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[2012] ZAWCHC 231
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Standard Bank of South Africa v 324 Church Street Investments 1 CC (15230/2012) [2012] ZAWCHC 231 (4 December 2012)
REPORTABLE JUDGMENT
Republic
of South Africa
IN THE
HIGH COURT OF SOUTH AFRICA
(CAPE
OF GOOD HOPE PROVINCIAL DIVISION)
Case No: 2819/2012
In the matter between
THE STANDARD BANK OF SOUTH AFR1CAL
LIMITED
.................
Applicant
and
324
CHURCH STREET INVESTMENTS 1 CC
.......................................................
First
Respondent
Counsel
for the Plaintiff:
Adv.
R Howie
Adv. M Adhikari
Instructing
Attorneys:
Bowman
Gilfillan
Counsel
for Defendant:
Mr K Titus (Attorney)
Instructing
Attorneys
Date
of Hearing:
29 October 2012
Date
of Judgment
4 December 2012
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE TOWN)
Case
No:15230/2012
In the matter between:
THE
STANDARD BANK OF
SOUTH
AFRICA
Applicant
versus
324 CHURCH STREET INVESTMENTS 1
CC
Respondent
JUDGMENT: 4 DECEMBER 2012
Mansingh, AJ
[1] This
is an application for the provisional liquidation of the respondent.
[2] Tire
application docs not fall to be deeded essentially on the
respondent's
Version. Plascon-Evans Paints v Van Riebeeck Paints
1984
(3) SA 620
(A) 643H-I. Instead, applicant ts only required to make
out a
prima facie
case.
Kalif v Decotex (Pty) Ltd and Another
1988 (1) SA 943
{A) 978D-979C
THE APPLICANT'S CLAIH*:
[3] The applicant's claim is:
3.1.
In
February 2008, the parties concluded a written finance loan agreement
in terms of which the applicant lent R7 million to the
respondent,
[“the agreement”) to assist in financing its acquisition
of Erf 95960, Cape Town-19 Hope Street. Cape Town,
("|he
property').
3.2.
Its terms included a non-variation clause.
3.3
The agreement expired on 30 November 2011.
3.4
All amounts awing there under are due and payable.
3.5.
The respondent has failed to make payment since 5 March 2012.
3.6 As at 12 July 2012. the respondent owed the applicant R6 154
076.34.
THE RESPONDENT'S DEFENCES:
[4] The Respondent's defences are:
4 1. That the applicant “promised" lo advance development
funding to it. This leg fails. The loan agreement contains
a
non-variation clause No written amendment in this respect was
effected to the agreement. Further, respondent failed to allege
when,
where and between whom it was so agreed and whether such person had
the requisite authority. "This defence is not borne
out by the
terms of the agreement, not the objective facts.
4 2 Plea for lime and Valuation of R300 00 00 Respondent seeks to
rely on a valuation dated 10 January 5012, in which the properly
is
valued at R8 300 000, 00 Francis Edward Gormley. ("Gormley"),
placed the valuation of the properties owned by Green
Willows
Properties 153 (Pty) Ltd In the matter Standard Bank Ltd v Green
Willows Properties 153 (Pty) Ltd the related matter between
R60 and
R70 million in the sequestration application by Irish Bank
Resolution Corporal ion Ltd for Gormley's sequestration (case no.
6747/2012). He then alleged in the Green Willows master that
they are
actually worth R113 500, 00. This valuation of R113 500, 00 was
rejected in the Green Willows matter and the parties are
referred to
that judgment. Given Gormley's own view of the decreased value of the
Gneen Willows properties the same view is attributable
lo the
respondent's property which is situated on the same street and in the
same precinct as the Green Willows properties. Further,
the property
was valued by Ms Natalie Ginsberg during June 2011 at R3 800 000,00,
a value which she reviewed and confirmed On 6
July 2012. The fair
value is between R3 251 050. 00 (2010 valuation) and R3 600 000 00
(2011 valuation confirmed in 2012.) Given
the fair value and
respondent has been unable to find a purchaser for 17 months, even if
given lime to find purchaser, responded
would not be able to use the
net proceeds of the sale to even pay the applicant's claim.
It is trite that a creditor who cannot obtain payment of his debt ts
entitled to a winding-up order, and is not bound to give time
to the
debtor. Rosenbach & Co. (Pty} Ltd v Singh's Bazaars {Pty) Ltd
1962 (4) SA 593
(D) at 597G. Where a respondent does not have assets
that can be readily sold in a reasonable time to pay a large debt
without
closure of the business, then the respondent is commercially
insolent and should be wound up. Irvin & Johnson Ltd v Oelofee
Fisheries Ltd
1954 (1) SA 231
(E) at 238B and 23 9 A.
4.3. Respondent claims it can not be deemed unable to pay its debts:
It is common cause that in March 2012. the applicant delivered
a
statutory demand to (he respondent in terms of s69 (1)(a) (a) the
Close Corporations act 69 of 1934 ("the Act"}. Responded
fails to pay applicant's claim or to compound it to the satisfaction
of the applicant.
Respondents security is Insufficient based on Gormley's confession on
the diminished value and the independent valuation conducted.
Further, respondent Failed
'jo
secure the whole
debt within the 21 day period Accordingly. the respondent is deemed
unable to pay its debts.
4.4. Respondent has suplus income- not withstanding the fact that
respondent's financial statements record a net cash flow deficit
in
2010 and 2011. the respondent alleges it has surplus income to cover
its operational and property costs in full. This is rejected
on two
basis. First, it does not have requisite cash on hand to pay the
applicant's claim. The balance sheet for 2011 reflects
an operational
loss of R595 636,00 with no cash or cash equivalents on hand. Second,
respondent failed to disclose on its papers
why its representations
in the financial statements are wrong, nor is there any evidence to
support its allegation that it has
the surplus income it claims to
have.
4 5. Contingent and Prospective Liabilities;
In
terms
of s69(2) of the Act, such liabilities must
be
t
aken into account when determining whether a close
corporation is unable to pay its debts.
4.6. Creditor supremacy
Respondent's relied on the case of
ABSA Bank Ltd v Newcity Group
(Pty) Ltd,
Cohen v
Newcity Group (Pty} Ltd
and
Another [2012] ZAGPJHC 144
, Sutherland J pointed
out that, "
where a creditor has a debt which the company
cannot pay; in such case the creditor is entitled, ex debito
justitiae, to a winding-up
order". At para [31]. Sutherland J
held, "In plain terms, it now seems now to be incorrect to speak
of sn entitlement'
to a winding up order simply because the applicant
is an unpaid creditor. The rights of creditors no longer have pride
of place
and been levelled with those of shareholder's, employees,
and with the public interest too The norm that infuses the law
about
the
governance
of companies after the advent of the
Companies Act,
2008
, means that the age of creditor supremacy is over."
Respondent implored the court to exercise its discretion under s 347
of the Compares Act, read with the Compares Act, 2008, "to
make
any Interim order or any other order it may deem just..." rather
than to allow applicant to insist "on a manner
of execution that
is disproportionate and manifestly unfair to the respondent, given
the fact that the sale in execution of the
immovable property by the
respondent will achieve the applicant's stated objective of simply
wishing to get the monies owed to
it by the respondent, but will be
considerably cheaper, more expedient end equitable (than a
liquidation)''
The argument that creditors no longer have pride of place is of no
assistance lo the respondent because not only is the phrase
broad and
undefined, but nowhere is it recorded that it impinges on a creditors
statutory right to apply for the winding up of
a company, nor does
the responded qualify as a shareholder, employee or member of the
public.
Further, respondent relied on
Jafta v Schoeman and Others; Van
Rooyen v Stoltz and Others
[2004] ZACC 25
;
2005 (2) SA 140
(CC)
, Mokgoro J held
"it must be accepted that execution in itself is not an odious
thing it is part and parcel of normal economic
life. It is only when
there is disproportionately between the means used to the execution
process to exact payment of the judgment
debt, compered to other
available means to attain the same purpose, that alarm bells should
start
ringing. If
there
are no other proportionate means to
attain
the some end. execution may not be may not be avoided."
Respondent submitted chat judicial oversight in execution of debt is
required to determine whether a creditor has the right to deny a
debtor the right to insist on
"more proportionate means to
attain the same end."
This is a red herring. The Jafta case is distinguishable on the
facts. Further respondent's contention that a sale by the respondents
will yield more and cost less than the "costly and time
consuming machinery of liquidation" were unsubstantiated. The
proportionality test ts not applicable to this matter The applicant
can obtain no relief other than a provisional liquidation order.
THE LAW
:
[5] In
the recent unreported judgment of Scania Finance Southern Africa
(Pty) Ltd / Thomie-Gee Road Carriers CC, case no, 958/2012 Free State
High Court Snellenburg AJ after a consideration of the recent
authorities held that in terms of s S of Schedule 5 of Companies Act
71 of 2003. a creditor may approach a court for the liquidation
of a
company or close corporation on the ground of its inability to pay
its debts in terms of s 344{f) He held further that s 345
(and s 69
of the Close Corporations Act) is still a deeming provision Such an
applicant need not prove that the respondent company
is insolvent in
order to rely on Chapter XIV of the previous Act.
[6] In
Scania
15
Finance para [12] & [13], supra the
court disagreed with the finding in HBT Construction & Plant Hire
CC v Uniplant Hire
CC
2012 (5) SA 197
(FB} The court held that it was
incorrect to require a creditor lo prove insolvency before being able
to rely on Chapter XIV of
Hie previous Companies Act. The court held
that ss 3449(f) and 345 of the previous Act still applies to
companies and if a company
is to be wound up due to an inability to
pay its debts, ss 344 (f) and 345 can still be used. The court held
further that what
the legislature has in effect brought about, by the
repeal Of S 68 and the amendment of a 66 of the Close Corporations
Act is that
the grounds of winding-up 'insolvent' close corporations
by order of court are now the same as the grounds for winding-up of
'insolvent'
companies and if the application for winding- up is made
on the basis of s344(f) the applicant may rely on me deeming
provisions
of s 345 of the old Act. Regarding close corporations, the
same ground will be used, to wit. s 344(f) read with s 69 of the
Close
Corporations Act.
[7] The court held that the onus of proving solvency rested on the
respondent and the respondent would have to satisfy the requirements
of s 4(1} of the 2008 Act. i.e. the debtor would have to satisfy the
solvency test. See also, Body Corporate for Fish Eagle v Group
Twelve
Investments
2003 (5) SA 414
(WLD) at 428 (J).
[8] The solvency test in section 4 (1) of the 2000 Act requires
inter
alia
that
8.1 that the assets
of the company, fairly valued equal or exceed the liabilities
of the
company as fairly valued, and
8.2. that she company will
be able to pay its debts as when mey become due in the ordinary
course- of business. (Scania Finance supra at para [14]
[9]
In Scania Finance supra at para [10] and [20] the court referred with
approval to (wo unreported judgments. First Rand Bank Ltd v Lodhi
Properties Investments CC and
Others
{case no. 38326/2011.
NGHC)
and First Rand
Bank
Ltd v
Bunker
Hills
In vestments
499
CC (case no 32130/2011. S
GHC)
in which the courts held that |he
legislature did not in the 2008 Act intend to do away with a
liquidation on the grounds of commercial
insolvency.
[10] Respondent referred to
the case of AB5A Bank Ltd v Newcity Group (Ply) Ltd, Cohen
v Newcity
Group (Pty) Ltd & Another [2012] ZAGPJHC 144. This case merely
deals with the Court's discretion. The Court did not
find that the
proof of Tactual insolvency is a pre-requisite which has to be
satisfied before a creditor can apply for the winding-up
of the
company on the basis that it is unable to pay its debts Furthermore,
this case dealt with business rescue as an alternative
to
liquidation.
THE
RESPONDENTS INABILITY TO PAY ITS DEBTS:
[11] The respondent does
not trade and therefore has no source Of income. Except for
owing
immovable property, the responded I does no! have any readily liquid
or realizable assets available to settle its indebtedness.
The amount
owing is substantial and nothing has been put forward indicating any
hope of possible payment.
[12] The mere selling of its assets to meet ts debts is indicative of
financial difficulty and an acknowledgment that liquidation
must
ensue. Metso ND Engineering {Edms) Bpk v Specsolprojects CC
[2006]
JOL 17452
(T) at para
JUST AND EQUITABLE:
[13] Furthermore, it is
just and equitable that the respondent be liquidated.
Rand Air
(Pty) Ltd v Ray Bester investments (Pty) Ltd
1935 (2) SA 345
(W);
Cuninghame v First Ready Developments 249 2010 (5) 325 (SCA) [14] and
Scania Finance at para [23].
[14] Green Willows and the respondent are related properties and a
second bond over Green Willows properties was a prerequisite
for the
applicant to conclude the finance loan agreement with respondent
[15] On ;ts own version, Ihe onry way respondent tan settle the
applicant's claim is if il can sell tfie property. This would
inevitably lead to closure of the respondent's business.
[16] in the circumstances, the applicant has established a
prima
facie
case for the liquidation of the respondent.
THE ORDER-
1.
The respondent is placed under provisional liquidation.
2.
A rule nisi is issued calling upon all persons interested to show
cause, if any, to this Court on Tuesday 22 January 2012 at
10h00 or
so soon thereafter as the matter may be heard:
2.1.
why the respondent should not ba
placed under final liquidation; and
2.2.
why the costs of this application
should not be costs in the liquidation.
3
Service of this Order shall be effected
3.1.
by -Sheriff at the registered office of the respondent
3.2 by one
publication In each of the Cape Times and Die Burger newspapers, and
3.3. on the South African Revenue
Service.
URD MANSINGH, AJ