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[2014] ZAWCHC 26
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Firstrand Bank Limited v Vecto Trade 68 (Pty) Ltd (17435/2013) [2014] ZAWCHC 26 (4 March 2014)
IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE
DIVISION, CAPE TOWN)
Case
Number: 17435/2013
DATE:
04 MARCH 2014
REPORTABLE
In the matter
between:
FIRSTRAND BANK
LIMITED
................................................
Applicant
And
VECTO TRADE 68
(PTY) LTD
...........................................
Respondent
JUDGMENT
DELIVERED ON 04
MARCH 2014
ZONDI, J:
[1] This is an
application for the provisional winding-up of the respondent on the
grounds that it is unable to pay its debts within
the meaning of s
345 (1) (a) or is deemed to be unable to pay its debts in terms of
subpara (c) as read with s 344 (f) of the Companies
Act 61 of 1973
(“the Act”) alternatively that the winding-up of the
respondent is just and equitable as contemplated
in s 344 (h) of the
Act.
[2] In terms of
Schedule 5, item 9 (1) of the Companies Act 71 of 2008 (the New
Companies Act) the
Companies Act of 1973 (the Old Companies Act)
continues to apply with respect to the winding-up and liquidation of
companies.
[3] The winding-up
of the respondent is sought on the basis that the respondent is
indebted to the applicant in the amount of R8
453 401.94 plus
interest on the said amount at the rate of 7% per annum from 13
September 2013 to the date of payment. It is alleged
that such amount
is due and payable. The applicant has filed a certificate of
indebtedness to prove the amount outstanding.
[4] It is common
cause that on or about 20 March 2008 the parties entered into a
written loan agreement (first loan agreement) in
terms of which the
applicant lent and advanced R12 million to the respondent. When the
respondent struggled to repay the loan in
accordance with the terms
of the first loan agreement the parties concluded a further loan
agreement (the second loan agreement)
on or about 20 June 2009. The
respondent was obliged to repay the loan and interest on it in equal
monthly instalments and in the
event of the respondent’s
default the applicant would be entitled to withdraw the first loan
agreement and claim immediate
repayment of the full outstanding
balance, or terminate the first loan agreement without affecting any
of its rights. The loan
was secured by inter alia, the registration
of a covering bond in favour of the applicant over erf 25070 and erf
25071 belonging
to the respondent. It is also not disputed that in
breach of the agreement the respondent has on numerous occasions
failed to make
payment to the applicant on the relevant due dates.
The respondent’s failure to pay the debt in accordance with the
terms
of the loan prompted the applicant to cause to be served on the
respondent a statutory demand in terms of s 345(1) on 1 August 2013
which, it is common cause, the respondent failed to comply with. It
is clear from the papers that the respondent does not have
liquid
assets available with which to meet the applicant’s claim and
it is for this reason that it decided to sell one of
its properties
so as to raise the necessary funds.
[5] The applicant
launched this application for the winding-up of the respondent,
contending that the respondent is unable to repay
its debts or that
it is just and equitable that the respondent be wound up.
[6] The respondent
opposes the application and has filed an answering affidavit deposed
to by Mr Hauptfleisch, who describes himself
as a shareholder and the
creditor of the respondent. He says he is also a director of Daybreak
Properties 68 (Pty) Ltd which is
another creditor of the respondent.
Essentially the purpose of his affidavit is to show that the other
creditors of the respondent
do not support the liquidation of the
respondent as in their view the liquidation will cause them
prejudice. He avers that “in
the event of the properties being
sold on the open market and in the ordinary course as opposed to
being sold upon the winding-up”
the respondent’s
properties will fetch a proper market related price and all the
creditors will be paid out of the proceeds.
He further contends that
“in addition to the usual expenses of a sale of property the
respondent’s estate will be saddled
with commissions and
charges from the liquidators as well as the auctioneers appointed…”
which he argues will affect
the amount remaining for distribution
among the creditors.
[7] As I have
already pointed out above the respondent has been attempting to sell
the properties since July 2013 and it received
offers which never
materialised because they were either too low or the prospective
purchasers were unable to raise sufficient
funds for the purchase
price. What is, however, clear from the respondent’s answering
affidavit is that it has not given
up in its attempt to find a
purchaser for one of its properties. It remains hopeful that it will
be able to do so before the end
of March 2014. It is for this reason
that the respondent urges the Court to exercise its discretion
against the applicant and refuse
the liquidation application.
Moreover the respondent denies that it is factually insolvent. It
avers that the value of its assets
exceeds the value of its
liabilities. An attempt is made in the respondent’s heads of
argument to demonstrate the respondent’s
factual solvency.
Using management accounts for November 2013 as a basis of its
calculation the respondent alleges that its total
assets amount to
R16 262 808.21 and its liabilities to R15 337 715.01.
[8] The debate at
the hearing of this application was not about whether or not the
existence or validity of the debt was disputed.
This much was
conceded by Mr Grobbelaar who appeared for the respondent. He
admitted that the amount claimed by the applicant is
due and payable
but the respondent is unable to pay it at this stage as it does not
have liquid assets or readily realisable assets
available with which
to meet the debt. He pointed out that the respondent can only do so
if it realises one of its properties.
There was no doubt in my mind
that the respondent is commercially insolvent in the sense that it is
unable to pay its debts as
and when they become due and that its
commercial insolvency is a ground that will just its an order for
its liquidation. (ABSA
Bank Ltd v Rhebokskloof (Pty) Ltd and Others
1993 (4) SA 436
(C) at 440 F – I). Notwithstanding this the
court may in the appropriate circumstances in the exercise of its
discretion
refuse to grant provisional winding-up order. (Rosenbach &
Co. (Pty) Ltd v Singh’s Bazaars (Pty) Ltd
1962 (4) SA 593
(D)
at 597).
[9] The debate
therefore was about whether or not the respondent had placed before
the court sufficient grounds upon which to exercise
its discretion
against the applicant and refuse the provisional liquidation order.
In this regard Mr Grobbelaar submitted that
the winding-up
application should be refused on the grounds that the respondent is
factually solvent; the other creditors of the
respondent do not
support the liquidation of the respondent and finally, that the
applicant is a secured creditor. He submitted
that these factors
provide a sufficient basis for this court to exercise its discretion
against the applicant.
[10] As to the
submission that the respondent’s liquidation is not supported
by the other creditors of the respondent, it
is clear that the views
of the creditors should be taken into account by the Court in
exercising its discretion. See s 345 (2)
and Commonwealth Shippers
Ltd v Mayland Properties (Pty) Ltd (United Dress Fabrics (Pty) Ltd
and Another Intervening
(1978 (1) SA 70
(D) at 74 B – C;
Porterstraat 69 Eiendomme v PA Venter Worcester
2000 (4) SA 598
(C)
at 613 H – I ). According to Henochsberg on the Companies Act,
Vol 1 at 750 (1) for the wishes of the creditors to be
taken into
account they “must be proved by sufficient evidence which
should indicate the factual basis upon which the creditors
have
reached their conclusions and demonstrate that such are reasonable…”.
In my view it cannot be said that the views
of the creditors as
represented by Mr Hauptfleisch are reasonable in the light of the
respondent’s financial position which
clearly demonstrates that
the respondent is commercially insolvent. It is not their contention
that should the liquidation of the
respondent be postponed or
refused, the respondent will be able to successfully trade out of its
current situation. Their assertion
is that in the event of the
properties being sold on the open market and in the ordinary course
as opposed to being sold upon the
winding-up they will fetch a proper
market related price which will benefit the respondent’s
creditors. I reject this assertion.
I do not understand why a
liquidator will be less successful in realising a proper market value
for the immovable properties. Provided
a sale of the properties is
effected at market related prices, whether by private treaty or at an
execution sale, I can see no
reason why a liquidator would not be
equally successful in obtaining the best price for the properties.
[11] With regard to
the respondent’s contention that the winding-up order should be
refused on the ground that it is factually
solvent, it is correct
that factual solvency of a company is a ground which may justify
refusal of its liquidation in particular
if it can be shown that it
has liquid assets or readily realisable assets available out of which
the company is in fact able to
pay its debts. (Rosenbach & Co.
(Pty) Ltd v Singh’s Bazaars (Pty) Ltd supra at 597 D –
E).
[12] To demonstrate
its factual solvency the respondent referred to, and relied on, its
management accounts for November 2013 as
well as the valuation placed
on its two properties by SC Stopforth of De Vaudriel Eiendomme in
terms of which one property was
valued at R9 million and the other R8
million. It would seem a comparative sales analysis method was used
to arrive at the two
figures. In the respondent’s heads of
argument a different formula is, however, used to determine the value
of the assets
of the respondent. In my view the evidence regarding
the value of the assets of the respondent is unreliable to establish
its factual
insolvency. It is not clear if the person who prepared
the two valuations is indeed qualified to do so. We are not told of
what
his qualifications are or whether he is a registered valuator.
In any event it is instructive to note that in its management
accounts
the respondent has listed “sundry debtors” as
forming part of its current assets. It is not certain whether the
respondent
will be able to collect these debts because if it was, it
would not be struggling to pay its creditors.
[13] I am mindful of
the fact that as the applicant is unable to obtain payment of its
debt it is entitled as between it and the
respondent, ex debito
justitiae, to a winding-up order as it has brought its case within s
345 (1) (c) read with section 344 (f).
It is not bound to give the
respondent time. That commercial insolvency justifies the liquidation
of a company is the long established
and well-settled practice in our
Courts. Factual solvency in itself is therefore not a bar to an
application to wind-up a company
in terms of the Act on the ground
that it is commercially insolvent. In this regard the remarks of
Willis JA in Boschpoort Ondernemings
(Pty) Ltd v ABSA Bank Ltd
(936/12)
[2013] ZASCA 173
(28 November 2013) para 17 are apposite:
“[17] That a
company’s commercial insolvency is a ground that will justify
an order for its liquidation has been a reality
of law which has
served us well through the passage of time. The reasons are not hard
to find: the valuation of assets, other than
cash, is a notoriously
elastic and often highly subjective one; the liquidity of assets is
often more viscous than recalcitrant
debtors would have a court
believe; more often than not, creditors do not have knowledge of the
assets of a company that owes them
money - and cannot be expected to
have; and courts are more comfortable with readily determinable and
objective tests such as whether
a company is able to meet its current
liabilities than with abstruse economic exercises as to the valuation
of a company’s
assets. Were the test for solvency in
liquidation proceedings to be whether assets exceed liabilities, this
would undermine there
being a predictable and therefore effective
legal environment for the adjudication of the liquidation of
companies.”
I fully agree with
these remarks.
[14] Even if I were
to accept that the respondent is factually solvent in the sense that
its assets exceed liabilities and that
should it be given an
opportunity to sell one of its assets it will be able to pay the
applicant, I do not believe that after satisfying
the applicant’s
claim it will be in a position to carry on normal trading. The
respondent is a property owning company and
the two relevant
properties represent a substantial amount of its assets. It generates
its income by renting out these two properties.
According to the
respondent the total value of its assets amount to R16 262 808.21.
This figure includes R14 111 679.64 being the
combined value of the
two properties. The amount of the debt owing to the applicant is R8
453 401.94 excluding the interest. It
is clear from this analysis
that the respondent will be unable to meet the applicant’s
claim by selling one of its properties.
It may have to sell both of
its properties in order to be able to pay the applicant and once this
is done the respondent will be
unable thereafter to carry on trading
as a property owning company. The sale of its two properties will
therefore destroy the whole
basis of its existence.
[14] In the result I
make an order in the following terms:
“1. respondent
is placed under provisional winding-up in the hands of the Master of
the Honourable Court;
2. a Rule Nisi is
issued calling upon all persons interested to show cause, if any, to
the above Honourable Court, on Tuesday, 8
April 2014, at 10h00 why
the following order should not be granted:
2.1 that respondent
be placed under final winding-up; and
2.2 that the costs
of this application be costs in the winding-up.
3. service of this
order shall be effected:
3.1 by the Sheriff:
3.1.1 on respondent
at its registered office:
3.1.2 on
respondent’s employees and all registered trade unions
representing respondent’s employees, if any;
3.1.3 on the South
African Revenue Services.
3.2 by one
publication in each of the Cape Times and Die Burger newspapers”.
D H ZONDI
JUDGE OF THE HIGH
COURT