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[2014] ZAWCHC 137
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Nampak Wiegand Glass (Pty) Ltd v Finlayson and Others (1074/2009) [2014] ZAWCHC 137 (8 September 2014)
IN
THE HIGH COURT OF SOUTH AFRICA
(
WESTERN CAPE DIVISION, CAPE TOWN )
CASE
NO
:
1074/2009
DATE:
08 SEPTEMBER 2014
In
the matter between:
NAMPAK
WIEGAND GLASS (PTY)
LTD
.............................................
Plaintiff
And
WALTER
MAURICE FINLAYSON
..............................................
First
Defendant
ROBERT
CHRISTIAN COPPOOLSE
.....................................
Second
Defendant
VIVIAN
VICTOR
GRATER
.......................................................
Third
Defendant
Dates
of hearing: 25 & 26 August 2014
Date
of Judgment: 8 September 2014
Judgment
SAVAGE
AJ:
Introduction
[1]
On
10 January 2006 this Court placed Coppoolse Finlayson International
(Proprietary) Ltd (‘CFI’) under provisional order
of
winding up, with a final order if liquidation made on 21 February
2006. At the date of its liquidation CFI owed R2 002 571.00
to the
plaintiff in respect of glass bottles purchased on credit pursuant to
the terms of an agreement entered into between the
parties.
[2]
On
21 January 2009 the plaintiff, Nampak Wiegand Glass (Pty) Ltd,
instituted action against the three defendants, all former directors
of CFI, in terms of which an order is sought under the provisions of
s 424 of the Companies Act 61 of 1973 that the defendants
are liable
to the plaintiff for the amount of R2 002 571.00 plus interest at the
rate of 15.5% per year a
tempore
morae
.
The summons with its particulars of claim was served on the first and
second defendants on 27 January 2009 and on the third defendant
on 5
February 2009.
[3]
In
its particulars of claim the plaintiff states that it became
concerned about the level of its exposure to CFI due to erratic
and
payments and the ability of CFI to pay its debt to the plaintiff.
Furthermore:
‘…
13.
A meeting was held at CFI’s on 9 September 2005. This meeting
was inter alia attended by second defendant who was the
managing
director of CFI at the time and Erik Smuts, Steffen [Bulbring] and
Rob Coppoolse representing the plaintiff. At the same
meeting and
with the sole intention of inducing the plaintiff to continue
extending its permission to CFI to purchase goods on
credit from
plaintiff the second defendant made the following express oral
representations to the plaintiff he:
13.1
re-confirmed that he was a director of CFI and that he understands
the responsibilities of a company director and the consequences
it
would have for directors of the company if the business of the
company was conducted recklessly;
13.2
assured the plaintiff that CFI’s business was not conducted
recklessly and/or that it was not trading recklessly;
13.3
stated that CFI owned immovable property with the fair market value
of
±R16
million which is in the process of being sold and that this sale will
normalise CFI’s cash flow position so that
it would be able to
meet its obligations and in particular the payment regime required in
terms of Annexure “A”;
13.4
gave the assurance that CFI was solvent and that the value of its
assets far exceeded the amount of its liabilities and that
there is
no immediate concern about the viability of CFI’s business as a
going concern.
14.
The said representations were made to induce the plaintiff to
continue to supply to CFI on credit.
15.
Plaintiff relied on the truth of the said representations and allowed
CFI to continue purchasing goods on credit from plaintiff
as a result
whereof CFI’s credit with the plaintiff was allowed to increase
to R2 002 571.00.
16.
The second defendant knew that the representations set out in 13.2,
13.3 and 13.4 above were not true as:
16.1
CFI’s business was in fact conducted recklessly as is set out
more particularly below;
16.2
CFI did not own immovable property at all and/or did not own
immovable property with a market value of anything close to R16
million and/CFI had no prospect of normalising its cash flow position
or to meet its obligations and payment regime in terms of
Annexure
“A”;
16.3
CFI was not solvent in that the value of its assets was less than
the value of its obligations.’
[4]
In
paragraph 17 the plaintiff details the payment arrangement agreed
with CFI and the breach of such arrangement. It states further
that:
‘…
19.During
the period from 31 March 2005 to 30 November 2005 CFI’s assets
decreased in value by more than 33%.
20.
From the aforesaid and in particular paragraphs 16, 17, 18 and 19 it
was clear to the first, second and third defendants and/or
should
have been clear to the said defendants and/or if they had been
conducting the business of CFI in a proper and diligent manner
and/or
in accordance with a fiduciary duty expected of directors of a
company that:
20.1
CFI was trading at a loss; and/or
20.2
CFI was trading in insolvent circumstances and/or that it was
commercially insolvent; and/or
20.3
A real risk existed that CFI would not be able to repay its creditors
and also in particular the credit extended by plaintiff
to it;
20.4
CFI’s capital base was being eroded due to the losses it was
incurring.
’
[5]
The
particulars of claim provide details of other facts that came to the
plaintiff’s knowledge and conclude in paragraph 24
that ‘
the
business was carried on recklessly and/or with the intention of to
defraud creditors of CFI and/or for fraudulent purpose
’
and in paragraph 25 that the defendants ‘
were
at all relevant times knowingly a party to the carrying on of CFI’s
business in this manner’
.
As a consequence, the plaintiff seeks an order declaring the
defendants to be personally liable for the amount owing to it in
terms of the provisions of s 424, with an order that the outstanding
amount be paid to the plaintiff.
[6]
On
24 March 2009 the defendants raised a special plea of prescription to
the claim on the basis that the plaintiff knew, alternatively
by the
exercise of reasonable care could have acquired knowledge of the
identity of the debtors and the facts from which the alleged
debt
arose during November 2005, alternatively on or about 10 January
2006, being the date of the provisional winding up of CFI,
alternatively no later than 26 January 2006.
[7]
At
the outset of proceedings, and by agreement between the parties, in
terms of rule 33(4) the issue of prescription was separated
from the
merits for determination first by this Court. There is no dispute
between the parties that the defendants bear the onus
to prove the
facts relied upon in pleading that an obligation has been
extinguished by prescription.
[8]
During
pre-trial procedures, the parties agreed
inter
alia
that the documents in the bundles are what they purport to be without
any party admitting the truth of the content of any document;
and
that the documents were to be admissible upon their mere production
in evidence without the need for formal proof, unless any
particular
document is challenged by any party on reasonable notice.
Agreed
facts
[9]
In
terms of rule 33 (1) and (2), for the purposes of the special plea of
prescription only, the following facts were agreed by the
parties:
1.
The
plaintiff knew during 2005 that, at all relevant times, the first,
second and third defendants were directors and/or members
of CFI, in
their capacities as such, knowingly parties to the carrying on of
CFI's business.
2.
On
or about 13 February 2004 CSI, who was represented at the time by its
financial manager one Andrew Jamieson, in writing, at Brackenfell,
Western Cape, applied to the plaintiff to allow it to purchase goods
from the plaintiff on credit. Plaintiff through its regional
director
Erik Smuts accepted the said application during/about February 2004.
3.
Subsequent
to February 2004 the plaintiff sold and delivered to CFI goods in
accordance with the provisions of the credit agreement.
4.
During
or about September 2005 the plaintiff's financial management became
concerned about the level of the plaintiff's exposure
to CFI, the
erratic and insufficient payments that were made by CFI in reduction
of the said exposure and CFI's ability to pay
its debt towards the
plaintiff and ceased to allow further sales of the plaintiff's goods
to CFI on credit. The members of the
plaintiff's financial management
who became concerned about its level of exposure to CFI included the
financial director, Erik
Smuts, and financial manager, Robert
Antelme.
5.
A
meeting was held at CFI's principal place of business on 9 September
2005. This meeting was, inter alia, attended by the second
defendant
who was the managing director of CFI at the time and Erik Smuts,
Steffen Bulbring and Rob Antelme representing the plaintiff.
At the
said meeting and with the sole intention of inducing the plaintiff to
continue extending its permission to CFI to purchase
goods on credit
from the plaintiff, the second defendant made the following express
oral representations to the plaintiff. He:
5.1
reconfirmed that he was a director of CFI and that he understands the
responsibilities of a company director and the consequences
it would
have for directors of a company if the business of the company was
conducted recklessly;
5.2
assured the plaintiff that CFI's business was not conducted
recklessly and/or that it was not trading recklessly;
5.3
stated that CFI owned immovable property with a fair market value of
±
R16 million which is in the process of being sold and that this sale
will normalise CFI's cash flow position so that it
would be able to
meet its obligations and in particular the payment regime required in
terms of the credit agreement;
5.4
gave the assurance that CFI was solvent and that the value of its
assets far exceeded the amount of its liabilities and that
there is
no immediate concern about the viability of CFI's business as a going
concern.
6.
The
said representations were made to induce the plaintiff to continue to
supply goods to CFI on credit. The representations were
made partly
in response to a specific question and partly while explaining the
cash flow predicament being experienced at the time
by CFI and how it
intended to settle the outstanding debt owed to the plaintiff.
7.
The
plaintiff relied on the truth of the said representations and allowed
CFI to continue purchasing goods on credit from the plaintiff
as a
result whereof CFI's credit with the plaintiff was allowed to
increase to R 2 002 571.00.
8.
8.1
On
or about 21 October 2005, the second defendant offered that CFI would
make three weekly payments of R400 000.00 each and a fifth
and final
payment of R100 000.00 week later, totalling R 1 300 000.00 to reduce
the arrears of its account with the plaintiff.
8.2
The
plaintiff accepted the said payment proposal subject to the following
conditions:
(a)
CFI may not pay any of its other creditors on a preferential basis
to the plaintiff;
(b)
CFI's total account must be brought up to date by the end of December
2005.
8.3
CFI
agreed to the said conditions.
8.4
CFI
failed to make the second and all subsequent payments due in terms of
the offer of payment referred to in 8.1 above.
8.5
CFI
then also breached the conditions referred to in 8.2 above by paying
at least one of its creditors on a preferential basis to
the
plaintiff in that it paid an amount of approximately R 900 000.00 to
Consol Glass for bottles purchased by it.
9.
During
or about November 2005 CFI, in a letter, a copy of which was next to
the plaintiff's particulars of claim, offered its creditors
a
compromise on the basis that its liabilities exceeded the value of
its assets. This letter was compiled and/or distributed by
CFI with
the full knowledge and/or consent of the first and/or second and/or
third defendants.
10.
The
aforesaid letter was handed to the plaintiff by CFI during a meeting
between representatives of the plaintiff and CFI on 12
December 2005,
and was handed to CFI's creditors.
11.
The
plaintiff knew on 11 January 2006 that Excelsior Boerdery (Edms) Bpk
applied for the liquidation of CFI under case number 13006/05,
that
in order for the provisional winding up of CFI was granted and that
the first, second and third defendants failed to oppose
the said
application and thereby had knowledge that CFI was insolvent.
12.
The
application for the winding up of CFI was issued by Excelsior
Boerdery on 15 December 2005 and first enrolled for hearing on
20
December 2005.
13.
The
Master appointed provisional liquidators to CFI on 19 January 2006.
14.
The
provisional winding up of CFI was made final on 21 February 2006.
Evidence of joint liquidator
[10]
The
defendants relied on the evidence of one witness, Mr Johannes
Frederick Klopper, who was appointed as one of the joint liquidators
of CFI. Mr Klopper met with Mr Rob Antelme of the plaintiff on 13
January 2006 at the plaintiff's premises in Johannesburg to introduce
himself and seek Mr Antelme’s support for his appointment as
liquidator. Mr Antelme had information that he wanted to bring
to the
attention of the liquidators and after the meeting on 13 January 2006
sent Mr Klopper an email which included attached a
document
containing his queries regarding CFI. The queries were as follows:
‘
1
Stock
1.1
How
did stock reduce from R21.1 million at 31 March 2005 to R10.7 million
at 30 November 2005?
1.2
What
happened to the proceeds realised from the disposal of stock and 31
March 2005?
1.3
As
a notarial bond over the stock been granted in favour of any
creditors?
2
Accounts
Receivable
2.1
How
is it that accounts receivable reduced from R5.8 million at 31 March
2005 to R3.1 million at 30 November 2005, while stock with
a value of
approximately R9.4 million was being sold during that period?
2.2
CFI
acquired bottles worth approximately R2 million from Consol and
Nampak Wiegand-Glass a few weeks before closing its business.
We are
told all those bottles have been found with wine and sold in Europe.
We would have expected such sales to generate income
of approximately
R14 million, but accounts receivable is reflected as only R3.1
million. What has happened to the proceeds from
such sales?
2.3
Have
the accounts receivable been ceded to the banks to secure the
overdraft facilities, or to secure any other debts?
3
Loan
to Unit 5 & 6 Kenwill Drive (Pty) Limited
3.1
We
have been advised that a loan to Unit 5 and 6 Kenwill Drive (Pty)
Limited of R7.2 million as at 31 March 2005 has been repaid
in full.
When one of the loan repaid and what funds were used to repay the
loan?
3.2
What
was the purpose of the loan to Unit 5 and 6 Kenwill Drive?
4
Land
Bank Loan
4.1
When
was the Land Bank loan made to CFI?
4.2
What
was the original amount of the loan and what are its repayment terms?
4.3
What
was the purpose for the loan?
4.4
What
security was granted to the Land Bank?
5
The
Sale of Property owned by Unit 5 and 6 Kenwill Drive (Pty) Limited
5.1
Representatives
of Nampak were told during a recent meeting with representative (sic)
of CFI that the business would be refinanced
from the proceeds of the
sale of an immovable property. Was that a reference to the property
owned by Unit 5 and 6 Kenwill Drive
(Pty) Limited?
5.2
Who
are the shareholders and directors of Unit 5 and 6 Kenwill Drive
(Pty) Limited?
5.3
The
company borrowed at least R7.2 million from CFI. What was the reason
for the loan?
5.4
The
loan of R7.2 million has apparently been repaid in full to CFI 31
March 2005. When was the loan repaid and how did the company
obtain
funds to repay the loan?
5.5
Why
is it no longer possible to refinance CFI through the proceeds from
the sale of the property?
5.6
When
was the decision taken that the company would no longer use the
proceeds from the sale of the property to refinance CFI?
6
Way
Forward
6.1
An
application for the liquidation of CFI has being postponed to 17
January 2006. What does CFI intend to do in the interim period?
6.2
Is
there any good reason why CFI should not be put in liquidation
immediately in order to protect the assets of the company for
the
benefit of creditors?
[11]
Mr
Klopper considered the queries to be of a general nature, with their
origins in the offer of compromise made by CFI in December
2005 to
creditors, received by the plaintiff on 12 December 2005, and
indicated that he would investigate. He had no recollection
as to
what information the plaintiff had in its possession other than what
was supplied to him during January 2006.
[12]
On
18 or 19 January 2006 Mr Klopper attended at the premises of CFI. The
immediate concern related to the realisation of assets.
Although Mr
Nicky Thomatos, the Financial Manager of CFI, was appointed by the
liquidators as a representative to secure and provide
the necessary
information, documents were not forthcoming and in October 2006 a
subpoena
duces
tecum
was served on the defendants although the directors were ultimately
excused from the enquiry. A statement of affairs in terms of
s 363
was not received and on 29 November 2006 Mr Klopper’s office
sent a letter to the defendant's attorneys indicating
his frustration
with the lack of cooperation of the directors, with the liquidators
having been severely hampered in their work.
[13]
On
12 September 2006 the liquidators instructed Accountants@Law (‘A@L’)
to assist in undertaking a forensic investigation
of CFI on ‘
matters
which may reflect reckless and fraudulent trading
’.
Mr Klopper could not recall what information he had prior to the A@L
reports dated 19 October 2006 and 21 March 2007 which
focused on
CFI’s relationship with units 5 and 6 Kenwill and loan accounts
of the Walter Finlayson Family Trust. The directors
refused to submit
accounting records, annual financial statements, trial balances and
supporting documentation in respect of units
5 and 6 on the basis
that this was irrelevant for purposes of A@L’s investigation.
Although the liquidators were informed
that no lease agreements
existed with units 5 and 6, in March 2007 a copies were located by
the defendants as a result of which
it was concluded that R11 million
plus expenses were not due by that company to CFI.
[14]
Mr
Klopper confirmed that there was no mention of a Land Bank loan in
the company financial statements and the balance sheet did
not
indicate any immovable property owned by CFI. As a result, he
accepted that the reference in the offer of compromise to a Land
Bank
loan was a misrepresentation.
[15]
The
report of the joint liquidators was finalised by the beginning of
August 2006 and that it was not clear to him on the information
he
had whether the directors of the company could be held personally
liable as this was a matter for the Court to determine. This
joint
report stated that ‘(s)
ave
to state that the directors have failed to submit a Statement of
Affairs, it is not at this stage certain what other contraventions
of
the Act have been committed by the directors. This is still under
investigation
.’
A settlement agreement was finally entered into with the defendants
on 1 March 2007 in full and final settlement of all
claims.
[16]
With
reference to the letter sent by him to Standard Bank dated 18 August
2006 in which the bank was informed of allegations of
reckless
trading and improper conduct by the directors of CFI, Mr Klopper
indicated that the letter would have been based on information
available to the liquidators and it is apparent from the contents of
the letter that some information had been obtained after the
report
which may have accounted for the letter.
[17]
Although
on 28 August 2006 Mr Klopper wrote to the first and second
defendants’ attorneys stating
inter
alia
that ‘(c)
onsultants
appointed by the directors advised them in writing that they were
trading recklessly’
,
in evidence he had no recollection of this statement and was unable
to indicate where it came from.
Documentary evidence
[18]
The
documentary evidence in the form of emails between the parties
provides a useful insight into their interactions and the pertinent
events prior to CFI’s liquidation. In an email forwarded to the
second defendant on 19 September 2005, Mr Steffen Bulbring
of the
plaintiff recorded the agreement reached at the meeting on 9
September 2005 as follows:
‘
1.
Coppoolse
will pay R1.2 million of the outstanding amount owing to Nampak Glass
as soon as possible – but in no way any later
than 30th
September which is our year end cut-off date. Upon receipt of these
monies the account will be opened for trading once
again.
2. The
balance of the account will be settled as soon as possible and
further discussions will take place on this as soon as Coppoolse’s
liquidity problems have eased. Regular communication will occur
between the parties to ensure that everything is done to get the
account back into line with its agreed trading terms.
3. Nampak
Glass will receive 80% of all Coppoolse’s wine bottle purchase
allocation for the period going forward beginning
October 2005 -
October 2006.
4. Coppoolse
warranties that there are no immediate concern about the viability of
the business as a going trading concern.
A more
detailed legal letter will follow setting of the above in more detail
which Coppoolse will review, amend if necessary and
then sign.
’
[19]
On
21 September 2005 the amount of R1.2 million was paid to the
plaintiff by CFI, which payment enabled CFI to obtain bottles from
the plaintiff in October 2005. Mr Thomatos, on 18 October 2005,
undertook to pay the outstanding balance of R1.3 million in November
2005, to which the plaintiff’s Mr Michael Smither responded
that by the end of November R2 002 571 would be outstanding and
sought confirmation that the amount of R665 995.00 would be paid when
it fell due. In response, the second defendant in an email
on 20
October 2005 stated that:
‘
At
the meeting with Mr Smuts, Bulbring et al we agreed on the following:
CFI to pay R1
201 773.76 by the end of September 2005 (we in fact paid on 21
September) in order to draw bottles in October.
CFI to
purchase 80% of bottles from Nampak CFI a settle balance of account
in consultations with Nampak CFI to order many bottles
before 1
October to assist Nampak, based on paying for these bottles by
December (together with payment for bottles ordered in
October).
CFI to provide
a statement concerning their solvency.
In order
to show our goodwill we ordered bottles in September actually only
needed for October. Further Nampak run out of DG 724
bottle, which we
now had to replace with a
[illegible]
which
is 0,20 more expensive.
I
suggest therefore that we settle R1 336 576 by end November and R665
995.00 plus our drawings in October by end December. Our
cash flow
can handle this and brings our account right up-to-date’
.
[20]
On
21 October 2005 the second defendant proposed the payment of R400 000
in week 43, R400 000 in week 45, R400 000 in week 47 and
R100 000 in
week 48. Mr Smuts confirmed acceptance of this payment proposal
on 24 October 2005 on condition that:
‘
1.
None
of your other creditors should be paid on the preferential basis to
Nampak Glass, i.e. the percentage of their total outstanding
debt
paid should not exceed that payments made to Nampak Glass as a
percentage of the total debt owed to Nampak Glass.
2. The total
account must be up to date by the end of December 2005, and stay
up-to-date into January 2006 and beyond.’
[21]
CFI
made only one payment of R400 000 and failed to make any further
payments. In addition, it did not provide a statement concerning
its
solvency. On 28 November 2005 the second defendant indicated in an
email to Mr Smuts, Mr Smither and Mr Bulbring of the plaintiff
that:
‘
I
refer to our meeting during September 2005.
At the meeting
it was agreed, among others, that we would try to bring on count back
to normal terms and that we would purchase
about 80% of our product
from Nampak. Nicky an (sic) I worked on a solid payment plan based on
current orders. Consol payments
were put on the backburner. However,
soon after the above meeting you first ran out of 724 DG bottles,
which we being replaced
with much more expensive 724 DL bottles and
subsequently you run out of 724 bottles altogether. We have no other
option than to
buy 724 DG bottles from Consol on a cash basis with
funds allocated to you. This amounted to over R 900 000, obviously
not an amount
we had made provision for. As result of our account is
now again of (sic) track and I suggest that we meet sometime next
week in
order to resolve the impasse.
I trust
you understand our predicament
.’
[22]
On
13 December 2005 in an email to Mr Neill O’Brien, Mr Smuts and
Mr Bulbring, Mr Smither forwarded a five-page letter received
from
CFI at a meeting on 12 December 2005. He stated that:
‘
The
purpose of the meeting was for CFI to explain when they were going to
settle their debt with Nampak. It wasn't long before the
above letter
was pushed in front of me outlining that CFI was closing its doors.
Erik requested that I think the letter to you
so that you can discuss
the way forward with him. Their current outstanding debt is as
follows:
30 days: 505
734
60 days: 491
744
90 days: 640
045
180 days: 993
174
Total: 2
630 698 …
’
[23]
The
document provided by CFI to the plaintiff was a proposed compromise
with creditors. In this document, in setting out the history
of the
business it was stated that in 1998 Coppoolse Finlayson CC, before
its conversion into a (Pty) Ltd in 2005, purchased the
premises at 5
and 6 Kenwill Drive in a CC called Unit 5 & 6 Kenwill Drive CC
(later converted to 5 & 6 Kenwill Drive (Pty)
Ltd) (‘Unit 5
& 6’). In 2002 Unit 5 & 6 acquired the farm Bon
Esperance outside Stellenbosch. The document
continued:
‘…
November
2005, Rob Coppoolse start (sic) discussions with Overhex Private
Cellars (Pty) Ltd about the possibility of utilising the
facilities
of CFI in a joint venture. These meetings and discussions of
splitting the value of the two companies come to an end
when CFI
receives notice from their largest client “Groupe LFE” in
the Netherlands that their contract for 2007 will
not be renewed. The
shareholders agree that the business needs to close.
After
doing a physical stock count at the end of November and looking at
realisable values for the stock and fixed assets of CFI,
it becomes
apparent that CFI is insolvent. Options for closing down the business
are considered and have led to the situation where
the shareholders
and directors of CFI believe that a Section 311 scheme of arrangement
is in the best interests of all creditors
and likely to realise the
highest value for creditors…
’
[24]
Recorded
in the document was a breakdown of the financial situation of CFI in
which was reflected a Land Bank loan in the amount
of R5 637 000. In
addition, the assets of CFI were recorded as at 31 March 2005 in the
amount of R49 748 000 whereas the estimated
value of such assets at
30 November 2005 was R25 834 000. Also recorded was that Unit 5 &
6 ‘
have
put the properties owned by the company up for sale
’
and that the shareholders and directors were prepared to put R3
million of the residual equity in Unit 5 & 6 into CFI
by way of a
loan account in order to help pay off concurrent creditors. The
scheme proposed that CFI stop trading and retrench
its staff.
Evaluation
[25]
There
is no dispute between the parties that the subject of the plaintiff's
claim is susceptible of prescription, nor that the plaintiff
had
knowledge of the identity of the ‘debtors’. In issue is
when the plaintiff became aware of the facts from which
the ‘debt’
for purposes of s 12(3) arose.
[26]
Section
424(1) of the Companies Act 61 of 1973 provides that:
‘
(1)
When
it appears, whether it may be in winding-up, judicial management or
otherwise, that any business of the company was or is being
carried
on recklessly or with intent to defraud creditors of the company or
creditors of any other person or for any fraudulent
purpose, the
Court may, on the application of the Master, the liquidator, the
judicial manager, any creditor or member or contributory
of the
company, declare that any person who was knowingly a party to the
carrying on of the business in the manner aforesaid, shall
be
personally responsible, without any limitation of liability, for all
or any of the debts or other liabilities of the company
as the Court
may direct
.’
[27]
Section
12
(3) of the
Prescription Act 68 of 1969
provides that:
‘
(3) A
debt shall not be deemed to be due until the creditor has knowledge
of the identity of the debtor and of the facts from which
the debt
arises: Provided that a creditor shall be deemed to have such
knowledge if he could have acquired it by exercising reasonable
care.’
[28]
Section
424
gives rise to liability for a date in respect of which
prescription commences to run once the converse ‘right’
has
accrued.
[1]
S 424
supplements but does not to replace remedies which may be
available at common law to any person, imposing liability where at
common
law such liability may not exist at all:
‘…
In
particular, it relieves the claimant of proof of any causal
connection between the fraudulent or reckless conduct of the business
of the company and the debts or liabilities for which the wrongdoer
may be declared liable’
.
[2]
[29]
In
determining for purposes of
s 424
whether a person was knowingly a
party to the carrying on of the business recklessly or with intent to
defraud creditors, or for
any fraudulent purpose
,
the
test –
‘…
is
objective insofar as the defendant's actions are measured against the
standard of conduct of the notional reasonable person and
it is
subjective insofar as one has to postulate that notional being as
belonging to the same group or class as the defendant…’
.
[3]
[30]
The
Court is required to have regard ‘
inter
alia
to
the scope of operations of the company, the role, functions and
powers of the directors, the amount of the debts, the extent
of the
company’s financial difficulties and the prospects, if any, of
recovery
.’
However the mere fact of an excess of liabilities over assets does
not in itself amount to reckless trading as directors
in carrying on
business do not make an implied representation that the assets of the
company exceed its liabilities but rather
that the company will be
able to pay its debts when they fall due.
[4]
[31]
It
is only when debts are incurred in circumstances in which ‘
in
the opinion of reasonable businessmen, standing in the shoes of the
directors, there would be no reasonable prospect of the creditors
receiving payment
’
that a proper inference may be drawn that the business is being
carried on recklessly.
[5]
S 424
only penalises directors, apart from circumstances of fraud,
when third parties are subjected to risk which is grossly
unreasonable
such as where the reasonable businessman would realise
that in all the circumstances the payment would not be made when due.
Each
case must however turn on its own facts and involve a value
judgment on those facts.
[6]
[32]
The
creditor for purposes of
s 12(3)
requires knowledge only of the
material facts
from
which the debt arises, not of the relevant legal conclusion or of an
expert opinion.
[7]
The knowledge required is the minimum necessary to enable a creditor
to institute action.
[8]
[33]
In
Minister
of Finance v Gore
[9]
the Court emphasised that –
‘…
time
begins to run against a creditor when it has the minimum facts that
are necessary to institute action. The running of prescription
is not
postponed until a creditor becomes aware of the full extent of its
legal rights, nor until the creditor has evidence that
would enable
it to prove a case ‘comfortably’
.’
[10]
[34]
In
Nedcor
Bank Bpk v Regering van die Republiek
[11]
it was stated:
‘
Reeds
ten tyde van die opstel van die brief van 22 April 1994 was die eiser
op hoogte van die basiese feite waarop hy ‘n eis
teen die
verweerder kon inklee (Van Staden v Fourie, supra, te 216B-F) -
weliswaar ‘n eis wat op die oog af karig was, maar
nietemin ‘n
geldige eis. Menige eiser wat uiteindelik suksesvol was, het sy saak
in die verlede bloots aangepak mits dit
origens op eie pote kon
staan. Later mag hy besmoontlik beter ingelig word, by wyse van
blootlegging van dokumente, of sy eie ondersoek,
of onderhoude met
potensiële getuies of selfs aan die hand van die getuienis wat
deur sy teenparty aangebied word. Altemit
sou hy daarna uitvind dat
daar inderdaad ‘n goeie verweer bestaan waarvan hy net nie
geweet het nie of dat hy om die een
of ander tot dusver onbekende
rede glad nie ‘n eis het nie. Dit sou egter geheel en al
verkeerd wees om in die artikel in
te lees dat hy van al sodanige
omstandighede bewus moes wees alvorens verjaring teen hom kon begin
loop. Litigasie is uiteraard
vol risiko’s, maar opsigself is
dit geen rede waarom die reg hom oor ‘n eiser moet ontferm
indien hy origens oor die
basiese feite beskik om die proses binne
die aangewese verjaringstermyn aan die gang te sit nie. Om daardie
rede kan ek nie akkoord
gaan met die strekking van die woorde van die
verhoorhof wat ek vroeër beklemtoon het, naamlik dat die feite
wat op 22 April
1994 aan die eiser bekend was “nie noodwendig
die ... nalatigheid ... bewys nie ...” Wat beoordeel moet word,
is nie
of die eiser oor voldoende feite beskik het om sy saak teen
die einde daarvan te bewys nie, maar of hy oor die minimum feite
beskik
het om daarmee te begin.’
[35]
In
Drennan
Maud & Partners v Pennington Town Board
[12]
the word ‘debt’ in
s 12(3)
it was stated ‘
does
not refer to the “cause of action” but more generally to
the “claim”…In deciding whether a “debt”
has become prescribed, one has to identify the “debt”, or
put differently, what the “claim” was in the
broadest
sense of the word
’.
[36]
The
plaintiff elected to lead no evidence of its representatives as a
result of which the evidence of Mr Klopper with the documentary
evidence before the Court stands to be analysed from the perspective
of a reasonable creditor with the knowledge possessed by the
representatives of the plaintiff at the time.
[37]
At
the meeting on 9 September 2005 the plaintiff was concerned as to the
solvency of CFI, its viability as a business and was aware
of the
consequences of reckless trading. As much is evident from the fact
that the second defendant was asked whether he was a
director of CFI,
if he understood the consequences for directors of trading
recklessly,
[13]
his reference to CFI’s ‘
liquidity
problems
’
[14]
and his undertaking to provide a statement as to the solvency of the
company. What followed was that increased credit was provided
to CFI
in spite of no solvency statement being received, apparently due to
the second defendant’s representation that there
was no
immediate concern about the viability of the business
[15]
on the basis that CFI would purchase 80% of bottles required by it
from the plaintiff and R1.2 million would be paid before the
end of
September 2005.
[38]
A
payment of R1.2 million was received by the plaintiff on 21 September
2005, which the plaintiff argued indicated that the defendants
had
acted in accordance with the agreement and that there was no basis on
which to conclude that there existed liquidity problems.
While this
payment may have eased the plaintiff’s immediate concerns
regarding payment of the outstanding amount and CFI’s
financial
predicament, by 20 October 2005 there could have been no doubt that
there existed serious liquidity issues. CFI sought
a further
indulgence to pay R1.3 million of the R2 million due by the end of
November 2005 with R665 995 and drawings for October
to be paid at
the end of December 2005, which the plaintiff accepted on the basis
that no other creditor would be paid on a preferential
basis. Shortly
thereafter the last payment of R400 000 was received from CFI and
when no payments were made thereafter it would
have been clear that
the company was in a serious financial predicament and unable to pay
its debts when due.
[39]
When
CFI did not pay on the basis agreed, the second defendant proffered
an excuse to the plaintiff that CFI had been unable to
pay the
plaintiff as it had used cash allocated for payment to the plaintiff
to purchase bottles from Consol as the plaintiff did
not have the
specified bottles available. In spite of this payment being in breach
of the agreement that no creditors would be
paid on a preferential
basis, the plaintiff did nothing to follow up on this breach.
Instead, it appeared to adopt the somewhat
lenient response in the
circumstances of accepting it. And when on 28 November 2005 the
second defendant sent an email to the plaintiff
in which it was
reported that payment to Consol was ‘
to
be put on the backburner
’
and CFI ‘
would
try
’
to bring their account back to normal terms, the plaintiff again
failed to respond to what illustrated that liquidity issues
prevailed.
[40]
Two
weeks later, on 12 December 2005, the plaintiff was informed in the
offer of compromise sent to creditors, with the consent
of the
defendants, that CFI’s liabilities exceeded the value of its
assets and that it was closing its doors. From this letter
the
plaintiff was made aware that on the face of it the representations
made to it at the meeting of 9 September 2005 by the second
defendant
[16]
were false: CFI did not own immovable property and could not sell any
such property to meet its obligations. Rather, immovable
properties
were owned by Unit 5 & 6, and once sold it appeared that the
directors were prepared to loan R3 million to CFI.
Furthermore, that
the representation made by the second defendant that there were not
immediate concerns about the viability of
the business were false
given its financial predicament. The plaintiff would have been made
aware of two further issues from the
letter. From 31 March 2005 to 30
November 2005 CFI’s assets had decreased in value by almost
50%; and a Land Bank loan in
the amount of R5 637 000 was reported
without reference to any immovable property securing such loan.
[41]
The
contents of the compromise letter would reasonably have raised alarm
bells for the plaintiff and pointed to serious shortcomings
in the
manner in which the business had been carried on by the defendants.
The queries provided to Mr Klopper by Mr Antelme on
13 January 2006
indicate that the plaintiff carefully interrogated the compromise
letter in the context of the liquidation application.
What is clear
is that the content of the compromise letter, the content of the
queries raised and the fact of liquidation would
have provided a
reasonable creditor with sufficient facts to formulate a claim in
terms of
s 424
against the defendants. The facts permit a conclusion
that the plaintiff's knowledge by 26 January 2006 was the minimum
necessary
to enable it to institute action within a three year
period.
[42]
The
plaintiff’s contention that the liquidator, who was assisted by
forensic auditors nine months into the liquidation process
could not
establish whether there was reckless trading or not and that this
warrants a conclusion that the plaintiff would not
have been able to
do so within the limited time available to it cannot be sustained.
The plaintiff was by 26 January 2006 ‘
op
hoogte van die basiese feite waarop hy ‘n eis teen die
verweerder kon inklee’.
It
had three years within which to institute action from such date and
was not required, as was suggested for the plaintiff, to
do so within
a matter of weeks.
[43]
It
follows for these reasons that the defendants have discharged the
burden of proving that the plaintiff's claim has prescribed.
The
special plea is upheld and there is no reason as to why costs should
not follow the result.
Order
[44]
In
the result, an order is made in the following terms:
1.
The
special plea of prescription is upheld and the action is dismissed
with costs.
K M SAVAGE
Acting
Judge of the High Court
Appearances
:
Plaintiff:
A de Villiers and L Wade
Instructed
by Macgregor Stanford Kruger
Defendants:
R G Goodman SC
Instructed
by Edward Nathan Sonnenbergs
[1]
Duet and Magnum
Financial Services CC v Koster
2010 (4) SA 499
(SCA) at 507A-G
[2]
Kalinko v Nisbet
and others
2002 (5) SA 766
(W) at 774
[3]
Philotex (Pty)
Ltd and others v Snyman and others
[1997] ZASCA 92
;
1998 (2) SA 138
(SCA) 144B-C
[4]
Ex parte De
Villiers and Another NNO: in re Carbon Developments
1993 91) SA 493
(A) at 504C-E
[5]
Ozinsky NO v
Lloyd and others
1992 (3) SA 396
(C) at 414F-H, 145H-J
[6]
Philotex (supra)
at 146-7
[7]
Truter v Deysel
[2006] ZASCA 16
;
2006 (4) SA 168
(SCA)
[8]
Van Zijl v
Hoogenhout
2005
(2) SA 93
(SCA) at 102J-103A
[9]
2007 (1) SA 111
(SCA) at 120A
[10]
With references at
footnote 3. See too
Geldenbuys
NO v Diedericks
2002 (3) SA 674
(O) at 682I
[11]
[2000] ZASCA 154
;
2001 (1) SA 987
(SCA) at 996F-997A
[12]
1998 (3) SA 2000
(SCA) at 212G
[13]
Response to Further
Particulars at para 5
[14]
Second defendant’s
email dated 20 October 2005 concerning meeting of 9 September 2005
[15]
Plaintiff’s
Response to Request for Further Particulars at para 4
[16]
Para 13.3 of
Particulars of Claim