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NORTH WEST HIGH COURT, MAFIKENG

CASE NO. 1666/2012

In the matter between:

THAW TRADING & INVESTMENTS 005 CC ................................................APPLICANT

and

CENTRAL LAKE TRADING 214 (PTY) LTD ...............................................RESPONDENT

____________________________________________________________________________

REASONS FOR JUDGMENT

____________________________________________________________________________

GUTTA J.

A. INTRODUCTION

[1] The applicant applied for an order that:

1.1. the respondent be liquidated in the hands of the Master of the High Court;

1.2. the costs of this application are to be costs in the administration of the respondent.

[2] This Court, on 25 April 2013, after hearing counsels for both the applicant and the respondent and after reading the papers filed of record, granted the following order:

2.1. that the respondent company be placed under provisional winding up;

2.2. that all persons who have a legitimate interest are called upon to put forward the reasons why this Court should not order the final winding up of the respondent company on Thursday, 27 June 2013 at 10h00;

2.3. that a copy of this order be forthwith served on the respondent company at its registered office and be published in the Government Gazette and in the Rustenburg Herald and Citizen newspapers;

2.4. that a copy of this order be forthwith forwarded to each known creditor by prepaid registered post;

2.5. that if reasons for judgment are required, either party can apply in writing within 10 days from the date of this order;

2.6. that costs of this application be costs in the administration of the respondent company in liquidation.

[3] The respondent, on 13 May 2013, requested reasons for judgment, which are set out hereunder.

B. THE APPLICANT’S CASE

[4] The applicant sought a final winding up order on the following grounds:

4.1 that the respondent is deemed unable to pay its creditors;

4.2 the respondent is factually insolvent;

4.3 the respondent is commercially insolvent.

[5] The applicant alleged that Aobakwe Sylvester Louw (“Mr Louw”) was awarded a tender for the construction of low cost houses from the Department of Co-operative Governance, Human Settlement & Traditional Affairs in the Northern Cape.

[6] The applicant alleged that for phase 1 of the Kuruman Project, the applicant received instructions from Aobakwe Louw Properties (Pty) Ltd (“Aobakwe”) represented by Mr Louw, who was the sole director and shareholder, but in respect of phase 2 of the Kuruman Project, the applicant, represented by Mr Ishmael Mohammed (“Mr Mohammed”) and Mr Rashid Ahmed Surty (“Mr Surty”), the deponent to the founding affidavit, orally agreed during June 2011 and at Rustenburg, at the respondent’s business address, that the construction of low cost housing for phase 2 of the building project would be performed by the applicant on behalf of the respondent. Mr Louw is also the sole director and shareholder of the respondent.

[7] A letter addressed to the Municipal Manager, Ga-Segonyana Local Municipality by Mr Louw on behalf of the respondent, confirms that construction business will be done by the respondent and not Aobakwe.

[8] This agreement, the applicant explains, was reached because Mr Louw wanted to separate Aobakwe as the property business and the respondent as a construction business.

[9] Hence, the respondent instructed the applicant to erect low cost houses at the building project known as Kuruman Phase 2. The terms of the agreement are set out in the applicant’s founding affidavit.

[10] The applicant alleged that he complied with the agreement and invoiced the respondent in the amount of R2 309 033.31 as per the invoice dated 18 September 2012, marked Annexure C.

[11] The applicant alleged that in May 2012, Mr Louw promised to pay the full amount owed by the respondent as soon as signed “happy letters” were received from the houses built and he received payment from the Provincial Department. The happy letters were completed and signed in mid June 2012. Mr Surty received verbal confirmation from the Department that the respondent was paid in full, and notwithstanding, the respondent failed to pay the applicant.

[12] The applicant further alleged that during August 2012, Mr Louw informed the applicant that the respondent had no funds available. Towards the end of August 2012, Mr Mohammed met with Mr Louw and Mr Louw confirmed that he did receive payment but that he is unable to pay the applicant as the respondent utilised the funds for other expenditures. Mr Louw also informed Mr Mohammed that he was separating from his wife and this may lead to a divorce with his wife claiming half of the estate.

[13] On 12 October 2012, a written demand in terms of section 345 of the Companies Act 61 of 1973 (“the Act”) was served by the Sheriff on the respondent at its registered address. No reply was received.

[14] The applicant alleged that the respondent is unable to pay his debts in terms of section 345 of the Act, and that it is just and equitable to place the respondent in final winding up, also that the applicant has no security for its debts and that a winding up order will serve as equal protection for all creditors.

[15] In the applicant’s replying affidavit, the applicant attached a copy of the invoice dated 23 July 2012 from the respondent to Ga-Segonyana Local Municipality, for the building project in Kuruman.

C. THE RESPONDENT’S CASE

[16] The respondent, in his opposing affidavit, denied that he is factually and commercially insolvent or that he is unable to pay its debts.

[17] He denied that the letter in terms of section 345 of the Act was served at its registered office.

[18] He alleged that the respondent refused to pay the applicant because the claim is genuinely disputed, that it is not due, owing or payable to the applicant. He denied that the applicant is the respondent’s creditor and avers that Aobakwe contracted with the applicant in respect of both phases 1 and 2 and therefore the respondent could not have and did not incur any liability to the applicant.

D. SERVICE OF THE LETTER IN TERMS OF SECTION 345 OF THE ACT

[19] The respondent alleged that the applicant’s notice in terms of section 345 of the Act was not served by the Sheriff of the Court and the respondent did not receive the said notice.

[20] The respondent, in the opposing affidavit, challenge the return of service on the following grounds:

20.1. the return reflects that it is a case being conducted ‘In the Magistrates’ Court at Rustenburg’;

20.2. the time when service was effected is not stated in the return and the return of service states that service was effected in terms of Rule 9(6).

[21] The applicant, in their founding affidavit, attached the written demand and the Sheriff’s return as Annexures “F1” and F2”. Annexure F1 is the letter of demand in terms of section 345 of the Act addressed to the respondent with the address, Office No. 121, Sanlam Building, 42 Boom Street, Rustenburg, and Annexure F2 is the Sheriff’s return of service, which was served by affixing a copy to the principal door of the registered/principal place of business at Office No. 121, Sanlam Building, 42 Boom Street, Rustenburg.

[22] Mr Swanepoel, for the applicant, submitted that the applicant complied with section 345(1)(a) of the Act. He submitted the following:

22.1. that Rule 4(6) of the Uniform Rules of Court provides that service shall be proved in one of the following manners:

a) where service has been effected by the Sheriff, by the return of service of such service;

22.2 that service was affected at the respondent’s registered offices;

22.3 that reference to Rule 9(6) is a misnomer;

22.4 that it is disingenious for the respondent to assert that he did not receive the letter;

22.5. that the respondent, on its own version, deals with the content of the letter in its affidavit;

22.6. that in any event, the letter formed part of the papers before Court, which was served by the Sheriff.

Analysis

[23] Section 345(1)(a)(i) of the Act provides that:

“A company or body corporate shall be deemed to be unable to pay its debts if―

(a) a creditor, by cession or otherwise, to whom the company is indebted in a sum not less than R100 then due―

(i) has served on the company by leaving the same at its registered office, a demand requiring the sum so due . . .

And the company and body corporate have for three weeks thereafter neglected to pay the sum, or to secure or to compound for it to the reasonable satisfaction of the creditor.”

[24] It is not disputed that the address to which the section 345 letter was served was the respondent’s registered address.

[25] Service by the Sheriff by affixing the letter on the door of the respondent’s registered address is a legally recognised manner of service. The fact that the return stated Magistrates’ Court instead of High Court or that it incorrectly made reference to Rule 9 and failed to provide the time when service was effected does not, in my view, render the service irregular. A demand in terms of section 345(1)(a) was served by the Sheriff on the respondent. See Mouritzen v Greystone Enterprises (Pty) Ltd & Another 2012 (5) SA 74 (KZD). Further, it is trite that a return of service is regarded as prima facie evidence of its content.

[26] A demand left at the registered office is a demand for such purposes even if it does not in fact come to the attention of the company. See Wolhuter Steel (Welkom) (Pty) Ltd v Jatu Construction (Pty) Ltd (in liquidation) 1983 (3) SA 815 (O) at 824; Body Corporate of Fish Eagle v Group Twelve Investments (Pty) Ltd 2003 (5) SA 414 (W) at 418B–C.

[27] Accordingly, I am of the view that there was substantial compliance with section 345(1)(a). See Nathaniël & Efthymakis Properties v Hartebeestspruit Landgoed CC [1996] 2 All SA 317 (T).

[28] As the respondent did not comply with the demand, the respondent is then deemed to be unable to pay its debts.

E. THE APPLICANT CONTRACTED WITH ANOTHER ENTITY

[29] The respondent alleged that the applicant contracted with another entity and not the respondent.

[30] Mr Swanepoel, on behalf of the applicant, submitted the following:

30.1. that the respondent’s answering affidavit consists of bald denials, uncreditworthy denials, raises fictitious disputes, is palpably implausible, far-fetched and clearly untenable;

30.2. the respondent should have provided proof of the copies of the relevant tax invoices submitted to Aobakwe;

30.3. that Exhibit C to the applicant’s founding affidavit is the applicant’s pro forma invoice addressed to the respondent, dated 18 September 2012 in the amount of R2 309 033.31, which was delivered by hand to the respondent;

a) the respondent in his opposing affidavit in reply to the aforesaid allegation, states that:

“16.1 It is noteworthy that the invoice annexed to Surty’s affidavit is a ‘pro forma invoice’ and that it is dated 18 September 2012.

16.2 Save as stated above, I deny the contents of these paragraphs.”

b) the respondent does not state that the invoice was issued to the wrong legal entity or that at the time it informed the applicant that he had invoiced the wrong company. There are no facts regarding the receipt of the documents.

30.4. Annexure CEN2 to the replying affidavit is the respondent’s tax invoice, dated 23 July 2012, to the Ga-Segonyana Local Municipality in respect of the same project;

30.5. there is a bare denial to the allegation that the respondent received payment for the construction work;

30.6. the appellant, in paragraph 28 of the founding affidavit, alleged that during the middle of June 2012 Mr Louw promised Mr Surty and Mr Mohammed to pay the full amount owing as soon as he received payment from the Department. There is a bald denial in the answering affidavit;

30.7. the onus is not on the respondent to show it is not indebted to the applicant, but to show that his indebtedness is disputed on bona fide and reasonable grounds. See Kalil v Decotex (Pty) Limited & Another 1988 (1) SA 943 (A). The respondent should have attached proof that Aobakwe received payment;

30.8. the letter marked Annexure B to the applicant’s founding affidavit, from the respondent to the Ga-Segonyana Local Municipality states that with effect from 01 July 2011, all the construction business will be done under the respondent and with the respondent’s banking details is the same Municipality that the respondent invoiced. The letter was not disputed. The Kuruman Housing Project was also known as the Ga-Segonyana 1000 Project;

30.9 the respondent is neither bona fide nor reasonable.

[31] The respondent, represented by Mr Silver, submitted that there are no grounds made that it is just and equitable, commercially insolvent or that the respondent is factually insolvent.

Analysis

[32] In Corporate Money Managers (Pty) Ltd & Others v Kufa Trading Enterprise CC [2012] ZASCA 100 (1 June 2012), the Supreme Court of Appeal held as follows:

“[42] The appellants sought a final winding up order. That meant, as was pointed out in Cuninghame v First Ready Development 249 (Association Incorporated under s 21) 2010 (5) SA 325 (SCA) paras 1 and 2, that they had to establish their case on a balance of probabilities and that the matter had to be decided, essentially, on the respondent’s version of the facts, except where that version contains denials that do not raise real, genuine or bona fide disputes of fact, or allegations or denials which are so farfetched or clearly untenable than they can be rejected merely on the papers.”

(My emphasis)

[33] In Kalil v Decotex (Pty) Limited & Another supra at 980, the then Appellate Division held as follows:

“Consequently, where the respondent shows on a balance of probability that its indebtedness to the applicant is disputed on bona fide and reasonable grounds, the Court will refuse a winding up - order [sic]. The onus on the respondent is not to show that it is not indebted to the applicant: it is merely to show that the indebtedness is disputed on bona fide and reasonable grounds.”

[34] In Exploitatie- en Beleggingsmaatschappij Argonauten 11 BV & Another v Honig 2012 (1) SA 247 (SCA), the Supreme Court of Appeal held as follows:

“[11] This is a convenient stage to raise the issue of the respondent’s alleged indebtedness to the appellants. Sequestration proceedings are designed to bring about a concursus creditorum to ensure an equal distribution between creditors, and are inappropriate to resolve a dispute as to the existence or otherwise of a debt. Consequently, where there is a genuine and bona fide dispute as to whether a respondent in the sequestration proceedings is indebted to the applicant (as in this case), the court should as a general rule dismiss the application. This is the so-called ‘Badenhorst rule’. Named after the decision in Badenhorst v Northern Construction Enterprises Ltd, this principle was reaffirmed by this court in Kalil v Decotex (Pty) Ltd & Another and applies equally in both winding-up and sequestration proceedings. It is a rule of long standing and good sense and is not likely to be departed from in circumstances such as the present.”

(My emphasis)

[35] Hence, the principle is clear that it is not necessary for a respondent in winding up procedure to prove that it is not indebted to the applicant. It merely needs to prove that the debt is disputed on bona fide and reasonable grounds. See Herman & Another v Set-Mak Civils CC 2013 (1) SA 386 (FB) at paragraph [17]; Desert Star Trading 145 (Pty) Ltd & Another v No 11 Flamboyant Edleen CC & Another 2011 (2) SA 266 (SCA) paragraph 16 at 273–274.

[36] Where the respondent’s allegations or denials are so far-fetched or clearly untenable, the Court is justified in rejecting them, merely on the papers. See Wightman t/a J W Construction v Headfour (Pty) Ltd & Another [2008] ZASCA 6; 2008 (3) SA 371 (SCA) paras 12 & 13; National Director of Public Prosecutions v Zuma [2009] ZASCA 1; 2009 (2) SA 277 (SCA) para 26.

[37] In Wightman t/a J W Construction v Headfour (Pty) Ltd & Another supra, the Court considered how a real, genuine and bona fide dispute of fact arises:

“[12] Recognising that the truth almost always lies beyond mere linguistic determination the courts have said that an applicant who seeks final relief on motion must, in the event of conflict, accept the version set up by his opponent unless the latter’s allegations are, in the opinion of the court, not such as to raise a real, genuine or bona fide dispute of fact or are so far-fetched or clearly untenable that the court is justified in rejecting them merely on the papers:

. . .

[13] A real, genuine and bona fide dispute of fact can exist only where the court is satisfied that the party who purports to raise the dispute has in his affidavit seriously and unambiguously addressed the fact said to be disputed. There will of course be instances where a bare denial meets the requirement because there is no other way open to the disputing party and nothing more can therefore be expected of him. But even that may not be sufficient if the fact averred lies purely within the knowledge of the averring party and no basis is laid for disputing the veracity or accuracy of the averment. When the facts averred are such that the disputing party must necessarily possess knowledge of them and be able to provide an answer (or countervailing evidence) if they be not true or accurate but, instead of doing so, rests his case on a bare or ambiguous denial the court will generally have difficulty in finding that the test is satisfied. I say ‘generally’ because factual averments seldom stand apart from a broader matrix of circumstances all of which needs to be borne in mind when arriving at a decision. A litigant may not necessarily recognise or understand the nuances of a bare or general denial as against a real attempt to grapple with all factual allegations made by the other party. But when he signs the answering affidavit, he commits himself to its contents, inadequate as they may be, and will only in exceptional circumstances be permitted to disavow them. There is thus a serious duty imposed upon a legal advisor who settles an answering affidavit to ascertain and engage with facts which his client disputes and to reflect such disputes fully and accurately in the answering affidavit. If that does not happen it should come as no surprise that the court takes a robust view of the matter.”

(My emphasis)

[38] I am not persuaded that the respondent, who purports to raise the dispute that it was Aobakwe and not the respondent who contracted with the applicant, has in its affidavit addressed the facts said to be disputed. What the respondent has raised, in my view, constitutes bare denial. The facts pertaining to the denials rest solely with the knowledge of the respondent and no basis is laid for disputing the veracity or accuracy of the averment that the respondent is indebted to the applicant.

[39] As the respondent possesses knowledge, he should have provided some proof that the applicant contracted with Aobakwe and not the respondent, especially when Mr Louw is the sole director and shareholder of Aobakwe and the managing director and shareholder of the respondent.

[40] The respondent’s denial that it had not contracted with the applicant in respect of phase 2 of the Kuruman Project when confronted with the evidence presented by the applicant, is in my view, bald and unsubstantiated.

[41] I am accordingly of the view that the respondent’s version is inherently and seriously unconvincing and it is averred in a manner which is, in the circumstances, ‘needlessly bald, vague and sketchy’. See Breitenbach v Fiat SA (Edms) Bpk 1976 (2) SA 226.

[42] The applicant applied for a final winding up order. It is an established principle that the Court will only grant a final winding up order if it is satisfied or on a balance of probabilities that a proper case has been made out for a final order. Zulman JA in Paarwater v South Sahara Investments (Pty) Limited [2005] 4 All SA 185 (SCA) at 186 summarised the degree of proof as follows:

“The degree of proof required when an application is made for a final order is higher than that for a grant of a provisional order. In the former case a mere prima facie case need be established whereas the court, before granting a final order, must be satisfied on a balance of probabilities that such a case has been made out by the applicant seeking confirmation of the provisional order.”

[43] A Court confronted with an application for a final winding up order exercises a discretion to grant a provisional order and direct that service and publication of the provisional order be effected. See Johnson v Hirotec (Pty) Ltd [2000] ZASCA 131; 2000 (4) SA 930 (SCA) at para 9.

[44] In casu, I hereby exercise my discretion to grant the applicant a provisional order as I am of the view that the applicant has established a prima facie case for the provisional winding up of the respondent.

F. SCHEDULE 5 OF SECTION 9 OF THE NEW COMPANIES ACT 71 OF 2008

[45] Mr Silver submitted that Schedule 5 of section 9 of the New Companies Act is applicable and not the old Act. That in terms of the new Act, the applicant must establish that the respondent is insolvent, and section 345 of the Act cannot apply.

[46] The applicant in reply submitted that this point was neither raised in the answering affidavit nor the heads of argument. That sub-item 1 of Schedule 5 paragraph 9 provides that the old Act still operates in respect of liquidation and that sections 343, 344, 346 to 353 do not apply. That section 345, which is the section on which the respondent relies, is excluded.

[47] The respondent submitted that section 344 deals with grounds of winding up and includes section 345. Therefore section 345 did not have to be specifically mentioned.

Analysis

[48] On the one hand, the respondent in his opposing affidavit alleges that the applicant failed to serve the letter of demand in accordance with section 345 and then for the first time in argument, raises the issue that section 345 does not apply. The respondent is approbating and reprobating to suit his case.

[49] In any event, this issue was canvassed in the case of Standard Bank of SA Limited v R-Bay Logistics CC 2013 (2) SA 295 (KZD), where the Court at paragraph 22, 23 and 24 held that:

“[22] It is therefore clear that item 9 is intended to serve only as a stopgap, until such new legislation is passed. Item 9(4)(a) specifies that Ch 14 of the old Companies Act must continue in force until such new legislation, dealing with ‘insolvent’ companies, is actually in place.

[23] Nothing in the new Companies Act has changed any of the provisions of Ch 14 of the old Companies Act. Accordingly for the purpose of winding up an ‘insolvent’ company, s 344 must still regulate the basis upon which it can be wound up.

[24] Accordingly, the legislation must have intended that, to wind up an ‘insolvent’ company, between the date of commencement of the new Companies Act and the implementation of the intended new legislation, an applicant would have to establish one or other ground for winding-up contemplated in s 344 . . .”

[50] I agree with the aforesaid finding and I am accordingly of the view that the applicant could rely on section 345 of Act 73, namely, that a company is deemed unable to pay its debts for the winding up of an ‘insolvent’ company.

G. CONCLUSION

[51] For the reasons stated supra, the Court granted the provisional order for liquidation.

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N. GUTTA

JUDGE OF THE HIGH COURT

APPEARANCES

DATE OF HEARING : 25 APRIL 2013

DATE OF REQUESTING THE REASONS : 13 MAY 2013

DATE OF JUDGMENT : 30 MAY 2013

COUNSEL FOR APPLICANT : ADV P.A. SWANEPOEL

COUNSEL FOR RESPONDENT : ADV M.D. SILVER

ATTORNEYS FOR APPLICANT : MINCHIN & KELLY INC.

(Instructed by DU PLESSIS VAN DER WESTHUIZEN INC.)

ATTORNEYS FOR RESPONDENT : KGOMO MOKHETLE & TLOU ATTORNEYS

(Instructed by KOIKANYANG INC.)

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