lement proposal are not privileged
and therefore admissible.
[18] It was further argued by the applicant that the settlement proposal which was
made almost six weeks after the purported return of the first batch of the defective
ink was inconsistent with the respondent’s defence that the ink was defective. In any
event, any goods returned to Nano Inks would only have created a claim by the
respondent against Nano Inks and would not necessarily have been a defence
against the applicant’s claim.
[19] On 17 April 2024, the applicant issued a demand in accordance with s 345 of
the Act read with schedule 5 of the Companies Act 71 of 2008, in which it demanded
settlement of the amount of R9 944 627.45 within 21 days. Despite this notice the
respondent failed o nce again to pay the outstanding amount. As a result of the
respondent’s failure to pay the amount, the applicant alleged that the respondent is
unable to pay its debts as and when they fall due as envisaged in terms of s 345(1)(c)
and seeks the winding-up of the respondent.
[20] The respondent argued that the applicant was well aware that there was an
issue with the ink delivered by Nano Inks as early as December 2023. It argues that
this issue places the respondent’s liability in issue and creates a disp ute of fact
which ought to be referred to oral evidence for resolution of the matter.
[21] The applicant strongly opposed the referral of the matter to oral evidence as it
believed that there existed no material dispute of facts in the matter. More
specifically, the applicant submitted that the respondent had not disputed that it had
signed the acknowledgement of indebtedness and irrevocable and unconditional
undertaking to pay the applicant, free from any set -off or deduction, which
constituted the basis of the respondent’s indebtedness to the applicant. The
applicant further submitted that the respondent sought to rely on a dispute of fact
applicant further submitted that the respondent sought to rely on a dispute of fact
that arose a month before it made its settlement proposal.
[22] The fact that the settlement proposal was made witho ut prejudice is of no
moment and did not render it privileged for the purposes of insolvency. In support of
this argument the applicant relied on the judgment of ABSA Bank Ltd v Hammerle
Group.2
[23] The respondent was at pains to argue that ABSA was distinguishable to the
facts of this case. In ABSA, the impugned act of insolvency contained in the
settlement proposal recorded that:3
‘Notwithstanding the aforesaid, please note that our client has been struggling
to turn the business around. However, our client believes that it may in due
course turn the business around by making it profitable. At this stage, our
client has not been able to make any meaningful profits in the business.’
[24] The re spondent argued that it was clear from the above paragraph that its
position and settlement proposal were different from that contemplated in ABSA. The
letter in ABSA contained specific admissions on the part of the respondent that it
was unable to meet its debts as and when they became due and payable, which was
different from the settlement proposal made by the respondent in this case. In
contrast, the settlement proposal made by the respondent herein, which was marked
without prejudice, did not contain a n act of insolvency, but merely a proposal to pay
its debt in instalments. The proposal was therefore not admissible in these
proceedings.
[25] At the hearing of the matter the respondent accepted the validity of the
acknowledgement of indebtedness, and t hat it was binding upon it. It however
argued that the enforceability of the undertaking was premised on a valid
indebtedness in favour of the applicant and as such the issue that the court ought to
determine is whether the respondent has a bona fide defence which ought to be
referred to oral evidence for determination.
[26] The respondent subsequently filed a supplementary answering affidavit in
which it sought to submit firstly, a list of its employees that would be affected by the
2 Absa Bank Ltd v Hammerle Group [2015] ZASCA 43; 2015 (5) SA 215 (SCA)
(‘ABSA).
3 Ibid para 11.
liquidation of the respondent and secondly, put up its financials to demonstrate that it
was factually solvent as it had considerable profits, in excess of R10 million. The
respondent argued that it would not be just and equitable that a provisional
liquidation order be granted against it given that it had raised a bona fide defence to
the applicant’s claim based on reasonable grounds and that on an application of the
Badenhorst rule, the matter should not proceed. It was further submitted that the
court has a wide discretion which should be applied in a broad sense in due regard
to what the boni mores are.
[27] The applicant argued that the issue of the respondent’s employees is not
relevant, nor is its profit at this stage, as it has been demonstrated that i t is unable to
pay its debt and part of the reasons why it is profitable is because it has not settled
the applicant’s debt. More importantly, any consideration of justice and equity is not
relevant in the winding -up of the respondent given that the applic ant is not seeking
the winding-up on the basis that it is just and equitable to do so.
Legal framework
[28] It has long been accepted in our law that in winding -up applications, for a
provisional order and rule nisi to be issued all that the applicant is required to
demonstrate is that the respondent is prima facie indebted to the applicant, 4 and
thereafter the onus would shift on the respondent to demonstrate that its
indebtedness is disputed on bona fides and reasonable grounds. 5 Whilst the court
enjoys a discretion in determining whether to grant a provisional liquidation order,
such discretion is a narrow one and must be exercised judiciously.6
[29] The applicant’s prima facie case must be determined on a balance of
probabilities based on all affidavits filed as to whether the evidence demonstrates the
insolvency of the company or respondent without regard to any evidence which may
insolvency of the company or respondent without regard to any evidence which may
be adduced in rebuttal. However, where real and substantial factual issues are
4 See Decotex.
5 Meyer, NO v Bree Holdings (Pty) Ltd 1972 (3) SA 353 (T).
6 Afgri Operations Ltd v Hamba Fleet (Pty) Ltd [2017] ZASCA 24; 2022 (1) SA 91
(SCA) para 12.
raised in rebuttal the court is required to enquire into the bona fide of such rebuttal
evidence. The referral of the matter to the hearing of oral evidence during the
provisional order stage must only be granted in exceptional circumstances. In Kalil v
Decotex the court having considered the gener al approach to provisional liquidation
laid out in Provincial Building Society of South Africa v Du Bois7 stated the following:8
‘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
established 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 probabilities; 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 endeavour to disturb this balance) will, sa ve in exceptional circumstances,
not be granted. The learned Judge would 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.’
[30] In Decotex the court went on to say:9
‘Where, on the other hand, the affidavits in an opposed application for a
provisional order of winding -up do not reveal a balance of probabilities in
favour of the applicant, then clearly no prima facie case is established and a
provisional order cannot at that stage be granted. The applicant may, however,
apply for an order referring the matter for the hearing of oral evidence in or der
to try to establish a balance of probabilities in his favour. It seems to me that
in these circumstances the Court should have a discretion to allow the hearing
of oral evidence in an appropriate case. The alternative, viz refusal of the
of oral evidence in an appropriate case. The alternative, viz refusal of the
provisional or der of winding -up, represents a final decision against the
applicant and, if such a decision is always made purely on the affidavits,
injustice may be done to the applicant. (Cf the general reluctance of the Court
7 Provincial Building Society of South Africa v Du Bois 1966 (3) SA 76 (W).
8 Decotex at 978D-F.
9 Ibid at 979E-980A.
in motion proceedings to decide finally ge nuine and fundamental disputes of
fact purely on the basis of probabilities disclosed in contradictory affidavits:
see Trust Bank van Afrika Bpk v Western Bank Bpk en Andere NNO 1978 (4)
SA 281 (A) at 294D -295A, 299H-300A.) Naturally, in exercising this di scretion
the Court should be guided to a large extent by the prospects of viva voce
evidence tipping the balance in favour of the applicant. Thus, if on the
affidavits the probabilites are evenly balanced, the Court would be more
inclined to allow the hear ing of oral evidence than if the balance were against
the applicant. And the more the scales are depressed against the applicant
the less likely the Court would be to exercise the discretion in his favour.
Indeed, I think that only in rare cases would the Court order the hearing of oral
evidence where the preponderance of probabilities on the affidavits favoured
the respondent. 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.’
[31] It is clear from Decotex, in seeking to expand the Badenhorst rule to avoid
and injustice to the applicant; the right to refer the matter to oral evidence is enjoyed
by the applicant who having been faced with a bona fide defence, where the scales
on a balanced of probabilities are evenly balanced, may seek to refer the matter for
oral evidence on a narrow dispute of facts. That is not the case in this matter. On the
contrary, it is the respondent who has sought to refer the matter to oral evidence on
the basis of the Badenhorst rule, which the applicant has strongly opposed. However,
given what is stated below it is unnecessary for this court to resolve this issue.
[32] Given that the respondent has admitted signing the acknowledgement of
[32] Given that the respondent has admitted signing the acknowledgement of
indebtedness coupled with an irrevocable undertaking to pay the applicant the
amount of R9 944 67 2.45 within 60 days, and this period having lapsed without any
payment being made by the respondent, I am satisfied that the applicant has
established that the respondent is prima facie indebted to the applicant.
[33] In its founding papers the applicant’ s case was largely premised on the
respondent’s inability to pay its debt as contemplated in s 345(1) of the Act which
provides that a company shall be deemed to be unable to pay its debts if upon a
demand having been served on the company it fails or negl ects to pay the sum
despite a period of three weeks having lapsed from the date of demand. It is
common cause that on 18 April 2024 the applicant served such demand via the
sheriff at the respondent’s registered address, and that three weeks have elapsed
since the service of this demand.
[34] Whilst the respondent does not dispute the demand, nor receipt thereof, it
does however dispute that the applicant is entitled to its liquidation as its liability to
the applicant is disputed on bona fide and reasonab le grounds. The respondent
submits that under the Badenhorst rule the application for its liquidation should not
be resorted to as a means to enforce the applicant’s claim where it is properly
disputed on bona fide and reasonable grounds.
[35] The onus r ests on the respondent to demonstrate on a balance of
probabilities that it claims that it had returned the defective goods to Nano Inks
constituted a bona fide defence on reasonable grounds because it has a genuine
defence. In Gap Merchant Recycling Rogers J set out the approach to be followed in
determining the reasonableness of a bona fide defence:
‘[20] The rule that winding -up proceedings should not be resorted to as a
means of enforcing payment of a debt the existence of which is bona fide
disputed o n reasonable grounds is part of the broader principle that the
court’s processes should not be abused. Liquidation proceedings are not
intended as a means of deciding claims which are genuinely and reasonably
disputed. The rule is generally known as the ‘Badenhorst rule’, after one of the
leading cases on the subject, Badenhorst v Northern Construction Enterprises
(Pty) Ltd 1956 (2) SA 346 (T) at 347H -348C. A distinction is thus drawn
between factual disputes relating to the respondent’s liability to the ap plicant
and disputes relating to the other requirements for liquidation. At the
and disputes relating to the other requirements for liquidation. At the
provisional stage, the other requirements must be satisfied on a balance of
probabilities with reference to the affidavits. In relation to the respondent’s
liability, on the ot her hand, the question is whether the applicant’s claim is
disputed on reasonable and bona fide grounds; a court may reach this
conclusion even though on a balance of probabilities (based on the papers)
the applicant’s claim has been made out ( Payslip Investment Holdings CC v
Y2K Tec Ltd 2001 (4) SA 781 (C) at 783G-I). However, where the applicant at
the provisional stage shows that the debt prima facie exists, the onus is on the
company to show that it is bona fide disputed on reasonable grounds ( Hülse-
Reutter & Another v HEG Consulting Enterprises (Pty) Ltd 1998 (2) SA 208 (C)
at 218D-219C).’
Settlement proposal by the respondent
[36] As stated above, the applicant places reliance on the provisions of s 345 of
the Act on the basis of the liquidation of the respondent. Firstly, having proved the
acknowledgment of debt and compliance with this provision at this stage of the
enquiry, a provisional order for the winding-up should normally be granted.10
[37] Secondly, whilst in its founding papers the applicant did not expressly place
reliance on the settlement proposal as a basis for the liquidation of the respondent,
in its heads of argument and certainly during argument, the app licant submitted that
the said proposal constituted an admissible act of insolvency as contemplated in
ABSA and ought to be admitted in these proceedings. In ABSA, the Supreme Court
of Appeal (“the SCA”) stated:
‘[13] It is true that, as a general rule, n egotiations between parties which are
undertaken with a view to a settlement of their disputes are privileged from
disclosure. This is regardless of whether or not the negotiations have been
stipulated to be without prejudice. However, there are exceptions to this rule.
One of these exceptions is that an offer made, even on a “without prejudice”
basis, is admissible in evidence as an act of insolvency. Where a party
therefore concedes insolvency as the respondent did in this case, public
policy dictates tha t such admission of insolvency should not be precluded
from sequestrating or winding -up proceedings, even if made on a privileged
from sequestrating or winding -up proceedings, even if made on a privileged
occasion. The reasons for the exception is that liquidation or insolvency
10 Decotex at 979B.
proceedings are a matter which by its very nature in volves the public interest.
A concursus creditorum is created and the trading public is protected from the
risk of further dealings with the person or company trading in insolvent
circumstances. It follows that an admission of such insolvency whether made
in confidence or otherwise cannot be considered privileged…’
[38] ABSA is authority for the principle that an act of insolvency contained in
communications between parties is admissible in liquidation proceedings even
though such act was contained in priv ileged communication. However, this does not
mean that all privileged communications are admissible in liquidation proceedings,
only those communications which contain acts of insolvency are admissible
regardless of whether they were made during privileged discussions or documents.
In determining whether the settlement proposal constituted an act of insolvency as
contemplated in s 8 of the Insolvency Act 24 of 1936 (“the Insolvency Act”), proper
and due regard must be had to the wording of the offer. Section 8(e) provides:
‘8. A debtor commits an act of insolvency -
…
(e) if he makes or offers to make any arrangement with any of his creditors
for releasing him wholly or partially from his debts;’
[39] What is critical for such offer to constitute an act o f insolvency is that the
company must seek to be released in part or wholly from its debt. An offer on its own
to pay the debt in instalments without the respondent being released in part or in
whole from its liability does not constitute an act of insolvency.11
[40] This brings me to question whether the settlement proposal by the respondent
meant that it sought to be released from its debt in whole or in part, for the proposal
to constitute an act of insolvency. For the proposal letter to constitute an a ct
insolvency it must stand or fall on its own terms. In determining whether such offers
11 Mackay v Cahi 192 (4) SA 193 (O)
should be accepted as an admission of liability the SCA in O'Shea NO v Van Zyl and
Others NNO said the following:12
‘[26] …As I have said, the court a quo treated thi s letter as confirmation of the
admissions made by Mr O’Shea. It sought and found further confirmation of
his authority to represent the Trust in relation to the content of the letter in
subsequent correspondence from Herold Gie, from statements in the
affidavits and from other aspects of his evidence before the Commission. But
this was beside the point. The letter was unambiguous and must stand or fall
as an act of insolvency on its own terms. It cannot be subject to interpretation
by reference to events w hich occurred or knowledge which was obtained
subsequent to its writing. The proper approach to determining whether a letter
contains a notice of inability to pay in terms of s 8(g) is to consider how it
would be understood by a reasonable person in the po sition of the creditor at
the time he receives it taking into account that creditor's knowledge of the
debtor’s circumstances: FirstRand Bank Ltd v Evans 2011 (4) SA 597 (KZD)
at paras 14 and 15.’
[41] Whilst O’Shea was concerned with an act of insolvency under s 8(g) I see no
reason why the same approach should not be adopted by in respect s 8(e). The
letter of proposal must stand and fall as an act of insolvency on its own terms. The
respondents’ letter is a proposal to settle its entire debt in instalme nts. No offer was
made by the respondent for its release in part or in whole from its debt. I am
therefore not convinced that the settlement proposal constituted an act of insolvency.
It therefore follows that the proposal remains privileged and therefore not admissible
in these proceedings.
[42] There is no evidence that the applicant ever accepted the settlement proposal
to constitute a binding agreement between the parties, which would on its own
constitute sufficient evidence of the respondent’s indebtedness to the applicant and
constitute sufficient evidence of the respondent’s indebtedness to the applicant and
not be privileged. There is also no evidence that the proposal was ever rejected nor
is there evidence that when they realised that the ink was defective the offer was
12 O'Shea NO v Van Zyl and Others NNO [2011] ZASCA 156; 2012 (1) SA 90 (SCA).
withdrawn. All that the applicant said about the proposal was that the respondent
had failed honour the proposal, however it was admissible as it constituted an act of
insolvency by the respondent.
Bona fide defence
[43] The main agreement under which the respondent’s liability to the applicant is
pursuant to is the factoring agreement between the a pplicant and Nano Inks. In
terms of this agreement the invoices of Nano Inks issued to the respondent in
respect of the goods supplied were sold to the applicant, and all rights and
obligations under these invoices enjoyed by Nano Inks were transferred by way of a
cession to the applicant as a form of security enjoyed by the applicant against Nano
Inks. This is the basis under which the applicant is entitled to receive payment from
the respondent. It is the payment or debt that arose from this cession that the
respondent acknowledged to be indebted to the applicant.
[44] The nature of the cession is such that it does not only transfer the rights and
obligations from Nano Inks to the applicant, but these are transferred to the applicant,
“warts and all.” Thi s effectively means that the right to receive payment from the
respondent by the applicant is coupled with any defences that the respondent may
be entitled to raise against any claim that Nano Inks may have against the
respondent, unless these defences hav e been specifically excluded by agreement
between the parties.
[45] The cession enjoyed by the applicant was further secured by the
acknowledgement of debt and irrevocable undertaking by the respondent to pay the
applicant the value of the four invoices. By all accounts, this is the basis of the
respondent’s indebtedness to the applicant. However, it is the events that follow the
acknowledgement that are disputed between the parties.
[46] As already stated above, the cession under the factoring agreement meant
that the applicant accepted responsibility for the sale of the goods to the respondent
that the applicant accepted responsibility for the sale of the goods to the respondent
and any associated dispute that may arise from said sale. However, this also meant
that any dispute that the respondent would have against the workmanship or the
quality of the goods delivered now lay with the applicant and not Nano Inks. The
respondent has sought to dispute its liability to the applicant on the basis that the ink
products were defective, and this was brought to the attention of the applicant or it s
representatives at the time by Nano Inks.
[47] In support of this argument, the respondent relies on two pieces of evidence.
Firstly, it relies on an email of 12 December 2023 between a Mr Alvin Pather (“Alvin”)
of Nano Inks and Mr Tony Little of the ap plicant. The respondent is copied in this
email correspondence. The said email from Nano Inks records that there appeared
to be an issue with the adhesion of the ink on the substrate. On the very same day
the applicant responds to Nano Inks and enquires as to how long the re-working was
anticipated to take. This email exchange suggests that as of 12 December 2023,
Nano Inks was in possession of some of the defective ink previously delivered to the
respondent hence they were making efforts to re -work it. How ever, this is
inconsistent with the first delivery note issued by the respondent to Nano Inks as it
suggests that Nano Inks was already reworking the inks two days before the first
delivery of the inks to Nano Inks on 14 December 2023.
[48] The respondent purportedly returned more ink to Nano Inks in February 2024.
The respondent submits that the returned ink was valued at R9 918 268.60
representing a substantial amount of the applicant’s claim. The applicant has
disputed the delivery notes or that it ever received the delivery notes and inks and
argues that its case against the respondent was based on an irrevocable,
unconditional acknowledgement of debt and undertaking to pay, which on its own is
a self-contained claim.
[49] The delivery notes are all addressed to Nano Inks for the specific attention of
“Alvin”. The respondent declared over 28 tons of ink was defective. On each delivery
note the person at Nano Inks to whom the delivery is directed appears to have
note the person at Nano Inks to whom the delivery is directed appears to have
written his name and signed each deliver y note, and that on the face of it suggests
strongly that the redeliveries were made. The respondent can go no further than to
annex the delivery notes to its papers. It is for the applicant and Nano Inks to refute
the content of the delivery notes by putt ing up an affidavit from Alvin claiming that he
did not receive the goods said to have been delivered or denying that the signature
on the documents is his. It is only at this point that the claim can be said to be self -
contained. Equally, it was open to t he applicant to file an affidavit by Nano Inks
disputing the receipt of such a large quantity of inks, which if it had been delivered
back to it would not have gone unnoticed. The failure of the applicant to obtain an
affidavit from Nano Inks refuting the content of the delivery notes gives credence to
the respondent’s allegation that the debt may be disputed on bona fide and
reasonable grounds.
[50] On the applicant’s version, despite there being an irrevocable undertaking on
the part of the respondent to pay this amount within 60 days, the respondent failed to
do so. Pursuant thereto and upon numerous demands on the part of the applicant,
on 31 January 2024 the respondent sent to the applicant a settlement proposal,
which I have found to be inadmissible. Curiously, annexed to the founding papers
together with the proposal is an undated email from the respondent which recorded
the postal address, telephone number, confirmation of the balance of the account as
of 30 September 2023, payment terms and the emai l address for the account. It is
unclear whether this email was part of the settlement proposal or when the
respondent actually sent it. However, what is more important is what is contained at
the bottom of the letter:
‘…
We confirm as follows:
1. We have received and accepted the goods in respect of the
abovementioned invoice.
2. The goods were received at the location as specified in the order, 1 […]
L[…] Road, Crossmoor, Chatsworth.
3. The goods in respect of the attached invoice have been purchased by
yourself as an outright sale and not on a consignment basis / suspensive sale.
4. We have had reasonable opportunity of examining the goods received
and are satisfied that the goods conform to the quality / workmanship that was
expected upon purchase / requesting the goods.’ (My emphasis.)
expected upon purchase / requesting the goods.’ (My emphasis.)
The above email was sent to the applicant by the respondents’ Financial Manager.
[51] Unfortunately, neither the applicant nor the respondent provi ded any clarity as
to whether this email forms part of the proposal or whether it was a separate
document that must be considered on its own merits without regard to the proposal.
If the email is part of the proposal, it may also be equally inadmissible wh ich would
mean that the only evidence left to determine the bona fide of the respondent’s
defence, would be the emails of 12 December 2023 between the applicant and Nano
Inks where the issue of the defective ink was raised and the delivery notes, which if
viewed collectively may be construed as a bona fide and reasonable defence by the
respondent.
[52] However, if the email is admissible and is read in conjunction with the email of
12 December 2023 and the delivery notes, the respondent’s defence is
unreasonable. This is because the picture these documents paint is that subsequent
to the issue of the defective ink having been raised between the applicant and Nano
Inks the respondent accepted that it had satisfied itself that it had examined the ink
and that it conforms with the requisite standard for its intended use. This
confirmation and its’ timing is important because it goes to the fitness of the ink for
the purpose it was intended. If assuming the email was issued at the same as the
proposal, the truthfulness of the delivery notes issued in February 2024 will therefore
be called into question.
[53] If the undated email from the respondent to the applicant formed part of the
proposal, it would be equally inadmissible. However, if it was a standalone doc ument,
it would be admissible evidence that the respondent was satisfied with the quality of
the ink and that it was suitable for its intended purpose. Such a crucial document
ought to have been properly explained in the applicant’s affidavit for this cour t to
place reliance on it. Unfortunately, I am unable to resolve the admissibility of this
place reliance on it. Unfortunately, I am unable to resolve the admissibility of this
email. This court should not be expected to wade through the annexures to
determine its status and where it fitted in the chronology of events. It is for the
applicant to explain the nature of this email and its importance in the chronology of
events.
[54] Given the uncertainty about the status of the email between the applicant and
respondent which records that the ink was suitable for use and whether the email
accompanied the settlement proposal I am unable to determine on the papers
whether the respondent returned the ink after the defect had been resolved or the
defects were never resolved and as such the respondent was entitled to return the
ink to the applican t as it purportedly did in February 2024. This issue can only be
resolved by reference to oral evidence.
Order
I accordingly make the following order:
1. The application is referred for the hearing of oral evidence on a date to
be fixed by the registrar, on the following issues:
(a) Was the ink supplied by Nano Inks defective?
(b) Did the respondent return any of the defective ink to Nano Inks?
(c) If so, in returning the defective ink, did the respondent discharge
its liability to the applicant?
(d) Did t he respondent send the correspondence in which it
confirmed that it had opportunity of examining the goods received and
were satisfied that the inks conformed to the quality / workmanship that
was expected upon purchase / requesting the inks, and if so, when?
2. The evidence shall be that of any witnesses whom the parties, or any
of them, may elect to call, subject however to what is provided in paragraph 3
below.
3. Save in the case of the applicant and respondent, whose evidence is
set out in their resp ective affidavits filed of record, neither party shall be
entitled to call any witness unless:
(a) it has served on the other party, at least 15 days before the date
appointed for the hearing (in the case of a witness to be called by the
applicant) and at least 10 days before such date (in the case of a
witness to be called by the respondent), a statement wherein the
evidence to be given in chief by such a witness is set out; or
(b) the court, at the hearing, permits such a person to be ca lled
despite the fact that no such statement has been so served in respect
of his or her evidence.
4. The parties may subpoena any person to give evidence at the hearing,
whether such a person has consented to furnish a statement or not.
5. The fact that a party has served a statement in terms of paragraph 3
above, or has subpoenaed a witness, shall not oblige such party to call the
witness concerned.
6. The provisions of Uniform rules 35, 36, 37 and 37A shall apply to the
hearing of oral evidence.
7. The costs of this application are reserved for determination by the court
hearing the oral evidence.
MAGWAZA AJ
Case information
Date of hearing: 14 & 28 February 2025
Date of judgment: 24 October 2025
For the applicant: Adv Newton
Instructed by Brink De Beer & Potgieter Attorneys
1st Floor Tygervalley Chambers One
27 Willie van Schoor Drive
c/o EVH Attorneys
Holwood Park, La Lucia Ridge
Umhlanga
nikhil@evhinc.co.za
For the respondent: Adv RBG Choudree SC
Instructed by Meryl Moonsamy Attorneys
2D Cupclay Place Clayfield
Phoenix
meryl@mm-attorneys.co.za