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IN THE KWAZULU-NATAL HIGH COURT - DURBAN

REPUBLIC OF SOUTH AFRICA

CASE NO: 7188/2011

In the matter between:

BUSINESS PARTNERS LIMITED ......................................APPLICANT

AND

YELLOW STAR PROPERTIES 1061 (PTY) LTD .............RESPONDENT (REGISTRATION NUMBER: 2000/016619/07)

DATE OF DELIVERY:

JUDGEMENT

RADEBE J

INTRODUCTION

[1] The applicant brought an application for the final winding-up of the Respondent in terms of Section 344(f) of the Companies Act 61 of 1973 ("the Old Act").

The crisp and primary issue for determination in this matter is whether the Applicant is entitled to rely upon the now- repealed section 344(f) of ("the Old Act"). The secondary issue is whether condonation for the late filing of the Replying Affidavits should be granted. Nothing much turns on the latter issue since the Respondent in the application for condonation, does not oppose that application and indicated that it would abide by the Honourable Court's decision.

[2] Relying on the provisions of Rule 27(3) of the Uniform Rules,¹ which provides that "the court may, on good cause shown, condone 'any' non-compliance with the Rules, such condonation was granted at the commencement of the hearing on 10 May 2012.

This issue need not, therefore, be deliberated upon further. The main concern falls to be the primary issue, which is a point in limine, raised by the Respondent.

If the court finds that the Applicant is entitled to rely upon section 344 (f) of the Old Act, then the other issue raised in the papers become relevant. At the hearing of the application I indicated that I would deal with the point in limine only at this stage.

BACKGROUND

[3]

3.1. It is common cause that:

(i) the Applicant is a 40% shareholder in Respondent;

(ii) the Applicant is a creditor of the Respondent, owes it an amount in the region of R7,7m;

(iii) there are other creditors like eThekwini Municipality.

3.2. The Application arose from the fact that the said amount owed to the Applicant remains unpaid despite the undertaking by the Respondent on 20 July 2011 that the debt would be paid when the immenent transfer of its principal asset went through.²

3.3. The Applicant relies upon Section 344(f) of the Old Act which provides, as a ground for winding up, that: "if the company is unable to pay its debts as described in Section 345." It further contends that such reliance is by virtue of the transitional provision in Section 9 of Schedule 5 of the Companies Act 71 of 2008 ("the New Act").

3.4. The Respondent on the other hand, contends that it is a solvent company and therefore the now-repealed section 344 (f) of the Old Act does not apply in the instance of solvent companies; that the full reading of section 9 subitems (1), (2) & (3) reveals that provisions of "sections 344, inter alia does not apply to the winding up of a solvent company; that the New Act does not contain any provision enabling a winding up of a solvent company on the ground of inability to pay its debts, but instead makes provision for other grounds as envisaged in section 81 of the New Act, none of which apply in its case.

The provisions of section 9 of schedule 5 of the New Act are as follows:

"9(1) Despite the repeal of the previous Act, until the date determined in terms of subitem (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 subitems (2) and (3).

(2) despite subitem (1) sections 343, 344, 346 and 348-353 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 subitem (1), and a provision of Part G of Chapter 2 of this Act with respect to a solvent company, the provisions of this Act prevails.

(4) ..."

3.5. Mr Harcourt SC, for the Applicant, argued that the point in limine had not been raised by the Respondents in papers, and that it was only raised in the course of argument on the opposed motion, thus taking the Applicant by surprise. Mr Harpur SC, for the Respondent argued that the only issue to be decided initially is whether the Respondent is solvent or not, and if solvent, then section 344 of the Old Act does not apply; that common cause of facts as set out in the affidavits is that the Respondent is solvent; and that a point of law can be raised in these circumstances even if it has not previously been raised.

LEGAL POSITION

[4] It is trite that a point of law can be raised in court by counsel for the parties and/or meromotu even when it has not been dealt with in the papers, otherwise a decision may be made by court based on an incorrect application of the law. In the case of CUSA V TAO YING Metal Industries³ Ngeo bo J (as he then was) made the following remark:

"where a point of law is apparent on the papers, but the common approach of the parties proceeds on a wrong perception of what the law is, a court is not only entitled, but is in fact obliged, mero mutu, to raise the point of law and require the parties to deal therewith. Otherwise, the result would be a decision premised on an incorrect application of the law. That would infringe the principle of legality."

[5] In Telkom Suid-Afrika BPK vs Richardson⁴ GrossKopf-JA said:

"Daar bestaan myns insiens niks wat 'n Hof verplig om uitvoering te gee aan so 'n vertolking as die Hof nie daarmee saamstem nie. Onder hierdie omstandighede was die vertolking wat die partye aan die regulasies geheg het, blote regsubmissies wat die Hof op meriete kon aanvaar of verwerp. Soos dit gestel is in Paddock Motor (Pty) Ltd vs Igesund 1976(3) SA 16 (A) op 23 F,

it would create an intolerable position if a court were to be precluded from giving the right decision on accepted facts merely because a party failed to raise a legal point, (on paper) as a result of an error of law on his part../

[6] In this matter, the common cause facts set out in the Affidavits is that the Respondent is solvent. Counsel for the Applicant argued that the Applicant, over and above being a creditor of the Respondent, is also a 40% shareholder of the Respondent and therefore entitled, as an alternative, to rely on Section 81(l)(c)(ii) and section 81(l)(e) of the New Act. For this contention he referred to pp 431-449 of the indexed papers (the Applicants Replying Affidavit). None of the contents thereof show that the Respondent is insolvent. The submission by Mr Harcourt SC that during March 2009 the Director of the Respondent was trying to sell the major asset of the Respondent does not go to show that the Respondent is not solvent⁵. Further, nothing on papers show that the Respondent's assets are being misapplied or wasted - to fit in with the provisions of section 81(l)(e)(ii) of the New Act⁶.

[7] The above is designed to show that the common cause facts set out in the affidavits, show that the Applicant cannot be said to have been taken by surprise in regard to the point in limine, and is not intended to get into the merits of whether the Applicant is entitled to, or not to the relief it seeks, that is of provisional liquidation of the Respondent.

[8] Mr Harcourt SC, referred me to the decision in Minister of Land Affairs and Agriculture and others v D & F Wevell Trust⁷, where following was stated:

"... The second is that the case argued before this court was not properly made out in the answering affidavits deposed to by Andreas. The case that was made out, was conclusively refuted in the replying affidavits as I pointed out in paras [18] to [20] above. It is not proper for a party in motion proceedings to base an argument on passages in documents which have been annexed to the papers when the conclusions sought to be drawn from such passages have not been canvassed in the affidavits. The reason is manifest - the other party may well be prejudiced because evidence may have been available to it to refute the new case on the facts. The position is worse where the arguments are advanced for the first time on appeal. In motion proceedings, the affidavits constitute both the pleadings and the evidence: Transnet Ltd vs Rubenstein, and the issues and averments in support of the parties' cases should appear clearly therefrom. A party cannot be expected to trawl through lengthy annexures to the opponent's affidavit and to speculate on the possible relevance of facts therein contained. Trial by ambush cannot be permitted."

[9] I am of the view that this case is distinguishable to the case before me in that Cloete JA in that case, made an overrider that "... when the conclusions sought to be drawn from such passages have not been canvassed in the affidavits," whereas, in casu, the issue can be determined on a point of law from the common cause facts set out in the affidavits themselves, particularly the Answering Affidavit and the Replying Affidavit⁸, in so far as the solvency of the Respondent is concerned and from the Founding Affidavit⁹ in so far as the transitional requirements of the New Act are concerned. The conclusions can therefore be drawn from the Affidavits themselves.

[10] I am therefore of the view that the point in limine was correctly raised and had to be dealt with.

[11] I come now to the determination of whether the Applicant is entitled to rely upon the now repealed section 344(f) of the Old Act.

Although in the papers the Applicant did make allegations of "just and equitable" in terms of section 344(h) of the Old Act, these were not persisted with in the Applicants Heads of Argument, nor before court¹⁰.

[12] Section 344(f) of the Old Act reads as follows:

"344. A company may be wound up by Court if-(f) the company is unable to pay its debts as described in section 345;"

Section 344(f) has been repealed by section 224(l)of the New Act, which provides that:

"224(1) The Companies Act, 1973 (Act No. 61 of 1973), is hereby repealed, subject to subsection (3)

(2)...

(3) the repeal of the Companies Act, 1973 (Act No. 61 of 1973), does not affect the transitional arrangements, which are set out in Schedule 5."

[13] It is clear therefore that the application was brought in terms of S344(f) of the Old Act under the mistaken construction of the transitional provisions in Section 9 of Schedule 5 of the New Act, as if the Old Act had not been repealed. I say this because if one reads subitems 2 & 3 of Section 9 of Schedule 5 of the New Act, one can clearly discern that section 344 is amongst those sections that do not apply to the winding up of solvent companies.

[14] In Budge and Others NNO VS Midnight Storm Investments 256 (Pty) Ltd and Another¹¹ Meyer J stated the following:

"Each application was brought in terms of s344(h) of the Companies Act 61 of 1973 (the Old Companies Act) upon the erroneous supposition that the transitional provisions of the Companies Act 71 of 2008 (the new Companies Act) have the effect of keeping s344(h) of the Old Companies Act operative. The supposition was incorrect insofar as the winding-up of solvent companies, such as Midnight Storm and Wavelenghts, is concerned. This is clear from the provisions of item 9 in schedule 5 of the new Companies Act."

[15] This brings me to the enquiry as to what is a solvent company, and to the question therefore, of whether the Respondent is a solvent company.

In Southern Life Association vs Estate Van Zyi¹² the word "solvent" was analysed as follows:

"the word "solvent" in section 5 of the Moratorium Act, 1914, should be liberally construed... and hold that, where a person gives a bona fide statement of his assets and liabilities, from which it would appear that under ordinary circumstances he would be able to discharge his obligations and that merely on account of the war he has difficulty in meeting them, there the court ought to hold that the Act should apply."

[16] The word "solvency" is described in section 4(l)(a) of the New Act, which provides as follows:

"4. Solvency and liquidity test.

(1) For any purpose of this Act, a company satisfies the solvency and liquidity test at a particular time if, considering all reasonably foreseeable financial circumstances of the company at that time-

(a) the assets of the company, as fairly valued, equal or exceed the liabilities of the company, fairly valued; and;

(b) it appears that the company will be able to pay its debts as they become due in the ordinary course of business

[17] In Ex Parte Harmse¹³ Magid J held that:

"(i) the word "insolvent" must be taken to mean that the liabilities of the debtor, fairly estimated, exceed the value of his assets, fairly valued."

and at para 9.8

"...only when it is established that it is improbable that his assets will realise sufficient to settle the amount of his debts in full that it can truly be said that the court ought to be satisfied that the estate of the debtor is insolvent.

It is only acceptance and admissible evidence which can displace the prima facie inference of solvency when the applicant's own estimate of values exceed the amount of the liabilities."

[18] In casu, it is, or ought to be common cause that the Respondent's assets exceed its liabilities. In paraphas 17 of its Answering Affidavit¹⁴ the Respondent alleges inter alia that certain amounts owed to the Applicant are indeed due but not payable, whereas there are also amounts due and payable to the credit of the Respondent. This should be read together with Applicant's Replying Affidavit¹⁵ which alleges inter alia that Respondent's immovable asset, fairly estimated, is valued at R22m in terms of the 4^th offer which was anticipated.

[19] The Applicant is a 40% shareholder of the Respondent. Even if consideration is taken of the fact that part of the nett proceeds of the sale would be for the benefit of the Applicant, it is improbable that the Respondent would be left insolvent, regard being had to all estimated liabilities as evidenced in the papers.

[20] The Applicant alleges in its Founding Affidavit that there are in fact judgements which have been entered against the Respondent as follows:

"44.1. a judgment in the amount of R1 036 896.00 issued by this Honourable Court under case no. 6084/2010 on 5 August 2010 in favour of the eThekwini Municipality in respect of rates, water and sewage; and,

44.2. a judgement in the amount of R192 392.00 issued by this Honourable Court under no 9043/2007 on 25 October 2007 in favour of Rambos Construction CC."¹⁶

In answer to that, the Respondent alleges that the judgment in favour of eThekwini Municipality was taken by mistake and that it has been abandoned in writing. In regard to the Rambos Construction judgment, the Respondent learnt for the first time about such when the allegation was made in this application and that it is taking steps to rescind such judgement¹⁷.

The Applicant's reply in respect of the eThekwini Municipality judgment is that:

"I annex hereto, marked RA 24, a copy of a telefaxed report from the Rates Legal Department ... dated 16 November 2011, which records, as is clarified in manuscript that the Respondent is indebted to the Municipality in the amount of R445 386.24"¹⁸

[20] Perusal of RA24 does not show how the two amounts of R126 539.20 and R318 847.04 which make up the total of R445 386.24 were arrived at. Particularly, the amount of R126 539.20 seems to have accrued as at 2005/11/16 but it says nothing about what period the sum of R318 847.04 covers. However, what is remarkable is that this amount is now far less than the R1 036 896.00 referred to in paragraph 19 supra. The additional liabilities as contended by the Applicant are, by any standards, relatively minor when measured against the value of the asset of the Respondent.

[21] The onus rests upon the Applicant to satisfy the court, that the Respondent is insolvent and therefore unable to pay its debts. The applicant has not established on a balance of probabilities that the Respondent is insolvent and unable to pay its debts.

[22] The evidence in the papers establishes that the only conclusion that the court can come to is that the Respondent is indeed a solvent company. The Applicant can therefore not rely on section 344 of the Old Act. The Applicant could if it chose to, have relied on section 81(1) of the New Act, which set out the grounds upon which a court may order a solvent company to be wound up.

[23] Section 81(1) of the New Act reads:

(1) A court may order a solvent company to be wound up if -

(a) the company has -

(i) resolved, by special resolution, that it be wound up by the court; or

(ii) applied to the court to have its voluntary winding- up continued by the court.

(b) the practitioner of a company appointed during business rescue proceedings has applied for liquidation in terms of section 141(2)(a), on the grounds that there is no reasonable prospect of the company being rescued; or

(c) one or more of the company's creditors have applied to the court for an order to wind up the company on the grounds that-

(i) the company's business rescue proceedings have ended in the manner contemplated in section 132(2)(b) or (c)(i) and it appears to the court that it is just equitable in the circumstances for the company to be wound up; or

(ii) it is otherwise just and equitable for the company to be wound up;

(d) the company, one or more directors or one or more shareholders have applied to the court for an order to wind up the company on the grounds that -

(i) the directors are deadlocked in the management of the company, and the shareholders are unable to break the deadlock, and -

(aa) irreparable injury to the company is resulting, or may result, from the deadlock; or

(bb) the company's business cannot be conducted to the advantage of shareholders generally, as a result of the deadlock;

(ii) the shareholders are deadlocked in voting power, and have failed for a period that includes at least two consecutive annual general meeting dates, to elect successors to directors whose terms have expired; or

(iii) it is otherwise just and equitable for the company to be wound up;

(e) a shareholder has applied, with leave of the court, for an order to wind up the company on the grounds that-

(i) the directors, prescribed officers or other persons in control of the company are acting in a manner that is fraudulent or otherwise illegal; or

(ii) the company's assets are being misapplied or wasted; or

(f) the commission or Panel has applied to the court for an order to wind up the company on the grounds that:

(i) the company, its directors or prescribed officers or other persons in control of the company are acting or have acted in a manner that is fraudulent or otherwise illegal, the commission or panel, as the case may be, has issued a compliance notice in respect of that conduct, and the company has failed to comply with the compliance notice; and

(ii) within the previous five years, enforcement procedures in terms of this Act or the Close Corporation Act, 1984 (Act No. 69 of 1984), were taken against the company, its directors or prescribed officers, or other persons in control of the company for substantially the same conduct, resulting in an administrative fine, or conviction for an offence.

This section does not include any ground based on an "inability to pay its debts."

CONCLUSION

[24] I am satisfied that the complexity of the matter is of such a degree that it necessitated the engagement of Senior Counsel.

[25] In the result I make the following order.

1. The late filing of the Replying Affidavits by the Applicant is hereby condoned.

2. The point in limine is upheld.

3. The Applicant is ordered to pay the costs of the application, which should include the costs of Senior Counsel.

RADEBE, J

DATE 13 July 2012

DATE OF HEARING: 10 MAY 2012

DATE OF JUDGEMENT: 17 JULY 2012

COUNSEL FOR APPLICANT: ADV. HARCOURT

INSTRUCTED BY: MAHARAJ ATTORNEYS

COUNSEL FOR THE RESPONDENT: ADV. HARPUR SC

INSTRUCTED BY: OMAR ATTORNEYS

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