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Introduction
[1] This is an application for a final order for the winding-up of the respondent,
alternatively the provisional winding up of the respondent, on the basis that
the respondent is unable to pay its debts.
[2] The respondent opposes the application, disputing both the existence of
the debt and the due date of the alleged debt.
Background
[3] The applicant and the respondent are both private companies involved in
construction and mining projects. They are part of larger corporate groups (the
Lutzkie Group and the Basonani Group, respectively).
[4] It is common cause between the parties that the applicant delivered topsoil
to the respondent for use in a project that was later cancelled.
[5] The applicant alleges a verbal agreement for the sale of topsoil on account,
with payment due 30 days after invoice. The respondent disputes this,
claiming a verbal consignment stock arrangement where payment would only
become due as and when the topsoil was sold to third parties, with payment
within 60 days of each sale.
[6] The respondent contended that this arrangement was confirmed in
correspondence and by conduct. The respondent claims to have made
payments in accordance with it.
[7] In May 2024, the applicant demanded payment of R3,297,366.68, later
increasing it to R3,928,794.40, for topsoil delivered and transport costs. The
respondent replied, reaffirming the consignment arrangement and denying
that the full amount was due, offering to return unsold topsoil if the applicant
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was dissatisfied. Sporadic payments were made, the respondent contending
this was in line with sales to third parties.
[8] The applicant issued a statutory demand under section 345(1) of the
Companies Act, 61 of 1973, alleging the respondent's inability to pay its debts.
The respondent continued to dispute the debt and contending that no amount
was presently due under the consignment arrangement.
Evaluation
[9] The respondent raises non-compliance with section 346(4A), specifically
regarding service on employees and trade unions, and the adequacy of the
service affidavit. The respondent relies on the judgment of the Northwest
Division of Barnard N.O and Another v Dikopane Project Management CC1
emphasizing strict compliance and the need for affidavits from the actual
persons effecting service.
[10] The court has a discretion to condone non-compliance in exceptional
circumstances, especially when granting a provisional winding-up order.2
However, in these proceedings it is my considered view that the respondent's
challenge is not frivolous, and it raises a real procedural issue.
[11] The applicant alleges a verbal agreement for the sale of topsoil on
account, with payment due 30 days after invoice. The applicant relies on
invoices, statements, and a demand for payment, asserting that the
respondent is in arrears and that the arrangement was a standard sale with
deferred payment.
[12] The respondent disputes this, claiming a verbal consignment stock
arrangement. According to the respondent payment would only become due
as and when the topsoil was sold to third parties, with payment within 60 days
of each sale. This is supported by contemporaneous correspondence and
conduct, including emails and letters confirming the arrangement and the
applicant's acknowledgment of the payment mechanism.
[13] In my view, the respondent's version is detailed, consistent, and
[13] In my view, the respondent's version is detailed, consistent, and
supported by documentary evidence. The applicant's attempt to characterize
the arrangement as a mere indulgence is not clearly supported by the facts.
The dispute is not a mere afterthought but has been consistently maintained.
1 [2024] ZANWHC 87
2 EB Steam Company (Pty) Ltd v Eskom Holdings Soc Ltd (979/2012) [2013] ZASCA 167 at para 25
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[14] The respondent denies insolvency, citing a net profit of R6,596,521 and
fixed assets of R940,000 for 2024/2025. The respondent argues that net
profits and fixed assets demonstrate solvency and that no debt is presently
due.
[15] The applicant contends that net profits and fixed assets alone do not
demonstrate solvency, and that the respondent has not disclosed its current
liabilities or provided objective evidence of solvency.
[16] In my view, the respondent's evidence of solvency is sufficient to raise a
real dispute, especially given the nature of the underlying debt and the
ongoing business operations.
[17] It is trite law, as established in Badenhorst v Northern Construction
Enterprises (Pty) Ltd 3, that winding -up proceedings are not to be used as a
means to enforce payment of a debt which is bona fide disputed on reasonable
grounds. Where such a dispute exists, the application must be dismissed. This
principle is commonly referred to as the "Badenhorst rule".
[18] The Badenhorst rule was reaffirmed by the Supreme Court of Appeal in
Exploitatie-en Beleggingsmaatschappij Argonauten II BV v Honig 4 where the
court stated the following:
“This is a convenient stage to raise the issue of the respondent's alleged
indebtedness to the appellants. Sequestration proceedings are designed to bring
about a concursus creditorem to ensure an equal distribution between creditors
and are inappropriate to resolve a dispute as to the existence or otherwise of a
debt. Consequently, where there is a genuine and bona fide dispute as to
whether a respondent in sequestration proceedings is indebted to the applicant
(as in this case), the court should as a general rule dismiss the application. This
is the so -called ‘Badenhorst rule’. Named after the decision i n Badenhorst v
3 1956 (2) SA 346 (T)
4 [2012] 2 All SA 22 (SCA) at para [11]
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Northern Construction Enterprise Ltd, this principle was reaffirmed by the court
in Khalil v Decotex (Pty) Ltd & Another5 and applies equally in both winding up
and sequestration proceedings. It is a rule of long standing and good sense and
it is not likely to be departed from in circumstances such as the present. On this
basis alone, the a ppellants may well face grave difficulty in obtaining a
sequestration order against the respondent, as their counsel correctly
conceded.”
[19] The respondent has provided a detailed and consistent version that the
parties concluded a verbal consignment stock agreement, in terms of which
payment would only become due as and when the topsoil was sold to third
parties.
[20] Further, the respondent has made payments in accordance with this
arrangement and has invited the applicant to collect the topsoil if dissatisfied
with the terms.
[21] In my view, t he dispute as to the existence and due date of the debt is
genuine, long-standing, and not raised as an afterthought.
[22] In terms of the Plascon Evans 6 rule, in motion proceedings the court
generally accepts the version of the respondent when a genuine dispute of facts
arises. The court will only reject the respondent’s version if it is farfetched,
clearly untenable, or obviously false on the papers. I cannot f ind the
respondent’s version in this case to be either farfetched, clearly untenable or
false.
[23] In my view, the winding-up application is being used as a debt collection
tool in circumstances where the debt is genuinely disputed.
5 1988(1) SA 943 (A) at 980B
6 Plascon-Evans Paints (TVL)Ltd v Van Riebeck Paints (Pty) Ltd [1984] ZASCA 51; [1984] 2 ALL SA 366(A)