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Asla Devco (Pty) Ltd v Bubesi Investments 74 (Pty) Ltd, Bitou Local Municipality v Bubesi Investments 74 (Pty) Ltd and Others (10999/09, 12393/09) [2011] ZAWCHC 24 (22 February 2011)

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IN THE HIGH COURT OF SOUTH AFRICA

WESTERN CAPE HIGH COURT, CAPE TOWN



CASE NO: 10999/09


In the matter between:

AS LA DEVCO (PTY) LTD …...........................................................................Applicant

BUBESI INVESTMENTS 74 (PTY) LTD ….................................................Respondent



And



BITOU MUNICIPALITY (Applicant for leave tointervene as Creditor)





CASE NO: 12393/09



In the matter between:

BITOU LOCAL MUNICIPALITY …...................................................................Applicant


And


BUBESI INVESTMENTS 74 (PTY) LTD ….........................................First Respondent


ASLA DEVCO (PTY) LTD …..........................................................Second Respondent


NEDBANK LIMITED ….......................................................................Third Respondent


CASTCO PROPERTIES CC …........................................................Fourth Respondent


REGISTRAR OF DEEDS, CAPE TOWN …........................................Fifth Respondent


MASTER OF THE HIGH COURT, CAPE TOWN …...........................Sixth Respondent



JUDGMENT DELIVERED THIS 22nd DAY OF FEBRUARY 2011



ERASMUS, J



Introduction:


[1] Asia Devco (Pty) Ltd (ASLA) launched an urgent application for the provisional liquidation for Bubesi Investments (Pty) Ltd (Bubesi). After a copy of the application for liquidation was served on inter alia, the Bitou Municipality (the municipality) as a creditor of Bubesi. the municipality intimated to Asia its intention to apply to intervene as a creditor and oppose the application for the liquidation of Bubesi as well as to bring an application for a declarator pertaining to the ownership of the immovable property registered as erf 4367 Plettenberg Bay ("the property").


[2] The intervention application was originally opposed. At the hearing of this matter Asia indicated that it does not intend to continue opposing the application for leave to intervene as a creditor in the liquidation application. In doing so Asia did not admit any of the allegations made in support of the municipality's application for leave to intervene or any of the grounds relied on for such relief. They reserved their rights to respond to such allegations in the liquidation application.


[3] I therefore need not deal further with the intervention application and the municipality is granted leave to intervene in the liquidation proceedings.



Background:


(4) The background to these proceedings go much further back than the mere launching thereof.


[5] The municipality concluded a land availability agreement with Asia and Castco Properties CC (Castco); (Alsa's joint venture partner) on 16 November 2001.


[6] The agreement stated that the municipality would sell property to Asia and Castco for a consideration of R100 000 (one hundred thousand Rand). The property would be used for a residential group housing development consisting of 51 erven of high and medium density. This property would primarily be for the benefit of previously disadvantaged individuals.


[7] An addendum to the land availability agreement was concluded on 7 February 2003 by the municipality, Asia and Castco in terms of whereof Bubesi (Asia and Castco being the co-owners in equal shares of Bubesi) was nominated as a special purpose vehicle to take transfer of the property for the purpose of undertaking the development as contemplated in the land availability agreement.


[8] Bubesi failed to meet the obligations in terms of the land availability agreement, resulting in the municipality instituting proceedings against it under case no: 8384/06. The municipality applied for orders declaring the land availability agreement and the addendum to be cancelled and the municipality be entitled to the re-transfer of the property. Matojane AJ (as he then was), delivered a judgment on 22 August 2008. granting the municipality the relief sought by it. and directing Bubesi to re-transfer the property to the municipality within seven days, failing which the Sheriff was authorized to take the necessary steps to effect transfer.


[9] Matojane AJ had refused the application for leave to appeal against this judgment. Application for leave to appeal was similarly refused by the Supreme Court of Appeal during April 2009. It is this order which precipitated the liquidation application and the municipality argues that this was simply to circumvent the order of Matojane AJ.


[10] The municipality's opposition to the application is two-fold. In the first instance, it is contended by the municipality that the effect of the order of Matojane AJ of 22 August 2009 was to revest ownership of the property in the municipality. It has been submitted that if the latter is true the entire basis upon which the winding up application has been formulated would appear to fall away. The question of whether ownership has been revested is dealt with in the declarator application.


[11] The municipality submitted that it would be neither just nor equitable and indeed would be contrary to public policy for Bubesi to be wound up if the property is still currently vested in the latter. The municipality further submitted that the question is one which does not raise additional or new factual material to the extent that the alternative basis for the opposition was not raised in the founding papers in the intervention application. The submission was made in the context of Asia's claim that the granting of the winding-up order would be just and equitable.



Analysis:

[12] The Companies Act 61 of 1973 (the Act) sets out the circumstances under which a company may be wound up by a court in particular section 344 of the Act stipulates a set of necessary conditions to be present in order for the court to grant an order of liquidation.


[13] While these conditions are necessary, they are not in themselves sufficient conditions for the granting of an order. Even where the applicant establishes that the company is for example unable to pay its debts as described in section 345 of the Act. the court is vested with the residual discretion whether or not to grant an order.


[14] The existence of this discretion in common with the law of sequestration is trite and reserves for the court the power to ensure that notwithstanding the fulfilment of the formal conditions set out in the Act, the granting of an order must be just, equitable and fair.


[15] Factors pertinent in exercising the court's discretion to refuse the granting of a winding up order include inter alia the following:

a) Whether there are realisable assets or readily realisable assets available out of which a company might be able to pay its debts;


b) The abuse of the court's process;


c) Any other factor which may affect the fairness and equity of the granting of the order.


[16] The list of factors, however is open ended and the discretion may be exercised on any ground that is not extraneous to the purpose and scope of the relevant legislation. See: Tjospomie Boerdery (Pty) Ltd v Drakensberg Botteliers (Pty) Ltd 1989(4) SA 31 (T) at 42-43; Commissioner. South African Revenue Services v Hawker Aviation Services Partnership and Others 2005(5) SA 283 (T) at 311F-312A; Cuninghame v First Ready Development 249 (Association incorporated in terms of section 21) [2008]4 All SA 88 (C) at par 36.


[17] It is settled law that even where an applicant establishes all the requirements for liquidation or sequestration, a court has a residual discretion to refuse to grant an order for sequestration or liquidation.


[18] It is common cause that Asia's application for the winding up of Bubesi is, for all effective purposes, on the sole ground that it is just and equitable that Bubesi be provisionally liquidated. It is argued on behalf of Asia, but for the property presently still registered in Bubesi's name, its liabilities exceed its assets by far.


[19) A real and imminent prospect exist that Bubesi's creditors (excluding the municipality) will not be paid at all. should transfer of the property to the municipality occur (in the event of a liquidation order not being granted).


[20] Bubesi does not have other liquid assets or cash available to make payment to its creditors and does not otherwise trade and have no sources of income from which to pay its debts.

[21] They argue that there can be no question that the municipality will be unduly favoured above other creditors in the event of a liquidation order not being granted.


[22] Properly analysed, accordingly, the basis of the application is that if the property was to be retransferred and in that event Bubesi would not be able to pay its debt to Asia. This being so it would be just and equitable, presumably so the argument goes, that winding up should intervene to prevent this outcome.


[23] A court may find that there is sufficient grounds for the granting of a winding up order on the basis that it is just and equitable in terms of section 344(h) of the Act. See: Securefin Ltd v KNA Insurance & Investment Brokers (Pty) Ltd [2001]3 All SA 15 (W) at 48.


[24] An applicant who brings a winding-up application on this ground bears the onus of proving that it is just and equitable on a balance of probabilities. See: Paarwater v South Sahara Investments (Pty) Ltd [2005)4 All SA 185 (SCA).


[25] The subsection, unlike the preceding subparagraphs of section 344, postulates not facts but only a broad conclusion of law, justice and equity as a ground for winding-up. See: Moosa NO v Mavjee Bhawan (Pty) Ltd and Another 1967(3) SA 131 (T) at 136H.


[26] The requirements of "just and equitable" confers upon the court a wide discretionary power which must of course be exercised judicially, taking into account all the relevant circumstances, regard being had to the competing interests of all concerned. See: Moosa NO (supra)


[27] Although five broad categories have been identified for winding up on just and equitable grounds, no numerus clausus exists. See: Leca Investments (Pty) Ltd v Shiers 1978(4) SA 703 (W); Rand Air (Pty) Ltd v Ray Bester Investments (Pty) Ltd 1985(2} SA 345 (W) at 350.


[28] These five grounds are:

(a) The disappearance of the company's substratum - where the company was formed for a particular purpose for instance and that purpose can no longer be achieved at all;

(b) The illegality of the objects of the company and fraud committed in connection therewith;

(c) A deadlock which results in the management of the company's affairs because the voting power at board and general meeting level is so divided between dissenting groups that there is no way of resolving the deadlock other than by making a winding-up order, for example where there are only two directors or only two shareholders;

(d) Grounds analogous to those for the dissolution of partnerships - where the company is a private one and its share capital is held wholly or mainly by the directors and it is in substance a partnership in corporate form, the court will order its winding up in the same kind of situation that it would order the dissolution of a partnership on the ground that it is just and equitable to do that: and

(e) Where there is oppression.


[29] The above are the circumstances in which a company may be liquidated on the just and equitable grounds in our law. This is not a final or complete list of circumstances; it is open to courts to identify other circumstances or devise other categories in future. See: Erasmus v Pentamed Investments (Pty) Ltd 1982(1) SA178 (W) at 181B-185E: P/er?aar v Thusano Foundation and Another 1992(2) SA 552 (BD) at 581; Meskin: Henochsberg on the Companies Act Vol 1 at 700 (1) 706; Barnard v Carl Greaves Brokers (Pty) Ltd and Others and two other cases 2008(3) SA 663 (C).

This section does however not serve as a "catch all" ground for simply winding up a company.


[30] An applicant who relies upon the just and equitable provision to obtain a winding-up order must not himself have been wrongfully responsible for the situation which has arisen. See: Emphy and Another v Pacer Properties (Pty) Ltd 1979(3) SA 363 (D) at 368H.


[31] The just and equitable basis for winding up a company "is rather a special ground under which only certain features of the way in which a company is being run or conducted can be questioned to the point of requesting the Court to wind it up". See: Rand Air (Pty) Ltd v Ray Bester Investments (Pty) Ltd 1985(2) SA 345 (W) at 349I.


[32] Two steps are envisaged by subsection 344(h) of the Act: the first is to determine the facts relevant to the formation of an opinion on the question of justice and equity, and the second step is whether the court should exercise its discretion and grant a winding up. See: Tjospomie Boerdery (Pty) Ltd v Drakensberg Bottfiers (Pty) Ltd 1989(4) SA 31 (T) 41-42.


[33] Circumstances under which a winding up order was granted in other cases can serve as a guideline only. See: Kyle and Others v Maritz & Pieterse Incorporated [2002)3 All SA 223 (T) at 225.


[34] Mr Rosenberg further submitted that it would not be just and equitable to liquidate Bubesi for the following reasons:

(a) Bubesi's alleged assets exceed its liabilities by a considerable amount:

(b) It is only in the event of the property being retransferred to the municipality that it is alleged that Bubesi will be unable to pay its debts;

(c) Asia's sole purpose in seeking the winding up of Bubesi is to circumvent the judgment and order of 22 August 2008;

(d) The effect of the judgment delivered by Motajane AJ on 22 August 2008 confirmed that Bubesi was in breach of its contractual obligations under the land availability agreement, entitling the municipality to remedy cancellation and return of the property;

(e) In the nature of things, loss or damage sustained by the defaulting parties as a result of the land availability agreement not being implemented is properly to be borne by such parties. In particular, Bubesi's loss and any related loss of Asia and Castco as the joint ventures who had initially contracted with the municipality and who had substituted Bubesi in their place, as the purpose vehicle to implement the land availability agreement, falls to be borne by such parties. Such loss certainly does not fall to be borne by the municipality, which was the innocent party entitled to the remedy of cancellation;

(f) Asia's claim against Bubesi for R1 435 082,12 would appear to represent costs incurred in connection with the land availability agreement. In other words, this sum represents, for all effective purposes, loss sustained by the defaulting party which in the nature of this is not recoverable from the innocent contracting party:

(g) In the matter in question, Asia and Castco were the parties with whom the municipality contracted in terms of the land availability agreement. Given the fact that Bubesi was their special purpose vehicle, jointly owned and controlled by them, for the implementation of the land availability agreement, the position of Asia and Bubesi are effectively analogous. It is submitted that they are both to be regarded as defaulting parties, and to be treated accordingly.


h) In the result, the liquidation of Bubesi would have the intended effect that the property will be utilised to offset a significant portion of Asia's contractual loss, at the cost of the municipality. Motajane AJ's judgment and order of 22 August 2008 contemplated and required, however, that ownership of the property should revest in the municipality, and transfer was directed accordingly. In short, the municipality as the innocent party was entitled to return of the property, Asia and Bubesi had no claim thereto and, as defaulting parties, they were to absorb their own losses;


i) Asia is in the circumstances making a call on the public purse to underwrite its loss. Land earmarked for housing and valued far in excess of the nominal purchase price of R100 000,00 will not be used in the public interest, but rather for the sectional interest of a party who is entitled to it.


[35] It is also submitted on behalf of Asia that no real prospect exists of the Respondent (Le.Bubesi) satisfying its debts.


[36] Mr Kuschke on behalf of Asia submitted that the real and imminent prospect exists that Bubesi's creditors (excluding the municipality) will not be paid at all should transfer of the property to the municipality occur (in the event of a liquidation order not being granted).


[37] He argues that Bubesi does not have other liquid assets or cash available to make payment to its creditors, does not otherwise trade and has no sources of income from which to pay its debts.


[38] He further argues that there can be no question that the municipality will be unduly favoured above other creditors in the event of a liquidation order not being granted. Bubesi's substratum has disappeared in that its object namely that of the development of the property, is no longer capable of realisation after cancellation of the agreement with the municipality in terms of the judgment under case number 8384/06.


[39] With reference to 1 Lawsa (re-issue) para 124, he argues that the general rule is that where a company is insolvent, the court will not refuse an order for its liquidation event where the majority of creditors are opposed to it. unless future creditors are adequately protected.

See: ABSA Bank Limited v Rhebokskloof (Pty)Ltd and Others 1993(4) SA 436 CPD at 440F-J; 441A-B; Sammel v President Brand Gold Mining Company Ltd 1969(3) SA 329 at 60F; Service Trade Supplies (Pty) Ltd v Dasco and Sons Ltd 1962(3) SA 424 (T).


[40] Mr Rosenberg argues that even insofar as Asia relies on the ground of winding-up of Bubesi that they are unable to pay their debts. They have not made out a case.


[41] On Asia's own admission Bubesi's assets as claimed, (i.e. the debt of Castco in the amount of R420 000.00 and the property valued at approximately R2 400 000,00) exceed its alleged liabilities by a substantial amount.


[42] In this regard, it must be kept in mind that the claims of Mrs L I A Hendricks in the amount of R130 000,00 as well as that of Dr M A Hendricks in the amount of R210 000,00, are on Asia Devco's own admission, disputed.


[43] It must also be kept in mind that the alleged debt owed to the municipality in the amount of R100 000.00. is denied by the municipality on the basis that it is entitled to the retransfer of the land and it is not interested in the payment of the unpaid purchase price of the property.


[44] Asia's application inter alia fails to allege that Bubesi has failed on demand to pay a debt that is due and payable.


[45] There is no further evidence adduced on behalf of Asia of an unsatisfied demand for payment of any of the alleged debts, nor of an admission on the part of Bubesi that it could not pay its creditors.


[46] There is also no evidence that Bubesi is unable to meet current demands in the ordinary cause of its business or is in a state of commercial insolvency.


[47] He argues that in addition to its statutory discretion, a court has an inherent jurisdiction to prevent abuse of its process and therefore even where a ground for winding up is established, the court will not grant the order if the sole or predominant motive or purpose of an applicant is something other than the bona fide bringing about the company's liquidation.


[48] Even if Asia has succeeded in establishing that Bubesi is unable to pay its debts as described in section 345 of the Act, the court is vested with the residual discretion whether or not to grant an order.


[49] I now turn to deal with the revesting of property in the Bitou Municipality.


[50] It is common cause that the property is still registered in the name of Bubesi.


[51] The municipality as plaintiff sought an order against Bubesi as first defendant in the court under case number 8384/06 in the following terms:

(a) An order declaring that the contract annexures A and B (the Land Availability Agreement and its addendum) was lawfully cancelled by it;

(b) An order declaring that it is entitled to a retransfer of the property into its name:

(c) An order directing Bubesi to sign all documents and take all steps necessary to retransfer the property into the name of the municipality within 7 (seven) days of date of judgment, failing which the Sheriff for the district of Knysna be authorised and directed to sign all documents and to take all steps necessary on behalf of Bubesi to retransfer the property into the name of the municipality;

(d) Costs of suit;

e) Such further or alternative relief as the court may deem just.




[52] The court above granted an order in the following terms: "It is declared that:

  1. The Land Availability Agreement dated 16 November 2001 and the Addendum thereto, dated 7 February 2003 between the parties is lawfully cancelled.

The plaintiff is entitled to the retransfer of erf 4367 Plettenberg Bay into its name.

First defendant is ordered to sign all documents and take all steps necessary to retransfer erf 4367 Plettenberg Bay into the name of the plaintiff within seven (7) days hereof, failing which the Sheriff of the district of Knysna is authorised and directed to sign all documents and take all steps necessary on behalf of the first defendant to retransfer erf 4367 Plettenberg Bay into the name of the plaintiff.

The defendants are ordered to pay the costs including the costs of defending the alternative counterclaim jointly and severally, one paying the other to be absolved."


[53] It is submitted by Mr Rosenberg that the cancellation of the "Land Availability Agreement" and its addendum on 7 June 2006, confirmed by the specific terms of the court's order of 22 August 2008. had the effect that the municipality's rights of ownership and occupation of the property were ex lege restored.


[54] The court's order in so far as it expressly provided that the municipality was entitled to the retransfer of the property into its name, and this order that Bubesi was to sign all documents and take all necessary steps to retransfer the property into the name of the municipality within seven (7) days thereof, had the ex lege effect that the cause in terms of which the property was registered in the name of Bubesi fell away.


[55] Where title to property is registered in the insolvent's name and it appears that such title is invalid by reason of there being no iusta causa for it or by reason of mistake of fraud, the person legally entitled to the property is in such case not precluded from claiming it.


[56] Hence Mr Rosenberg argues that the cancellation of the "Land Availability Agreement" and its addendum on 7 June 2006 and the court's confirmation of this cancellation and its order for the retransfer of the property had the effect that the title of Bubesi fell away. Hence the municipality, which is legally entitled to the property in terms of the court order, is not precluded from claiming the retransfer of the property, even in the event of the winding up of Bubesi.


[57] In my view in answering the question whether it is just and equitable to wind up the company, one has to have regard to all the circumstances of the particular case.


[58] One knows that Asia and Castco, were the two members of Bubesi, the joint ventures and that the action by the municipality was instituted against Bubesi; Asia and Castco. One knows further that those three defendants jointly instituted a counterclaim for damages for a range of relief as appears from the record. It was not a counterclaim that was merely instituted by Bubesi. it was a claim advanced by all three of the associated companies against the municipality for a range of relief.


[59] It is apparent from the judgment of Matojane AJ (as he then was) that Ms Struik, the director of Asia, as well as Mr Tobias, the director of Castco, in other words the two joint ventures who held a special purpose vehicle, gave the evidence in support of the defendant's claim in reconvention and in support of the defendant's case of the claim in reconvention should be dismissed.


[60] Having regard to the valuations given, it is unavoidable to find that the transfer price of the property to Bubesi was merely a nominal value. This is not a situation where the debtor and creditor is at arms length, in fact, the debtor the creditor and intervening creditors are all parties intricately bound up with each other in a variety of ways. This is not a situation where the respondent company is a trading entity incurring debt and continues to incur debt with future creditors and the position of future creditors are a concern in the context has been completely ignored in this matter


[61] What is important is that the terms of the Land Availability Agreement whereby an organ of state, in this case the local authority, makes available land for development for specific purposes in compliance with its constitutionally mandated obligations. No meaningful distinction for these purposes can be drawn between Asia. Bubesi and Castco. Bubesi is a special purpose vehicle held by Castco and Asia. They nominated and the municipality agreed that the special vehicle to carry out the development obligations will be Bubesi. Asia financed the developers or the obligations carried out by the developer. It is common cause on the papers that Asia's claim of over a million rand represents a loan account or was accorded in a loan account and it represents funds advanced to Bubesi to carry out the development. That amount then represents in truth the developers loss on cancellation of the agreement. The breach was effectively the developers breach and it makes no sense and one cannot, as it were to say, it is Bubesi's breach not Asia's breach. As a result of that breach the Land Availability Agreement was held to have been validly cancelled.


[62] The proper and regular consequence of that is that the loss has to be borne by the defaulting party and that is the effect of Matojane AJ's judgment. The property is to be returned to the municipality on cancellation. The loss which has been sustained and certainly the loss of the defaulting party must be borne by the defaulting party.


[63] In my view the sole purpose of this application is to prevent the property falling into the hands of one of the creditors. That ignores the fact that in truth the property was previously owned by the municipality and it is entitled to its return as a result of or in consequences of the developer's breach. It ignores the fact that the developers claim in this case Asia's claim against Bubesi, in truth are the abortive development cost incurred in this development which are to be borne by the developer. Asia is in fact seeking to utilise the property, which in terms of the court order and in terms of the proper application of the contractual principles at play, should be returned to the non-defaulting party. It is attempting to utilise that property in order to cover, to a significant degree, the contractual loss that the defaulting party is obliged to bear. So the net and convenient result of the application if they are successful will be that the order of Matojane AJ is circumvented and that transfer of the property will be prevented from taking place.


[64] It is interesting to note that at the argument stage the emphasis was placed on the ground of a failure to pay debts and to de-emphasise a just and equitable ground. Of course that was not the approach taken in the founding papers, In any event the only creditors for present purposes are Asia with its development on loan account with no indication when that is repayable and in the nature of things one can accept, given the relationship between the parties that is a loan of a very special character. For the rest, there is Dr and Mrs Hendricks whose claim is disputed. It was said in the papers that the claim is being defended and one can assume reasonably that Bubesi and Asia and Castco will not be defending that claim and that it is still being defended if they have no grounds to do that. It must be found that in view of Bubesi and hence Asia, Dr and Mrs Hendricks do not have legitimate claims.


[65] In essence the creditors and effectively the municipality, for the cost of their action, would be a joint and several liability of Bubesi and Castco and Asia's funds which was extended on the abortive development then there would be no creditors. No evidence was put up that Bubesi was a company which is under pressure in the ordinary course of its business in order to meet creditors claims which can not be met.


[66] Therefore there are no future creditors that are likely to be prejudiced but for that reason ex debitio iustitia the claim of the creditor Asia and one must be cautious or be aware of exactly what that means.

[67] There is no suggestion that absent any claim by the municipality to the property that Bubesi would have to be wound up on the basis of an inability to pay its debts.


[68] In my view if I have regard to all relevant circumstances and what is just and equitable, manifestly inappropriate and inequitable and in fact, as submitted by the municipality, it would be contrary to public policy to permit the applicant to circumvent the court order in this fashion.


[69] The reality of the situation is that one is not dealing with a body of creditors. For all effective purposes one is dealing with the municipality on the one side and Asia, Bubesi and Castco on the other. They are competing interest and in particular they are competing interests vis a vis the property. These competing rights however were settled by this court as per Matojane AJ's order and as far as creditors are concerned, what we have, although it is dressed up as Asia's claim against Bubesi in substance, is the other side of the one asset we have in this matter. It is the loss that was incurred in the course of implementing the agreement and this court has already found who should bear that loss.


[70] To the extent that it is relevant, the only creditors whose interest should really be taken into account is the municipality. Its interest far outweighs the developers' interest in respect of the developers' debt. Furthermore on the just and equitable ground it is an established proposition that an applicant must not be responsible for the situation whereby it becomes just and equitable for the company to be wound up. The clean hands doctrine applies particularly in circumstances for the just and equitable grounds of winding up.


[71] In this case Asia, Castco and Bubesi were responsible for the fact that the substratum of the company has disappeared and that responsibility can similarly and should be taken into account in the exercise of my discretion on the claim for the winding up order.

[72] Consequently I find that the application for a winding up order cannot succeed and that is refused. Insofar as the declarator is concerned, the municipality will be entitled to take transfer of the property and the order of Matojane AJ must be implemented.


[74] Consequently the application is dismissed with costs which costs are to include the cost of two counsel.



ERASMUS, J