Brief Summary

Costs — Winding-up proceedings — Service of notices on close corporation — Applicants sought winding-up of Respondent for non-payment of judgment debt; Respondent contended it was unaware of debt and thus not liable for costs — Court held that service at registered address of Respondent constituted valid notice under Close Corporations Act, and Respondent liable for costs incurred prior to tender of payment — Winding-up application withdrawn with costs ordered against Respondent.

Comprehensive Summary

Summary of Judgment

Introduction

The matter concerned an application for costs arising from the settlement and withdrawal of winding-up proceedings that had been instituted against a close corporation. Although the parties were in agreement that the winding-up application itself should be withdrawn, they were not in agreement about who should bear the costs of those proceedings.

The applicants were Chavonnes Badenhorst St Clair Cooper N.O, Tirhani Sito De Sitos Mathebula N.O, and Cape Basic Products (Pty) Ltd (in liquidation). The respondent was Markert Fisheries (Oudtshoorn) CC, a close corporation.

Procedurally, the winding-up application was launched and served during August 2022. The respondent delivered a notice of intention to oppose and later filed an answering affidavit. During negotiations, the respondent made a tender in September 2022 to pay capital, interest and costs, but payment occurred only in December 2022 and was later confirmed by a supplementary affidavit in January 2023. By the time the matter came before the court, the winding-up application was to be withdrawn by agreement; the only live dispute was the proper costs order.

The general subject-matter of the dispute was therefore not the merits of liquidation as such, but rather whether the respondent should be ordered to pay the costs of winding-up proceedings which, according to the respondent, allegedly need not have been issued had it been made aware of the underlying judgment debt earlier and/or had notices been served differently.

Material Facts

The winding-up proceedings arose from the respondent’s non-payment of a judgment debt in the amount of R271 196.56 plus interest and costs, granted on 16 February 2022. The judgment debt originated in litigation in which certain payments made to the respondent by the third applicant (an insolvent company) were declared void in terms of section 341(2) of the Companies Act 61 of 1973.

It was common cause that the winding-up application was served by the sheriff at the respondent’s registered address, namely 8[…] C[…] Street, Oudtshoorn, on 24 August 2022. The sheriff’s return recorded that the occupants at that address were operating a guest house and stated that the address had previously been that of accountants (Acker & Meloney), who had since relocated.

It was also common cause that, on the same day, the winding-up application was served on an administrative manager at 4[…] V[…] Street, Oudtshoorn, which was described as the respondent’s principal place of business. The record further reflected that this was an address at which the applicants had previously caused a witness summons to be served on the respondent’s sole member during August 2021.

The respondent delivered a notice of intention to oppose on 31 August 2022, and filed its answering affidavit on 14 September 2022. The parties entered into settlement negotiations after service of the winding-up application. On 7 September 2022, the respondent sent an email making a tender to settle by paying the capital, interest, and costs; however, it was common cause that payment was only made on 21 December 2022. The respondent later communicated payment through a supplementary affidavit filed on 31 January 2023.

On the applicants’ version (accepted in material respects by the court for purposes of the costs dispute), statutory demand steps had been taken before the winding-up. A section 69 demand was sent to the respondent’s registered address on 6 July 2021, and again on 20 May 2022, and both demands went unanswered.

A key factual dispute concerned the respondent’s claim that it was unaware of the judgment debt or the basis for the claim (the “causa”) and that, had it known, it would have paid earlier and avoided the liquidation proceedings. The court rejected the suggestion that the respondent only became aware of the debt when the winding-up application was served in August 2022, noting, among other things, that the respondent’s attorneys had responded after receipt of a witness summons in 2021, denying indebtedness and indicating that any action would be defended.

Legal Issues

The central legal questions were directed at costs liability in withdrawn winding-up proceedings, and more specifically at whether the respondent’s conduct and the statutory framework justified a costs order against it.

The court was required to determine, as a matter of application of law to fact, whether statutory service requirements were satisfied so as to justify the institution of winding-up proceedings, and whether the respondent’s argument about alleged inadequate service or lack of awareness could justify depriving the applicants of their costs.

A related legal issue was whether the applicants were obliged to serve statutory demands or related notices not only at the respondent’s registered office/address but also at its principal place of business (as contended by the respondent). This required the court to interpret and apply provisions of the Close Corporations Act 69 of 1984 and the interaction between that Act and the winding-up provisions incorporated from the Companies Act 61 of 1973.

Finally, the court had to decide, as an evaluative costs inquiry, whether costs should be awarded for the whole period or only up to 7 September 2022, the date of the tender made during settlement negotiations.

Court’s Reasoning

The court treated the matter as one concerned with costs following the settlement and withdrawal of winding-up proceedings, and not as rescission proceedings in which the adequacy of service of earlier process (and the respondent’s knowledge at specific times) would typically be determinative in a different way. It emphasised that, on the respondent’s own stance up to 7 September 2022, the judgment debt had been admitted in the settlement posture, and that the respondent had in fact paid amounts including those relating to the declaratory order and its costs. The court considered it untenable for a party to settle and pay part of the liability and later contend, in subsequent proceedings about costs, that it was not liable for those costs at all.

In addressing the statutory framework, the court accepted (and recorded that it was not disputed) that certain statutory requirements must be complied with when seeking compulsory winding-up on the basis of inability to pay debts. The winding-up had been pursued on the basis of inability to pay as contemplated in sections 66 and 69 of the Close Corporations Act 69 of 1984, read with sections 344(f) and 345(1) of the Companies Act 61 of 1973, and/or alternatively on a just and equitable basis.

The court examined section 25 of the Close Corporations Act, which deems service effective if delivered at, or sent by registered post to, the corporation’s registered office or postal address. It also considered section 69, which deems a corporation unable to pay its debts where a creditor has served a demand by delivering it at the registered office and the corporation neglects to pay (or secure/compound) for 21 days thereafter. On the evidence before it, the court accepted that section 69 demands had been sent to the registered address and had not been answered.

In relation to the respondent’s argument that the applicants were obliged also to serve at the principal place of business, the court rejected that contention. It held that service at the registered address is the operative statutory trigger and a peremptory requirement for the deeming provision; however, it did not accept that there was a further requirement that service must additionally be effected at the principal place of business. The court supported this approach by reference to authority emphasising strict compliance with section 69 service at the registered office for the deeming provision to operate, including Van Zyl NO v Look Good Clothing CC 1996 (3) SA 523 (SE) and Afric Oil (Pty) Ltd v Ramadaan Investments CC 2004 (1) SA 35 (N), both of which dealt with failures to comply with the registered-office requirement and the consequences for reliance on the deeming provision.

The court further addressed the respondent’s reliance on the notion that notices should have been served at both the registered office and principal place of business. It referred to Sibakhulu Construction v Wedgewood Village Golf Country Estate 2013 (1) SA 191, which contained observations (in the context of the 2008 Companies Act) about the purpose of a registered office as an address at which third parties can transact effectively with the company, and about registered offices not being merely convenient third-party addresses. However, the court considered that, while the 2008 Act’s objectives encourage alignment of a registered address with the actual administrative office, the liquidation procedure in issue remained governed by the Companies Act 61 of 1973, with the consequence that the dual jurisdiction principle remained applicable. Relying on Van der Merwe v Duraline (Pty) Ltd (7344/2013) [2013] ZAWCHC 213 (23 August 2013), the court held that, as long as liquidation is governed by the 1973 Act, a creditor may proceed in a court with jurisdiction based on the main/principal place of business even where the registered office is elsewhere. From this, the court concluded that there was no obligation to serve the statutory notices at both the registered office and the principal place of business.

On the question whether costs should be limited to those incurred up to the date of the tender (7 September 2022), the court considered the tender to carry no weight in the costs adjudication because the matter was not settled on that date and proceeded thereafter, including the filing of the answering affidavit and the later supplementary affidavit indicating payment only in December 2022. The court treated the litigation as still alive well after the tender date.

Finally, applying the general costs principle that costs follow success unless there are good grounds to depart from it, the court assessed who was the successful party. Although the respondent argued that it was successful because the applicants withdrew the winding-up application, the court held that the applicants were the successful party because the winding-up application achieved the practical result of obtaining payment of the monies claimed, including costs associated with the prior declaratory relief. Seeing no basis to deviate from the usual approach, the court concluded that the respondent should bear the costs.

Outcome and Relief

The winding-up application was withdrawn by agreement between the parties.

The court ordered that the respondent must pay the costs of the winding-up application. No limitation of costs to the period ending 7 September 2022 was ordered.

Cases Cited

Van Zyl NO v Look Good Clothing CC 1996 (3) SA 523 (SE)

Afric Oil (Pty) Ltd v Ramadaan Investments CC 2004 (1) SA 35 (N)

Sibakhulu Construction v Wedgewood Village Golf Country Estate 2013 (1) SA 191

Van der Merwe v Duraline (Pty) Ltd (7344/2013) [2013] ZAWCHC 213 (23 August 2013)

Legislation Cited

Close Corporations Act 69 of 1984, sections 25, 66, 68(c), and 69.

Companies Act 61 of 1973, sections 341(2), 344(f), and 345(1).

Companies Act 71 of 2008, section 23(3).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that, for purposes of the statutory deeming provisions relating to inability to pay debts, service at the registered office/address of a close corporation is a peremptory statutory trigger, and the creditor is not additionally required to serve statutory demands at the corporation’s principal place of business.

The court further held that the respondent’s contention that it was unaware of the debt until service of the winding-up papers was not factually sustainable on the material before the court, including prior correspondence in which indebtedness was denied and threatened litigation was anticipated.

On costs, the court held that the applicants were the successful party because the proceedings resulted in payment of the amounts due (including costs relating to the underlying declaratory relief), and there was no basis to depart from the general rule that costs follow success. The respondent was therefore liable for the costs of the winding-up application, notwithstanding that the winding-up application itself was withdrawn.

LEGAL PRINCIPLES

The judgment applied the principle that statutory deeming provisions for inability to pay debts in the winding-up context require strict compliance with the service requirements prescribed by the relevant statute, particularly service at the registered office as contemplated in the Close Corporations Act.

It applied the principle (in the liquidation context still governed by the Companies Act 61 of 1973) that the dual jurisdiction principle remains applicable, with the consequence that there is no general rule requiring duplication of statutory service at both the registered office and principal place of business in order to found winding-up proceedings.

It reaffirmed the general costs principle that costs follow success unless there are good grounds for deviation, and that a party may be treated as successful in costs where proceedings are withdrawn after achieving their effective purpose, namely securing payment of the debt that grounded the proceedings.

Cooper N.O and Others v Markert Fisheries (Oudtshoorn) CC (13845/2022) [2023] ZAWCHC 56; 2023 (5) SA 212 (WCC) (9 March 2023)