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