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[2013] ZAWCHC 187
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ABSA Bank Ltd v Tamsui Empire Park 1 CC (11151/2013) [2013] ZAWCHC 187 (3 December 2013)
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Republic
of South Africa
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE HIGH COURT, CAPE TOWN)
Case
no: 11151/2013
DATE:
03 DECEMBER 2013
In
the matter between:
ABSA
BANK LTD
…...............................................................
Applicant
v
TAMSUI
EMPIRE PARK 1
CC
..............................................
Respondent
Court:
Judge J Cloete
Heard:
18 November 2013
Delivered:
3 December 2013
JUDGMENT
CLOETE
J:
Introduction
[1]
This is an opposed application for the provisional liquidation of the
respondent, a property owning entity.
[2]
It is common cause that the applicant is a creditor of the respondent
and that it accordingly has the necessary locus standi;
and that all
of the formal requirements for the winding up of the respondent as
contemplated in s 346(4A) of the Companies Act
61 of 1973 (‘the
old Act’) have been met.
[3]
There are two issues in dispute, namely: (a) whether the ground for
winding up relied upon by the applicant is competent; and
(b) whether
the debts relied upon by the applicant are due by the respondent. The
respondent also contends that even if both of
these issues are
determined in favour of the applicant, the court should nonetheless,
in the exercise of its residual discretion,
refuse a provisional
winding up order.
Background
[4]
The respondent admits that it is indebted to the applicant, as
principal debtor, for monies lent and advanced in terms of a
commercial property finance account bearing no 7
................
in the sum of R1 378 465.70. It also admits that it is
indebted to the applicant, as surety and co-principal debtor for the
obligations
of the JR Trust, for monies lent and advanced to the
Trust in terms of a commercial property finance account bearing no
7.............
in a maximum sum of R1 082 000. It is not in dispute
that both of these accounts are underpinned by written loan
agreements and
a written deed of suretyship. The respondent denies
however that either of the aforementioned sums are due by it to the
applicant.
[5]
On 29 May 2013 the applicant’s attorneys, on its instructions,
addressed two letters of demand to the respondent, the
first relating
to the principal debt and the second relating to the suretyship. Each
letter contained the averments that: (a) the
amounts reflected
therein were ‘due, owing and payable’ to the applicant by
the respondent; (b) unless payment was
received within 10 days of
delivery of the letter, summons would be issued; and (c) failure to
pay within 21 days from date of
delivery of the letter ‘…in
terms of
section 69
of the
Close Corporations Act, 69 of 1984
…
will result in you being deemed to be unable to pay your debts as
envisaged in terms of the aforesaid section and our client
reserves
the right to make application to the High Court for a liquidation
order’.
[6]
It is common cause that the applicant demanded payment from the
respondent in its capacity as surety of the amount of R3 693
112.77,
being the alleged total indebtedness of the JR Trust, and not the
maximum amount of R1 082 000 stipulated in the written
deed of
suretyship.
[7]
The letters were served by the sheriff on the respondent’s
registered address on 12 June 2013. The 21 day period for payment
expired on 3 July 2013. The respondent did not make payment as
demanded.
[8]
On 15 July 2013 the applicant launched the present application. The
sole ground for liquidation relied upon reads as follows:
’
11.
As will more fully appear from [the letters of demand] the
respondent’s attention was specifically directed to the
provisions
of
Section 69
of the
Close Corporations Act and
in
particular that failure to effect payment of the amounts due within a
period of 21 days from the date of delivery of [the letters]
will
result in it being deemed unable to pay its debts.
12.
It is accordingly submitted that the respondent is deemed unable to
pay its debts as provided for in the aforesaid
Section 69
, read with
section 68(c)
, of the
Close Corporations Act as
the respondent has
failed to effect payment of the said amounts and should accordingly
be wound up by this honourable court.’
[9]
There is no specific averment in the applicant’s founding
papers that the debts are due by the respondent, save for the
allegations incorporated by reference in the two letters
aforementioned; as well as two certificates of balance annexed to the
deponent’s affidavit, both of which contain the averment that
the amounts reflected therein are ‘due and payable’.
The
certificate of balance provided in support of the respondent’s
indebtedness as surety and co-principal debtor is defective,
in that
it: (a) refers interchangeably to the respondent as being the
principal debtor and the surety; and (b) reflects the amount
of the
principal debt and not the maximum amount for which the respondent
bound itself in terms of the written deed of suretyship.
[10]
The defences raised by the respondent in its answering affidavit are
that: (a) the applicant’s reliance on
s 69
read with s 68(c) of
the Close Corporations Act 69 of 1984 (‘the CC Act’) is
fatally flawed, given that s 68 was repealed
by the Companies Act 71
of 2008 (‘the new Act’); (b) the sum claimed from the
respondent as principal debtor has at
all relevant times not been
due, which is also confirmed in a letter dated 8 August 2013 from the
applicant’s Southern Cape
Retail and Business Banking
Commercial Business Division, reflecting that the account is paid
and up to date; (c) the respondent
is not indebted to the applicant
in terms of the suretyship for the amount claimed by it; and (d) the
deponent to the applicant’s
founding affidavit himself failed
to allege, in terms, that the amount relied upon under the suretyship
is due and payable, and
indeed failed to advance any grounds or
reasons as to why it is due by the respondent. It is common cause
that none of the written
agreements underpinning the respondent’s
liability were annexed to the founding papers; and that only certain
extracts were
annexed to the applicant’s replying affidavit,
and pertained solely to the principal debt.
[11]
In its replying affidavit the applicant, in response to these
defences, averred that: (a) the full amount of the principal
debt is
due because of the respondent’s default on payment in breach of
the loan agreement, as a consequence of which the
agreement ‘was
cancelled’; and (b) the respondent’s admission of
liability for the maximum sum of R1 082 000
under the suretyship,
coupled with the applicant’s allegation in the letter and
certificate of balance that the full amount
of the principal debt
owed (by the JR Trust) is due, is sufficient for the court to
conclude that the debt is due. The issue raised
by the respondent
relating to
s 69
of the
Close Corporations Act would
, the applicant
advised, be dealt with in argument.
[12]
The applicant annexed clauses 20.1 and 21.1.7 of the loan agreement
pertaining to the principal debt in support of its allegation
of
cancellation. Clause 20.1 provides that a default occurs where the
respondent breaches any payment obligation. Clause 21.1.7
stipulates
that in the event of default the applicant may, in addition to any
other rights it may have, cancel the agreement and
institute action
for damages. Also annexed are statements reflecting that the
respondent had defaulted on its payment obligations
during the period
December 2011 to April 2012 (i.e. more than a year before the letters
of demand were despatched) but also that,
of the arrears accumulated
as a result of the default of R117 524.20 the respondent had, by 19
May 2012, made payments totalling
R94 024.84, and that the respondent
had not again defaulted on its payments up to and including 7 March
2013.
[13]
Clause 21.1.7 of the loan agreement does not afford the applicant the
right to cancel without notice to the respondent. There
is no
indication in the applicant’s papers of a clear and unambiguous
act of cancellation, nor that clear and unequivocal
notice of the
cancellation was conveyed to the respondent. The respondent did not
have the opportunity to deal with the issue of
cancellation, given
that it was raised by the applicant for the first time in reply.
There is furthermore no indication that the
applicant’s claim
for payment of the principal debt is a damages claim: indeed, the
applicant relied on an extant agreement
for its claim based on the
principal debt, coupled with mora interest from date of demand; and
did not take issue with the contents
of the letter provided by its
own Southern Cape division to the respondent of 8 August 2013 in
which it was recorded that payments
on the account were up to date.
Unfortunately the applicant elected not to annex statements relating
to the account for the period
subsequent to 7 March 2013 and as such
it has not placed any direct evidence before the court as to whether
the account was in
arrears at May 2013 when the relevant letter of
demand was despatched.
The
ground for winding up relied upon by the applicant
[14]
During argument the applicant accepted that s 68 of the CC Act was
repealed by s 224(2) of the new Act which came into effect
on 1 May
2011. S 68(c) of the CC Act had provided that a close corporation may
be wound up by a court if the corporation is unable
to pay its debts.
[15]
S 69 of the CC Act, which was not repealed by the new Act, provides
that for the purposes of s 68(c) a corporation shall be
deemed to be
unable to pay its debts if, inter alia, a creditor ‘to whom the
corporation is indebted in a sum of not less
than two hundred rand
then due has served on the corporation, by delivering it at its
registered office, a demand requiring the
corporation to pay the sum
so due, and the corporation has for 21 days thereafter neglected to
pay the sum…’. S 69
is accordingly the deeming provision
for purposes of the now repealed s 68(c).
[16]
S 66(1) of the CC Act was amended by s 224(2) of the new Act and
provides that:
‘
The
laws mentioned or contemplated in Item 9 of Schedule 5 of [the new
Act] read with the changes required by the context, apply
to the
liquidation of a corporation in respect of any matter not
specifically provided for in this Part or in any other provision
of
this Act.’ (emphasis supplied)
[17]
Item 9 of Schedule 5 of the new Act states that, despite the repeal
of the old Act, Chapter 14 of the old Act (which contains
ss 337 to
426 and which deals with the winding up of companies) continues to
apply to the winding up and liquidation of companies
as if the old
Act had not been repealed, until the Minister determines otherwise by
notice in the Government Gazette. This is one
of the so-called
transitional provisions.
[18]
S 344(f) in Chapter 14 of the old Act stipulates that a company may
be wound up by the court if it is unable to pay its debts
as
described in s 345 of Chapter 14; and s 345 provides that a company
or body corporate shall be deemed to be unable to pay its
debts if,
inter alia, a creditor to whom the company is indebted in a sum of
not less than R100 then due has served a demand for
payment on the
company at its registered office and that, despite the elapse of
three weeks thereafter, payment has not been made.
[19]
S 68(c) read with s 69 of the CC Act, and s 344(f) read with s 345 of
the old Act, are thus substantially similar provisions.
Both s 69 of
the CC Act and s 345 of the old Act are deeming provisions, and are
dependent for their validity upon s 68(c) and
s 344(f) respectively.
They are commonly referred to as the statutory grounds for commercial
insolvency. The difference of course
is that s 68 has been repealed
while s 344 still exists by virtue of Item 9 of Schedule 5 of the new
Act.
[20]
The applicant’s argument is essentially that it does not matter
that it relied, in terms, on s 69 read with s 68(c) of
the CC Act as
the ground for the winding up of the respondent. It argues that s
66(1) of the CC Act expressly provides that Chapter
14 of the old Act
will apply to the winding up of close corporations. It contends that
s 69 of the CC Act was probably retained
by mistake, but whether s 69
or s 345 are applied to the present matter is immaterial, because the
applicant has made out a case
under either section.
[21]
S 66(1) of the CC Act makes it clear that Chapter 14 of the old Act
applies to the liquidation of a close corporation where
there is no
specific provision therefor in the CC Act. Put differently, if the CC
Act contains a specific provision relating to
the liquidation of a
close corporation, then that provision applies to the exclusion of
any section in the old Act. Conversely,
if there is no provision in
the CC Act then the relevant section or sections of the old Act are
the only sections that are applicable.
This includes the
aforementioned deeming provisions.
[22]
The question that arises is whether s 69 can still apply even though
s 68(c), which is the basis for its existence, has been
repealed.
[23]
There have been conflicting decisions on this issue, although it
seems to me that the debate has centred around whether the
deeming
provision in s 69 of the CC Act can be relied upon under the new
statutory scheme when considering the meaning of the expression
‘solvent company’. In HBT Construction and Plant Hire CC
v Uniplant Hire CC
2012 (5) SA 197
(FB) and Herman and Another v
Set-Mak Civils CC
2013 (1) SA 386
(FB) it was held that it was not
sufficient for an applicant, under the new statutory scheme, to rely
on s 69 only, and that it
was necessary for an applicant to go
further and to prove actual insolvency and/or that it was just and
equitable for the respondent
close corporation to be wound up.
[24]
However in FirstRand Bank Ltd v Bunker Hills Investments 499 CC 2012
JDR 0755 (GSJ), Scania Finance Southern Africa (Pty) Ltd
v Thomi-Gee
Road Carriers CC and Another
2013 (2) SA 439
(FB), Standard Bank of
South Africa Ltd v R-Bay Logistics CC
2013 (2) SA 295
(KZD) and
FirstRand Bank Ltd v Lodhi 5 Properties Investment CC
2013 (3) SA 212
(GNP) it was held that (notwithstanding the repeal of s 68(c) of the
CC Act), commercial insolvency remains a ground for the liquidation
of a close corporation on the basis that the expression ‘solvent
company’ in item 9(2) of Schedule 5 of the new Act
means an
entity that is neither factually nor commercially insolvent. In
Scania Finance the court held as follows at para [13]:
‘
What
the legislature has in effect brought about by the repeal of s 68 and
the amendment of s 66 (as set out above of the
Close Corporations
Act), is
that the grounds for winding-up “insolvent”
close corporations by order of court are now the same as the grounds
for
winding-up of “insolvent” companies. Professor
Delport submits that, if the application for the winding-up of an
“insolvent”
company were made on the basis of
s 344(f)
,
then the applicant may (obviously) rely on the deeming provisions of
s 345.
Regarding close corporations, the same ground will be used, to
wit,
s 344
(f) read with
s 69
of the
Close Corporations Act.
[14
]
As matters stand, to my mind, both
s 69
of the
Close Corporations
Act and
s 345
of the previous Act are still deeming provisions. I
will henceforth refer only to s 345, and that must be read to include
s 69
of the
Close Corporations Act. If
any of the statutory elements
are satisfied, for example the non-payment after being duly served
with a demand in terms of
s 345
, the company is deemed to be unable
to pay its debts and the company may, as in the previous disposition,
be wound up solely on
this ground. Such applicant is entitled to seek
a winding-up order on that basis.’
[25]
In Blackman: Commentary on the
Companies Act Vol
3 at 14-20, the
author writes:
‘ “
Deemed”
is sometimes used in statutes merely to put beyond doubt a
particular construction that might otherwise be uncertain.
But it is
also sometimes used to impose, for the purposes of the statute, an
artificial construction of a word or phrase that would
not otherwise
prevail, i.e. to create a statutory fiction: a “statutory
conclusion which peremptorily follows from the proof
of some basic
fact, independent of any connective reasoning” ’
(emphasis supplied) [referring to St Aubyn v Attorney-General
[1952]
AC 15
53, per Lord Radcliffe; Re Pardoo Nominees (Pty) Ltd
(1987) 11
ACLR 573
574 SC (Tas)]
[26]
In the present matter the specific ‘statutory fiction’
relied upon by the applicant is that the respondent is deemed
to be
unable to pay its debts in terms of
s 69
as read with s 68(c) of the
CC Act. That statutory fiction has been repealed and thus no longer
exists. In my view this situation
is distinguishable from those cases
where, despite the existence of an empowering statutory provision, an
official exercising that
power omitted to refer to that provision, or
referred to the incorrect provision of the self-same statute, and our
courts have
held that this does not affect the validity of the
exercise of that power: see for example Latib v The Administrator,
Transvaal
1969 (3) SA 186
(TPD) at 190B-191A. There is a difference
between an empowering provision and a deeming provision.
[27]
In S v Rosenthal
1980 (1) SA 65
(AD) at 75G Trollip JA said the
following:
‘
The
words “shall be deemed…” are a familiar and useful
expression often used in legislation in order to predicate
that a
certain subject-matter, eg a person, thing, situation or matter,
shall be regarded or accepted for the purposes of the statute
in
question as being of a particular, specified kind, whether or not the
subject-matter is ordinarily of that kind.’ (emphasis
supplied)
[28]
However, that is not the end of the matter, given that legislation
must be interpreted in such a way so as to avoid rendering
a
statutory provision meaningless or nugatory. In choosing to retain s
69 of the CC Act the legislature must have intended for
it to have
some purpose. The only manner in which this can be achieved is by
following the approach of the court in Scania Finance,
namely that, s
69 of the CC Act must, despite its reference to s 68, be construed as
referring to s 344(f) of the old Act. This
makes sense because, at
the same time that s 68(c) was repealed, s 66(1) was amended and the
transitional provisions of the new
Act came into force. The reference
in s 69 to s 68(c) can thus be construed as a reference to a repealed
provision which has nonetheless
been substantially re-enacted, in
relation to close corporations, by way of the transitional provisions
in the new Act read with
s 344(f) of the old Act.
[29]
It is accordingly my view that the applicant’s sole reliance on
s 69 as read with s 68(c) of the CC Act is a sufficient
ground for
the winding up of the respondent, provided however that the applicant
has shown that the debts are due.
Whether
the debts are due
[30]
S 345 of the old Act as well as s 69 of the CC Act make it clear that
the statutory demand is only competent if the debt relied
upon is
‘then due’. In other words, the demand itself does not
render the debt due; the only effect of failure to comply
with the
demand, if the debt is due, is that the deeming provision of an
inability to pay debts becomes the ground for winding
up.
[31]
For the reasons that follow I am not persuaded that the applicant has
established, in accordance with the test set out in Kalil
v Decotex
(Pty) Ltd and Another
1988 (1) SA 943
(AD) at 976C-I, that at the
time of despatch of its letters of demand the debts were in fact then
due.
[32]
First, a mere allegation that a debt is due does not of itself render
the debt due. Second, there is not a single averment
in the
applicant’s founding papers that the respondent was in default
of its payment obligations at that date, or indeed
that it was in
breach of any of the other provisions of the agreement relating to
the principal debt, which would or could have
resulted in the full
amount becoming due.
[33]
Third, it was only in reply that the applicant relied upon a breach
followed by a purported cancellation of the agreement.
The breach
relied upon had occurred over a year before despatch of the relevant
letter of demand. I have already dealt with the
absence of any
evidence to indicate that the applicant exercised an election to
cancel; any evidence of a clear and unambiguous
act of cancellation;
any evidence of a clear and unequivocal notice of cancellation being
conveyed to the respondent; any evidence
that at the date of demand
the respondent was in breach; and that, on the appellant’s own
version as reflected in its letter
dated 8 August 2013, no monies
were due by the respondent. Contrary to what the applicant belatedly
alleged about cancellation,
all of the indications are that,
notwithstanding the earlier default on payment, the applicant elected
not to cancel, because for
a year thereafter it took no steps against
the respondent and then ultimately relied on an extant agreement to
enforce payment.
[34]
Fourth, and insofar as the suretyship is concerned, the applicant has
failed to set out any basis at all for why the debt is
due. It
contented itself with a bare allegation to that effect, and has not
even averred that the JR Trust as principal debtor
is in default. The
certificate of balance is defective, and the best that the applicant
could proffer in reply was that the amount
admitted by the respondent
as owing by it ‘remains unpaid’.
Residual
discretion
[35]
Even if I am wrong in my findings relating to whether the debts are
due, I do not believe, in the exercise of the narrow discretion
which
I nonetheless retain, that the granting of a provisional winding up
order in the particular circumstances of this matter
will be just,
fair and equitable: see Commissioner, SARS v Hawker Aviation Services
Partnership
2005 (2) SA 283
(TPD) at para [74].
[36]
First, in respect of the principal debt, the undisputed evidence is
that the applicant holds security of R2 million for the
amount owed
of R1 378 465.70. The valuation produced by the respondent shows that
the immovable property over which the mortgage
bond is registered as
security for the applicant’s claim is worth R4.4 million. The
rental income easily covers the loan
repayments. The gross monthly
income is R40 027.62 inclusive of VAT of R5 603. Rates and taxes
amount to R6 897.05 and the monthly
instalment due to the applicant
is R23 566.82, leaving a net monthly residue to cover other running
costs of just under R4 000.
[37]
Second, in respect of the suretyship, the undisputed evidence is that
the applicant has a first mortgage bond registered over
the JR Trust
property situated at 96 Meade Street, George, as security for its
loan to the Trust. The valuation obtained by the
applicant itself in
December 2010 set the market value of the property, which was only
partly developed at that stage, at R7.9
million. A recent valuation
obtained by the respondent of the units which are not yet sold is R5
525 000, which more than covers
the principal debt owed by the Trust
of R3 693 112.77.
[38]
In both instances therefore there are readily realisable assets
available to settle the sums owing to the applicant.
Costs
[39]
In its opposing affidavit the respondent merely sought an order that
the application be dismissed with costs. In argument a
punitive costs
order was sought. I am not persuaded that a punitive costs order is
warranted. First, the applicant was not put
on notice when the
respondent filed its opposing affidavit that a punitive costs order
would be sought. Second, it was open to
the respondent to have
responded to the statutory demands served on it within the stipulated
period. It failed to do so. Had it
done so, the application may well
not have even been brought.
[40]
In the result I make the following order:
The
application is dismissed with costs.
J
I CLOETE