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IN THE HIGH COURT OF SOUTH AFRICA

(TRANSAAL PROVINCIAL DIVISION)

DATE: 18/5/2006

CASE NO. 40806 /2005

UNREPORTABLE

In the matter between:

METSO ND ENGINEERING (EDMS) BPK APPLICANT

And

SPECSOLPROJECTSCC RESPONDENT

JUDGMENT

MAVUNDLA J,

1. This is an application for a provisional winding-up of the Respondent.

2. According to the Applicant the Respondent is “indebted to it in the amount of R262 157, 48 plus interest in respect of outstanding balance for engineering work done by the Respondent for the Applicant.” It is clear, from the further reading of the papers that the position is the other way round, since the engineering work was done by the Applicant for the Respondent.

3. In bring this application the Applicant relies upon the following:

(a) The Respondent’s deemed inability to pay, by virtue of a notice sent to the Respondent in accordance with the provisions of Section345 (1) (a) of the Companies Act No. 61 of 1973 (“the Companies Act”).

(b) The Respondent’s actual inability to pay its debt because all the evidence, according to the Applicant, points clearly to the fact that the Respondent simply does not have money to pay what it owes to the Applicant.

4. It is common cause that the Respondent had contracted the Applicant to manufacture a canter leaver beam and pedestal for the Respondent’s client Mondi Piet Retief. The original amount quoted was R408 097, 20. The payment terms were:

(a) 10% payment;

(b) 90% upon delivery to Mondi Piet Retief and submission of the QA documents. Although the quoted amount was R408097, 20 Respondent was invoiced with the sum of R367 287, 48. After he had queried two invoices and certain alleged work as reflected immediately herein below.

The Respondent paid the required down payment of 10% in the sum of R40 809, 72 on 1 October 2004. The Respondent further paid an amount of R100 000, 00 on the 27 October 2004. The Respondent, as a sequel to his aforesaid query, had been credited with the following amounts of R15 230, 40, R63840, 00 in respect of invoice numbers 1039 and 1040 and R5130, 00 in respect of alleged drilling and tapping of certain holes in the beam .It is further common cause that after the credits and the afore said mentioned payments the outstanding balance was then R262 157, 48. It is also common cause that this amount has not been paid by the Respondent. It is also common cause that a letter of demand was sent to the Respondent.

LEGAL POSITION IN RESPECT OF WINDING UP:

5. It has been quite correctly pointed out by both Mr. Kellerman for the Applicant and Mr. Botes that the Applicant has an onus to prove a prima facie case of indebtedness by the Respondent to the Applicant. They both referred to the case of Meyer N.O. v Bree Holdings (Pty) Ltd 1972. (3) SA 353.

6. Where the application for the winding up is being opposed and the applicant has satisfied the Court that he has a prima facie claim against the respondent then the respondent must convince the court that the application is being opposed on bona fide and reasonable grounds. The Respondent, apart from saying he disputes the claim of the applicant and he does so bona fide, he must establish, no more nor less, that the grounds upon which he relies are reasonable. He does not have to do so even on probabilities that he will succeed on any action which he might bring against the applicant to counter the disputed claim. He does not have to prove his defence. All that he needs to do is to satisfy the Court that the grounds that he is advancing for disputing the claim against him are not unreasonable. In this regard see Hulse-Reuter v Heg Consulting Enterprises (PTY) Ltd 1998(2) SA 208 at 219F.

7. Where there is a dispute of facts, Murray AJP in the matter of Room Hire Co. (PTY) Ltd v Jeppe Streeet Mansions (Pty ) Ltd 1949 (3) SA 1155 at 1162—1164 puts it as follows:

“The crucial question is always whether there is a real dispute of fact. That being so, and the applicants being entitled in the absence of such dispute to secure relief by means of affidavit evidence, it does not appear that the respondent is entitled to defeat the applicant merely by bear denials such as he might employ in the pleadings of a trial action, for the sole purpose of forcing his opponent into the witness box to under-go cross- examination. Nor is the respondent‘s mere allegation of the existence of the dispute of fact conclusive of such existence.

‘In every case the Court must examine the alleged dispute of fact and see whether in truth there is a real issue of fact which cannot be satisfactorily determined without the aid of oral evidence; if this is not done, the lessee against whom the ejectment is sough, might be able to raise fictitious issues of fact and thus delay the hearing of the matter to the prejudice of the lessor.’

See also the case of Meyer N.O. Bree Holdings (PTY) Ltd (supra) at 354 G-H and 355B

8. In the matter of Godlonton N.O. v Ryan Scholtz & Co (PTY) Ltd 1978 (4) 84 at 90A-C the Court said that “where there is a bona fide dispute as to the existence of a debt, a winding-up order will not be granted and the applicant may be required to prove his debt by way of action. The position is stated in the Badenhorst case at 348 A where it was said: “,n Geriflike opsoming is die volgende, uit Buckley on Companies 11de uitg te 57: ‘ A winding-up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. A petition presented ostensibly for a winding- up order but really to exercise pressure will be dismissed and under circumstances may be stigmatized as scandalous abuse of the process of the Court. Some years ago, petitions founded on disputed debts were directed to stand over until the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the Court may decide it on the petition and make the order.’

IN CASU

9. Mr F.W. Botes has referred me to various authorities in his effort to persuade me to grant the relief sought by the Applicant. He referred to the matter of Phase Electric C0. v Zinman’s Electrical Sales Ltd 1973 (SA) 914 at 917. Without getting into details of this case, it suffices to point out that what comes out from that paticular case is the fact that if a letter of demand has been sent by registered post to the address of the debtor, this is sufficient compliance with the requirements of section 112 of the Companies Act 90 of 1969. This is the old Companies Act which has since been replaced with current Companies Act No.61 of 1973. The corresponding section is section 345which states that A company or body corporate shall be deemed to be unable to pay its debts if – a creditor , by cession or otherwise, to whom the company is indebted in a sum of not less than one hundred rand then due-has served on the company, by leaving the same at its registered office, a demand requiring the company to pay the sum so due; or (11) in the case of any body corporate not incorporated under this Act, has served such demand by leaving it at its main office or delivering it to the secretary or some director, manager or principal officer of such body corporate or in such other manner as the Court may direct, and the company or body corporate has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;

10. In casu, the relevant letter of demand in terms of s345 of the Companies Act has been attached as annexure AL8 to the founding papers. This letter has been addressed to the Respondent’s registered address per registered post .It is dated the 6 October 2005 and was posted on the 7 October 2005. The letter refers to an amount owing being R262 157, 28 which amount is far in excess of R100. The was application issued in December 20005, well beyond the three week period provided in s345. As a matter of fact the Respondent is no disputing that the relevant letter of demand was received by itself.. In the premises the Applicant has proved compliance with s345 of the Companies Act.

11. Mr. Botes submits that the intention with section 345(1) is that any of the situations set out therein the conclusion that the company is unable to pay its debts is to be a conclusion of law, i.e for the purposes of the exercise of its jurisdiction to wind up a company under section 344(f), the company is , where any of such situations exists, in law unable to pay its debts even in fact it is able to pay them( section 345(1) (a) a company may ignore the demand yet be in a position to pay its debts) In as much as Section 344(f) empowers the Court to wind up if the company is unable to pay its debts as described in section 345, are the only situations in which for the purposes of section 344(f) such conclusion can obtained.

12. I need, however, to refer to the matter of Body Corporate of Fish Eagle v Group Twelve Investments 2003 (5) SA 414 at 418D where the Court stated that:

“The deeming provision has the effect of creating a rebuttable presumption to the effect that the company in question is unable to pay its debts. In Ter Beek v United Resources CC and Another 1997 (3) SA 315 (C) at 331 Van Reenen J, referring to s68 of ct 69 of 1984, said a Court’s discretion in regard to the winding-up of a closed corporation operates even in those instances where the application for winding-up is based on a deemed inability on the part of the closed corporation to pay its debts, I incline to the view that the provision of s69(1) of Act 69 of 1984 are merely supplementary (i.e. extending what the subject matter includes) and prima facie (irrubuttable). Accordingly, first respondent is not precluded from assailing the ‘conclusion of law’…which results from failure to respond to the statutory demand in terms of s69 (1) (c) of Act 69 of 1984.’ supra at 331).

15. In casu the Respondent does not seem to dispute that it is indebted to the applicant in the amount in excess of R100.This can be gleaned from its own letters marked annexure D and G which are dated the 25 November 2004 and addressed to the Applicant. In annexure D it says inter alia: We have reviewed this project and our documentation required in order to proceed with payment to Metso of the balance for the manufacture of the main components.

We would be pleased to remit outstanding payment for the manufacture and delivery of the main components upon your submission of the following documentation to us:”

In this letter the Respondent further calls to be credited with the drilling and tapping of the holes. Indeed the credits were effected as I have pointed out in paragraph 4 herein above.

The second letter (annexure G) states inter alia, that:

“Your demand is for an amount of R262 157.48 which amount is far in excess of and does not match, any documentation in our possession and certainly does not equate to the actual amount outstanding.”

The Respondent does not state how much, according to it is the actual outstanding amount. In any event, this is immaterial because he does not dispute being indebted to the Applicant in any amount at all or an amount less than R100. In the Body Corporate of Fish Eagle Group of Twelve Investments (supra) at 428B the Court stated as follows:

“The deeming provision of s345 (1)(a) of the Companies Act creates a rebuttable presumption to the effect that the respondent is unable to pay its debt (Ter Beek’s case supra at 331F). If the respondent admits a debt over R100, even though the respondent’s indebtedness is less than the amount the applicant demanded in terms of s345 (1)(a) of the Companies Act, then on the respondent’s version the applicant is entitled to succeed in its liquidation application and the conclusion of law is that the respondent is unable to pay its debts”. I am of the view that the above referred paragraph is apposite in casu.

16. I am not persuaded by the Respondents’ reasons for not paying at all. There is no explanation from its side as to what is the actual correct amount that is owed. In the absence of these allegations I do not think that the Respondent has demonstrated that there is a factual dispute in regard to the actual amount owing, thus warranting that the matter should not be disposed of on the affidavits.

17. With regard to the reason for refusing to pay, it has been submitted that these are fully setout in annexure AL9 to the Applicant’s affidavit.

18. I am of the view that on this leg the Respondent has not discharged the onus resting on it to rebut .

19. Mr.Botes, in buttressing his submission that the Respondent is indeed unable to pay its debt relies on the matter of Rosenbach & Co (PT) Ltd v Sign Bazaars (PTY) Ltd 1962 (4) SA 593 d AT 597, Ebrahim (Pty) Ltd v Pakistan Bus Service (PTY) Ltd 1964 (4) SA 146 (N) at 147 and Irvin & Johnson Ltd v Oelose Fisheries Ltd 1954(1) SA 231 (E) at 238 inter alia. He submits that the financial statement of the Respondent show as an asset its patent for an amount of R5,000 000.00. for the year 2006. This patent should not be taken into consideration in determining the current assets of the Respondent. He further submits that if this patent and its value were to be ignored then it is clear that the Respondent is having serious financial difficulties. He further states that it must also be borne in mind that the financial statements reflect that the Respondent has only made a profit of R11 147, 00 for the current year 2006 thus far. He further submits that these facts must not be seen in isolation but in the background of the fact that the Respondent’s own client, Mondi Piet Retief has confirmed that it has paid the Respondent in full, yet the Respondent has failed to settle the outstanding balance.

20. In the Rosenbach & Co. (PTY) Ltd case (supra) at 597C-H, Caney J says that the proper approach in determining whether a company should be wound up, if it is established that it is unable to pay its debts, in the sense of being unable to meet the current demands upon it, its day to day liabilities in the ordinary course of business, it is in a state of commercial insolvency; that it is unable to pay its debt may be established by means provided in para. (a) or and (b) of sec.112, or in any other way, by proper evidence. If the company is in fact solvent, in the sense of its assets exceeding its liabilities, this may or may not, depending upon the circumstances, lead to a refusal of the winding-up order; the circumstances, particularly to be taken into consideration against the making of an order are such as show that there are liquid assets or readily realisable assets available out of which, or the proceeds of which, the company is in fact able to pay its debt. Cf. Chandler Ltd . v Dealesville Hotel (PTY) Ltd., 1954 (4) SA 748 (O) at p. 749. Nevertheless, in exercising its powers the Court will have regard to the fact that.

‘A creditor who cannot obtain payments of his debt is entitled as between himself and the company ex debito justitae to an order if he brings his case within the Act. He is not bound to give time’.

21. Where the Respondent does not have assets that can be readily sold in a reasonable time to pay a large debt without really closing down its business, then the Respondent is commercially insolvent Vide Irvin and Johnson Ltd (supra) at 238B and 239 A. The mere selling of its assets to meet its debts, is also an indication of some financial difficulties and an acknowledgement that liquidation must ensue.

22. Mr.Kellerman, for the Respondent has urged me not to grant the relief sought. He has referred me to the case of Badenhorst v Northern Construction Enterprizes (Edms) Bpk 1956 (1) SA 346 (T) at 347-348. I need not repeat what is enunciated in this case in view of the fact that it is cited in Godlonton N.O. v Ryan Scholtz & Co (PTY) Ltd (supra) at paragraph 8 herein above. He has also submitted that the Respondent is solvent and it has a bona fide and reasonable ground to oppose the granting of the winding-up order.

23. In regard to the aspect of the solvency of the Respondent, he has referred me to annexure “I” which is the Financial Statements for the year 28 February 2005 of the Respondent. Mr. Botes had referred earlier to the statement. In particular, Mr. Kellerman refers to note 3 at page 4 of the said statement where it is stated as follows:

“3 Special Note

The company is involved in a major project in the Bathurst Area-related to Pineapple Agricultural Waete Benefication. Certain key funding will start to flow to the company at the start of the new financial year, with the first funds coming in around 25 March 2006. In this regard the Company has a Registered Patent with a value of R125 Million. This project will ensure full time work for the Company for the next ten years.

This projection was awarded in terms of a tender. The patent has been taken into account at a net value of R5 million at this stage.”

24. Mr. Kellerman says that the Respondent is expecting to receive a substantial amount in due course. He further says that the patent must be taken into consideration in determining the solvency of the Respondent. I am not inclined to agree with him on these issues. Firstly there has been no supporting document furnished to show the potential source of further revenue being received by the Respondent and how soon would such revenue be received. This submission is speculative. Secondly, the bases upon which the alleged value of R125 million has been arrived at is not setout in the papers. Where a person is faced with an application for liquidation, it is not unlikely that he can give an exaggerated state of liquidity to save himself the embarrassment of the liquidation or sequestration. Further the Respondent does not demonstrate how this patent valued at R125 million can be converted into cash to enable it to pay its debts without it having to close down. Taking into consideration all the relevant factors regarding the question of insolvency of the Respondent as well as the authorities I have cited herein above I am not convinced that the Respondent has acquitted itself of the onus of rebutting the deemed insolvency.

25. In opposing the application, Mr. Lance Geoffrey Marshall , the managing member of the Respondent , states that on the 15 June 2004 he placed an order on behalf of the Respondent for a beam and pedestal for which the Respondent had been contracted by Mondi Paper Mill, Piet Retief. The said beam and pedestal was to be constructed in accordance with an approved drawing which has been attached to the papers as annexure B. On the 15 June 2004 Mr.Marshall faxed the terms of the agreement to the Applicant. The relevant terms of the said agreement are contained in annexure AL3 Of the applicant’s founding papers. The terms of the said agreement were inter alia that the Applicant to submit a manufacturing program with QA hold in Microsoft Project format and that inspection to be done by the Respondent as and when required at certain hold points.

26. The quotation was given. After the quotation was accepted the Applicant supplied the Respondent with a quality control plan in terms of the agreed specification and intervention levels therein contained. According to the Respondent the said control plan made provision for different processes as well as inspections during the manufacturing of the canter leaver beam and pivotal pedestal. After inspection and upon being satisfied the Respondent would then sign off the specific part of the quality control plan that had been so inspected.

27. The Respondent states that only the QA hold point to verify the steel quality was complied with by the Applicant. It further states that the milestones with regard to the verification of inspection and release, verification of shot peen stress relieving inspections to verify weld method, inspections with regard to low test beam and pedestal and the issue of a load test certificate as well as the final inspection and release for delivery to site had never been conducted by the Respondent. These are critical milestones in the manufacture of the relevant canter leaver beam and pivot pedestal and requires specialized intervention of the Respondent as the Respondent carries the ultimate product liability for the canter leaver beam and pedestal. The Respondent further states that the grind peaning, magnetical particle test of shotpeen area and hand shot peen beam was not done since it was not required although the documents of the Applicant show the that it was done and there is a signature which signature is false .

28. In its affidavit the Respondent says that “On the 25 November 2004 it was informed of the documentation required in order proceeding with the payment to the Applicant of the balance for the manufacture of the main components. It was categorically stated in this letter that the outstanding payment for the manufacture and delivery of the main components would be made upon submission of various documentation, it is clear that it is the Applicant who was informed by the Respondent. This must be so, because in the following subparagraph 4.3 the position is clearly stated that “the Applicant was again informed of the non-compliance to the quality control plan as agreed to between the parties.”

29. It would seem that the reasons for not settling the outstanding amount is that according to the Respondent, the Applicant is in breach of certain terms of the agreement, which terms relate to the compliance of the inspection plan .It is important client of the Respondent for whom the cantilever beam and pedestal was manufactured, has received delivery of the relevant manufactured cantilever beam and pedestal without raising any complaint. This client who is Mondi Piet Retief has gone so far as to settle the entire amount the Respondent had charged it. This is a further attestation of the client’s satisfaction of the relevant product. Futher, Mondi Piet Retief had informed the Applicant that the former had paid the Respondent in full in regard with the installation of the cantilever beam which was installed on the March 2005 and that the cantilever beam and pedestal were fully aligned on the 14 June2005.

31. Save to protest about the possibility of its reputation being negatively affected in the event there were to be flaws in the manufactured beam and pedestal, the Respondent has not demonstrated to me as to what good does the non-payment of the outstanding amount serve. In the contract there is no term that the Respondent will be entitled to withhold payment in the event there were to be any breach of the production terms. In the premises I am not convinced that the Respondent has any bona fide and reasonable justification for refusing to pay the outstanding amounts.

3.2. In the matter of Kalil v Deotex (Pty) Ltd 1988 (1) A 943 (AD) at 978D Corbett JA referring to the matter of Provincial Building Society of South Africa v Du Bois 1966 (3)SA 76 (W) says that:This judgment would thus appear to lay down that in an opposed application for a provisional order of sequestration the necessary prima facie case is established only when the applicant can show that on a consideration of all the affidavits filed, a case for sequestration has been established on a balance of probabilities; and that, where the applicant does show this, an application by the respondent for the matter to be referred to viva voce evidence (in order to endeavour to disturb this balance) will, save in exceptional circumstances, not be granted. The learned Judge would also seem to have expressed the view, obiter, that where on affidavits the balance of probabilities is against the applicant or where there is no balance either way, no prima facie case is established and the Court should refuse to order viva voce evidence.

3.3. He further says at 979B that: Where on affidavits there is a prima facie case (i.e. a balance of probabilities) in favour of the applicant, then, in my view, a provisional order of winding-up should normally be granted and, save in exceptional circumstances, the Court should not accede to an application by the respondent that the matter be referred to viva voce evidence. This does no lasting injustice to the respondent for he will on the return day generally be given the opportunity, in a proper case and where he asks for an order to that effect, to present oral evidence on disputed issues. As it was put in the Wackrill case supra at 285H-268A:

“Ordinarily the consequences of a final winding-up order are drastic, and it could not have been intended that proof of all the allegations necessary for such an order should be anything less than that required generally in civil cases, that is proof on a clear balance or probabilities, with the admission of viva voce evidence, where that may be necessary, to resolve material disputes on the affidavits. That also appears to be the standard of proof required for a final sequestration order in terms of s12 of the Insolvency Act 24 of 1936, according to which the Court must be “satisfied’ that the petitioning creditor has established the elements of his case’.

3.4. However, where the respondent satisfies the Court that there is a bona fide dispute on reasonable grounds that the debt is not due or that the payment is not due on the grounds that the winding up proceedings are not appropriate for the resolution of such dispute, then the Court, in my view, should not grant the relief sought .In this regard vide Godlonton N.O. v Ryan Scholtz & Co (PTY) Ltd (supra).

3.5. In casu, I am not satisfied that the Respondent has a bona fide dispute and reasonable grounds that the debt is not due and payable that I can refuse the Applicant its prayers. However, in the present case, since Mr. Botes has asked that I should have the Respondent provisionally winded-up, there would be no prejudice to the Respondent to grant such order since he can on the return date place such evidence as to convince the Court that the provisional order should be discharged.

Consequently it is hereby ordered:

1. That the estate of the Respondent is provisionally placed under liquidation in the hands of the Master of the High Court

2. That the Respondent is called upon to advance reasons, if any, why the Court should not order final liquidation of the said estate on the 22 June 2006, at 10H00 or as soon thereafter as the matter may be heard.

N.M. MAVUNDLA

JUDGE OF THE HIGH COURT

HEARD ON THE: 28 APIL 2006

DATE OF JUDGMENT: 18 MAY 2006

APPICANT`S ATT: SHABIRO

APPLICANT`S ADV:

DEFENDANT`S ATT:JUSTICE

DEFENDANT

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