About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Western Cape High Court, Cape Town
SAFLII
>>
Databases
>>
South Africa: Western Cape High Court, Cape Town
>>
2015
>>
[2015] ZAWCHC 71
|
|
Orestisolve (Pty) Ltd T/A Essa Investments v NDFT Investments Holdings (Pty) Ltd and Another (18414/14) [2015] ZAWCHC 71; 2015 (4) SA 449 (WCC) (28 May 2015)
THE
HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No: 18414/14
DATE:
28 MAY 2015
In
the matter between
ORESTISOLVE
(PTY) LTD t/a ESSA
INVESTMENTS
...............................................
APPLICANT
And
NDFT
INVESTMENTS HOLDINGS (PTY)
LTD
......................................................
RESPONDENT
NAMAKWALAND
DIAMOND FUND TRUST
..................................
INTERVENING
CREDITOR
Coram
:
ROGERS J
Heard:
18 MAY 2015
Delivered:
28 MAY 2015
JUDGMENT
ROGERS
J:
Introduction
[1]
This is the extended return day of an order
for the provisional liquidation of the respondent (‘NDFT’).
The applicant
(‘Essa’) is an alleged creditor in an
amount of R750 000. NDFT’s sole shareholder (‘the
Trust’)
was, subsequent to the grant of the provisional order,
given leave to intervene to oppose final liquidation. The Trust,
apart from
being the company’s sole shareholder, has a loan
account claim against it of about R85 million. Essa is represented by
Mr
CJ van Coller, NDFT by Mr WJ van der Merwe and the Trust by Mr JJ
Botha SC. For convenience I shall refer to NDFT and the Trust
collectively as the respondents. Mr Botha delivered the main argument
on their behalf.
[2]
The issues are in summary: (i) whether
Essa is a creditor; (ii) whether Essa’s claim is bona fide
disputed on reasonable
grounds; (iii) whether NDFT is factually
or commercially insolvent ; (iv) whether, if these questions are
answered in Essa’s
favour, the court in its discretion should
nevertheless refuse to grant a winding-up order.
[3]
The procedural history is briefly the
following. On 27 June 2014 Essa’s attorneys sent a demand to
NDFT in terms of s 345(1)(a)
of the Companies Act 61 of 1973.
This did not elicit payment or the securing of the claim. On 15
October 2014 Essa launched an
application for NDFT’s
provisional liquidation.
[4]
NDFT opposed and filed a short answering
affidavit disputing Essa’s alleged claim. Following several
postponements the application
for provisional liquidation was argued
before Boqwana J on 11 February 2015. On 2 March 2015 she delivered
judgment, finding that
Essa had established its claim on a prima
facie basis and that NDFT was deemed to be unable to pay its debts.
She granted a provisional
order returnable on 7 April 2015.
[5]
On 20 March 2015 the Trust delivered an
application for leave to intervene to oppose the application and to
bring the return day
forward to 24 March 2015. Essa opposed the
intervention. On 24 March 2015 and by agreement the Trust was granted
leave to intervene
and the return day was brought forward to 31 March
2015 with a timetable, costs to stand over. On 31 March 2015 the
return day
was postponed for hearing on the semi-urgent roll on 18
May 2015.
[6]
I may dispose here of a preliminary point
taken by the respondents in their heads of argument. They say that
the provisional order
was not served on employees in the manner
required by s 346(4A). Technically this is correct, because the
return says merely
that when the sheriff attempted service at NDFT’s
premises he was told by ‘the employee’, one
Klasse
,
that there was no trade union. In these circumstances, strict
compliance with the sub-section required the provisional order to
be
served on employees by being affixed to a notice board to which
employees have access. I asked Mr van der Merwe to take instructions
on how many employees NDFT had. The answer was that it had three
employees, namely its managing director Mr Basson (who made the
original opposing affidavit in the provisional liquidation and
further affidavits in the intervention application), the said
Klasse
and a third employee who was present with Klasse when the provisional
order was served. For obvious reasons the point of
non-service was not pressed in the light of this information.
The
relevant legal principles
[7]
In an opposed application for provisional
liquidation the applicant must establish its entitlement to an order
on a prima facie
basis, meaning that the applicant must show that the
balance of probabilities on the affidavits is in its favour (
Kalil
v Decotex (Pty) Ltd
1988 (1) SA 932
(A)
at 975J-979F). This would include the existence of the applicant’s
claim where such is disputed. (I need not concern
myself with the
circumstances in which oral evidence will be permitted where the
applicant cannot establish a prima facie case.)
[8]
Even if the applicant establishes its claim
on a prima facie basis, a court will ordinarily refuse the
application if the claim
is bona fide disputed on reasonable grounds.
The rule that winding-up proceedings should not be resorted to as a
means of enforcing
payment of a debt the existence of which is bona
fide disputed on reasonable grounds is part of the broader principle
that the
court’s processes should not be abused. In the context
of liquidation proceedings, the rule is generally known as the
Badenhorst
rule from the leading eponymous case on the subject,
Badenhorst
v Northern Construction Enterprises (Pty) Ltd
1956 (2) SA 346
(T) at 347H-348C, and is generally now treated as an
independent rule not dependent on proof of actual abuse of process
(Blackman
et al
Commentary on the
Companies Act
Vol 3 at 14-82 –
14-83). A distinction must thus be drawn between factual disputes
relating to the respondent’s liability
to the applicant and
disputes relating to the other requirements for liquidation. At the
provisional stage, the other requirements
must be satisfied on a
balance of probabilities with reference to the affidavits. In
relation to the applicant’s claim, however,
the court must
consider not only where the balance of probabilities lies on the
papers but also whether the claim is bona fide
disputed on reasonable
grounds; a court may reach this conclusion even though on a balance
of probabilities (based on the papers)
the applicant’s claim
has been made out (
Payslip Investment
Holdings CC v Y2K Tec Ltd
2001 (4) SA
781
(C) at 783G-I). However, where the applicant at the provisional
stage shows that the debt prima facie exists, the onus is on the
company to show that it is bona fide disputed on reasonable grounds
(
Hülse-Reutter & Another v HEG
Consulting Enterprises (Pty) Ltd
1998
(2) SA 208
(C) at 218D-219C).
[9]
The test for a final order of liquidation
is different. The applicant must establish its case on a balance of
probabilities. Where
the facts are disputed, the court is not
permitted to determine the balance of probabilities on the affidavits
but must instead
apply the
Plascon-Evans
rule (
Paarwater
v South Sahara Investments (Pty) Ltd
[2005]
4 All SA 185
(SCA) para 4;
Golden Mile
Financial Solution CC v
Amagen
Development (Pty) Ltd
[2010]
ZAWCHC 339
paras 8-10;
Badge &
Others NNO v Midnight Storm Investments 265 Pty Ltd & Another
2012 (2) SA 28
(GSJ) para 14).
[10]
The difference in approach to factual
disputes at the provisional and final stages appears to me to have
implications for the
Badenhorst
rule.
If there are genuine disputes of fact regarding the existence of the
applicant’s claim at the final stage, the applicant
will fail
on ordinary principles unless it can persuade the court to refer the
matter to oral evidence. The court cannot, at the
final stage, cast
an onus on the respondent of proving that the debt is bona fide
disputed on reasonable grounds merely because
the balance of
probabilities on the affidavits favours the applicant. At the final
stage, therefore, the
Badenhorst
rule
is likely to find its main field of operation where the applicant,
faced with a genuine dispute of fact, seeks a referral to
oral
evidence. The court might refuse the referral on the basis that the
debt is bona fide disputed on reasonable grounds and should
thus not
be determined in liquidation proceedings. (In the present case
neither side requested a referral to oral evidence.)
[11]
If, on the other hand, and with due regard
to the application of the
Plascon-Evans
rule, the court is satisfied at the
final stage that there is no genuine factual dispute regarding the
existence of the applicant’s
claim, there seems to be limited
scope for finding that the debt is nevertheless bona fide disputed on
reasonable grounds. It is
thus unsurprising to find that the reported
judgments where the
Badenhorst
rule
has been relevant to the outcome have been cases of applications for
provisional liquidation rather than final liquidation.
[12]
Even where the facts are undisputed, there
may be a genuine and reasonable argument whether in law those facts
give rise to a claim.
I have not found any case in which the
Badenhorst
rule
has been applied, either at the provisional or final stage, to purely
legal disputes. If the
Badenhorst
rule’s
foundation is abuse of process, it might be said that it is as much
an abuse to resort to liquidation where there is
a genuine legal
dispute as where there is a genuine factual dispute. But if the
Badenhorst
rule
extends to purely legal disputes, I venture to suggest that the rule,
which is not inflexible, would not generally be an obstacle
to
liquidation if the court felt no real difficulty in deciding the
legal point. I have not conducted an exhaustive analysis of
the
English authorities but the position stated by the Court of Appeal in
HMRC v Rochdale Drinks Distributors Ltd
[2011] EWCA Civ 1116 paras 79-80
indicates that the equivalent rule in England finds application where
the dispute is shown
to be one ‘whose resolution will require
the sort of investigation that is normally within the province of a
conventional
trial’. A purely legal question would not have
that character.
[13]
I have used the expression ‘bona fide
disputed on reasonable grounds’ in describing the
Badenhorst
rule. The South African cases,
including
Badenhorst
itself, are formulated in such a way as to indicate two requirements,
namely bona fides and reasonable grounds. The view that the
rule
comprises two distinct components was expressly articulated in
Hülse-Reutter v HEG Consulting
Enterprises (Pty) Ltd
1998 (2) SA 208
(C) at 218F-220C, quoted with approval in
Porterstraat
69 Eiendomme (Pty) Ltd v PA Venter Worcester
(Pty) Ltd
2000 (4) SA 598
at 606B-607E.
In the more recent of the two English authorities cited in
Badenhorst
,
namely
Re Welsh Brick Industries Ltd
[1946] 2 All ER 197
(CA), Lord Greene
MR said he did not think there was any difference between ‘bona
fide disputed’ and ‘disputed
on some substantial ground’
and that the one was just another way of saying the other (at
198E-F). This was repeated more
forcefully by Harman J in
Re
a Company (No 001946 of 1991); Ex parte Fin Soft Holdings SA
[1991]
BCLC 737
at 738f-740c who said that bona fides in the (true) sense of
good faith has nothing to do with the matter. However English cases
usually express the test in the same way as our courts (see, for
example,
Tallington Lakes Ltd &
Another v Ancaster International Boat Sales Ltd
[2012]
EWCA Civ 1712
paras 39-41;
Salford
Estates (No 2) Ltd v Altomart
Ltd
[2014] EWCA Civ 1573
para 33).
Including or excluding bona fides as a distinct requirement is
unlikely in practice to lead to different results because
bona fides
(genuineness) is on any reckoning not on its own sufficient and
because a finding that the claim is disputed on substantial
(ie
reasonable) grounds could rarely co-exist with a finding that the
company is not bona fide in disputing the claim.
[14]
In regard to insolvency, Mr Botha submitted
in his heads of argument that the effect of the new
Companies Act 71
of 2008
, and in particular item 9(2) of Schedule 5, was that the
provisions of the old
Companies Act regarding
the liquidation of
insolvent companies were only applicable if the company was insolvent
in the sense that its liabilities exceeded
its assets. He wisely
abandoned that submission after being referred to the decision in
Boschpoort Ondernemings (Pty) Ltd v Absa
Bank Ltd
2014 (2) SA 518
(SCA). The
test is commercial insolvency, ie the inability of a company to pay
its debts as they fall due, a situation which may
prevail even though
the value of the company’s assets exceeds its liabilities.
However, the fact that a company which is
commercially insolvent has
assets which in value exceed its liabilities may be a relevant
circumstance in the exercise of the court’s
residual discretion
to refuse a winding-up order (
Johnson v
Hirotec
(Pty)
Ltd
[2000] ZASCA 131
;
2000 (4) SA 930
(SCA) para 6).
[15]
Section 344(f)
states that a company may be
wound up by the court if ‘the company is unable to pay its
debts as described in
section 345
’.
Section 345(1)
sets
out three circumstances in which a company ‘shall be deemed to
be unable to pay its debts’. Relevant to the present
case are
the first and third circumstances, namely non-payment in response to
a statutory demand (para (a)) and actual (proven)
inability to pay
debts (para (c)). As to statutory demand, a company is not deemed to
be unable to pay its debts merely because
an established claim has
not been paid or secured; what must be shown is that the company has
‘neglected’ to pay or
secure the claim. The English cases
hold that the word ‘neglected’ is not apt to describe a
refusal to pay where the
claim is bona fide disputed on some
substantial ground (see, for example,
Re
Lympne
Investments
Ltd
[1972] 2 All ER 385
(Ch) at 389;
Re
a Company (No 033729 of 1982)
[1984] 1
WLR 1090
(Ch) at 1093B-G;
Palmer’s
Company Law
Vol 4 para 15.215; the
position in Australia is the same: see
KL
Tractors Ltd
[1954] VLR 505
at
508-511). This interpretation of the word ‘neglected’,
which has support in South African authority (see, for example,
Ter
Beek v United Resources CC & Another
1997
(3) SA 315
(C) at 328G-330H;
Nedbank Ltd
v
Applemint
Properties
22 (Pty) Ltd
[2014] ZAGPPHC 1042 paras
20-21), is essentially the
Badenhorst
rule in a different guise and thus does
not in truth give a respondent an additional string to its bow.
[16]
In
Ter Beek
supra, where the court was considering
a statutory demand given in terms of the comparable provisions of the
Close Corporations Act 69 of 1984
, Van Reenen J found that the
company was not, at the time of the statutory demand, bona fide
disputing the claim on reasonable
grounds. He thus concluded that the
company had indeed ‘neglected’ to make payment (at
330G-H). He went on to express
the view, however, that the deeming
effect of a statutory demand could be neutralised by evidence
rebutting the inference of an
inability to pay – in that case,
evidence of protracted settlement negotiations (at 330I-332A). This
view was cited with
approval by Malan J (as he then was) in
Body
Corporate of Fish Eagle v Group Twelve Investments (Pty) Ltd
2003
(5) SA 414
(W) paras 5 and 16. I respectfully doubt this line of
reasoning. The word ‘deemed’ appears in the introductory
portion
of
s 345(1)
and thus applies to all three methods of
determining a company’s inability to pay its debts, yet one
could not sensibly say
that satisfactory proof of an actual inability
to pay a company’s debts (para (c)) is a rebuttable
presumption. As I see
it, once one of the three circumstances in
s 345(1)
is established, the ground for winding-up specified in
s 344(f)
is satisfied (this is the view of the learned authors
of
Henochsberg
at
707 and Blackman op cit at 14-119 – 14-120 and footnote 1 on
the latter page). However, the reason for the company’s
refusing to make payment in response to the statutory demand might,
particularly in conjunction with other circumstances, provide
a basis
for the court to exercise its discretion against liquidation.
[17]
The extent of this discretion was the
subject of some debate. Mr van Coller referred to the traditional
view that where a company
is unable to pay a creditor’s claim
the latter is ex debito justitiae entitled to a winding-up order and
that the court’s
discretion to refuse is narrow (
Rosenbach
& Co (Pty) Ltd v Singh’s Bazaar (Pty) Ltd
1962
(4) SA 593
(D) at 597E-F;
Sammel &
Others v President Brand Gold Mining Co Ltd
1969
(3) SA 629
(A) at 662F;
Absa Bank Ltd v
Rhebokskloof (Pty) Ltd
1993 (4) SA 436
(C) at 440-441). Although the ex debito justitiae maxim has been
repeated in recent cases, there are other decisions holding that
the
legislative policies underlying the new Act require the discretion to
be viewed more broadly in favour of saving ailing companies
(see
Absa
Bank Ltd v
Newcity
Group
(Pty) Ltd & Other Cases
[2013] 3
All SA 146
(GSJ) paras 29-33;
Dippenaar
NO & Others v Business Venture Investments No 134 (Pty) Ltd
[2014] 2 All SA 162
(WCC) paras 45-46).
Where there are competing applications for liquidation and business
rescue, the policy considerations underlying
the business rescue
procedure must inevitably derogate from the traditional approach. The
two cases just mentioned extended this
approach to circumstances
where, although there were not competing business rescue
applications, there was evidence that the companies
could be saved by
transactions of which particulars were furnished.
[18]
I
doubt that the ex debito justitiae maxim has ever been, or justified,
an inflexible limitation on the court’s discretion.
In one of
the leading English cases on the discretion to refuse a winding-up,
Re
Southard & Co Ltd
[1979]
3 All ER (CA), Buckley LJ said that, where a judicial discretion is
concerned, it is mistaken to attempt to lay down rules
for its
exercise and that no judge can fetter any other judge in the manner
of its exercise or lay down rules binding on others
in the exercise
of the discretion (562b-c). The ex debito justitiae maxim, I venture
to suggest, conveys no more than that, once
a creditor has satisfied
the requirements for a liquidation order, the court may not on a whim
decline to grant the order (and
see Blackman op cit Vol 3 at 14-91).
To borrow another judge’s memorable phrase, the court ‘does
not sit under a palm
tree’.
[1]
There must be some particular reason why, despite the making out of
the requirements for liquidation, an order is withheld.
[19]
One clear example, which is sometimes said
to be outside the scope of the maxim altogether, is where the contest
is not just between
the petitioning creditor and the respondent
company but involves a difference of opinion among the creditors
themselves (in England
see for example
Southard
supra at 562c-d and
Re
Demaglass
Holdings
Ltd
[2001] 2 BCLC 633
at 638c-640b; in
this country, see
SAA Distributors (Pty)
Ltd v Sport
en Spel
(Edms) Bpk
1973
(3) SA 371
(C) at 373B-H; Meskin
Henochsberg
on the
Companies Act
Vol
1 p 699-700).
In
Absa Bank Ltd v Erf 1252 Marine Drive
(Pty) Ltd & Another
[2012] ZAWCHC
13
Binns-Ward J, while repeating this proposition, suggested that the
court would attach more weight to the views of external creditors
than insiders. A similar view prevails in England (
Demaglass
supra at 639e-f).
[20]
It is readily understandable that the ex
debito justitiae maxim is not applied where creditors have competing
views. In the case
of sequestration, the petitioning creditor must
establish inter alia that sequestration will be to the advantage of
creditors.
Where the petitioning creditor has established this
requirement together with the other requirements for a sequestration
order,
the scope for the residual discretion would understandably be
limited (cf
Firstrand Bank Ltd v Evans
2011 (4) SA 597
(KZD) para 27). In the
case of liquidation, by contrast, the petitioning creditor need not
establish that liquidation will be to
the advantage of creditors. If
other creditors, despite having had an opportunity to oppose, do not
do so, one can understand why
the court might ordinarily view its
discretion as limited in much the same way as it is in sequestration
proceedings. However,
if one or more creditors oppose the
liquidation, a narrow approach to the court’s discretion is
inappropriate. The court’s
discretion allows it to take into
account the interests of creditors as a whole and what would be to
their best advantage, though
naturally the court is not bound to
refuse a liquidation merely because the majority of creditors by
number or value oppose it.
And of course the court must consider not
merely that the majority of creditors opposes the winding-up but also
the reasons for
the opposition.
[21]
Another circumstance which, in my view,
would favour an exercise of the court’s discretion against
winding-up is where, despite
the deemed inability to pay debts
created by
s 345(1)(a)
, the evidence shows that the company is
not in fact commercially insolvent. It may also be relevant in this
regard that the company’s
failure to pay is attributable to a
genuine dispute concerning the claim, even if the court in the event
considers the grounds
of dispute are ill-founded.
[22]
Mr van Coller submitted in his heads of
argument that the respondents were not entitled to revisit issues
decided by Boqwana J.
That is incorrect. The burden of proof is
different as is the approach to resolving disputes of fact.
Furthermore, the company
and intervening parties are entitled to
place additional evidence before the court prior to the return day,
as they did here.
The
facts
[23]
NDFT’s main business is the holding
of investments. According to its financial statements its principal
forms of income are
rent and interest. The Trust is its sole
shareholder. All the directors of NDFT are also trustees of the Trust
but there are further
trustees who are not directors of NDFT.
According to the respondents, the trustees operate independently from
NDFT’s management.
[24]
During the first part of 2013 Mr Ruan van
der Merwe (Van der Merwe) referred NDFT to Essa’s Mr Gert
Oosthuizen (‘Oosthuizen’)
to assist NDFT in raising bank
finance. Van der Merwe and Oosthuizen were at that time business
associates, the former being a
qualified attorney, the latter an
ex-banker. It appears that at that time NDFT had an overdraft
facility with Grindrod Bank (‘Grindrod’).
The amount of
the overdraft at the time of the referral does not appear from the
papers but in April 2014, about a year later,
the overdraft stood at
about R15,4 million.
[25]
On 11 June 2013 a written consultancy
agreement was concluded between Essa and NDFT in terms whereof Essa
was to use its best efforts
and its connections in the banking sector
to assist NDFT in successfully obtaining an overdraft or term loan of
R30 million. Clause
2, headed ‘Consideration’, reads
thus:
‘
The
Consulting Party will pay the Consultant a success fee equal to 2.5%
… of any credit facility granted to the Consulting
Party as a
result of the services rendered by the Consultant (‘the
Consideration’). The fee will become due and payable
by the
Consulting Party to the Consultant upon the issue of a facility
letter, final approval or any other written notification
of the
approval of a credit facility by a registered financial institution
to the Consulting Party. However, this fee will still
be due and
payable even if no such notification is issued, but a credit facility
is nonetheless granted to the Consulting Party
by a registered
financial institution.’
[26]
Clause 6 stipulated that the agreement
comprised the parties’ complete and exclusive agreement and
that no amendment, addition,
deletion or alteration would be of any
effect unless reduced to writing and signed by both parties.
[27]
There was an agreement between Oosthuizen
and Van der Merwe that if Essa earned the success fee stipulated in
the consultancy agreement,
Essa would pay Van der Merwe a referral
fee equal to 50% of the success fee.
[28]
Essa, represented by Oosthuizen, was
engaged in the following months in seeking to procure this overdraft
facility for NDFT. It
appears to have been recognised that a bank
would require security from the Trust which at that time had a hedge
fund investment
in Edge Investments’ Iconic Absolute Return
Fund (‘the Iconic investment’). The value of the Iconic
investment
fluctuated but was around R60 million.
[29]
During December 2013 seven of the Trust’s
trustees signed what purported to be a resolution passed at a meeting
of trustees
held on 5 December 2013. The resolution was in summary
(i) that the Trust take such measures as were necessary to
support
NDFT to the fullest of its abilities so as to enable the
company to achieve its goal of providing the Trust with a steady
source
of dividend income; (ii) that to that end the Trust made
available and would cede, as security for an overdraft for NDFT, the
Iconic investment, authorising the Trust’s representative to
withdraw the capital from the Iconic investment and reinvest
it with
the financial institution; (iii) that Mr JF Basson (‘Basson’)
was authorized to do whatever was necessary
to give effect to these
resolutions and to sign all necessary documents. Basson, apart from
being a trustee, was NDFT’s managing
director.
[30]
According to the respondents, Basson
provided this resolution in draft to the chairman of the trustees, Mr
WJ Cloete (‘Cloete’),
with a request that Cloete assist
in procuring the trustees’ signatures by way of round robin.
Cloete in his affidavit says
that he could not get the signatures of
all the trustees and that the matter thus had to be taken up at the
next sitting of the
full body of trustees, where the purported
resolution of 5 December 2013 was rejected. I shall return to this
later. The respondents
did not say in their answering affidavits how
many trustees there were, what the trust deed stipulated in regard to
the passing
of resolutions or when the full meeting took place. The
purported resolution of 5 December 2013 made provision for 12
signatures
though it does not necessarily follow that there were in
fact 12 trustees as at December 2013.
[31]
Oosthuizen says that on 26 February 2014 he
was informed by Absa, the financial institution with which he was
negotiating, that
the bank had granted an overdraft facility of R30
million to NDFT. On the same day Essa issued an invoice to NDFT for
R750 000.
However, there is no evidence that Absa issued a
facility letter as early as February 2014 though there may have been
an indication
in principle that Absa was willing to grant an
overdraft.
[32]
It appears from email correspondence which
passed during March and April 2014 that Absa was not willing to
accept security in the
form of a pledge of the Trust’s hedge
fund investment and that the Trust would thus need to realise the
Iconic investment
and reinvest the proceeds as a fixed deposit.
Indeed, that this was or might be the position is apparent from the
aborted resolution
of 5 December 2013.
[33]
The realisation of the Iconic investment
was not altogether straightforward. This appears from a letter dated
25 March 2014 addressed
by Edge to Absa. Edge confirmed that it had
received instructions from the Trust to realise the Iconic investment
in full. Edge
informed Absa that realisation of the investment
required three calendar months’ notice. Certain of the hedge
fund’s
underlying investments of a less liquid nature might
need to be held by NDFT in a separate structure and would thus not be
part
of the initial cash realised. The Iconic investment was
currently pledged to Grindrod. To ensure a realisation date of 30
June
2014 (ie when the three-month notice period expired),
cancellation of the Grindrod cession would have to take place by 30
April
2014.
[34]
On 3 April 2014 Oosthuizen emailed Absa’s
Mr Cobus Louw, requesting him to ascertain from Grindrod what exactly
they required
in order to release the Iconic pledge. He said he was
being bombarded with calls from NDFT and that there were threats that
the
trustees might withdraw from the transaction. He also said (in
Afrikaans) he had been ‘threatened with FNB’, presumably
meaning that Absa might lose out on the business in favour of FNB. He
said they were so close and that they should do everything
in their
power to expedite and finalise the transaction.
[35]
On 15 April 2014 Absa issued a facility
letter in terms whereof Absa granted NDFT an overdraft facility of
R30 million on the terms
and conditions set out in the letter and in
an attached facility schedule. Clause 2 of the facility letter,
headed ‘Suspensive
Conditions’, stated that the bank
would make the facility available to NDFT at such time and in such
manner as the bank might
agree and after NDFT had (i) signed and
returned the original of the facility letter and facility schedule
together with a
copy of an authorising resolution from the company;
(ii) provided the collateral specified in the facility letter, being
a cession
by the Trust of a fixed deposit of R60 million together
with the interest thereon (clauses 2.3 and 2.4) and a suretyship by
the Trust, limited to R30 million, together with a cession of its
loan account in NDFT (clause 3).
[36]
On the same day Basson signed his
acceptance of the facility letter on behalf of NDFT, confirming that
he had been duly authorized
to do so.
[37]
On 15 April 2014 Absa also issued a letter
to Grindrod undertaking to make payment to Grindrod of R15 416 838,27
(NDFT’s
then overdraft indebtedness to Grindrod) upon
(i) confirmation from Grindrod that the Trust’s pledge of
the Iconic investment
had been cancelled; (ii) payment of R60 million
into a specified Absa account in the name of the Trust (ie the
proposed fixed deposit
which the Trust was to pledge to the bank);
(iii) all conditions and collateral for the approved facility being
in good order and
legally binding.
[38]
Although
the Trust had by this date given notice to Edge for the realisation
of the Iconic investment, the actual realisation had
not yet
occurred. Correspondence after 15 April 2014 suggests that the prompt
realisation of R60 million in cash was in doubt.
The email
correspondence in the record does not enable one to form a complete
picture of what was going on. It appears that a certain
Mr
Jones-Phillipson was engaged as an intermediary with Edge to
facilitate the process. He emailed something to Van der Merwe on
22
April 2014.
[2]
The full content
of Jones-Phillipson’s communication has not been included in
the papers but when Van der Merwe forwarded
it to Oosthuizen, the
latter replied that he thought Louw (of Absa) would ‘have a
fit’ because it would mean he would
have to ‘amend his
whole application’. He told Van der Merwe that Grindrod had
proposed that Edge settle Grindrod directly
and remit the balance to
Absa. Oosthuizen told Van der Merwe that it was very important to
know exactly how much cash would be
available from Edge and that
anything under R30 million would become a big problem. (This last
statement may reflect a belief on
Oosthuizen’s part that Absa
would accept a pledge of a fixed deposit in the amount of R30 million
rather than the R60 million
specified in the facility letter.)
[39]
On 23 April 2014 Oosthuizen sent an email
to Louw stating that Basson had been in touch with Edge to ascertain
how much cash was
available and that Oosthuizen would let Louw know
as soon as they heard anything. Basson, he said, was content for Edge
to settle
Grindrod directly ‘
en
dan die oortrokke fasiliteit 80/20 toevoer, soos gister bespreek
’
.
I have not offered a translation of the Afrikaans passage because
counsel were not able to tell me what it meant. Oosthuizen said
that
he was only available until the Friday (he was going overseas).
[40]
At this point the paper trail and evidence
regarding the Absa facility peters out. At some stage between 23
April 2014 and 8 May
2014 something happened to cause the transaction
to fail. This appears from Basson’s reaction to an email which
Oosthuizen
sent to NDFT’s accountant, Mr GK Terblanche, on that
day, asking that NDFT immediately settle Essa’s invoice of 26
February 2014 to avoid further action. Terblanche forwarded this to
Basson who emailed Van der Merwe the next day asking him to
look into
the matter and saying that he did not quite understand, given that
the transaction with Absa had not been successful.
[41]
The respondents’ evidence as to why
the Absa transaction failed is to be gleaned from the manner in which
Cloete explained
the purported resolution of 5 December 2013. He said
that at the next full sitting of the trustees the partially signed
resolution
was tabled. The full body of trustees decided that it
would be more sensible for the Trust to increase its loan to NDFT
than to
place money on fixed deposit with Absa at a lower rate of
interest in return for an overdraft to NDFT at a higher rate of
interest.
He says the trustees would have been prepared to pledge the
Icon investment itself with Absa but the latter was not willing to
accept security in that form.
[42]
The respondents can be criticised for not
having dealt with this decision by the trustees more fully. They do
not say when the meeting
took place and do not attach minutes or
resolutions. However, and applying the
Plascon-Evans
rule, I cannot reject the truth of the
respondents’ version, vague as it is. As a fact, NDFT did not
take up an overdraft
with Absa or with any other financial
institution. There must thus have been a commercial explanation for
this decision, and the
one provided by the respondents is plausible.
[43]
As to the timing of the decision, it must
have taken place after 15 April 2014. Basson, who was a trustee as
well as NDFT’s
managing director, would not have accepted the
facility letter on behalf of NDFT if he knew that the Trust had
already resolved
not to provide the security and not to go ahead with
the transaction. This means that the first full meeting of the
trustees after
5 December 2013 must, on the respondents’
version, have been after 15 April 2014, which is somewhat surprising
but again
I cannot say it is untrue. Furthermore, the correspondence
of March and April 2014 shows that the realisation of the Iconic
investment
was running into difficulty. Oosthuizen mentioned in his
email to Louw of 3 April 2014 that the trustees were threatening to
withdraw.
These difficulties may have played their part in the
trustees’ decision, sometime after 15 April 2014, to take a
different
route.
[44]
It appears likely that the Trust realised
at least some part of the Iconic investment in order to settle NDFT’s
Grindrod overdraft
because NDFT’s management accounts for 31
January 2015 show that the overdraft no longer existed and that the
company’s
sole creditor of substance was the Trust, whose claim
on loan account was R85 374 953.
[45]
On 27 June 2014 Essa’s attorneys
dispatched the
s 345(1)(a)
demand. There is a factual dispute as
to what happened thereafter. Oosthuizen says that Van der Merwe
contacted him and proposed
that the matter be settled on the basis
that Van der Merwe abandon his referral commission and that NDFT
would pay Essa the balance
of the success fee (ie R375 000) in
monthly instalments of R25 000. Oosthuizen said he would
consider this proposal provided
it was reduced to writing. He says
NDFT paid R25 000 on 1 August 2014. No further payments were
made and the proposed settlement
was never reduced to writing.
[46]
The respondents, whose affidavits included
one by Van der Merwe, deny that there was any such proposed
settlement. Van der Merwe
says that, after NDFT’s receipt of
the
s 345(1)(a)
demand and on instructions from the company, he
had several discussions with Oosthuizen in an attempt to resolve the
issue. In
these discussions Van der Merwe expressly informed
Oosthuizen that NDFT was not prepared to concede his claim because
NDFT was
of the opinion that Essa had not succeeded in fulfilling its
mandate and that Essa would only have been entitled to its fee if
NDFT obtained the overdraft facility. Van der Merwe adds that he
drafted the consultancy agreement and that it was always the
intention
of the parties that NDFT would pay Essa from the proceeds
of the overdraft facility. He did not believe that the issuing of the
facility letter with its suspensive conditions itself constituted
fulfilment of the mandate. It was for this reason that he did
not
believe that he himself was entitled to a referral fee.
[47]
The respondents claim that the payment of
R25 000 on 1 August 2014 had nothing to do with the consultancy
agreement; it related
to the so-called
Loanfinder
transaction. NDFT had been contemplating the acquisition of the
Loanfinder
business and Oosthuizen was
involved in structuring the transaction. It appears that the
transaction did not come to fruition. According
to the respondents,
NDFT agreed to pay Essa an ex gratia amount of R25 000 for his
efforts (Essa had not submitted an invoice).
[48]
The proof of payment for the amount of
R25 000 is non-specific, ie does not contain a reference either
to the consultancy agreement
or to the
Loanfinder
transaction, though the respondents state that if
the payment had been intended to be in respect of the consultancy
agreement, there
would have been a reference to Essa’s invoice
number. The covering email which Terblanche sent Oosthuizen on 1
August 2014
is also non-specific but records that the payment was ‘in
no way an acknowledgement of debt’ and that NDFT reserved
all
its rights.
[49]
In reply Oosthuizen denied that the payment
had anything to do with the
Loanfinder
transaction. He says he did relatively little work
on the
Loanfinder
transaction.
This is not, however, a dispute which can be resolved on the papers.
[50]
I should mention that Van der Merwe’s
interests were initially aligned with Essa’s because of his
arrangement with Oosthuizen
for the payment of referral fee. However,
in early July 2014 Van der Merwe told Oosthuizen that he had received
a very attractive
offer of employment from NDFT which he had
accepted. In an email of 7 July 2014 he explained to Oosthuizen why
this would not compromise
the
Loanfinder
transaction. Accordingly, Van der Merwe’s
evidence on behalf of the respondents was not that of a disinterested
witness.
[51]
The liquidation application followed on 15
October 2014.
The
claim
[52]
Essa’s case is that its commission of
R750 000 became payable when Absa issued the facility letter on
15 April 2014,
its being irrelevant that the facility was conditional
upon the furnishing by the Trust of security. In the alternative,
Essa says
the condition was actually fulfilled or at least
fictionally fulfilled. The respondents deny all the ways in which the
claim is
put.
[53]
It
is clear from the papers that NDFT did not in the event take up the
overdraft facility and that the Trust did not as a fact make
a fixed
deposit of R60 million with Absa or pledge any such deposit to Absa.
Although the papers focused on the requirement of
a pledged fixed
deposit, there is no evidence that the Trust signed the suretyship
required by the facility letter or pledged its
loan account in NDFT
to Absa as security, and Cloete said that no such cession had
occurred.
[3]
At the hearing of
the application for provisional liquidation, Essa relied, for its
contention of actual fulfilment of the fixed
deposit condition, on a
statement by an in-house Absa lawyer on 4 April 2014 in an internal
email, her advice having been sought
on the Trust’s capacity to
provide security.
[4]
The lawyer
must have misunderstood the current state of play. Apart from the
fact that the respondents allege that the fixed deposit
never came
into existence, it is clear from other correspondence that the
realisation of the Icon investment could not yet have
yielded the
cash for a fixed deposit. As late as 23 April 2014 Oosthuizen was
attempting to find out from Edge how much cash would
be available. It
was clearly going to be less than R60 million, possibly even less
than R30 million.
[54]
Accordingly, Essa’s claim depends on
a finding either that the issuing of the facility letter, despite its
conditionality,
constituted the event entitling Essa to commission or
that, if fulfilment of the conditions was necessary, the conditions
were
fictionally fulfilled.
[55]
On the respondents’ version, which I
must accept, there was a deliberate decision taken by the Trust not
to proceed with the
Absa transaction because the Trust considered, in
the light of Absa’s refusal to accept a pledge of the Iconic
investment,
that it would be commercially more sensible for the Trust
itself to provide whatever additional loan finance NDFT needed,
including
funding to settle the Grindrod overdraft.
[56]
Fictional fulfilment is most often
encountered where only one contract is in issue, the question being
whether the one party frustrated
the fulfilment of a suspensive
condition to avoid his contingent obligations to the other party.
Here there are two contracts,
the consultancy agreement between Essa
and NDFT and the facility agreement between NDFT and Absa. As between
NDFT and Absa there
can be no question of the fictional fulfilment of
the conditions regarding the provision of security. It would never
have been
in the bank’s interest to rely on fictional
fulfilment because Absa would then have been obliged to provide the
overdraft
without having the security. Essa’s case is that if
the payment condition in the consultancy agreement required the
facility
agreement to be unconditional, the facility agreement should
– as between Essa and NDFT, even though not as between NDFT and
Absa – be regarded as having become unconditional.
[57]
I accept that fictional fulfilment can
operate in this way (cf
Watson v
Fintrust
Properties
(Pty) Ltd
1987 (2) SA 839
(C) at
757H-759H and authorities there cited). In the present case, however,
the deliberate decision which caused the Absa transaction
to fail
was, on the facts as I must hold them to be in accordance with
Plascon-Evans
,
that of the Trust, not NDFT. The Trust’s decision was not taken
merely as sole shareholder in relation to a transaction
to which NDFT
was a party; it was a decision in relation to collateral transactions
which the Trust itself would have had to conclude,
namely the signing
of a suretyship and the pledge of a fixed deposit and its loan
account. The Trust in that capacity owed no duty
to Essa to provide
the security which would have enabled Essa to earn its commission.
[58]
But the question remains whether Essa needs
to rely on fictional fulfilment. This is a question of interpretation
of the consultancy
agreement. The correct approach was described as
follows by Wallis JA in
Natal Joint
Municipal Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA) para 18 (footnotes omitted):
‘…
Whatever
the nature of the document, consideration must be given to the
language used in the light of the ordinary rules of grammar
and
syntax; the context in which the provision appears; the apparent
purpose to which it is directed and the material known to
those
responsible for its production. Where more than one meaning is
possible each possibility must be weighed in the light of
all these
factors. The process is objective, not subjective. A sensible meaning
is to be preferred to one that leads to insensible
or unbusinesslike
results or undermines the apparent purpose of the document. Judges
must be alert to, and guard against, the temptation
to substitute
what they regard as reasonable, sensible or businesslike for the
words actually used. To do so in regard to a statute
or statutory
instrument is to cross the divide between interpretation and
legislation; in a contractual context it is to make a
contract for
the parties other than the one they in fact made. The “inevitable
point of departure is the language of the
provision itself”,
read in context and having regard to the purpose of the provision and
the background to the preparation
and production of the document.’
[5]
[59]
Van der Merwe’s allegation that the
parties intended that the commission and success fee would be paid
out of the overdraft,
even if it were admissible in interpreting the
consultancy agreement, would not lead to a conclusion that the
commission was payable
only if the overdraft was actually advanced.
The parties may well have anticipated that, if a facility letter was
issued, the actual
advancing of money by the bank would follow
promptly thereafter. The overdraft proceeds would thus have been the
natural method
of settling the commission. Non constat that there
would be no entitlement to commission if for any reason NDFT did not
actually
take up the overdraft. If, for example, clause 2 of the
consultancy agreement in the present case had been amplified by
additional
words to the effect that commission would be paid from the
proceeds of the overdraft, this would have been a time clause rather
than a condition, so that if for any reason this method for
determining the time of payment fell away, there would have to be
payment forthwith or within a reasonable period of time (
Venter
Agentskappe (Edms
)
Bpk v De Sousa
[1990] ZASCA 37
;
1990 (3) SA 103
(A)). In
Ferndale Investments (Pty) Ltd v
D.I.C.K. Trust (Pty) Ltd
1968 (1) SA
392
(A) the appellant had been given a mandate to raise a loan on
mortgage for the respondent. A loan agreement was duly concluded but
the respondent decided not to take up the loan and the mortgage was
never registered. The mandate stated that the commission would
be
paid on registration of the bond. The court held that there was no
reason to construe the registration of the bond as a condition
failing the fulfilment of which there was no contract to pay.
[60]
The starting point, as the
Natal
Joint Municipal Pension Fund
case
emphasises, are the words actually used in the contract. Although
Essa’s mandate was to assist NDFT ‘in successfully
obtaining credit facilities’ and although the commission was
styled a ‘success fee’, the event which was to render
the
commission due and payable was stated to be ‘the issue of a
facility letter, final approval or any other written notification
of
the approval of a credit facility’ by the bank to NDFT. I do
not think the reference to ‘success’ requires
one to
interpret the payment condition as meaning that the conditions
specified in a duly issued facility letter had to be fulfilled
before
the commission would become due and payable. On the face of it, the
words are not so qualified. Success, in context, means
the issuing of
the facility letter.
[61]
Fulfilment by an agent of his mandate may
often require there to come into existence a binding contract between
his principal and
a third party of which he (the agent) was the
effective cause. Typically this is the case where an estate agent
receives a mandate
to ‘find a buyer’ (
Vesta
Estate Agency v Schlom
1991
(1)
SA 593
(C) at 596H-I). A binding contract would mean one which is or
has become unconditional. In
Gluckman v
Landau & Co
1944 TPD 261
at 268
Murray J said:
‘
Normally
the services of an estate agent are invoked where the principal
desires to dispose of his property and receive the proceeds
thereof.
He has in contemplation an actual sale as the event upon which his
promise to pay commission must be fulfilled and the
agent realises
this. The same principle applies
mutatis
mutandis
where the agent is approached
in regard to securing leases, or raising loans, and where the
principal desires to buy or to hire,
not to sell or to lease…’
[62]
But the learned judge went on to say that
it is possible that the principal may bind himself to pay commission
on different terms.
The cases emphasise that it is ultimately a
matter of construction of the mandate (see also
Watson
supra at 747H-750I and authorities
there collected). Thus in
Commercial
Business Brokers v Hassen
1985 (3) SA
583
(N) the agent was the effective cause of the sale of a business.
The sale was subject to the suspensive condition that the lessor
of
the business premises should agree to a substitution of the purchaser
as the lessee. This condition failed. The agent was nevertheless
held
to be entitled to his commission because the sale agreement contained
unambiguous language to the effect that the agent earned
the
commission upon the signing of the agreement, this being a stipulatio
alteri the benefit of which the agent had accepted.
[63]
In the present case the consultancy
agreement does not say that the event entitling Essa to commission is
the conclusion of a facility
agreement or the actual advancing of
money on overdraft. The commission was payable upon the issuing of a
facility letter, final
approval or any other written notification of
the approval of the credit facility by the bank. It may be that some
limitation must
be read into the language of clause 2 since otherwise
the bank might notionally have issued a facility letter on terms
which were
unreasonable or unrealistic and had no prospect of
achieving the purpose of enabling NDFT to get an overdraft. This of
course is
not a very likely scenario because typically the issuing of
a facility letter would be preceded by negotiations regarding
interest
rates, fees and security. Be that as it may, any such
implied limitation would be sufficiently satisfied if the facility
letter
was on terms and conditions acceptable to NDFT, and that those
terms and conditions were acceptable is proved by NDFT’s
written
acceptance. To imply a further qualification, that the
commission would only be earned if the security specified in the
facility
letter was actually furnished by NDFT’s sole
shareholder, seems to me to go beyond what would be justified by the
language
of the consultancy agreement viewed in the light of
surrounding circumstances and commercial common sense.
[64]
Accordingly, and if the granting of a final
order depended only on whether Essa had established its claim, I
would have been inclined
to hold that the claim had been duly
established. I do not think there is any relevant factual dispute
which would preclude such
a finding. However, in the light of my
other conclusions, it is not necessary for me finally to decide this
point and it may be
undesirable to do so in view of the fact that the
claim may become the subject of future litigation.
Bona
fide disputed on reasonable grounds?
[65]
I alluded earlier in this judgment to the
Badenhorst
rule
and its scope, if any, once the court has determined that there are
no genuine factual disputes regarding the claim, the only
issue being
whether in law those facts give rise to a claim. Here the only point
of dispute regarding the claim is the interpretation
of the
consultancy agreement. While interpretation of a contract may be a
mixed question of fact and law, there are in this case
no factual
disputes regarding the surrounding circumstances. At least where the
interpretation of the contract appears to the court
to be clear,
there seems little scope for saying that the respondent is
nevertheless disputing the claim on reasonable grounds.
[66]
Because I find it unnecessary finally to
determine the existence of the claim on the papers, I also need not
finally decide whether
the claim is being disputed on reasonable
grounds. Once again, though, and if this were the only obstacle in
the way of a final
order, I am far from satisfied that I would have
withheld a final order on the basis of the
Badenhorst
rule.
[67]
I must emphasise, though, that the
Badenhorst
rule
is conventionally formulated as requiring the company to satisfy the
court of two things: its bona fides and the reasonableness
of its
grounds for disputing the claim. If the respondents were to fail in
their reliance on the
Badenhorst
rule,
it would be for failure to satisfy the second of these requirements.
As to the first, I cannot find on the papers that the
respondents are
not genuine in disputing the claim. Bona fides is a question of fact.
At the stage of a final order, it must be
assessed in accordance with
the
Plascon-Evans
rule.
Even though the onus on a particular issue in motion proceedings
might rest on the respondent, this does not reverse the operation
of
the
Plascon-Evans
rule
(see
Ngqumba en ʼn Ander v
Staatspresident en Andere
1988 (4) SA
224
(A) at 259E-263D;
Rawlins
& Another v
Caravantruck
(Pty)
Ltd
[1992] ZASCA 204
;
1993 (1) SA 537
(A) at 541I-542B).
And bona fides, in the context of the
Badenhorst
rule, does not in my view require that
the company should hold a belief that at trial its defence to the
claim would definitely
succeed or even be more likely than not to
succeed. It would be sufficient, I think, that the company genuinely
wishes to contest
the claim and believes it has reasonable prospects
of success.
[68]
I mention bona fides at this point, because
it bears on the two remaining issues to be addressed below, namely
inability to pay
debts and discretion. A finding that the company is
not bona fide in disputing the applicant’s claim would usually
go hand
in hand with a finding that the claim is being disputed
solely for purposes of delay; and such a purpose would often support
an
inference that the company is unable to pay its debts and militate
against the exercise of a discretion in its favour.
Inability
to pay its debts and discretion
[69]
If one assumes in Essa’s favour that
its claim has been established on the papers and is not being
disputed on reasonable
grounds, it would – subject to any
residual discretion – be entitled to a final order if NDFT’s
inability to
pay its debts in the ordinary course has been proved. In
its founding papers Essa relied on the ‘presumption’
created
by
s 345(1)(a)
but also alleged that NDFT was in fact
unable to pay its debts. The latter allegation was based on NDFT’s
alleged attempt
to settle the commission claim by offering monthly
instalments. In the initial answering affidavit, NDFT focused on
Essa’s
alleged claim, concluding that because the claim
supposedly did not exist it could not be inferred that NDFT was
unable to pay
its debts.
[70]
Pursuant to the intervention, considerably
more information was placed before the court regarding NDFT’s
financial state of
affairs, including its audited financial
statements for the year ended 28 February 2013 and its management
accounts of January
2015. These financial statements were attached to
the affidavit of Terblanche, who practises as a chartered accountant
and who
has been involved in NDFT’s financial administration
for several years. He explained that NDFT’s audited financial
statements for the year ended 28 February 2014 were not available
because certain companies in which NDFT held shares had not yet
completed their audits. Essa, while continuing to rely on the
presumption created by
s 345(1)(a)
, disputed that the attached
financial statements showed that NDFT was actually or commercially
solvent.
[71]
On the facts of the present case,
determined in accordance with
Plascon-Evans
,
NDFT refused to make payment because it considered that Essa’s
commission had not been earned and this had been conveyed
to Essa
prior to the launching of the liquidation application. NDFT did not
make an offer to settle the claim, and the amount of
R25 000
which the company paid 1 August 2014 was unrelated to the consultancy
agreement. But if one were to find that NDFT’s
grounds for
disputing the claim were not reasonable (which might well be the
case), there would have been a ‘neglect’
to pay within
the meaning of
s 345(1)(a).
If
s 345(1)(a)
creates only a
rebuttable presumption (see
Ter Beek
and
Body Corporate of Fish Eagle
supra),
one would need to investigate whether the presumption has been
rebutted by evidence that NDFT is not commercially insolvent.
Alternatively, and on the view I take of
s 345(1)(a)
, the
question would be whether, despite the deemed inability to pay debts,
the court’s discretion should nevertheless be
exercised against
granting a final order. Whatever other limits there may be on the
residual discretion, I do not see why it should
be restricted where
the court is satisfied that the company is commercially solvent and
the statutory presumption of commercial
insolvency has arisen only
because the company has misguidedly but genuinely disputed the claim
and therefore refused pay it.
[72]
It is thus necessary to examine whether, on
the papers, NDFT is actually commercially insolvent. In this regard,
one must bear in
mind that NDFT is an investment company, not a
trading company. Apart from its indebtedness on loan account to the
Trust, NDFT
appears not to incur any significant operational debts on
a routine basis. There is no evidence that NDFT has ever defaulted in
the payment of its debts to any other creditors. The respondents have
denied that NDFT is factually or commercially insolvent,
an assertion
supported by Terblanche with reference to the financial statements.
[73]
The 2013 audited financial statements
contain figures for the company and consolidated figures for the
company and its subsidiaries.
In what follows I use the figures for
the company. The position would not be materially different if one
utilised the consolidated
numbers. As at 28 February 2013 NDFT had
current assets of R30 323 570 (including cash of
R21 209 428) and
investment assets of R53 321 534,
totalling R83 645 104. The notes to the financial
statements indicate that
the assets were carried at fair value. The
company’s sole liability was its indebtedness to the Trust on
loan account in
an amount of R81 441 745, in regard to
which no capital payments were anticipated within the next 12 months.
The company
had no current liabilities. If the Grindrod overdraft
facility was in place (which it may have been, because the company’s
financing costs for the year included bank interest of about R1,674
million), there was no overdrawn balance at year-end. Overall,
the
company’s assets exceeded its liabilities by R2 203 359.
The income statement reflects that NDFT’s investment
operations
ran at a loss for the year of R2 157 149. There would have
been a profit but for interest of R5 834 568
on the Trust’s
loan account.
[74]
As at 28 February 2013 NDFT was thus
neither factually or commercially insolvent. The fact that its
investment operations ran at
a loss naturally does not mean that it
was commercially insolvent. Provided a company has resources from
which to meet current
demands, it matters not, when one is
considering solvency, whether its operations in any particular year
are or are not profitable.
[75]
There are no financial statements for the
year ended 28 February 2014. However, it appears that by that stage
the company’s
liabilities may have exceeded, or been at risk of
exceeding, its assets because the Trust signed a subordination
agreement. The
agreement recorded that as at 28 February 2014 the
Trust’s loan claim stood at R81 069 802, R10 million
of which
the Trust agreed to subordinate so as to enable the claims
of other creditors to be paid in full. The agreement was to remain in
force for as long as the liabilities of the company exceeded its
assets fairly valued. The agreement was still in force as at January
2015. In terms thereof the Trust was not only precluded from proving
the subordinated portion of its claim in NDFT’s liquidation
if
this would reduce the dividend payable to other creditors; the Trust
also agreed that it would not be repaid or be entitled
to demand
payment of the subordinated portion for as long as the subordination
agreement remained in force. It was recorded that
interest at 9,25%
per annum was payable on the loan account but would not actually be
paid but be added to the subordinated amount.
The agreement was
stated to be for the benefit of all other creditors of NDFT, present
and future. The subordination agreement
thus contained terms which
would bring about all the usual effects of a subordination agreement
as described by Goldstone JA in
Ex parte
De Villiers & Another NNO: In re Carbon Developments (Pty) Ltd
(In Liquidation)
1993 (1) SA 493
(A) at
504I-506F.
[76]
The management accounts as at 31 January
2015 reflect that the company had current assets of R1 446 844
(including cash
of R1 293 462) and fixed assets of
R80 342 804, totalling R81 789 648. The company’s
sole liabilities
were its indebtedness to the Trust on loan account
in an amount of R85 374 953 and a PAYE indebtedness to SARS
of R9 010.
The Grindrod overdraft, which one knows was about
R15,4 million in April 2014, no longer existed. Overall, the
company’s
liabilities exceeded its assets by R3594 316
before taking the subordination of R10 million into account. The
income statement
reflects that NDFT’s investment operations ran
at a loss for the year of R941 311, including interest of
R426151 paid
to Grindrod and management fees of R842 854. The
income statement does not reflect interest on the Trust’s loan
account,
the accounting for which would naturally increase the
loss for the year.
[77]
Mr van Coller says that if the Trust
decided to fund NDFT itself rather than letting NDFT take up the Absa
overdraft, one would
have expected the Trust’s loan account to
have increased by more than it did. However, there is no reason to
doubt that the
Trust did provide the additional funding because as a
fact the Grindrod overdraft was discharged and NDFT did not as at
January
2015 have any creditors apart from the Trust and a minimal
amount owing to SARS. One cannot assume that there was no intervening
reduction in the loan account between 28 February 2014 (when the
amount owing to the Trust was R81 069 802) and 31 January
2015 (when the amount was R85 383 963). Quite possibly, for
example, money raised by NDFT on overdraft with Grindrod
or other
cash resources on hand were used, after 28 February 2014, to reduce
the loan account before it was again increased to
the amount
reflected as at 31 January 2015.
[78]
One of the assets reflected in the 2013
financial statements and the management accounts is a 100%
shareholding in a company called
Killogie
Investments (Pty) Ltd (‘Killogie’
).
This was carried at a value of about R36 million. On 23 February 2015
NDFT and Rainbow Nation Property Fund PPC (‘Rainbow’)
concluded an agreement in terms whereof Rainbow bought the shares in
Killogie
for R32
million, payable in semi-annual instalments of R4 million over the
period February 2015 to September 2018. The first instalment
of R4
million was paid into NDFT’s attorneys’ trust account
prior to the granting of the provisional order. The respondents
say
that upon the grant of the provisional liquidation their attorney
informed the provisional liquidator of the transaction and
of the
funds held, with a view to transferring same to an account opened by
the liquidator. These matters are confirmed under oath
by NDFT’s
attorney.
[79]
The management accounts as at January 2015
do not include Essa’s claim because NDFT disputes it. If the
claim were added to
the balance sheet, the excess of the company’s
liabilities over its assets would rise to R4 344 316 before
taking
into account the R10 million subordination. The company had
cash on hand as at 31 January 2015 of R1 293 462. Since
that
date it has received R4 million as a first instalment from the
sale of its shares in
Killogie
.
It is, I suppose, theoretically possible that the Trust could demand
repayment from NDFT of the unsubordinated portion of its
loan, being
about R75,3 million, in which case NDFT would have to realise
investments in order to repay both Essa and the Trust.
The papers do
not traverse how quickly the assets could be realised because no one
has suggested that the Trust is likely to take
so extraordinary a
step (one which would for practical purposes entail a liquidation of
the company, the very thing the Trust is
resisting). I do not think I
should assess NDFT’s ability to pay its debts on such a
far-fetched supposition. Many companies
operate with substantial
shareholder loan accounts and I do not think their ability to pay
their debts in the ordinary course of
business is ever judged on the
basis that the shareholder could notionally call up the loan account
at any time.
[80]
A final consideration which deserves
mention is that Oosthuizen spent some months assisting NDFT to obtain
bank finance. He can
be expected to have had access to NDFT’s
financial information for this purpose. He would presumably not have
negotiated
a R30 million overdraft with Absa if he thought NDFT was
commercially insolvent.
[81]
In
my view, NDFT is not commercially insolvent. If in due course it were
established that NDFT is obliged to pay Essa R750 000 (or
perhaps
R350 000, if Van der Merwe abandons in favour of NDFT his claim to a
referral fee, or R325 000, if - as Oosthuizen claims
- the company
has already paid Essa R25 000), the company would, on the information
available to me, have the liquid resources
to pay it. There are no
other creditors competing for NDFT’s liquid resources. It has
substantial investments which could,
if necessary, be realised in
part to yield further cash. NDFT has hitherto received substantial
financial support from the Trust.
It was this very support which in
the event led to NDFT’s not taking up the Absa overdraft. It is
most unlikely that the
Trust would put NDFT’s survival at risk
by not providing any funds which the company might need to discharge
such claim as
Essa proves.
[6]
It
seems to me completely unrealistic in these circumstances to say that
NDFT is commercially insolvent.
[82]
NDFT’s commercial solvency, coupled
with the fact that the company’s largest creditor by far
(albeit an insider) opposes
liquidation, provides a sufficient basis
for exercising my discretion against a final order. The Trust is
admittedly not an independent
creditor but its interests nevertheless
deserve some consideration. Cloete, the chairman of the trustees,
says that the Trust’s
beneficiaries are members of the
Namaqualand community and that the Trust applies all its resources
for the benefit of indigent
members of that community. He says NDFT
was established for the very purpose of achieving higher returns on a
part of the Trust’s
resources for the benefit of the community,
whose needs are very great.
Conclusion
[83]
I have thus come to the conclusion that the
provisional order should be discharged.
[84]
Regarding costs, Essa succeeded in
obtaining a provisional order. Nothing in my judgment shows that a
provisional order was not
justified on the evidence before Boqwana J
and on the test applicable at the provisional stage. The costs order
Essa sought was
the usual one, namely that its costs be costs in the
liquidation. This will fall away with the discharge of the
provisional order.
Essa did not in those circumstances asked for
costs against NDFT. I think the parties should bear their own costs
of the appearances
and argument relating to the provisional
liquidation.
[85]
In regard to the subsequent costs, I do not
think the Trust was justified in bringing its intervention
application on such short
notice. The costs of 24 March 2015 were
occasioned by the Trust’s precipitate action and it should bear
the costs of the
appearance on that day.
[86]
As to the remaining costs, including those
reserved on 31 March 2015, they would ordinarily follow the result.
However, and after
careful consideration, I have concluded that this
would not be a just outcome. A large part of the intervention and
amplified opposition
were devoted to questions on which, had a final
decision thereon been needed, I would probably have decided in Essa’s
favour.
The only point on which the respondents have definitely
succeeded is the invocation of my residual discretion against a
winding-up
order. In the circumstances I believe the parties should
bear their own costs.
[87]
I make the following order:
(a) The provisional
order of liquidation granted on 2 March 2015 is discharged.
(b) The intervening
creditor shall pay the applicant’s costs of the appearance on
24 March 2015.
(c) Save as
aforesaid the parties shall bear their own costs in respect of the
proceedings for provisional and final liquidation.
ROGERS
J
APPEARANCES
For
Applicant Mr CJ van Coller
Instructed
by Lombard & Kriek
Ground
Floor, Tijger Park 2
Willie
van Schoor Drive
Bellville
For
Respondent Mr WJ van der Merwe
Instructed
by Du Preez Van der Merwe
3
Muller Street
Bellville
For
Intervening Creditor Mr JJ Botha SC
Instructed
by Du Preez Van der Merwe
3
Muller Street
Bellville
[1]
Per
Warner J in
In
re Cade & Sons Ltd
[1992]
BCLC 213
at 227.
[2]
Record
326.
[3]
Para
29 record 30.
[4]
Record
96.
[5]
See
also
Bothma-
Batho
Transport (Edms) Bpk v s Bothma & Seun Transport
(Edms)
Bpk
2014
(2) SA 494
(SCA) paras 10-12.
[6]
And
see Cloete’s affidavit para 10 at record 131.