South Africa: South Gauteng High Court, Johannesburg

4.2.3 procure that the Purchaser be registered as a holder of the Shares in the Security Register;

4.2.4 Procure the passing of such resolutions as are necessary to effect all the actions contemplated in this clause 4.2; and

4.2.5 The Seller shall provide a signed fixed asset register confirming that the Company is the owner of the assets as indicated therein which is attached hereto as "Annexure H” and which fixed asset register shall be further subject to verification by the auditors for the time being with the Trial Balance within 10(Ten) days of the signature of this agreement."

4.3 (Ownership, Risk and Benefit)

With effect from the Effective Date [1 March 2021]:

4.3.1 All ownership rights; entitlements, and benefits in and to the Shares shall vest in the Purchaser; and

4.3.2 All risks, obligations, and duties in and to the Shares shall transfer to the Purchaser.”

6. Conditions and Options

6.1 This Agreement is conditional upon the implementation of the actions required to give effect to the payment of the Purchase Price, including but not limited to, the transfer of the movable assets, work in progress, funding agreements and sureties as well as a Service Agreement in respect of the services to be provided by the Seller to the Company.

6.2 The Purchaser shall conclude at the same time, a Suretyship Agreement to be attached to this Agreement.

6.3 The Purchaser shall have the option to, at any time, make payment of a once-off amount to be agreed upon by the Parties to fulfil the abovementioned conditions. The Parties have calculated the value to be concluded if the Purchaser can reconstruct the finance as R15 Million. This will be allocated as follows:

6.3.1 Settlement of the Nedbank Overdraft to a maximum R4.3 million or as at the date of the transaction, the value thereof less R2 million as held in surety by the Nedbank and as delivered by the Seller to Nedbank;

6.3.2 Settlement of the Nedbank Loan Account with the Seller in the amount of R2.2 million or the value thereof as at the date of the transaction;

6.3.3 Settlement of the Service Agreement with the Seller, and

6.3.4 The remaining of the funds, to a maximum of R10.5 million less monthly payments made by the Company at the date of the transaction.”

[5]           

[6]          On 15 October 2021, the first respondent resigned as director from the first applicant. From that date, the second applicant became the sole director in the first applicant. He is also responsible for the first applicant’s day to day business operations. The parties have since become embroiled in a dispute regarding the sale of shares referred to above in respect of which legal proceedings are pending in this court under case number 2023-053751.

[7]          On 25 July 2024, the first and second respondent were appointed as directors of the first applicant. This change was effected without consulting with the second applicant and without his knowledge and consent. The second applicant contends that since he is the sole shareholder in the first applicant, this change of directorship is unlawful because he did not approve it.

[8]          The fifth respondent was the first applicant auditors until October 2022, when the second applicant removed them and appointed NMA Consulting (NMA). He alleges that he effected the change in auditors to avoid a potential and/ or existing conflict of interest between the first applicant and the third respondent. The fifth respondent is alleged to have continued to represent the first and third respondents’ interests in the first applicant notwithstanding the sale of shares.

[9]          The first and second respondent have reappointed the fifth respondent as the first applicant’s auditors. The second applicant takes issue with this appointment as he did not give instructions or approval for it.  

[10]          On 26 July 2024, attorneys for the first and second respondent addressed correspondence to the second applicant:

(a)  Seeking certain information from him, including the suretyship agreement.

(b)  Alleging that the first respondent shall exercise his right as the sole shareholder in the first applicant to safeguard and protect his security.

(c)   Threatening to suspend his employment from the first applicant, proposing a resolution to have him removed as a director and have the first applicant wound up.

[11]          These events prompted the applicants to seek the relief set out above. They contend that they seek to restrain and put the first and second respondents in probation because their conduct is calculated to trade in the first applicant’s business fraudulently, recklessly and negligently.

[12]          The respondents deny these allegations. They allege that after the agreement was concluded; it was anticipated that the second applicant would raise funds to settle the R15 million purchase price. This did not materialise. As a result, the second applicant has not been able to pay the purchase price. To address this, the services agreement was concluded. It makes provision for the second applicant to pay the purchase price in R200,000 monthly instalments over the 60-month service agreement period. The service agreement also makes provision for a suspensive condition in respect of the sale of shares agreement and gives the second applicant an option to pay the purchase price or any balance thereof immediately.

[13]          Together with his wife, the first respondent has provided surety for the first applicant’s loan facilities with the sixth respondent (Nedbank). The second applicant had to secure their release from these securities or settle these debts.   Approximately 18 months after concluding the sale of shares agreement, the respondents further allege that the second applicant, having assumed control of the business of the first applicant and enjoying its profits, caused the first applicant to fail to honour the services agreement but continued using the Nedbank finance facility under circumstances where the first respondent and his wife remained sureties thereof.

[14]          The respondents also allege that in terms of the suretyship agreement, the second applicant pledged his shares in the first applicant to the third respondent. Owing to the second applicant’s breach of the sale of shares agreement as set out in the first respondent’s attorney’s letter to him dated 26 July 2024, the third respondent exercised its rights in terms of the suretyship agreement and perfected the shares held by the second applicant in the first applicant. It is as a result of the perfection of the pledge that the third respondent’s status as sole shareholder in the first applicant was restored.   

[15]          To establish urgency, the applicants rely on the alleged unlawful perfection of the pledge. The applicants contends that the perfection is unlawful because the second applicant did not consent to it and it was not effected in terms of a court order. As I find below, they fail on both scores, thus failing to establish their alleged case on  urgency.

[16]          As contended by the respondents, the second applicant’s sole reliance on the sale of shares agreements seeks to obscure the first and third respondents’ rights in terms of both the service and suretyship agreements, thus creating the false impression that the third respondent has no right to perfect their security. The terms and effect of the three contracts concluded between the first applicant and the first and second respondents (the contracts) are that:

a.     The third respondent sold the shares including certain assets and liabilities in the first applicant to the second for a combined purchase price of R15 million.

b.     When he failed to pay the purchase price, the second applicant undertook to pay it in instalments in the amount of R200 000 per month. He retained the option to at any time pay the full purchase price or balance owing from time to time, immediately. This arrangement enabled the second applicant to pay the purchase price from the profits generated by the business of the first applicant.

c.     In addition to his obligation to make payment of the purchase price, the second applicant undertook to release the first respondent and his wife from their surety-obligations for the debts of the first applicant.

[17]          The second applicant does not dispute that the failed to make payment of the instalments as and when they fell due. He is therefore in breach of his obligation to make payment in the amount of R200 000 per month. It is as a result of this breach that the third respondent exercised its rights, set out below in terms of the suretyship agreement.   

“5.1.        As security for the discharge of its obligations in terms hereof, the [second applicant] … pledges [his] right title and interest to the shares held in the [first applicant], constituting 100% (one hundred percent) of the issues share capital in the [first applicant], to the [third respondent].

5.2 The [second applicant] irrevocably and in rem suam authorises and appoints the [third respondent] with full power to sign and execute all and any documents on behalf of the [second applicant] which may be necessary to give effect to or to enforce the rights afforded to the [third respondent] in terms of this cession.”

[18]          A plain reading of these clauses is that the third respondent is entitled to perfect the pledge of the shares without the intervention of a court. The second applicant consented to the perfection in terms of the express terms of the suretyship. To perfect the pledge of the shares, the third respondent does not require a court order. The first and third respondents’ reliance on the authorities and principles set out below is proper.  In Bock and Others v Duburoro Investments (Pty) Ltd 2004 (2) SA 242 (SCA) at para [7] – [10] the court held that:

“[7] The principles concerning parate executie (immediate execution) are trite. A clause in a mortgage bond permitting the bondholder to execute without recourse to the mortgagor or the court by taking possession of the property and selling it is void. Nevertheless, after default the mortgagor may grant the bondholder the necessary authority to realise the bonded property. It does not matter whether the goods are immovable or movable: in the latter instance, to perfect the security, the court's imprimatur is required. It is different with movables held in pledge: a term in an agreement of pledge, which provides for the private sale of the pledged article and in the possession of the creditor, is valid but a debtor may 'seek the protection of the Court if, upon any just ground, he can show that, in carrying out the agreement and effecting a sale, the creditor has acted in a manner which has prejudiced him in his rights'.

Smalberger JA put the proviso in slightly different terms when he said that for validity the private execution clause should not prejudice, or be likely to prejudice, rights of the debtor unduly, meaning that the clause should not contain execution provisions that would be contra bonos mores.

[8] The principles about a pactum commissorium have recently been reaffirmed by this Court:

'A pactum commissorium in the context of a pledge is an agreement that, if the pledgor defaults, the pledgee may keep the security as his own property.'

Such an agreement is void.

[9] An agreement whereby a creditor may keep a pledge upon the debtor's default - at a fair price then determined - is similar to a conditional sale. Such an agreement is valid and, in relation to the pledging of shares, known since at least 1892. It does not differ much in kind from a lex commissoria or forfeiture clause which, typically, permits a creditor to keep what was received from a debtor in the event of the cancellation of an agreement. The effect of a forfeiture clause may be alleviated under the Conventional Penalties Act.”

[10]         The quoted clause in the Nedcor pledge does provide for parate executie of the pledged shares, which, for purposes of these rules, are considered to be movables held by the creditor in securitatem debiti. But Nedcor did not 'execute' in terms of this right. It had, additionally, the right to exercise the 'option' to purchase the pledged shares at a fair price and it is this right the bank sought to exercise.” (footnotes omitted)

[19]          In Vantage Goldfields SA (Pty) Ltd and another v Arqomanzi (Pty) Ltd and others 2023 JDR 2275 (SCA) para [32], re-affirming the principles in Block, the Supreme Court of Appeal held that:

“It is accepted that a provision for immediate execution (a parate executie clause) in an agreement is valid and enforceable when it relates to movables that are held in pledge. The cession of a personal right in securitatem debiti is regarded as a pledge of that right. A debtor may, when the creditor seeks to invoke the parate executie clause in an agreement, ‘seek the protection of the Court if, upon any just ground, he can show that, in carrying out the agreement and effecting a sale, the creditor has acted in a manner which has prejudiced him in his rights’. The onus, in this regard, would be on the debtor.”(footnotes omitted)

[20]          The shares have not been transferred to the second applicant. The first and third respondents have established that the third respondent was entitled to exercise their right to perfect the pledge of the shares. Only when the third respondent deals with the shares in a manner that is prejudicial to the second applicant will the second applicant have the right to approach the court. No allegation that the third respondent has so acted has been made. Therefore, the second applicant has not made out a case for the relief sought.

[21]          For these reasons, no case is made out in respect of both urgency and the merits in respect of part A. The appropriate order is to dismiss Part A of the application. No reason has been advanced as to why costs should not follow the cause. The first and third respondents contend for costs on scale B. The contention raises no controversy.

[22]          In the premises, the following order is made:

Order

1. Part A of the application is dismissed.

2. The second applicant shall pay the first and third respondents’ costs and scale B.

JUDGE L.T. MODIBA

JUDGE OF THE HIGH COURT,

JOHANNESBURG

Appearances

MODE OF DELIVERY: This judgment is handed down electronically by emailing it to the parties’ legal representative, uploading on CaseLines and release to SAFLLI. The date and time for delivery is deemed to be 10 am.