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[2012] ZAWCHC 396
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Dolphin Ridge Body Corporate v Express Model Trading 289 CC (3506/2010) [2012] ZAWCHC 396 (22 February 2012)
IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE
HIGH COURT, CAPETOWN)
CASE
NO.:3506/2010
DATE:
22 FEBRUARY 2012
In the matter
between
DOLPHIN RIDGE
BODY CORPORATE
............................................
Applicant
And
EXPRESS MODEL
TRADING 289 CC
.........................................
Respondent
JUDGMENT
DELIVERED ON 22 FEBRUARY 2012
DOLAMO. J
[1] The Applicant, a
body corporate of a development known as Dolphin Ridge, obtained an
interim order placing the Respondent in
provisional liquidation. This
is the extended return date of that rule nisi.
[2] The Respondent
is the registered owner of a number of sectional title units, in a
Sectional Title Scheme known as Dolphin Ridge,
situated in Otto Du
Plessis Drive, Big Bay, Western Cape. These properties are let by the
Respondent to tenants for income generation
purposes.
[3] The Applicant
alleged that the Respondent had, for a number of years, failed to pay
levies due by it to the body corporate,
which levies were due in
terms of Section 37(1) and 32 of the Sectional Titles Act 95 of 1986
(the "Sectional Title Act").
The allegations by the
Applicant were that the Respondent had in the past effectively
controlled the actions of the Applicant body
Corporate by controlling
the elections of trustees and their consequent actions. Throughout
that period the Respondent managed
to secure its annual voting rights
by making last minute payments of arrear levies at the Annual General
Meeting (AGM) of the Applicant,
the latest being on 18 November 2009.
At this last AGM the Respondent, however, failed to secure a majority
of the trustees as
the balance of the Applicant's property owners
secured a majority vote by mobilising members and conducting trustee
elections on
the applicable participation quota as provided for in
Section 32
of the
Sectional Titles Act, thus
effectively ousting the
Respondent from control of the Applicant body corporate.
[4] Since the last
payment referred to above the Respondent had failed to make any
further payments of the levies due. As a result
the Applicant caused
a notice in terms of
Section 69(1
)(a) of the Close Corporation Act
60 of 1984 to be served on the Respondent demanding payment of the
sum of R77 156-00, being the
arrear levies as at December 2009. The
Respondent failed to respond to this notice. Consequently the
Applicant launched the liquidation
proceedings on the grounds set out
in Section 69(1 )(a) of the Close Corporation Act, namely, that the
Respondent was deemed to
be unable to pay its debts. The Applicant
made further allegation of the Respondent's indebtedness to other
instances which included
debts owed to the Cape Town City Council. I
shall for purposes of this judgment restrict myself to the debts
relating to the levies
payable to the Applicant.
[5] The Respondent
initially opposed the application on a number of grounds. These were
that the deponent to the Applicant's affidavit
was not duly
authorised by the Applicant to bring the Application; that the amount
it claimed was not due and payable as the Respondent
had a bona fide
defence to it as well as a counterclaim against it (the alleged bona
fide defence being that the Applicant has
failed to perform its
duties and responsibilities in terms of the
Sectional Titles Act);
that
it was able to pay its debts in the ordinary course of business;
that it would be able to provide a guarantee for the payment of
any
obligations which the court may find due and payable to the
Applicant; that it had sufficient assets which it could liquidate,
if
necessary, to satisfy any indebtedness to the Applicant and which
process would not leave Respondent unable to continue operating
profitably ; and that the
Section 69(1)
notice was incorrect and
fatally flawed.
[6] A brief history
of the matter will serve to highlight the issues that stand to be
determined as well as which issues had already
been resolved, in
order to establish whether a final order for the liquidation of the
Respondent should be granted.
[7] The application
was first brought on an urgent basis and set down for hearing on the
25 February 2010. On that date the matter
was postponed to the 30
August 2010 and the Applicant ordered to file its replying papers by
the 09 April 2010. The Applicant was
furthermore ordered to file its
heads of argument by the 16 August 2010 while the Respondent was to
do so on the 20 August 2010.
It would appear that the matter was only
heard on 31 August 2010 when a provisional winding up order was
granted, returnable on
the 6 October 2010. On 6 October the matter
was postponed to 28 October 2010; thereafter to 21 April 2011. On 21
April 2011 the
matter was again postponed to 1 August 2011 when it
was finally argued. I need to point out that some of the defences
which were
originally raised by the Respondent were disposed of by
the Court which granted the provisional liquidation order. The issues
which
have already been determined relate to the Applicant's
authority to bring the winding-up application; whether the Applicant
was
a creditor of the Respondent; whether the latter was entitled to
withhold payment of its levies on the strength of the allegations
that it had a defence and a counterclaim, and the validity of the
Section 69(1)
notice.
[8] What remains to
be determined is whether the Respondent was unable to pay its debts
and whether it would be just and equitable
to grant a final order of
liquidation. A corollary to this issue is the locus standi of the
Applicant. This point came about as
a result of the fact that, after
the granting of the provisional winding-up order, the Respondent made
payment of the sum of R338
800-69. Does this payment bring to an end
the Applicant's locus standi to apply for the Respondent's winding-up
or has the Applicant,
this payment notwithstanding, retained its
locus standi and the right to press for a final liquidation order?
[9] The Applicant
maintains that the sum of R338 800-69 paid to it by third parties did
not have the effect of terminating the Applicant's
locus standi,
since that payment did not include interest and, secondly, because
the Applicant remained a contingent creditor as
contemplated in
Section 346(1
)(b) of the Companies Act, read with Section 66(1) of
the Close Corporation Act. For support of the latter contention the
Applicant
relied on the remarks of the authors of the Commentary on
the Companies Act: Blackman Jooste Everingham (Juta loose-leaf
publication)
Vol 3 at 14-152 and the decision of Trengove J in
Gillis-Mason Construction Co (PTY) Ltd v Overvaal Crushers (PTY) Ltd
1971(1)
SA 524 (T) at 528.
[10] As regards the
allegation that the Respondent was unable to pay its debts the
Applicant submitted that the Section 69(1) notice
complied with all
the formal requirements set out in Section 69(1 )(a) was valid and
that the Respondent's failure to pay, secure
or compound the debt
within the prescribed period of 21 days, justified the conclusion
that it was unable to pay its debts. The
Applicant went further and
alleged that it had indeed proved, to the satisfaction of the court,
that the Respondent was unable
to pay its debt. In this respect the
Applicant relied on the supplementary papers filed of record and, in
particular, the provisional
liquidator's report which indicated that
the Respondent's liabilities far exceeded its assets; and that the
Respondent had insufficient
income to pay for its monthly expenses
and debts as and when they fell due. The payment made on behalf of
the Respondent in October
2010, the Applicant argued, did not reflect
on the Respondent's ability to pay its debts as and when they fell
due simply because
such payment was made by third parties.
[11] The Applicant
went on to allege that the Respondent's history of repetitive
substantial defaults on payment of its levies and
other obligations
to the scheme, and its continuation to do so, have seriously
prejudiced all the other parties who own properties
in the scheme.
For this reason, the Applicant contended, it would be just and
equitable to wind up the Respondent.
[12] The Respondent
in turn disputed that it was unable to pay its debts nor that it
would be just and equitable to have it wound
up.
[13] While the
Respondent confirmed that it derived its income from letting the
units in the scheme, (the Respondent did not indicate
any other
source of revenue) it alleged to have demonstrated through its
financial records its ability to pay its debts when they
fell due in
the normal cause of business; that 25 of its units were unencumbered
and that in the circumstances those assets formed
a substantial
portion of its property and as such can be readily realised on the
open market, if necessary. This, according to
the argument, provided
evidence to refute a finding in terms of Sec 69 (1)(a), i.e. that the
Respondent was deemed to be unable
to pay its debts; that through its
financial statements and the subsequent payment made to the Applicant
it had assailed the legal
conclusions contemplated by Section 69
(1)(a); that no evidence was provided by the Applicant of the
allegation that the Respondent
had for a number of years failed to
pay levies when they fell due; that its ability to pay its debts
should be assessed by virtue
of its globular liabilities (i.e.
mortgage bond repayments utilities and levies) as opposed to the
payment of levies only.
[14] The Respondent
concluded by stating that the Applicant has failed to make out a case
for, among others, actual inability of
the Respondent to pay,
alternatively deemed inability to pay.
[15] I turn
attention first to the question whether the Applicant, after the
payment on behalf of the Respondent of the sum of R338
800-69 in
October 2010, after the provisional liquidation order was granted,
retained its locus standi in this proceedings. The
Applicant argued
that the payment aforesaid did not extinguish its locus standi. First
it argued that the payment did not include
interest which had
accumulated between September 2010 and October 2010 in the sum of R18
061-95. Secondly it based its argument
on the provisions of Section
346(1) (b) of the Companies Act read with Section 66(1) of Close
Corporation Act that a contingent
or prospective creditor of a
company may bring an application for its winding up. The Applicant
maintained that by reason of a
prospective or contingent claim it had
against the Respondent it had retained its locus standi to apply for
the latter's winding
up.
[16] In Holzman NO
and Another v Knights Engineering and Precision Works (Pty) Ltd
1979
(2) S.A 784
(W) at 787 (F-H) Nestadt J, relying on the judgment of
Trengrove J in the Gills-Mason case (supra) stated the following:
"To return for
a moment to TRENGROVE J's definition of a contingent or prospective
creditor, it will be seen that there are
two elements: a claim
against the company, which (1) arises from some existing vinculum
juris, and which (2) may in the future
ripen into an enforceable
debt. It is clear therefore that the claim of the "creditor"
need not be due or payable at
the date of the presentation of the
application for winding-up (Henochsberg The Companies Act 3rd ed at
606). But it is essential
that there actually exists a vinculum juris
with the company. It does not suffice that it will probably arise in
the future.
[17] In casu the
Applicant clearly meets the requirements set out by Nestadt J. I am
satisfied that there is an existing vinculum
juris which may in the
future ripen into an enforceable debt. On this basis the Applicant
has locus standi to proceed with this
application.
[18] Is the
Respondent unable to pay its debts?
[19] The Applicant
claimed that at the time when it caused the Section 69(1) notice to
be issued, the Respondent owed the sum of
R77 156-00 which has since
escalated. The Respondent, on the other hand alleged that the sum
claimed was not due and payable at
the time when Section 69 notice
was served. It also alleged to have a bona fide defence to the claim
as well as a valid counterclaim.
I shall, in dealing with the
Respondent's alleged bona fide and counter-claim simultaneously deal
with the Applicant's response
thereto. To complete the analysis I
shall also deal with the Respondent's contentions that the Applicant
has failed to make out
its case on the founding papers.
[20] Let me deal
with the Respondent's alleged bona fide defence(s), which are set out
hereinafter.
[21] That the amount
claimed was not due and payable: The Respondent argued that the
amount of R77 156-00 which was said to be due
and payable as levies
for December 2009 and January 2010 could not be correct because, as
on 23 December 2009, the January 2010
levies were not yet due and
payable. According to the Respondent, the only amount that would have
been due and payable at that
stage would have been the sum of R40
878-00 and not R77 156-00. The alleged overstatement according to the
Respondent invalidates
the claim and consequently the Section 69(1)
notice. The Applicant's response is that while it is correct that the
demand in present
case was only effective as a statutory demand for
the amount that was due and payable as at the date of the demand it
was not correct
to allege that the demand was not effective in
respect of that part of the debt that was due and payable when the
demand was made,
simply because an amount was included therein that
was not yet due and payable, that provided that the amount that was
due and
payable met the requirements of liquidity for the purposes of
Section 69(1) the notice would be valid.
[22] There is merit
in the Applicant's argument. This position is in fact supported by
the authorities. In Ebrahim (PTY) Ltd v Pakistan
Bus Services (PTY)
Ltd
1964 (4) SA 146
(N) at 146 - 147 (a decision of Wilter J which
the Applicant referred to) the following said:
"In its
affidavit the Respondent gives its version of the transaction which
gave rise to the alleged indebtedness and contends
that it does not
owe the applicant R1 700 although it admits unequivocally that it
does owe the applicant R1 300. Mr Kriek for
the respondent, correctly
conceded that in those circumstances it could not be said that the
existence or validity of the debt
was in dispute. If it were in
dispute, it might be an effective bar to the grant of the present
application. It is impossible,
on the papers before me, to decide
whether the amount of the debt is R1 700 or R1 300. It is sufficient
for applicant's purposes
that the respondent admits an indebtedness
of R1 300 and I need not pursue that question further. It is common
cause, moreover,
that on 27th May, 1964, the applicant served on the
respondent a letter which required the amount of R1 700 to be paid
within three
weeks from the date of receipt of that letter and that
the amount in fact has not been paid. Notwithstanding that it may be
that
the applicant in that letter demanded payment of an amount
greater than the amount in fact owed by the respondent, it is clear
that the deeming clause in sec 112 comes into operation, for once it
is conceded by the respondent that an amount of R1 300 was
owing, the
unalterable fact is that he failed to pay his indebtedness within the
time stipulated in sec 112.”
[23] From the above
quotation it is clear that the Respondent's defence on this point
cannot be sustained. The Section 69(1) notice
was valid in so far as
the amount which the Respondent admitted it owed. Its failure to pay,
secure or compound the debt to the
satisfaction of the Applicant
triggered the deeming provisions of the section: the Respondent was
rightfully deemed to be unable
to pay its debts. The application for
its winding up on this ground ought to succeed.
[24] The next
defence the Respondent raised was that the Applicant had failed to
carry out the duties and responsibilities imposed
on it by
Section 37
of the
Sectional Titles Act and
, consequently, the Respondent was
relieved from paying the levies imposed on it.
[25]
Section 37
reads as follows:
"(a) to
establish for administrative expenses a fund sufficient in the
opinion of the body corporate for the repair, up-keep,
control,
management and administration of the common property (including
reasonable provision for future maintenance and repairs),
for the
payment of rates and taxes and other local authority charges for the
supply of electric current, gas, water, fuel and sanitary
and other
services to the building or buildings and land, and any premiums of
insurance, and for the discharge of any duty or fulfilment
of any
other obligation of the body corporate;
(b) to require the
owners, whenever necessary, to make contributions to such fund for
the purposes of satisfying any claims against
the body corporate:
Provided that the body corporate shall require the owners of a
section or sections entitled to the right to
the exclusive use of a
part or parts of the common property, whether or not such right is
registered or conferred by rules made
under Sectional Titles Act,
1971 (Act No. 66 of 1971), to make such additional contribution to
the fund as is estimate necessary
to defray the costs of rates and
taxes, insurance and maintenance in respect of any such part or
parts, including the provision
of electricity and water, unless in
terms of rules the owners concerned are responsible for such costs;
(bA) to require from
a developer who is entitled to extend the scheme in terms of a right
reserved in section 25 (1), to make such
reasonable additional
contribution to the fund as may be necessary to defray the costs of
rates and taxes, insurance and maintenance
of the part or parts of
the common property affected by the reservation, including a
contribution for the provision of electricity
and water and other
expenses and costs in respect of and attributable to the relevant
part or parts;
(c) to determine
from time to time the amounts to be raised for the purposes
aforesaid;
(d) to raise the
amounts so determined by levying contributions on the owners in
proportion to the quotas of their respective sections;
(e) to open and
operate an account or accounts with a banking institution or a
building society;
(f) to insure the
building or buildings and keep it or them insured to the replacement
value thereof against fire and such other
risks as may be prescribed;
(g) to insure
against such other risks as the owners may by special resolution
determine;
(h) subject to the
provisions of section 48 and to the rights of the holder of any
sectional mortgage bond, forthwith to apply any
insurance money
received by it in respect of damage to the building or buildings, in
rebuilding and reinstating the building or
buildings in so far as
this may be effected;
(i) to pay premiums
on any policy of insurance effected by it;
(j) properly to
maintain the common property (including elevators) and to keep it in
a state of good and serviceable repair;
(k) to comply with
any notice or order by any competent authority requiring any repairs
to or work in respect of the relevant land
or building or buildings;
(I) to comply with
any reasonable request for the names and addresses of the persons who
are the trustees of the body corporate
in terms of the rules referred
to in section 35, or who are members of the body corporate;
(m) to notify the
registrar and the local authority concerned of its domicilium citandi
et executandi, which shall be its address
for service of any process;
(n) improvement
of land comprised in the common property;
(o) to keep in a
state of good and serviceable repair and properly maintain the plant,
machinery, fixtures and fittings used in
connection with the common
property and sections;
(p) subject to the
rights of the local authority concerned , to maintain and
repair(including renewal where reasonably necessary)
pipes, wires
cables and ducts existing on the land and capable of being used in
connection with the enjoyment of more than one
section or of the
common property or in favour of one section over the common property;
(q) on the written
request of any owner or registered mortgagee of a section, to produce
to such owner or mortgagee, or any person
authorized in writing by
such owner or mortgagee, the policy or policies of insurance effected
by the body corporate and the receipt
or receipts for the last
premium or premiums in respect thereof; and
(r) in general,
control, manage and administer the common property for the benefit of
all owners.
[26] The Applicant
refuted this defence as baseless. I agree with the Applicant that
there is nothing in Section 37 which creates
the impression that
levies can be withheld on the basis that the trustees of a Sectional
Title Scheme have failed to discharge
their duties in terms of this
Section. A dissatisfied Sectional Title holder has remedies available
to address any complaint it
may have. These were set out by Malan J,
in Body Corporate of Fish Eagle v Group Twelve Investments (Pty) Ltd
2003 (5) SA 414
(W) at 421 D-G as follows:
"The remedies
available to the respondent are the following: an application to
court for a mandatory interdict to compel the
trustees to perform the
duties imposed upon them by s 39(1) of the Sectional Titles Act, read
with the various sections (including,
in particular, s 37(1) of Act);
an application to court in terms of s 46 of the Sectional Titles Act
for the appointment of an
administrator to perform the duties imposed
upon the body corporate to the exclusion of the body corporate and
its trustees; the
convening of a special general meeting of the body
corporate as contemplated by Rule 13(e) of Annexure 8 to the
Sectional Titles Regulations, for
the purpose of removing the
trustees from office and electing other trustees to perform the
duties imposed upon the body corporate
by the Sectional Titles Act."
[27] In the same
judgment Malan J put to rest any notion of withholding levies as a
form of protest against the non- performance
of the trustees of a
body corporate. At page 419 G-H he stated that:
“
Section 37(2)
of the
Sectional Titles Act 95 of 1986
provides that any
contributions levied in terms of s 37(1) of the Act shall be due and
payable on the passing of a resolution to
that effect by the trustees
of the body corporate, and may be recovered by the body corporate by
action in any court of competent
jurisdiction from the persons who
were owners of units at the time when such contributions became due.”
[28] The
Respondent's counter-claim: the respondent alleged to have a
counter-claim against the Applicant's claim. It claimed to
have
lodged a claim in July 2009 for damages which it suffered at one of
its units in the Sectional Title Scheme. The Applicant
was
indemnified by its insurers for these damages in the sum of R29
076-45. According to the Respondent this amount should have
been
credited to the Respondent's account which the Applicant failed,
refused and/or neglected to do. The Applicant was again paid
the sum
of R13 482-10 in January 2010 by its insurers for a burst geyser in
one of the respondent's units in the sectional title
scheme. This
amount too was to have been credited to the Respondent's account and
which the Applicant failed to do. The Respondent
also claimed to have
suffered damages amounting to R12 620-00 made up R1 420, financial
obligations (no details supplied) and loss
of income of R11 200-00 as
a result of the Respondent's tenant giving notice to vacate the units
due to their poor state of repair
as a result of the Applicant's
failure to perform its duties in terms of Section 37(1) of the
Sectional Title Act. The Applicant
negated the Respondent's claim
that it had a counter-claim against the Applicant's claim. The
Applicant alleged that a "Developers
Account" was opened
when the Respondent was still in effective control of the affairs of
the Applicant and that the two insurance
amounts were paid therein.
In the absence of any counter-argument from the Respondent I am
satisfied that the Applicant's version
is correct and the
counter-claim argument therefore falls away.
[29] That the
Respondent was able to pay its debts:
The Applicant's
point of departure was that the Respondent was served with a valid
Section 69(1) notice and the sum referred to
in the demand was not
paid, secured or compounded within the 21 days required by the Act.
The inescapable conclusion therefore
was that the Respondent was
deemed to be unable to pay its debts. This point has already been
dealt with in paragraphs 22 and 23
supra and the conclusion arrived
at is that the deeming provisions of section 69(1 )(a) have come into
operation by the Respondent's
failure to respond.
[30] The Applicant
was furthermore of the view that it had gone beyond just a mere
reliance on the deeming provisions and proved
on a balance of
probabilities that the Respondent was unable to pay its debts as and
when they fell due. The Respondent vehemently
resisted these
allegations. It claimed to be able to pay its debts.
[31] The Applicant's
contention is that the Respondent is commercially insolvent. In ABSA
Bank Ltd v Rhebokskloof (PTY) Ltd and
Others
1993 (4) SA 436
(C) at
440 F-I Berman J held that a company is commercially insolvent in
the following circumstances:
"The concept of
commercial insolvency as a ground for winding up a company is
eminently practical and commercially sensible.
The primary question
which a court is called upon to answer in deciding whether or not a
company carrying on business should be
wound up as commercially
insolvent is whether or not it has liquid assets or readily
realisable assets available to meet its liabilities
as they fall due
to be met in the ordinary course of business and thereafter to be in
a position to carry a normal trading - in
other words, can the
company meet current demands on it and remain buoyant? It matters not
that the company's assets, fairly valued,
far exceed its liabilities:
once the court finds that it cannot do this, it follows that it is
entitled to, and should, hold that
the company is unable to pay its
debts within the meaning ofs 345(1)(c) as read with s 344 (f) of the
Companies Act 61 of 1973
and is accordingly liable to be wound up."
[32] I am of the
view that the financial position of the Respondent set out in the
Report by Bester, the provisional liquidator,
bar for the amounts
which it challenged and which were conceded to be incorrect by the
Applicant, clearly proves that the Respondent
is commercially
insolvent as set out by Berman J in the Rhebokskloof case supra. The
cash flow position of the Respondent, according
to this report
reveals that it is unable to meet its monthly financial commitments.
There is a monthly shortfall of R31 309.39.
I need not go into the
details of this monthly management accounts as they are fully set out
in the provisional liquidator's report.
This shortfall is a
substantial amount and from the Respondent's operations there is no
indication that it will be able to make
up for it since there is only
one source of income, namely the rental collected which is woefully
short of covering all the expenses.
[33] Finally, there
was a dispute regarding the value of the Respondent's units, because
there were conflicting estimates of the
value of these units the
provisional liquidator appointed an independent sworn appraiser who
valued the Respondent's properties
at R26 990 000.00. The Respondent
on the other hand produced a valuation by a sworn appraiser, Adval
Valuation Centre CC which
reflected the combined value of the
properties and the other immovable property belonging to the
Respondent and which is situated
in Parow at R40 500 000.00, the
Parow property being evaluable at R1 500 000.00. There is a
difference in the two evaluations of
approximately R12 010 000.00.
One would have expected the valuation to be close enough to make an
easy call on their accuracies.
The desperate differences require a
look at other factors which may assist in determining the true value
of these properties for
purposes of these proceedings. One such
factor is whether the properties are readily realisable. Although the
Applicant's reference
to the deed search for transfers of units in
the Dolphin Ridge scheme showing only three transfers in the period
between may not
be a true measure of how difficult it would be to
dispose of the units nevertheless deem it sufficient to go a long way
in providing
guidance. I agree with the Applicant that in the
depressed property market it may not be easy to realise these assets
for their
true market value. The failure to dispose of these units
for their true value and within a reasonable period of time will
leave
the Respondent unable to meet its financial obligations. The
Respondent in the circumstances is in my view commercially insolvent.
[34] I am therefore
satisfied that the Applicant has made out a case for a final order of
liquidation of the Respondent.
[35] The order I
make is the following:
1. A final order of
liquidation of the Respondent is hereby granted.
2. The Respondent is
placed under a final winding up order in the hands of the Master of
the High Court.
3. The costs of the
application shall be costs in the winding up of the Respondent's
estate.
DOLAMO, AJ