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IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE NUMBER: 72945/12

DATE: 18 September 2015

NOT REPORTABLE

NOT OF INTEREST TO OTHER JUDGES

REVISED

 

FIRSTRAND BANK LTD                                                                                         Applicant

V

CLASSCO TRADING (PTY) LTD                                                                       Respondent

(Registration Number (2005/017503/07)

 

JUDGMENT

MABUSE J:

[1] This is an application for the provisional winding-up of the respondent. The applicant had initially sought a final winding-up order in the notice of motion. Right at the commencement of his argument, Mr. Smit, counsel for the applicant, made it clear that the applicant only sought a provisional order.

[2] The applicant is a company duly registered in terms of the company statutes of this country. In terms of the provisions of the Banks Act 94 of 1990 (“the Banks Act”), the applicant is at the same time a registered commercial bank. Furthermore, in terms of the National Credit Act 32 of 2005 (“the NCA”), the applicant is also a registered and an authorised Financial Services and Credit Provider. In the aforementioned capacities, the applicant conducts its business from its principal place of business located on the 17^th Floor, 1 Merchant Place, Fredman Drive in Sandton.

[3] The respondent is described as a company duly registered in terms of the company laws of this country. Its registration number is said to be 2005/0175/03/07. The respondent’s registered address is located at Block 9, First Floor, Boardwalk Office Park, 107 Hay-Meadow Crescent, Pretoria. According to the respondent’s answering affidavit deposed to by one Manual Henrique De Sousa Freitas (“Freitas”), the respondent forms part of a group of companies and trusts which are ultimately controlled by the said Freitas. Those companies include Marnic Developments (Pty) Ltd (“Marnic Developments”) and Vaal Bricks (Pty) Ltd (“Vaal Bricks”), both of which companies are now in liquidation.

[4] The applicant seeks the aforementioned order on two grounds, firstly, that in terms of Item 9 of Schedule 5 of the Companies Act No. 71 of 2008 (“the Companies Act”), read with s. 344(f) of the Companies Act 61 of 1973 (as amended) (“the old Companies Act”), the respondent is deemed to be, and is in fact, insolvent and unable to pay its debts, within the meaning of s. 345 of the old Companies Act; and secondly, that it is just and equitable that the respondent be wound-up, as contemplated in s. 344(h) of the old Companies Act, alternatively, s. 81 of the Companies Act. In brief it is contended by the applicant that the respondent is firstly commercially insolvent and secondly that it would also be just and equitable that it be liquidated.

[5] The applicant contends that it has locus standi not only to bring this application but also to seek the prayers set out above because it is the creditor of the respondent.

[6] The applicant’s cause of action arises from the following circumstances. On 5 March 2008 and at Fourways, the applicant, then duly represented by one L Scrace and J Booth, and Marnic Developments, duly represented at that material time by Freitas, concluded a written facility agreement. A copy of the applicant’s general terms and conditions applicable to the facility agreement was annexed to the application as annexure ‘FA4’. The respondent admitted the express terms and conditions of the said document. The said facility agreement was concluded on certain terms and conditions of which chief among them were as follows:

6.1 the applicant would, subject to the terms and conditions of the facility and subject furthermore to general terms and conditions applicable to the said facility, provide Marnic Developments with the following facilities:

6.1.1 a short-term direct working capital facility in the amount of R14,500,000.00 which was repayable on demand;

6.1.2 subject to annual review, a short-term contingent guarantee facility in the amount of R383,109 (“the contingent guarantee facility”) which contingent guarantee facility was repayable on demand where individual guarantees could not exceed 12 months; and

6.1.3 subject to annual review and subject furthermore to the terms and conditions of the facility agreement and the general terms and conditions applicable to the facility agreement, a settlement facility for the encashment of cheques in the amount of R100,000 (“the settlement facility”) which settlement facility was repayable on demand.

[7] Marnic Developments had agreed that interest would accrue on the debit balance of any overdrafts and such interest would be levied at the applicant’s prime overdraft rate that may vary from time to time, be calculated daily and component monthly in arrears.

[8] The relevant and material terms and conditions of annexure ‘FA4’ were, inter alia, as follows:

8.1 Marnic Investments had agreed that:

8.1.1 in the event of utilisation of the facility beyond the facility limit, the applicant would have the right, without prejudice to any other rights it may have, to forthwith cancel the facility and demand immediate repayment and settlement of the full outstanding balance owing in terms thereof;

8.1.2 in accordance with the normal banking practice, the facility would be repayable on demand and further, that all payments and/or monies received by the applicant from Marnic Developments would be appropriated. The appropriation of the said monies would take place as follows. Firstly, it would be used to settle all the applicant’s costs and fees and thereafter, before paying the penalty interest, and in that sequence, the interest and the balance;

8.1.3 all payments owing to the applicant by it would be made without any deduction or set-off of any kind;

8.1.4 a breach would occur, among others, if it failed to make any scheduled payments required to be made by it under the facility agreement within two business days of the applicable due date; or

8.1.5 failed to comply with any term or condition of the facility agreement and failed to remedy such breach within five (5) days after having been called upon to do so; and utilise the working capital facility beyond the facility and/or sublimit without obtaining the prior written consent of the applicant, which approval would be in the discretion of the applicant to allow or withhold;

8.1.6 in the event of a breach of the facility, the applicant would, addition and without prejudice to any other rights which it might have in law, be entitled to claim the immediate repayment of all amounts outstanding in terms of the facility of agreement; and/or

8.1.7 demand specific performance; and/or cancel the facility agreement and all transactions entered into pursuing to the facility agreement; and/or claim damages and/or claim penalty interest;

8.1.8 any amounts owing to the applicant which were not paid on the due date therefore would, bear interest at a rate equivalent to the maximum allowable rate under the Usury Act No. 73 of 1968 for as long as such amounts which were due and payable remained unpaid. Such additional interest was to be calculated daily and capitalised monthly. In addition the applicant would, in the event of a breach of the facility agreement, be entitled to claim and charge penalty interest at a rate equal to the maximum allowable rate under the Usury Act calculated from the date of the breach to the date of payment and compounded monthly in arrears, on the full balance outstanding;

8.1.9 furthermore that a certificate signed by a general manager of the applicant setting forth the amount of its indebtedness to the applicant would, unless the contrary was proven, be prima facie proof of the amount which it owed to the applicant under the working capital, and would be valid as liquid document in any Court of competent jurisdiction for the purposes of obtaining sentence or summary judgment or judgment for any other purpose against Marnic Developments;

8.1.10 that the facility would set out the terms and conditions relating to the working capital facility and that no variation of any term or condition of the said facility would be of any force or effect unless such variation was reduced to writing and signed on behalf of the applicant and Marnic Developments;

8.1.11 it would pay all costs of whatsoever nature including legal costs on an attorney and client scale, incurred by the applicant in connection with any demand or proceedings for the recovery of any amount owed to the applicant under the facility agreement, whether incurred prior to or during the institution of legal proceedings, including any appeals or if judgment has been granted, any connection with dissatisfaction or enforcement of such judgment at in realising any such insecurity provided to the applicant to Marnic Developments’ indebtedness under the facility agreement; and

8.1.12 finally, no indulgence or extension of time shown from time to time by the applicant to it would operate as an estoppel against the applicant or waiver of the applicant’s rights in terms of the facility agreement or any other rights that the applicant may have in law, nor would any relaxation or indulgence be deemed to be a novation of the facility agreement.

[9] On 16 October 2010 and again at Fourways a further written facility agreement was concluded between the applicant, this time still represented by the said L Scrace and J Booth and Marnic Developments which was duly represented by Freitas. This further written facility agreement constituted a renewal of the facility agreement. It was therefore called the Renewed Facility Agreement. The terms and conditions of the Renewed Facility Agreement were factually identical to those of the facility agreement, except that the interest rate applicable to the facility extended to Marnic Developments in terms of the Renewed Facility Agreement was the applicant’s prime rate of interest which this time calculated at +2 % daily and compounded monthly in arrears. The same standard terms and conditions found application to the renewed facility agreement. The applicant complied with its obligations arising from the facility agreement and in terms of the renewed facility agreement in that it made available and lent in advance to Marnic Developments, the amounts in terms of the facility agreement.

[10] On 16 October 2012 and at Fourways Vaal Bricks (Pty) Ltd (“Vaal Bricks”) executed an unlimited deed of suretyship (“the Vaal Bricks suretyship”) in favour of the applicant for the indebtedness of Marnic Developments. The said suretyship was concluded on chief, among others, and for the purposes of this judgment, the following terms and conditions which were contained in a document marked as annexure ‘FA6’ to the application. Vaal Bricks:

10.1 bound itself as surety (“the Vaal Bricks suretyship”) for and co-principal debtor jointly and severally with Marnic Developments for the due payment by Marnic Developments of all or any monies which Marnic Developments owed to the applicant at the time of execution of the said Vaal Bricks suretyship or from time to time thereafter, as well as for the due and punctual performance and discharge of any contract or agreement entered into by Marnic Developments with the applicant;

10.2 agreed that the amount recoverable from it in terms of Vaal Bricks suretyship would be unlimited and would include interest or financial charges on that amount, charges and costs as may from time to time, and howsoever arising, become due and payable by Marnic Developments, including interest, finance charges, discounts, commissions, stamps and all attorney and own client costs including value-added tax incurred in institution of legal action against either Marnic Developments or Vaal Bricks for the recovery of any or all amounts, together with all other necessary and usual charges and expenses;

10.3 agreed that all admissions or acknowledgements of indebtedness made by Marnic Developments would be binding on Vaal Bricks;

10.4 agreed that the applicant would be at liberty, without apprising Vaal Bricks and without affecting the applicant’s rights in terms of Vaal Bricks’ suretyship, to release securities provided by Marnic Developments or on its behalf by any person or association of persons, whether incorporated or unincorporated and to give time to or compound or make any other arrangements with Marnic Developments or its legal representative trustee in insolvency, liquidator, judicial manager or other person in charge or in control of its assets or affairs;

10.5 agreed that the applicant would be entitled to proof a claim in Marnic Developments’ estate for the full amount of Marnic Developments’ indebtedness to the applicant at the date of sequestration, liquidation, judicial management or assignment of Marnic Developments or its estate or any composition or arrangement with its creditors to the exclusion of Vaal Bricks’ rights to prove a claim unless and until the applicant’s claim has been fully satisfied or unless the applicant’s written consent shall first have been obtained;

10.6 agreed that should any event occur which would constitute an event of default on the part of Marnic Developments in respect of its obligations to the applicant, the applicant’s rights against Vaal Bricks in terms of the Vaal Bricks suretyship would not be prejudiced by reason of the applicant choosing to pursue alternative remedies available to the applicant against Marnic Developments, nor would the applicant, by choosing to pursue a particular remedy in lieu of another remedy, be deemed to have waived any rights against Marnic Developments, it being the intention that the applicant would, without prejudice to its rights against Vaal Bricks in terms of the suretyship, have a full and free discretion as to the choice and method of enforcement of its rights against Marnic Developments and nothing contained or implied in the Vaal Bricks suretyship would be deemed to create an obligation on the applicant’s part to enforce or pursue any of its rights against Marnic Developments before being entitled to enforce its rights against Vaal Bricks in terms of Vaal Bricks’ suretyship;

10.7 agreed that the Vaal Bricks suretyship would be in addition to, and without prejudice, any other securities or suretyship held at the time of the execution of the Vaal Bricks suretyship or thereafter to be held from or on behalf of Marnic Developments. The Vaal Bricks suretyship would be a continuing security for the whole amount due at the time of the execution of the Vaal Bricks suretyship or which would at any time thereafter become due or owing to the applicant by Marnic Developments notwithstanding any reduction, intermediate settlement of account, extinction, novation or unenforceability of Marnic Developments’ obligation or any alteration on the basis of arrangements made between Vaal Bricks and Marnic Developments and the Vaal Bricks suretyship would remain in force notwithstanding the death or legal disability of Vaal Bricks until receipt from the applicant of notice in writing terminating same and until the sum or sums due or which would become due whether contingently or otherwise at the date of receipt of the notice shall have been paid;

10.8 agreed that a certificate signed by any of the applicant’s managers as to the indebtedness of Marnic Developments and/or the indebtedness of Vaal Bricks, or as to any other fact in relation to any of such indebtedness, would be prima facie evidence of the aforementioned for the purposes of any application or action, judgment or order or for any other purpose whatsoever;

10.9 agreed that no relaxation, or indulgence granted by the applicant to Vaal Bricks from time to time would be deemed to be a waiver of the applicant’s rights in terms of the Vaal Bricks Suretyship nor would any such relaxation or indulgence be deemed to be a novation or waiver of the terms and conditions of the suretyship;

10.10 agreed furthermore that if Marnic Developments is a company, closed corporation or consisting of persons constituting a partnership, and at any time any director, member or partner of Marnic Developments has purported or purposed to perform any action on behalf of Marnic Developments without being authorised to do so, Vaal Bricks would nevertheless be bound as if he had been authorised;

10.11 agreed that each clause of the Vaal Bricks suretyship is severable the one from the other and if any clauses found by any competent court to be defective or unenforceable for any reason whatsoever, the remaining clauses would continue to be of full force and effect;

10.12 renouns the benefits of excussion, division and cession of action, non-causa debiti, errore calculi, revision of accounts, no value received and also the benefit numeratae pecuniae, the full force, meaning and effect of which it declared itself to be fully acquainted;

10.13 agreed that the provisions of the Vaal Bricks suretyship compromise the entire terms of the Vaal Bricks Suretyship given by Vaal Bricks to the applicant and no cancellation, amendment, addition or alteration of or to the provisions of the Vaal Bricks suretyship would be of force and effect unless such cancellation, amendment, addition or alteration is reduced to writing and signed by the applicant and Vaal Bricks.

[11] On 3 September 2012 and at Sandton, the respondent executed an unlimited deed of suretyship (“the Classco Trading suretyship”) in favour of the applicant for the indebtedness of Vaal Bricks. A copy of the Classco Trading suretyship was annexed to the applicant’s application as annexure ‘FA7’. Except for the following differences the material and relevant terms of the Classco Trading suretyship are virtually identical to those of Vaal Bricks suretyship. In respect of the Classco Trading suretyship, the respondent bound itself as surety for and co-principal debtor jointly and severally with Vaal Bricks:

11.1 for the due payment by Vaal Bricks of all or any monies which Vaal Bricks owed to the applicant at the time of execution of the Classco Trading suretyship or from time to time thereafter; and

11.2 for the due and punctual performance and discharge of any contract or agreement entered into by Vaal Bricks with the applicant.

[12] As already pointed out somewhere supra, the respondent forms part of a group of companies and trusts which are controlled by De Freitas (“De Freitas Group”). Some eighteen of these companies and trusts within the De Freitas Group hold bank accounts with the applicant. In this regard the applicant annexed a document marked ‘FA8’ which contained a list reflecting the names and account numbers of such entities. Michael Jose Borregeiro (“Borregeiro”), Raul De Freitas Consalves (“Consalves”) and Marco Fernandes (“Fernandes”) are said to be involved with the companies and trusts within the De Freitas Group. However, all of the accounts of the companies and trusts within the De Freitas Group that are held with the applicant are linked to Marnic Developments (Pty) Ltd, which is itself an entity in respect of which Freitas is the sole director. In that manner Freitas has unhindered access to all the accounts of the entities within the De Freitas Group.

[13] On 17 July 2012, one Ken Ngcobo, the relationship manager of the applicant who dealt with Freitas and De Freitas Group, noticed a flurry of cheques, far more than usual, being processed. These cheques were drawn on and in favour of the companies within the De Freitas Group. On 16 and 17 July 2012 the accounts, on which the cheques were drawn did not contain sufficient funds to cover those cheques. Following a large quantity of cheques drawn on the accounts of the companies within the De Freitas Group, the applicant immediately commenced investigations into the conduct of the accounts. The initial investigation conducted by the applicant disclosed that Freitas had utilised the account of Vaal Bricks for the deposit of the majority of the cheques drawn on the accounts of the companies within the De Freitas Group. According to the applicant the reason for the predominant use of Vaal Bricks’ account as recipient account was that that account had a one day effect not clear (“ENC”) indicator which allowed cheque deposits to clear overnight with funds available the next day created by the cheque deposit.

[14] Freitas would therefore deposit cheques at an automated teller machine drawn on the companies within the De Freitas Group, late at night. Upon the amount reflecting in the recipient account as being available the next day he would do electronic funds transfer transactions back to the companies within the De Freitas Group on which the cheques had been drawn as well as to third parties. The cheques drawn on the various accounts would create an excess on the accounts in light thereof that there were no credit facilities on these accounts save for the account of Marnic Developments which had a credit facility. This position would, however, be rectified by the inward credit by way of electronic funds transfer.

[15] Further investigation by the applicant revealed that a cycle of issuing cheques and repaying the issued cheques via electronic funds transfers existed. The aforementioned cycle of flow of funds escalated continually and certain of the funds were utilised to pay out third parties. Utilising the automated deposit terminal facilities at certain of the applicant’s branches Freitas effected large volumes of cheque deposits thereby creating additional delays in so far as the processing of those cheques were concerned, allowing increased time for adjustment. The applicant contends that the conduct of Freitas with regard to the accounts within the De Freitas Group constituted quintessentially an example of “kiting” or “kite flying” or “cross-firing”. In terms of this practice false and fraudulent transactions are created for two reasons, firstly, a false increase of turnover on the relevant accounts is thereby created demonstrating active trading and flow of funds and secondly to siphon off funds to which there is no entitlement. According to the applicant the effect thereof was that it created false credits which could be utilised by Freitas and the entities.

[16] On 18 July 2012 the ENC indicator on the Vaal Bricks account was increased from one day to four days and the accounts of the De Freitas Group with the applicant were frozen. A decision was taken by the applicant not to honour cheques presented for payment within the Payment Association of South Africa (“PASA”) agreed time limits. On 19 July 2012 a meeting was held at the applicant’s office at which Jan van der Walt (“Van der Walt”), Lindie Brits (“Brits”), Ralph Wissner (“Wissner”), James Booth (“Booth”), Ken Ncgobo (“Ngcobo”) and Julie Joubert (“Joubert”), all representatives of the applicant and Freitas attended. At this meeting Freitas was confronted with the facts that were available to the representatives of the applicant at that point in time. The applicant contends that Freitas:

16.1 admitted to having utilised the cheques to create a fictitious turnover on the accounts of the entities within the De Freitas Group;

16.2 informed the representatives of the applicant that the value of the funds that disappeared over a period of time was between R60 million and R80 million;

16.3 was informed that Vaal Bricks appeared to have been the main recipient of the cheques deposited and as such would be liable to repay the applicants all proceeds so received;

16.4 informed the representatives of the applicant that the respondent and the other entities within the De Freitas Group were unable to make payment of the amounts owed to the applicant and that the winding-up of the companies within the De Freitas Group, including Vaal Bricks, would thus follow.

[17] Freitas denied that any funds had disappeared. However, he admitted that he stated that in his opinion Marnic Group owed the applicant an amount in the region of R40 to R50 million. He denied that he told the applicant’s representatives that the Marnic Group owed the applicant R60 to R80 million. He contends that he was willing to accept the approximate figure of R90 million put forward by the applicant as the indebtedness but only facilitating for the purpose of a settlement. He conceded that Marnic was in a difficult position.

[18] Following the meeting of 19 July 2012 instructions were given to one Roshan Jelal (“Jelal”), the head of the Fraud and Disputes Division of the applicant, to conduct an intensive investigation into the conduct of Freitas, Borregeiro, Consalves and Fernandes in regard to the conduct of the accounts the De Freitas Group held with the applicant. The investigation conducted by Jelal took an extensive amount of time as Jelal was required, among others, to compile all relevant information and make enquiries with the various individuals. Approximately 24 000 transactions were compiled into spread sheets to quantify the applicant’s loss. Jelal’s conclusions, which were announced to the applicant on 14 November 2012 were, inter alia, that fraud was committed in respect of the accounts of the De Freitas Group; that R82,029,479,08 was deposited in Vaal Bricks’ account and that there was a clear scope to lay criminal charges.

[19] Another meeting was held on 23 July 2012. The main purpose of this meeting was to obtain authority from Freitas to offset the credit balances held on the accounts in the De Freitas Group against the debit balances on the Vaal Bricks’ account. It is contended by the applicant that during this meeting of 23 July 2012 Freitas never disputed the respondent’s indebtedness towards the applicant nor his conduct in regard to the accounts of the entities within the De Freitas Group. At a subsequent meeting of 31 July 2012 the De Freitas Group’s possible exposure towards third party creditors and the fact that holds would remain on the accounts of the entities in the De Freitas Group due to the fact that a forensic investigation had been conducted, were discussed.

[20] There was another meeting on 2 August 2012. This meeting was attended, among others, by Freitas. In the cause of the said meeting, Freitas indicated that one of his entities, namely the respondent, was involved in the property development. He further indicated that he had investors and that Standard Bank was prepared to put up a guarantee for R20 million to underwrite the property development. It was then suggested that the applicant’s commercial finance division would consider financing that development. It was Freitas’ intention that the indebtedness to the applicant would be liquidated from the proceeds of this property development. Freitas offered to provide the applicant with security in this regard. Freitas was advised that in order for the applicant to consider underwriting such a property development the applicant’s commercial property division would need to conduct a due diligence in so far as the property development was concerned. For the purpose of conducting that investigation further details were required from Freitas in so far as the property development was concerned.

[21] Freitas was informed that the applicant would only consider the funding of the aforementioned property development on the following conditions:

21.1 that Freitas and De Freitas Group were required to enter into a memorandum of agreement in terms of which they acknowledged their indebtedness towards the applicant;

21.2 the memorandum of agreement would contain the terms and conditions of which the applicant would allow Freitas and De Freitas Group to repay their debts;

21.3 the applicant required of Freitas and De Freitas Group to show their commitment to repay the debt; and

21.4 the memorandum of agreement would be subject to approval by the applicant’s Credit Committee; furthermore to Freitas providing the information regarding the property development; and the granting of a facility for the property development. This allegation has been admitted.

[22] At a meeting of 30 August 2012, Freitas and De Freitas Group were presented with the relevant memorandum of agreement for their consideration. At this stage the applicant’s investigation into the feasibility of the property development had not been completed. This was made clear to Freitas by Verster and Van der Walt. A copy of the aforementioned memorandum of agreement which was presented to Freitas is attached to the application as annexure ‘FA26’. As an indication of his preparedness to resolve the matter Freitas signed the memorandum agreement in his personal capacity and on behalf of the De Freitas Group and delivered the signed agreements to the applicant’s offices.

[23] Relying on the memorandum of agreement the applicant now contends that it is clear from the memorandum of agreement that Freitas and De Freitas Group acknowledged their indebtedness towards the applicant. The applicant itself did not sign the memorandum of agreement. The reason given for its failure to sign the memorandum of agreement at that stage was that it had not yet completed its feasibility investigation into the respondent’s property development. For that reason a decision had not been taken by the applicant whether or not to provide funding for the property development. Moreover, as there was still information outstanding which was required from Freitas, the applicant could not present the memorandum of agreement to its Credit Committee for consideration. Freitas was at all material times aware that, without the outstanding information, the applicant could not consider further funding for the property development.

[24] On 19 November 2012 another meeting was held where Freitas was present.

24.1 at this meeting Freitas was advised that the applicant had completed its investigation into the possibility of providing funding for the completion of the property development and that the request for funding had been presented to the applicant’s Credit Committee;

24.2 the applicant’s Credit Committee came to the conclusion that there were too many risks involved and the applicant had therefore decided not to provide any funding;

24.3 the applicant demanded payment of the debt by entities in De Freitas Group; and

24.4 two alternatives were presented to Freitas, namely, immediate repayment of the indebtedness, alternatively winding-up of the entities;

24.5 Freitas did not dispute the indebtedness and advised that he and De Freitas Group were unable to immediately repay the indebtedness;

24.6 Freitas furthermore advised that it may not be worth his while to resist and that as he was young he would always start again. There was always a possibility of him obtaining funds from investors to pay the debts to the applicant.

It was at this same meeting that Freitas also conceded that some of the funds siphoned from the account were utilised for the property development. Freitas admitted that the applicant made demand for payment of an amount between R7 million and R10 million. He denied that the demand was for payment of the full amount outstanding.

[25] At a meeting that was held on 29 November 2012 and where Freitas, Van der Walt and Verster were present, Freitas admitted that the respondent and the other entities within the De Freitas Group were unable to make payment of the amounts owed to the applicant. Verster informed Freitas that unless the respondent and the other companies within the De Freitas Group made payment of the amounts owed to the applicant, the applicant would apply for the liquidation of such companies upon which Freitas informed the meeting that if the applicant were to liquidate the companies within the De Freitas Group the applicant would not even recover an amount in excess of R5 million. Freitas was unable to demonstrate to representatives of the applicant that the assets of each of the companies within the De Freitas Group exceeded their liabilities.

[26] Although Freitas was adamant that Classco was not indebted to the applicant during the relevant period, he contended that he informed the applicant’s representatives that Marvanic Four was unable to immediately pay the full amount owing. He told them further that he would only be able to make payment of the aforementioned amount within approximately one year. I found it opaque that, while Freitas states that the applicant’s representatives demanded payment of only R7 million or R10 million and not the whole indebtedness, he told them that Marnic Group was unable to pay the full amount owing. There is no way he could have told them that Marnic Group would not be able to pay the whole debt outstanding if they only had demanded payment of R7 million to R10 million. In the circumstances I must find that the applicant’s representatives demanded payment of the whole indebtedness and that Freitas was unable to pay it. I must also find that Freitas could also not pay the R7 million or R10 million that he claims that the applicant’s legal representatives demanded.

[27] According to the schedule annexed to the application as ‘FA27’ prepared by the applicant herein, Vaal Bricks is indebted to the applicant in the sum of R82,029,479.08 together with interest and Marnic Developments is indebted to the applicant in the amount of R8,835,140,06 together with interest. Freitas admitted in his answering affidavit that Marnic Developments was indebted to the applicant in the said sum of R8,835,140.06. Several other companies within the De Freitas Group are also indebted to the applicant in various amounts. For the purposes of this judgment it is not necessary to refer to them. The amounts reflected in the said annexure ‘FA27’ are debit balances on the respective accounts after the netting out of fraudulent transactions and constitute the loss sustained by the applicant, other than in respect of the renewed facility debt.

[28] By virtue of the conduct of Freitas and the De Freitas Group, as well as the demand for payment, the full amount owing by Marnic Developments in terms of the renewed facility agreement became due, owing and payable to the applicant. Marnic Developments is indebted to the applicant in terms of the renewed facility agreement in the amount of R8,835,140.06 together with interest thereon at a rate of prime per annum calculated daily and compounded monthly in arrears from 1 November 2012 to date of payment which amount is due, owing and payable. Attached to the application is a copy of a certificate of balance confirming that Marnic Developments is indebted to the applicant in the aforementioned amount.

[29] It is the applicant’s case that by virtue of the Classco Trading suretyship and the Vaal Bricks suretyship, the respondent is liable to the applicant for the full amount owing by Marnic Developments to the applicant in terms of the renewed facility agreement. It is contended by the applicant that in the circumstances the respondent is indebted to it in the sum of R8,835,140.06 together with interest thereon at a rate of prime per annum calculated daily and compounded monthly in arrears from 1 November 2012 to date of payment. A certificate of balance in respect of this amount was attached to the application as annexure ‘FA29’. The certificate of balance confirms the indebtedness of the respondent to the applicant.

[30] By virtue of the fraud and the Vaal Bricks suretyship it was contended by the applicant, the respondent was also indebted to the applicant jointly and severally together with the other entities within the De Freitas Group in the amount of R82,018,475.08 together with interest thereon at the rate of prime per annum, calculated daily and compounded monthly in arrears in respect of the cheques drawn in favour of Vaal Bricks and the proceeds of which were transferred out of the Vaal Bricks account. To this end the applicant has annexed a certificate of balance marked ‘FA30’ which confirms the respondents’ indebtedness to the applicant in the aforementioned amount. The applicant contends that in the light of the massive fraud perpetrated by Freitas in respect of the accounts held by the De Freitas Group with the applicant, that the respondent is insolvent and unable to pay its debts. The applicant contends furthermore that the respondent indeed is unable to pay its debts that if regard is had to the huge indebtedness of the respondent, it is evidently insolvent; the failure to make payment upon demand demonstrates an inability to pay; the respondent has been given an opportunity to pay its debt which it failed to do so and fourthly, and finally the perpetration of the fraud itself demonstrates that the entities, and especially the respondent, could not pay their debts from their own funds.

[31] The applicant contends furthermore that the respondent is factually insolvent in that its liabilities exceed its assets. It is contended by the applicant that for those reasons the respondent should be wound-up based on its insolvency and inability to pay its debts.

[32] Through the answering affidavit of Freitas, the respondent opposes the application. Freitas states that he is the sole director of the respondent; that the respondent’s entire issued share capital is owned by Alex Trust and that he is one of the three trustees, the other two being Maria Manuela Abrantis Reimundo Freitas (“Maria”) and Rue Miguel Abrantis Reimundo Nunes (“Nunes”). In his answering affidavit Freitas has raised a number of what he called “principal defences”.

[33] A defence which is common to all the applications for the winding-up of the Marnic Four companies is that their sole shareholder, the Alex Trust, did not consent to the suretyship and the mortgage bonds. This is the first of such defences that the respondent raised in the answering affidavit. He referred to clause 8.1 of the deed of Trust that stipulates that:

“All documents excluding negotiable instruments to be executed on behalf of the trust shall be signed by or on behalf of the trustees” and stated that in all transactions involving the applicant he acted on his own and not jointly with his fellow trustees. He contends on that ground that the suretyships furnished in respect of the Marnic Four companies are therefore unenforceable in terms of s. 226(1) read with 226(2)(a) of the old Companies Act, 1973. He contends furthermore that he controls all the companies by virtue of Alex Trust. Over and above that Freitas contends that Alex Trust did not consent to the transactions and, as they were not rectified by the trustees of Alex Trust, all the transactions which underlie the debts are unenforceable against the company in terms of s 226(2)(a). Because the suretyships did not comply with s 226 they are void and unenforceable and in respect of the companies which the trust is the sole shareholder. In so far as it concerns the respondent the suretyship did not comply with s. 45 of the Companies Act 2008.

[34] The second special defence that the respondent raised was that the memorandum of agreement was an offer of settlement that he made to the applicant. He contends that during August 2012, he conducted settlement negotiations with the applicant at certain meetings. The meetings culminated in Verster and Van der Walt forwarding certain documents to him. These documents were a memorandum of agreements and suretyship (“the Classco Trading suretyship”). He was advised by the said Verster and Van der Walt that he should peruse all the documents that had been presented to him. Of these documents, the memorandum of agreement had been crafted by the applicant’s attorneys. He was told, among others, that if he was happy with the contents of these documents he should sign them and return them to the applicant so that the applicant could forward them to its Credit Committee which would then consider them.

[35] Having perused the documents he made certain amendments to the memorandum of agreement. He signed the documents including the memorandum of agreement and the suretyship. When he signed these documents his understanding of the applicant’s representatives was that he was making, on behalf of various entities referred to in the memorandum, an offer to the applicant to settle the indebtedness of the debtors referred to in the said memorandum of agreement to the bank. The said suretyship was an offer of settlement by Classco. About the suretyship, Freitas contends that it was the common intention of the applicant’s representatives and him that he signed the Classco Trading suretyship on the understanding that the said suretyship would constitute an offer made by Classco to bind itself as surety for the obligations of Marnic Developments to the applicant and that the suretyship would relate to the debt referred to in the memorandum of agreement. Because the applicant did not sign the memorandum of agreement, Freitas states that the result was that the applicant did not accept the offer made by its debtors and that accordingly no agreement was concluded between the parties. It follows therefore, so Freitas argued, if no agreement was reached, Classco Trading suretyship whose specific purpose was an offer of settlement, was unenforceable. He states that in concluding the Classco Trading suretyship the parties’ intention was to secure the debt referred to in the memorandum of agreement. The binding effect of the suretyship, so he argued, depended upon the applicant’s acceptance of the offer.

[36] According to him, if it be found that the suretyships is valid, the applicant’s representatives did not advise him that the suretyship was unlimited and not restricted to the obligations of Marnic Developments flowing from the written memorandum of agreement. As a matter of law, the applicant’s representatives were obliged to inform him of the implications of such unlimited security. He erroneously laboured under the impression that the suretyship would only be operative if the applicant accepted the offer made by Classco to it in the memorandum of agreement and that the offer Classco made to the applicant in the suretyship would not be binding. Freitas contends that because Verster and Van der Walt were aware of his misapprehension that the suretyship was not binding on Classco in respect of the debts mentioned in the memorandum of agreement and because they failed to correct his misapprehension the suretyship is, under those circumstances, not valid in law and is not enforceable.

[37] Compliance with s. 45 of the Companies Act 2008

The respondents’ other defence is that the execution of the Classco Trading suretyship in favour of the applicant constitutes financial assistance by Classco to a related or interrelated company, namely Vaal Bricks. Accordingly the provisions of financial assistance by one company, namely Classco, to another related or interrelated company, Marnic or Vaal Bricks, must comply with the provisions of s. 45 of the Companies Act 2008. It is contended by Freitas that Classco’s board failed to satisfy itself that, immediately after providing financial assistance, the assets of the company were equal to or exceeded the company’s liabilities as fairly valued and it appeared to it that, for a period of twelve months after the execution of the Classco Trading suretyship, Classco would be in a position to pay its debts as they arose in the ordinary course of business; and secondly that the terms under which Classco proposed to give financial assistance were fair and reasonable to Classco.

[38] In view of the fact that prior to Classco adopting a resolution to provide financial assistance to Marnic, the Alex Trust had not by a special resolution approved such assistance by Classco to Marnic Developments, Classco is not bound by the suretyship. The suretyship itself is void in as much as the provision of security by Classco to Marnic Developments was in contravention of s. 45 of the Companies Act. In terms of s. 45(6) such suretyship is void.

[39] Freitas admits that the document in which Classco Trading (Pty) Ltd purported to certify that the provisions of s. 45(5) of the Companies Act 2008 were complied with was dictated to by an employer of the applicant and transposed to the respondent’s letters. He admitted furthermore that although the document called the special resolution by the shareholders of Classco Trading (Pty) Ltd emanated from the applicant, he and the respondent’s company secretary signed it.

[40] When this matter came up before me for argument, Mr. Rossouw, counsel for the respondent, raised only two defences against the application. These two defences, which relate exclusively to the Classco Trading suretyship, have a direct bearing on the applicant’s locus standi.

[41] With regard to the first ground that the respondent raised, it was argued that it is alleged that the deed of suretyship formed an integral and indivisible part of an offer that was contained in an memorandum of agreement; that the deed of suretyship should be rectified to read “Marnic Developments” in all places where the words of “Vaal Bricks” appear; that the applicant rejected the offer as a result of which the offer, which included the deed of suretyship, automatically ceased to exist and in view of which the applicant has no locus standi. There is no merit in this argument. Firstly, it is not supported by the applicant’s representatives who have all filed verifying affidavits. Secondly, there is no cross-reference between the memorandum of agreement and the Classco Trading suretyships. Thirdly, Freitas has, in his answering affidavit, not referred the Court to any clause in either the memorandum of agreement or the Classco Trading suretyship that that evidence is an intention to make an offer. Fourthly, nowhere in the memorandum of agreement is it stated that the validity of the Classco Trading suretyship dependent on the applicant and the respondent signing the memorandum of agreement. Fifthly, Freitas has not referred the Court to any clause in the memorandum of agreement or the Classco Trading suretyship which indicated that when he signed either of the documents he was making any offer to the applicant. There is also no indication or no objective facts from which it can be inferred that at the time when he signed the aforementioned two documents he was making any offer to the applicant. What he thought at the time is, in my view, irrelevant with regard to the validity of the said surety. Accordingly I find that the defence that he has raised on this point lacks merit.

[42] The first of the two special defences that Mr. Rossouw, counsel for the respondent, confined himself to was the validity of the Classco Trading suretyship on behalf of Vaal Bricks and in favour of the applicant. It was contended by Freitas in the answering affidavit, it will be recalled, that he stated that the suretyship was void because Alex Trust, the shareholder, had not consented to it and that when he signed it Freitas acted on his own.

[43] The first question that comes to one’s mind is why would, Freitas, knowing that he required to the consent of Alex Trust to sign the suretyship, do so without the consent of Alex Trust? Why would a seasoned director act on his own in a matter that required sanction of the Alex Trust? Other questions that arise are did he tell the applicant’s representatives, when he signed the suretyship, that he could only do so with the consent of Alex Trust, that he signed the suretyship on his own and that it would be invalid if he did so without being duly authorised thereto by Alex Trust? The answers to these questions are not hard to find. Freitas, by raising this defence was, in my view, clutching at straws. The truth is that he is trying to avoid the consequences of his actions. In reality Freitas had obtained the authority from the other trustees to sign all documents and to represent the Alex Trust in all its dealings. This authority he had obtained on 24 October 2004, according to annexure ‘RA2’, a copy of the Resolution of The Trustees of Alex Trust. The said resolution authorised him in the following manner:

“Minutes of a meeting of the Trustees held at Chartwell

on this the 28^th day of October 2004 at 09h00

IT IS HEREBY RESOLVED THAT MR MANUEL HENRIQUE DE SOUSA FREITAS in his capacity as Trustee, is hereby authorised to sign any/all documentation for and on behalf of The Alex Trust.

CERTIFIED CORRECT

Signed M.H.D.S. Freitas

Trustee

Signed M.M.A.R. Freitas

Trustee

and signed C.C.M. Simoes

Trustee”

On this basis alone it is evident that Freitas had been authorised by Alex Trust to sign all documentation, including Classco Trading suretyship, for and on behalf of Alex Trust.

[44] A consideration of other factors shows that Freitas had authority at all material times to sign the Classco Trading suretyship. In an email dated 6 August 2015 from Manuel Freitas (Freitas himself) to the representative of the applicant from Freitas, Freitas informed the applicant as follows:

“Attached are the details of Alex Trust which, is the sole shareholder of the 6 companies in question.

Please note that, I have the authority to sign all documents on my own, if the Bank has any specific wording for this authority please let me know.

The loan account in Classco will be in favour of Alex Trust, I just don’t know the amount. If there is anything else please let me know.

Regards

Manuel Freitas”

This email is annexed to the replying affidavit as ‘RA3’.

[45] Furthermore Freitas expressly admitted the Classco Trading suretyship when he signed it on 3 September 2012. The said suretyship contains, right at the bottom thereof, the following warning:

“FOR AND ON BEHALF OF THE SURETY (WHERE THE SURETY IS NOT A NATURAL PERSON)

IMPORTANT: The obligations imposed upon the Surety pursuant to this suretyship may be very burdensome. Should the surety harbour any doubts regarding the exact meaning and effect of these obligations, we advise that independent legal advice should be taken prior to signature thereof.”

It is important to point out that notwithstanding the said warning Freitas took no steps to seek legal advice on this document or if he had legal advice then he signed the documents having taken legal advice.

[46] On 17 April 2013 the three trustees and the attorney, one Mr. Brian Horwitz, were present at the offices of Werksmans Attorneys when an agreement was signed. In terms of the said agreement, annexed to the replying affidavits as ‘RA4’, the trustees admitted liability of all the other respondents in both the Johannesburg and responded application.

[47] In the light of the aforegoing, I find that contrary to his protestations Freitas was duly authorised to sign the Classco Trading suretyship. This contention that he had not been duly authorised to do so is, in my view, without substance. It is accordingly rejected.

[48] There is a lack of compliance with s 226 of the old Companies Act 1973

Section 226(1)(d) of the old Companies Act deals with prohibition of loans to, or security with transactions by, directors, managers and other companies. This section provides that:

“No company shall directly or indirectly make a loan to –

(b) any other company or other body corporate controlled by one or more directors or managers of the company or of its holding company or of any company which is a subsidiary of its holding.”

On the basis of the abovementioned s 226(1) Freitas contends that he controlled all the companies through Alex Trust. In terms of s 226(2), so he developed his argument, as the sole member of Alex Trust did not consent to the suretyship. As the suretyship was never rectified by Alex Trust it is therefore unenforceable against the respondent in terms of s 226(6) of the old Companies Act, so he contended.

[49] The said section quite clearly applies to companies and not trusts. Section 1 of the old Companies Act, 1973 defines a company as follows:

“A company means a company incorporated under chapter IV of this Act and includes any body which immediately prior to the commencement of this Act was a company in terms of any law repealed by this Act.”

Section 1 of the Companies Act defines a company as:

“A juristic person incorporated in terms of this Act …”

Alex Trust is not a company. As it has neither been established in terms of s 1 of the old Companies Act 1973 nor s 1 of the Companies Act 2008, it is not a company and therefore the provisions of s 226 do not apply to it. The definitions of ‘company’ in s 1 of the old Companies Act, 1973 and the Companies Act, 2008 do not include trusts.

[50]The suretyship is contrary to s 45 of the Companies Act 2008

This section deals with loans or financial assistance to directors. It explains what financial assistance, especially with regard to directors, is of supreme importance, it defines what financial assistance is. It sets out the circumstances that define “financial assistance”. It states that:

“45(1) In this section “financial assistance”

(a) includes lending money, guaranteeing a loan or other obligation and securing any debt or obligation; but …”

Considering the definition of “financial assistance”, can it be said that Alex Trust provided any financial assistance to any director or put in another manner, did Alex Trust lend any money to or guarantee a loan or other obligation or did it secure any debt or obligation. The answer is no. Nowhere in the answering affidavit has it been stated that Alex Trust rendered any financial assistance to any director or in the circumstances contemplated in s. 45(1) of the Companies Act.

[51] It is contended by Freitas that the execution of the Classco Trading suretyship in favour of the applicant constitutes financial assistance by Classco to a related or interrelated company, Vaal Bricks. Financial assistance by Classco to Marnic Developments or Vaal Bricks must comply with the provisions of s 45 of the Companies Act 2008. It is not with any measure of particularity why it is stated that Classco and Vaal Bricks are related or interrelated. Contrary to the Freitas contention the shares in Vaal Bricks and Classco are held by Alex Trust. Each one of them is an independent company. They are not subsidiaries of any holding company. Accordingly Classco Trading suretyship does not violate the provisions of s. 45.

[52] The provisional liquidation of the respondent is sought on two grounds namely, that the respondent is commercially insolvent. See in this regard Boschpoort Onderrnemings vs Absa Bank 2014(2) SA 518 SCA at page 523 par. 16 where the court had this to say:

“For decades our law has recognised two forms of insolvency: factual insolvency (where a company’s liabilities exceed its assets) and commercial insolvency (a position in which a company is in such state of illiquidity that it is unable to pay its debts, even though its assets may exceed its liabilities).”

See also Rosenbach & Company (Pty) Ltd v Singh Bazaars (Pty) Ltd 1962(4) SA 593 D. A company is in a state of commercial insolvency, even where its assets exceed its liabilities or even where it makes profit, if in a sense it is unable to pay its debts. Secondly that it would be just and equitable that Classco is liquidated. With reference to the general ground that it is “just and equitable” that a company be wound-up, the Privy Council gave the following considered interpretation of the intention of the legislature:

“… at the foundation of applications for winding-up on the “just and equitable” rule, there must be a justifiable lack of confidence in the conduct and management of the company’s affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company’s business.”

See also Lock v John Blackwood, Ltd [1924] ANC 783 at 788. Schedule 5 of the new Act deals in sub-item (9) with transitional arrangements. It provides as follows:

“(1) Despite the repeal of the previous Act [i.e. the old Act], until the date determined in terms of sub-item (4), Chapter 14 of that Act continues to apply with respect to the winding-up and liquidation of companies under this Act, as if that Act had not been repealed subject to items (2) and (3).

(2) Despite sub-item (1), sections 343, 344, 346 and 348 to 353 do not apply to the winding-up of a solvent company, except to the extent necessary to give full effect to the provisions of Part G of Chapter 2.

(3) If there is a conflict between a provision of the previous Act that continues to apply in terms of sub-item (1), and a provision of Part G of Chapter 2 of this Act with respect to a solvent company, the provision of this Act prevails.”

Accordingly, s. 345 of the old Companies Act continues to apply with regard to the winding-up and liquidation of companies as if the old Act had not been repealed. Accordingly, commercially insolvent companies are, despite the coming into operation of the Companies Act 71 of 2008, liquidated in accordance with the process set out and regulated by Chapter 14 of the Companies Act 61 of 1973. Section 79 of the Companies Act deals with the winding-up of insolvent companies. It provides as follows:

“(1) A solvent company may be dissolved by –

(a) voluntary winding-up initiated by the company as contemplated in s. 80, and conducted either –

(i) by the company; or

(ii) by the company’s creditors, and determined by the resolution by the company; or

(b) winding-up and liquidation by a Court order as contemplated in section 81.

(2) The procedures for winding-up of a solvent company, whether voluntary or by a court order, are governed by this part and to the extent applicable, by the laws referred to or contemplated in item (9) of schedule 5.”

[53] Section 81 of the Companies Act deals with the winding-up of a solvent company by an order of court. In terms of the provisions of s 81(1)(c)(2) of the Companies Act a Court may order the winding-up of a company where a creditor has applied for such an order on the grounds that it is otherwise just and equitable to the company to be wound-up. See also Boschpoort Ondernemings v Absa Bank 2014(2) SA 518 SCA at page 525 paragraph 25 where the Court had this to say:

“[25] Subject to the consideration of business rescue proceedings in terms of Parts A to D of chapter 6 of the new Act, it is indeed “business as usual” when it comes to a decision as to whether a commercially insolvent company should be placed in liquidation. In terms of s. 131(6) of the new Act, an application for business rescue proceedings to commence has the effect of suspending an application for the liquidation of a company. The subsection provides that the suspension of the liquidation proceedings against a company operates until the Court has adjudicated upon that business rescue application or the business rescue proceedings have come to end.”

[54] Section 344(f) of the 1973 Companies Act provides that a company may be liquidated by the Court if the company is unable to pay its debts as described in s. 345. The said section provides as follows:

“(1) A company … shall be deemed to be unable to pay its debts if –

(c) it is proved to the satisfaction of the court that the company is unable to pay its debts.”

In terms of s 346(1)(b) of the 1973 Act a creditor, including a contingent or prospective creditor, may apply to Court for the liquidation of a company. The section requires no more than that an applicant should establish that it is a creditor and, in doing so, it will be entitled to rely upon contingent or prospective claims. Whether the claims are due and payable or not, it is not relevant to the required determination of the status as a creditor. See in this regard Standard Bank of South Africa Ltd v Ray-Bay Logistics CC 2013(2) SA 295 (KZD), paragraph 15 thereof. According to the provisions of s 344(h) of the 1973 Companies Act, the Court may place a company in liquidation if it considers it to be just and equitable to do so.

[55] It was argued by Mr Smit that First National Bank issued the application for the liquidation of a number of the companies in the De Freitas Group including Vaal Bricks on 18 December 2012. Subsequent to the applications being issued an agreement was entered into between FNB and, inter alia, Vaal Bricks and Freitas personally. In the preamble it is recorded that Marnic Development, on whose behalf Vaal Bricks executed the deed of suretyship, was indebted to FNB in the amounts of R8.8 million and R82 million and the other entities including Vaal Bricks acknowledged and agreed that they were jointly and severally liable to FNB for payment of those debts. Despite the terms of the settlement agreement, payment was not made of the debts to FNB and FNB started with the liquidation application. This resulted in the final liquidation of those entities, including Vaal Bricks.

[56] Classco is liable to FNB by virtue of the deed of suretyship which it executed for the debts of Vaal Bricks. Classco is therefore liable to FNB in the amounts of R8.8 million and interest thereon and R82 million and interest thereon, which amounts were admitted by Vaal Bricks and Freitas in the agreement. Accordingly the applicant is the respondent’s creditor for not less than R100.00. See Barclays Bank (DC &O) v. Riverside Dried Fruit Co (Pty) Ltd 1949(1) SA 937 (C) at 948. On the strength of the aforegoing, I find that the applicant has established a locus standi in this matter.

[57] Irrespective of the ground on which the winding-up of the respondent is brought, the duty lies on the applicant to satisfy the court about such ground. On the facts before me, the question is, has the applicant shown that the respondent is commercially insolvent? Freitas contended in the answering affidavit that the respondent was the owner of erven 586 and 587; that the respondent was improving and developing the property by building large industrial warehouses on the said erven. He contends furthermore that the respondent had opened a sectional title register and was selling off individual sections to third parties.

[58] The respondent:

58.1 had obtained a loan from Mercantile Bank and this loan of R20 million was secured by a mortgage bond in favour of the said Mercantile Bank over the property aforementioned. The amount secured by the bond in favour of Mercantile over the property is R50 million;

58.2 over and above, the respondent owed independent investors in the sum of R11 million together with interest on the said amount at 30% per annum commencing during April 2009. The total amount owed to the investors is R22 million;

58.3 as a consequence of the aforementioned fraud and the Vaal Bricks suretyship, the respondent is jointly and severally, with other entities within the De Freitas Group, indebted to the applicant in the aforementioned amount of R82,018,425.08 and interest on it;

58.4 apart from the said amount of R82,018,425.08, the respondent is indebted to the applicant in a further amount of R8,835,140.06 by virtue of the Classco Trading and Vaal Bricks suretyships.

[59] According to the loan agreement entered into between the respondent on one hand and certain investors on the other hand on 1 April 2009, the respondent was obliged to refund the sums obtained as loans from such investors within 24 months of April 2009. That period came and went by but the loans were never repaid. In the result I find that the respondent is unable to pay its debts.

[60] It was argued by Mr. Smit that nowhere in the answering affidavit of Freitas in the liquidation application was it suggested that Classco has any existing cash flow or that it can pay its debts. The said annexure ‘CT7’ was presented by Freitas as evidence that the assets of the respondent, fairly valued, exceeded its liabilities. Quite correctly Freitas referred to the said documents as the respondent’s current auditor’s balance sheet. He contends that he had been advised that that was the matter which would be considered by the court in expressing its discretion whether or not to grant a winding-up order.

[61] It was argued by Mr. Smit that it was no answer to a liquidation application for Freitas to state that Classco has assets in the form of immovable properties which may have some value. The second problem that inflicts the aforementioned management balance sheet is that there is no independent proof or appraisement of the value of the property. Thirdly, and which is of paramount importance, the properties are bonded in favour of Mercantile Bank and the proceeds thereof will be utilised to defray the debt of Mercantile Bank. For that reason the properties are not realisable. It is clear that the respondent is unable to pay the investors and has been unable to pay them for a protracted period of time. That act itself demonstrates the inability of the respondent to pay its debts. It would appear, and this is my finding, that in the circumstances the conclusion is inevitable that the respondent is commercially insolvent. This is what the court had to say in Johnson v. Hirotec (Pty) Ltd [2000] ZASCA 131; 2000 (4) SA 930 SCA 933 at paragraph 6:

“What should be made of the fact that the respondent’s liabilities exceeded the value of the assets as at 28 February 1997? This appeal is, of course, concerned with what is often referred to as ‘commercial insolvency’, i.e. a company’s inability to pay its debts in the sense of being unable to meet current demands … This is not to say that factual insolvency is irrelevant in deciding whether a company should be wound-up in terms of s. 344(F) of the Act. Factual insolvency may, in an appropriate case, indicative of a company’s inability to pay its debts and, as Goldstone JA pointed out in Ex parte De Villiers at 502E, it will clearly be a relevant and material factor in deciding whether a court should exercise a discretion to grant a winding-up order. The significance to be attached to a company’s factual insolvency obviously depends upon the circumstances of the particular case. There are many variables and it is not necessary, or even possible, to list them all. What is of importance in this case is that the marked deterioration of the respondent’s position from the 1996 to 1997 financial years, couple with the lack of liquidity at the end of 1997 financial year.”

Accordingly factual insolvency is only a factor that is important in deciding whether a company is unable to pay its debts.

[62] I now turn to consider the other ground constituting the basis on which the applicant seeks the provisional order of liquidation of the respondent. That ground is found in s. 344(H) of the old Companies Act. It provides as follows:

“A company may be wound-up by the court if –

(h) it appears to the court that it is just and equitable that the company should be wound up.”

On this general rule of “just and equitable” counsel for the applicant referred the court to the authority of Thunder Cats Investment 92 (Pty) Ltd and Another v. Nkonjane Economy Prospecting an Investment (Pty) Ltd and Others 2014 (5) SA 1 SCA where the court stated that:

“A liquidation application based on the said general rule “postulates not facts but only a broad conclusion of law, justice and equity, as a ground for winding-up.”

In paragraph 15 on page 9 the court had this to say:

“Section 344(h) of the 1973 Act provides that a company may be wound-up by the court when it is “just and equitable” to do so. A winding-up on this basis “postulates not facts but only a broad conclusion of law, justice and equity, as a ground for winding-up.” The subsection is not confined to cases which were analogous to the grounds mentioned in other parts of the section. Nor can any general rule be laid down as to the nature of the circumstances that had to be considered to ascertain whether a case came within the phrase. There is no fixed category of circumstances which may provide as the basis for the winding-up on “just and equitable” ground.”

Then the court went on and quoted with approval the following passage from Sweet v. Finbain 1984(3) SA 441W where the court had the following to say;

“The ground is so widely construed; it confers a wide judicial discretion, and it is not to be interpreted so as to exclude matters which are not ejusdem generis with the other grounds specified in section 344. The fact that the Courts have evolved certain principles as guides in particular cases, or examples of situations where the discretion to grant a winding-up order will be exercised, does not require or entitle the court to cut down the generality of the words “just and equitable”.”

[63] I have already referred to the authority of Nochomorwitz’s Estate v Victory Shirt Company Ltd 1923 CPD 467 supra where strong allegations of fraud were made with regard to this section and the conduct of the company. There is no doubt in my mind that the applicant dealt extensively with the issue of fraud in the founding affidavit. Such fraud was subsequently supported by the report made by Jelal. It will be recalled that Jelal also has furnished a confirmatory affidavit about the allegations of fraud. In his answering affidavit Freitas denied the allegations that Marnic Group was involved in the ‘kite flying’ and further denied any fraudulent activity on either his part or on the part of Borregeiro. He admitted that he drew the cheques which Jelal testified that were involved in the alleged fraud but denied any illegality. He denied furthermore that there was any fraud or any unlawful conduct. Referring to the alleged fraud he stated furthermore that the agreement of settlement entered into in April 2013 put an end to all those allegations. He ended up by stating that in any event those allegations were irrelevant because subsequent events, especially the offer to settle, overtook them.

[64] In his answering affidavit Freitas admitted that he told the applicant’s representative that, in his opinion, the Marnic Group was indebted to the applicant in the sum of approximately R40 million to R50 million. Although he stated that he did not admit to the representatives of the applicant that Marnic Group was indebted to the applicant in the amount of R60 million to R80 million, he stated, however, that he was willing to accept the figure of approximately R90 million put forward by the applicant as indebtedness in order to facilitate the settlement. In its affidavit the applicant demonstrated that the respondent was the recipient of substantial amounts of money by virtue of cheques drawn on other entities in the group such as Marnavic R50 million, The Cast R10 million, Marnic R3 million, Opal R6 million, Renetron R6 million, Deciton R10 million, and Vaal Bricks R20 million. It was submitted by counsel for the applicant that there are undisputed facts that the respondent was a participant in and recipient of funds from the fraud and that it falls to be liquidated.

[65] A consideration of other factors such as the fact that most of the companies in a group have been liquidated and Freitas and his spouse have also been sequestrated, so it was argued, Classco likewise should be liquidated. In this regard the court was referred to the case of Kia Intertrade Johannesburg (Pty) Ltd v Infinite Motors (Pty) Ltd 1999(2) All SA 268W where the court stated as follows at page 279 I to 280 A:

“The just and equitable ground for winding-up is not a catch-all to simply liquidate a company that is, for example, running its business at a loss or reducing its scale.  But, in my opinion, where a company -

(a) has closed a number of branches of its business,

(b) has retrenched staff to a considerable extent,

(c) has virtually closed its head office,

(d) diverting funds which should be used to pay its debts to an overseas concern on grounds which are not satisfactorily explained,

(e) to excuse the non-payment of its liability sets up and contrived and baseless counter claim,

(f) has transferred assets outside the ordinary cause of a business, it is just and equitable that the creditors should be protected from further losses and that it should be prevented from disposing of assets and in carrying further liabilities.”

[66] On the facts before me, the respondent can have little quarrel with the applicants for believing that it is “just and equitable” that it be wound-up. I am satisfied that the applicant has made out a good case. The application is accordingly granted and the following order is resultantly made:

1. The respondent is placed under provisional winding-up.

2. A rule nisi is hereby issued calling on all persons who have a legitimate interest to advance reasons, if any, on 6 November 2015 why the respondent should not be placed under final winding-up.

3. The applicant is ordered to –

3.1 serve a copy of this order on the respondent at its registered address;

3.2 serve a copy of this order on SARS and on the respondent’s employees; and

3.3 publish a copy of this order once in the Government Gazette and once in the Star Newspaper.

4. The applicant’s costs of this application, save for the costs of opposition, will be costs in the winding-up of the respondent.

                                                                                                            _____________________

                                                                                                            P.M. MABUSE

                                                                        JUDGE OF THE HIGH COURT

 

Appearances:

 

Counsel for the Applicant:                          Adv. Smit

Instructed by:                                             Werksmans Attorneys

Counsel for the respondent:                       Adv. Rossouw (SC)

Instructed by:                                             Van Huyssteens Commercial Attorneys

Date Heard:                                               14 August 2015

Date of Judgment:                                     18 September 2015

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