Summary of Judgment

1. Introduction

The matter concerned final liquidation proceedings on the extended return day of a rule nisi that had placed the respondent under provisional liquidation. The applicant, VIP Steel Construction CC, sought to have the provisional liquidation order made final on the basis that it was a creditor of the respondent, Made With Rural 1 (Pty) Ltd, in the amount of approximately R1,1 million.

The procedural history was that a rule nisi granting provisional liquidation was issued on 4 June 2024. The respondent delivered a notice of intention to oppose on 18 July 2024, followed by an answering affidavit on 31 July 2024. At the hearing, the applicant initially contended that the answering affidavit was out of time under the Uniform Rules of Court and required condonation, but it did not persist with that point. The court accordingly allowed the answering, replying, and supplementary answering affidavits into evidence.

The general subject matter of the dispute was whether the respondent was in fact the debtor liable for payment under an invoice relied upon by the applicant, and therefore whether the applicant had established the necessary standing as a creditor to seek the respondent’s liquidation.

2. Material Facts

The court treated it as common cause that the applicant carries on business constructing steel structures and that the amount claimed was reflected in a tax invoice relied upon in the founding papers. The liquidation application was also based on a letter of demand issued under section 345(1)(a)(i) of the Companies Act 61 of 1973, although the court ultimately found it unnecessary to determine the validity of that demand in light of its conclusion on the indebtedness issue.

On the respondent’s version, which the court considered in accordance with motion proceedings principles, the relevant undisputed factual background included the following. A separate company, Retail Market Farm (Pty) Ltd, had two directors, Ms Leeko Lynette Mokoene and Mr Ronnie McKenzie. The respondent, by contrast, had (and has) a single director, Ms Mokoene. Retail Market Farm had (and still has) a funding relationship with the National Empowerment Fund (NEF).

The sequence of events, as accepted for purposes of the court’s analysis, was that Ms Mokoene approached the applicant after observing it erecting a structure near land owned by Retail Market Farm, and requested a quotation for a steel structure to be erected on Retail Market Farm’s property. The applicant issued a quotation initially made out for Ms Mokoene, but she requested that it instead be issued to Retail Market Farm so that the name aligned with the NEF lender’s requirements. The applicant issued a second quotation addressed to Retail Market Farm, which Ms Mokoene accepted on behalf of Retail Market Farm. A deposit was paid on behalf of Retail Market Farm, after which the applicant proceeded with construction and completed the work before 24 May 2023. On that date, the applicant issued a tax invoice to Retail Market Farm for the outstanding balance, which remained unpaid.

The later developments were more contentious and formed the core of the dispute. The applicant’s version, which the respondent could not dispute as to the fact of the communication, was that during July 2023 Mr McKenzie instructed the applicant to amend the tax invoice so that the respondent was reflected as the party liable for payment. Neither party filed an affidavit from Mr McKenzie. The material document relied upon for this alleged change was a WhatsApp message dated 17 July 2023, sent to Ms Mokoene, attaching an invoice reflecting the respondent as liable, accompanied by text indicating that the change was made “as per conversation with Ronnie” and that he had said payment would be released. There was also a subsequent message asking for the insertion of “1” so that the name reflected Made With Rural 1 (Pty) Ltd.

In response, Ms Mokoene stated that Mr McKenzie did not act on behalf of the respondent, emphasising that he was not a director of the respondent, and that the respondent did not agree to pay Retail Market Farm’s debt. She also referred to the termination of her partnership relationship with Mr McKenzie. She produced a letter from Mr McKenzie dated 17 March 2024 addressed to the NEF, in which he stated that Retail Market Farm was indebted to the applicant, in the context of requesting financial assistance for Retail Market Farm. The court noted that this letter contradicted the proposition that the respondent had replaced Retail Market Farm as debtor. The court further accepted as part of the respondent’s factual narrative that the lending relationship with the NEF was between Retail Market Farm and the NEF, that Retail Market Farm owned the land on which the structure was built, and that Retail Market Farm was the entity enriched by the improvement.

The disputed factual issue, as identified by the court, was whether the communications and conduct relied upon by the applicant—particularly the WhatsApp exchange—meant that the respondent had substituted itself for Retail Market Farm as the debtor, and whether Ms Mokoene, being the only person capable of binding the respondent, had in fact done so.

3. Legal Issues

The central legal question was whether the applicant had established, on the papers, that the respondent was indebted to it in the claimed amount, thereby making the applicant a creditor entitled to seek liquidation relief against the respondent. The court characterised the matter as turning on a single dispositive point: whether the applicant proved that the respondent, and not Retail Market Farm, was the entity liable for payment.

The dispute primarily concerned the application of law to fact in motion proceedings. Because the relief sought on the return day was final in nature (final liquidation), the court was required to apply the Plascon-Evans approach to factual disputes on affidavit, namely whether the applicant could succeed on the respondent’s version (together with any facts admitted by the respondent) or whether the respondent’s version could be rejected as patently improbable.

4. Court’s Reasoning

The court began by addressing, and disposing of, the procedural contention about the timeliness of the answering affidavit. It noted that the answering affidavit was delivered in response to the rule nisi and that the respondent was entitled to provide reasons why the provisional order should not be confirmed on the return day. Since the applicant did not persist with the condonation argument, and insofar as it was necessary, the court allowed the answering, replying, and supplementary answering affidavits into evidence.

On the merits, the court held that the case turned entirely on whether the respondent was proved to be the debtor. Given the final nature of the order sought, the court applied the Plascon-Evans methodology. It therefore assessed whether, on the respondent’s version, the applicant could still succeed, or whether the respondent’s version was so improbable that it could be rejected.

The court found that the respondent provided a cogent explanation for why the respondent was not liable for the debt. Several factors were treated as significant in applying the Plascon-Evans test. First, it was common cause that Retail Market Farm was the original contracting party and debtor: the quotation was issued to Retail Market Farm, accepted on its behalf, and the original tax invoice was issued to Retail Market Farm. Second, it was also common cause that Mr McKenzie was not a director of the respondent, and thus could not bind the respondent; the only person who could bind the respondent was Ms Mokoene.

Against that background, the court examined whether Ms Mokoene had bound the respondent to assume the debt. It held that the WhatsApp response attributed to Ms Mokoene (even assuming she authored it) did not, in its terms, compel the inference that the respondent substituted itself as debtor. The court described the message as enigmatic and noted that it was not even purportedly written on behalf of the respondent. In the court’s view, the respondent’s version that Retail Market Farm remained the debtor could not be rejected as improbable.

The court also considered the broader commercial and contextual indicators relied upon in the respondent’s papers. It noted that Retail Market Farm owned the land on which the structure was erected and was the entity enriched by the improvement, and that the funding relationship with the NEF was between Retail Market Farm and the NEF. On the facts presented, the court considered it highly improbable that the respondent would assume another company’s debt, particularly where there was no indication that the respondent as a legal entity had resolved to be bound in place of Retail Market Farm. The court further observed that a letter from Mr McKenzie to the NEF dated 17 March 2024 expressly stated that Retail Market Farm was indebted to the applicant, which contradicted the applicant’s suggestion of a debtor substitution.

The court accepted that the applicant’s frustration was understandable, but it emphasised that the applicant proceeded against the respondent despite being aware that liability was denied, including through a letter from the respondent’s attorneys dated 15 April 2024 setting out the respondent’s position. The court held that this denial was not bald or unsubstantiated, and that the applicant had failed to prove, on the required approach to motion proceedings, that the respondent was indebted to it. Consequently, the applicant was not shown to be a creditor of the respondent and could not obtain final liquidation relief against it.

5. Outcome and Relief

The court discharged the rule nisi issued on 4 June 2024, with the result that the respondent was not placed in final liquidation. The applicant was ordered to pay the respondent’s costs. The court expressly indicated that the matter was uncomplicated and therefore did not order costs on scale C.

Cases Cited

Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A)

Legislation Cited

Companies Act 61 of 1973, section 345(1)(a)(i)

Rules of Court Cited

Uniform Rules of Court

Held

The court held that the applicant failed to prove, on the papers and applying the Plascon-Evans approach applicable to final relief in motion proceedings, that the respondent was indebted to the applicant. The evidence showed that Retail Market Farm (Pty) Ltd was the original debtor and there was no adequate basis to infer that the respondent substituted itself as debtor, particularly where the alleged instruction to change the invoice came from a person who could not bind the respondent and the WhatsApp exchange was insufficiently clear to establish assumption of liability by the respondent. The rule nisi was therefore discharged and the applicant was ordered to pay the respondent’s costs.

LEGAL PRINCIPLES

In proceedings for final relief on affidavit, where there is a material dispute of fact, the court applies the Plascon-Evans rule. The applicant must be able to obtain relief on the respondent’s version (together with any admitted facts), unless the respondent’s version is so implausible that it can be rejected as patently improbable on the papers.

In a liquidation application brought on the basis of indebtedness, the applicant must establish that it is a creditor of the respondent. Where the respondent raises a genuine and coherent factual basis for denying liability, and the applicant cannot demonstrate on the applicable motion-proceedings standard that the respondent is the debtor, liquidation relief cannot be granted.

A change in invoicing or an instruction by a person lacking authority to bind a company does not, without more, establish that the company has assumed liability for another entity’s debt. Where authority and substitution of debtor are contested, the court assesses whether there is a clear factual foundation demonstrating that the entity sought to be liquidated resolved or agreed to be bound, and ambiguous communications will not necessarily suffice to prove substitution on a balance of probabilities in motion proceedings.