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[2019] ZASCA 175
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Van Zyl & Another v Off the Shelf Investments Seventy Eight (Pty) Ltd (1323/2018) [2019] ZASCA 175 (2 December 2019)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not reportable
Case No: 1323/2018
In
the matter between:
THOMAS CHRISTOPHER VAN ZYL
NO
FIRST APPELLANT
LAILA ENVER MOTALA
NO
SECOND APPELLANT
and
OFF THE SHELF INVESTMENTS
SEVENTY EIGHT (PTY)
LIMITED
RESPONDENT
Neutral citation:
Van Zyl & another v Off the Shelf
Investments Seventy Eight (Pty) Ltd
(1323/2018)
[2019] ZASCA 175
(2 December 2019)
Coram:
Navsa, Mbha and Van der Merwe JJA and Tsoka and Koen AJJA
Heard:
21 November 2019
Delivered:
2 December 2019
Summary:
Companies – provisional liquidation – creditor relied
on a debt owed to it by respondent as reflected in the latter’s
financial statements – respondent disputed accuracy of its
financial statements – held that financial statements correctly
reflected debt owed to creditor – provisional liquidation
ordered.
ORDER
On appeal from:
Western Cape Division of the High Court, Cape
Town (Langa AJ sitting as court of first instance):
1
The appeal is upheld.
2
The order of the court a quo is set aside and replaced with the
following:
‘(a) The respondent is placed under a provisional order of
winding-up in the hands of the Master of the Western Cape Division
of
the High Court, Cape Town (high court).
(b) A rule
nisi
is issued calling upon the respondent and all
interested parties to show cause, if any, to the high court on 13
January 2020 at
10h00, as to why:
(i)
the respondent should not be
placed under a final order of winding-up; and
(ii)
the costs of this application
(including the costs of two counsel) should not be costs in the
winding-up of the respondent.
(c)Service of this order shall be effected:
by the sheriff of the high court or his lawful deputy on the
registered office of the respondent;
on the South African Revenue Services;
by publication in one edition each of the
Cape Times
and
Die
Burger
newspapers and in the
Government Gazette
;
by registered post on all known creditors of the respondent with
claims in excess of R25 000;
on the employees of the respondent in terms of s 346A(1)
(b)
of
Act 61 of 1973; and
(vi) on any registered trade union that the employees of the
respondent may belong to.’
JUDGMENT
Van der Merwe JA (Navsa and Mbha JJA and Tsoka and Koen AJJA
concurring)
[1]
The appellants are the liquidators of Cinmark Twelve
(Pty) Ltd
(Cinmark). In that capacity, the appellants applied in the Western
Cape Division of the High Court, Cape Town for the
provisional
liquidation of the respondent, Off The Shelf Investments Seventy
Eight (Pty) Ltd. The respondent opposed the application
and the court
a quo (Langa AJ) dismissed it with costs. It refused leave to appeal.
The appeal is before us with the leave of this
court. As I shall
show, the principal issue in the appeal is whether the respondent is
indebted to Cinmark.
[2]
Cinmark and the respondent are subsidiaries of Skipness
Société
Anonyme, a company registered in Luxembourg (Skipness). Mr Christian
Renè Dauriac is a director of
Skipness and the ‘controlling
mind’ thereof. During 2003 Skipness invested in wine farming in
South Africa through
the respondent, Cinmark and another of its
subsidiaries, Natanna (Pty) Ltd (Natanna).
[3]
Since 2003 Skipness held 88 per cent of the shares in
the respondent.
The remaining 12 per cent was held by the trustees of the Hopefull
Trust. The directors of the respondent were
Mr Dauriac, his daughter
and one of the trustees of the Hopefull Trust. The respondent
acquired a wine farm, portion 27 of the
farm Natte Valleij no 747
(the farm). The Marianne Wine Estate was established on the farm.
After April 2017, Skipness acquired
the shares of the Hopefull Trust
and the respondent became a wholly owned subsidiary of Skipness.
[4]
At all relevant times, Cinmark was wholly owned by Skipness
and its
directors were Mr Dauriac, his daughter and his son. Cinmark was
created exclusively to make and sell red wine. The reason
for this
was that the Department of Trade and Industry (the DTI) offered
incentives to attract investment in the production of
red wine in
South Africa. Natanna was involved in the farming activities, that is
the production of the grapes for winemaking.
It also produced white
wine. The grapes were grown on the farm and the wine was made in the
wine cellar on the farm. The development
of the wine cellar on the
farm is a central feature of the case and I shall shortly return
thereto.
[5]
The audited financial statements
of
the respondent for the year ended
31 December 2015, which also reflected the
corresponding figures for
the year ended 31 December 2014, were signed by its auditor and by or
on behalf of all three directors
of the respondent on 16 March 2016.
According to the financial statements the assets of the respondent
included ‘investment
properties’. Under ‘investment
properties’, the farm and improvements thereto were
listed. It contained
an entry ‘Improvements: Wine cellar –
Cinmark’, which indicated that during the period from 2004 to
2006 a wine
cellar had been developed on the farm at a total cost of
R11 907 092. The financial statements also reflected, as a long term
liability,
a loan of R11 907 092 owed by the respondent to Cinmark.
The following note accompanied the entry in respect of the loan:
‘
The
loan bears no interest as agreed upon by the parties and has no fixed
terms of repayment.’
This meant that the loan was
repayable within a reasonable time or on demand.
The corresponding figures
as at 31 December 2014 were exactly the
same. The
fons et origo
of the appellants’ application
for the provisional liquidation of the respondent was the failure of
the respondent to repay
this loan.
[6]
Item 9(1) of Schedule 5 to the
Companies Act 71 of 2008
provides that
until a date to be determined, Chapter 14 of the Companies Act 61 of
1973 (the 1973 Act) continues to apply ‘with
regard to the
winding-up and liquidation of companies under this Act’.
Chapter 14 of the 1973 Act comprises s 337 to s 426
thereof. In terms
of item 9(2) of Schedule 5, the provisions of s 344 of the 1973
Act, amongst other provisions of Chapter
14, do not, however, apply
to a solvent company. In
Boschpoort Ondernemings (Pty) Ltd v Absa
Bank Ltd
[2013] ZASCA 173
(SCA);
2014 (2) SA 518
(SCA), this
court held that the word ‘solvent’ in item 9(2) means
commercially solvent. In the result, commercially
insolvent companies
may only be wound up under Chapter 14 of the 1973 Act.
See also
Murray & others NNO v African Global Holdings (Pty)
Ltd & others
[2019] ZASCA 152
(22 November 2019) para 23.
[7]
On 22 March 2017 the sheriff of the court a quo delivered
a letter of
demand in terms of s 345(1)
(a)
(i) of the 1973 Act to the
respondent, requiring it to pay the amount of R11 907 092 to the
appellants. Despite the effluxion of
a period of three weeks
thereafter, the respondent did not make payment nor attempted to
secure payment to the satisfaction of
the appellants. It follows that
should it be held that the appellants established the aforesaid
liability of the respondent to
Cinmark, the respondent would be
deemed to be unable to pay its debts and the appellants would
therefore be entitled to a provisional
liquidation order.
[8]
The main theme of the answering affidavit on behalf of
the
respondent, deposed to by Mr Dauriac, was that the
entry in the respondent’s financial
statements
that reflected the liability to Cinmark was simply an
accounting fiction that had been made in error.
He said that it was
merely a book entry that did not reflect an actual loan or actual
flow of funds.
[9]
The first question is whether the appellants furnished
the required
proof of the debt that they relied upon. As they moved for a
provisional order of liquidation, they only had to provide
prima
facie proof thereof. However, as this
court explained in
Kalil v Decotex (Pty) Ltd &
another
[1987] ZASCA 156
;
[1988] 2 All SA 159
(A);
1988 (1) SA 943
(A) at 978-979,
where real and fundamental disputes arise in an opposed application
for provisional liquidation, the necessary
prima facie proof is
established on a balance of probabilities on all the affidavits. The
well-known ordinary rules in respect
of disputes of fact in motion
proceedings apply when a final liquidation order is sought on the
return date of the provisional
order.
[10]
The evidence established beyond doubt that Cinmark had expended the
precise
amount of R11 907 092 to develop the wine cellar on the farm.
Cinmark entered into a written contract with the DTI in terms of
which the DTI would provide incentives to it in respect of investment
in the production of red wine. In terms of the contract, the
incentives would be calculated on investments made in ‘qualifying
assets’ during the period from 1 March 2005 to 29
February
2008. The development of the wine cellar was completed by 29 February
2008. Cinmark, inter alia, claimed and received
incentives from the
DTI based on the investment of the amount of R11 907 092 in the
development of the wine cellar on the farm.
It received at least R3
261 120 in incentives.
[11]
One of the various suppliers used by Cinmark to develop the wine
cellar
was Rullier Agro Equipement SARL (Rullier), a company
registered in France. Rullier supplied winemaking equipment to
Cinmark. Cinmark,
however, did not make payment of what was due to
Rullier. A balance of € 203 308,43 remained outstanding. Rullier
sued Cinmark
in the Commercial Court of Bordeaux for payment of that
amount, interest thereon and costs. On 20 November 2009 that court
gave
judgment in favour of Rullier. Rullier successfully applied for
the recognition and enforcement of the judgment in South Africa.
Because it was unable to obtain satisfaction of the judgment, Cinmark
was finally liquidated by the Western Cape Division of the
High Court
at the instance of Rullier on 24 May 2016. The appellants therefore
seek payment from the respondent of the amount of
R11 907 092, in
order to distribute it amongst the creditors of Cinmark, including
Rullier.
[12]
It is clear that Skipness provided the amount of R11 907 092 to
Cinmark
to fund the development of the cellar as part of a total loan
of approximately R21 million. The mainstay
of
the respondent’s case (that the loan relied upon by Cinmark was
merely an erroneous book entry), was Mr Dauriac’s
evidence that
Skipness had advanced the amount of R11 907 092 on loan to the
respondent and not to Cinmark. In this regard he stated
that the
advance had been made to the respondent, ‘perhaps via Cinmark’
and ‘utilising Cinmark as a conduit’.
The court a quo,
however, rejected this contention and held that Skipness had loaned
that amount to Cinmark. This finding was rightly
not challenged
before us.
[13]
It is common cause that the wine cellar was permanently attached to
the
farm and thus acceded to the immovable property owned by the
respondent. However, because Cinmark was designated to claim
incentives
from the DTI based on the investment in the development of
the wine cellar, its financial statements had to reflect this wine
cellar
as an asset of Cinmark. By the same token, the wine cellar
could not be shown as an asset of the respondent in its financial
statements.
This was quite wrong, of course, and is perhaps best
illustrated by the manner in which the ‘investment’ was
reflected
in Cinmark’s financial statements during the relevant
period. They reflected the amount of R11 907 092 simply as
‘Buildings’
that formed part of Cinmark’s
non-current assets. But Cinmark owned no land or buildings and in
this manner it misrepresented
its financial affairs to the DTI and
others.
[14] When the
contract in respect of incentives between the DTI and Cinmark
had run
its course, there was no further need for Cinmark and Natanna to
operate separately. Therefore it was decided, so Mr Dauriac
said, to
‘restructure’ or ‘consolidate’ the businesses
of Cinmark and Natanna by combining them within
Natanna. On the
probabilities this also led to the adjustment of the financial
statements of the respondent, in order to reflect
the wine cellar as
part of its assets as well as the liability of the respondent to
Cinmark for the amount it had expended to develop
the wine cellar.
[15]
The respondent placed a lot of emphasis on the fact that it did not
advance
the amount of R11 907 092 to Cinmark and that no such funds
passed from the respondent to Cinmark. Regrettably, the court a quo
was persuaded by this oversimplification. As I have demonstrated, the
directors of the respondent, no doubt on the advice of its
auditors,
deliberately approved the financial statements of the respondent that
reflected these changes. These entries were perfectly
in accordance
with what actually happened, namely that the respondent obtained a
wine cellar that was paid for by Cinmark with
funds that it had
borrowed from Skipness. Clearly the directors of the respondent,
which included two of the directors of Cinmark,
resolved that the
position stated in these financial statements was true and correct.
Thus, there is no reason to doubt the accuracy
of the
respondent’s financial statements for
the year ended 31 December 2015
(nor for the year ended
31 December 2014).
[16]
The respondent owed the amount of R11 907 092 to Cinmark on loan
account.
That, in fact, is what the directors of the respondent
certified on 27 November 2014 under the signature of one of them, as
follows:
‘
CERTIFICATE
OF LOAN ACCOUNT
THE DIRECTORS of OFF THE SHELF
INVESTMENTS 78 (PTY) LTD certifies hereby that the amount of R11 907
092 was due to CINMARK TWELVE
(PTY) LTD on loan account by OFF THE
SHELF INVESTMENTS 78 (PTY) LTD.’
[17]
I find that the appellants established on a preponderance of
probabilities
that the respondent is liable to Cinmark in the amount
of R11 907 092. It has not in any way been suggested that the amount
is
not due and payable.
[18]
The respondent, however, had a further string to its bow. Mr Dauriac
said that ancillary to the aforesaid ‘restructuring’ or
‘consolidation’, the respondent accepted liability
for
the repayment of the loan owed by Cinmark to Skipness. This, he said,
resulted in the ‘netting off’ of the entries
in the books
of account, including the entry that reflected the liability of the
respondent to Cinmark.
[19]
On Mr Dauriac’s own evidence, however, this proposition was
nothing
other than an ex post facto reconstruction that was not based
on any facts. He said:
‘
99.5
As between Respondent and Cinmark, the “restructuring” or
“consolidation” referred
to above has achieved nothing
more than effecting a correction of these entries and to the extent
necessary, a setting-off of the
book entries made.
99.6
As I have indicated, the book
entries did not reflect the true position between the parties and
thus do not require any legal explanation.
99.7
To the extent that I may be
wrong in that regard and some legal construction is required, then
what has clearly happened is that
the Respondent has undertaken to
repay the loan directly to Skipness in return for which Skipness has
waived any claim against
Respondent [Cinmark].
99.8
It is clear that no written
agreement to this effect is required and this has been achieved by
the directors of the holding company
who are also directors of and/or
control the subsidiaries agreeing to no doubt instructing the
preparation of the financial statements
on this basis. As the
controlling mind of the holding company, I confirm
this.
.
. .
109.7
It appears that the restatement of the financial affairs of the
companies was agreed between their directors as
evidenced by the
basis upon which the financial statements themselves in particular
insofar as they have been signed by the directors.
.
. .
109.9
To extent that any underlying agreement is required in terms whereof
the liability to repay the funds advanced
by Skipness for the
improvement of the wine cellar is to be undertaken directly by the
Respondent to Skipness, such agreement may
be oral or even tacit, but
is clearly evidenced by the financial statements of Skipness and
those of the Respondent, which evidence
such agreement.
.
. .
110.2
Again, the agreement is evidenced by the financial statements
prepared at the behest of the directors, both
of the holding
company being the creditor and of the Respondent subsidiary, being
the debtor.’
[20]
Despite the fact that Mr Dauriac was said to be the controlling mind
of Skipness and was a director of its subsidiaries, he was clearly
unable to provide any factual evidence as to how, when and by
whom
such agreement had been reached. And he only produced draft financial
statements of the respondent for the subsequent years
ended 31
December 2016 and 31 December 2017, without offering an explanation
for the absence of approved financial statements.
[21]
Moreover, even if it is accepted that para 99.7 quoted above was
intended
to convey that in return for the respondent’s
undertaking to repay the loan owed by Cinmark to Skipness, Skipness
waived
any claim against Cinmark, this in any event did not involve
any agreement or decision by Cinmark to relinquish its claim against
the respondent. According to the aforesaid evidence, only Skipness
and the respondent would have been parties to the alleged
arrangement.
[22]
For the sake of completeness it should be mentioned that even if
Cinmark
relinquished its right to claim the amount of R11 907 092
from the respondent in accordance with what Mr Dauriac said, that
could
not avail the respondent. Such abandonment of rights would
clearly constitute a disposition within the meaning of
s 341(2) of the 1973 Act, which provides:
‘
Every
disposition of its property (including rights of action) by any
company being wound-up and unable to pay its debts made after
the
commencement of the winding-up, shall be void unless the Court
otherwise orders.’
In terms
of s 348 of the 1973 Act the date of commencement of the winding-up
of Cinmark was the date of presentation of that application
to the
court. That took place during November 2015. It follows that such
abandonment of rights by Cinmark would have been void.
[23]
In the result the court a quo should have issued an order of
provisional
liquidation of the respondent. The appellants’
costs of appeal, including the costs of two counsel, shall form part
of the
costs of the administration of the respondent.
[24]
The following order is issued:
1 The appeal is upheld.
2 The order of the court a quo is set aside and
replaced with the following:
‘(a) The respondent is placed under a
provisional order of winding-up in the hands of the Master
of the
Western Cape Division of the High Court, Cape Town (high court).
(b)
A rule
nisi
is issued calling upon the respondent and all
interested parties to show cause, if any, to the high court on 13
January 2020 at
10h00, as to why:
(i)
the respondent should not be placed under a final order of
winding-up; and
(ii) the costs of this application (including the costs
of two counsel) should not be costs in the winding-up of the
respondent.
(c)
Service of this order shall be effected:
(i) by the sheriff of the high court or his lawful
deputy on the registered office of the respondent;
(ii)
on the South African Revenue Services;
(iii) by publication in one edition each of the
Cape Times
and
Die Burger
newspapers and in the
Government Gazette
;
(iv)
by registered post on all known creditors of the respondent with
claims in excess of R25 000;
(v)
on the employees of the respondent in terms of s 346A(1)
(b)
of
Act 61 of 1973; and
(vi) on any registered trade union that the
employees of the respondent may belong to.’
C H G van der Merwe
Judge of Appeal
APPEARANCES
For Appellants:
A Kantor SC, with him B Wharton
Instructed by:
Rubensteins Attorneys, Cape Town
Lovius
Block Attorneys, Bloemfontein
For Respondent:
I C Bremridge SC
Instructed by:
Strauss Attorneys, Somerset West
Symington
De Kok Inc, Bloemfontein