Bank of Baroda v Annex Distribution (Pty) Ltd (38591/2019) [2020] ZAGPPHC 158 (14 May 2020)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

(1) REPORTABLE: NO

(2) OF INTEREST TO OTHER JUDGES: NO

(3) REVISED.

Case number: 38591/2019

14/5/2020

In the matter between:

BANK OF BARODA

Applicant

(Registration No: 1997/012717/10)

and

ANNEX DISTRIBUTION (PTY) LTD

Respondent

(Registration No: 2002/023324/07)

JUDGMENT

KIRSTEIN, AJ

1. The applicant applied for a winding-up order of the respondent. The

applicant contends that the respondent is unable to pay its debts in terms of section 344(f), read with section 345(1)(a) and 345(1)(c) of the Companies Act of 1973.

2. The respondent contends that :

2.1. the applicant has not satisfied the service requirements of section 345(1)(a) and section

346(4)(a) and (4A) of the Companies Act;

2.2. the application is an abuse of process;

2.3. the amount alleged to be due by the respondent to the applicant is disputed on bona fide grounds.

3. There is no requirement going into the complete history and correspondence

exchanged between the parties. The history of this case is clear from the applicant's founding affidavit and which are not seriously

challenged by the respondent, are that :

3.1. On 8 March 2012 the parties concluded an overdraft facility agreement which incorporated a sanction letter dated 29 February 2012. The overdraft facility was renewed/extended every year since 2013, subject to the same terms and conditions of the original agreement and any conditions contained in the extension letter approving the extension/renewal;

3.2. On 26 January 2018 the applicant informed the respondent that its overdraft account was overdrawn and the applicant demanded immediate payment;

3.3. The respondent disputed the applicant’s entitlement to demand payment, but admitted that the business of the respondent had declined over the years to the extent that the respondent was no longer operating as a business;

3.4. On 12 February 2018 the applicant informed the respondent that it was exiting the South African banking sector;

3.5. On 9 March 2018 a representative of the respondent, Mr R Nath, confirmed in a letter to

the applicant that the respondent's business had come to a standstill and proposed the repayment on the loan facility in 6 instalments, the last payment which was to be effected on 31 August 2018. The applicant accepted the proposal;

3.6. On 21 November 2018 a demand for payment in terms of section 345(1)(a)(i) of the Companies Act was delivered electronically to two individuals, but no response was received. An attempt was made to serve the demand at the registered address of the respondent, but such attempt was not successful.

4. During argument respondent's counsel raised his concern that there was no compliance with section 346(4A)(b) of the Companies Act. The applicant was allowed to deliver a service affidavit. The service

affidavit confirms the following:

4.1. On 5 June 2019 the application was served on the Master;

4.2. On 6 June 2019 the application was served on SARS;

4.3. On 20 June 2019 the application was served on the registered address of the respondent.

5. In the supplementary heads of argument delivered by the respondent, it is indicated that the registered address of the respondent is 5 Suni Avenue, Corporate Park, Midrand. The return of service shows that the Sheriff served the application on 5 Sunia Avenue, Corporate Park, SARS, Old Pretoria Road.

6. Section 4(3) of the Superior Court Act of 2013, provides that :

"(2) The return of the Sheriff or Deputy Sheriff of what has been done upon any process of the Court, shall be prima facie evidence after matters therein stated."

7. The Sheriff indicated in the return of service that a business by the name of Cable & Wireless Solutions is trading at 5 Sunia Avenue. The submission on behalf of the respondent that the address 5 Sunia Avenue does exist, is accepted and therefore it follows that the application was not served in the prescribed manner in which the application must be served on the employees of the respondent.

8. It is submitted on behalf of the respondent in the supplementary heads of argument, that there was at least one employee, being Mr Ravindra Nath, who corresponded with the applicant. There is no factual

confirmation that Mr Nath was indeed an employee and/or if there was any other employees employed at the respondent during the relevant time. In the case of E B Steam Co (Pty) Ltd v Eskom Holdings Soc Ltd 2015 (2) SA 526, the SCA held that :

"If the papers were not furnished to employees, it would be impermissible for a court to grant a final winding-up order; however, it would be permissible to grant a provisional winding-up order (the court could at the same time grant an order directing how the application was to be furnished to employees." [1]

9. The failure to serve the application on employees, if any, can therefore be accommodated if a provisional winding-up order is granted.

10. In respect of the first grounds relied upon by the applicant, that is that the respondent is deemed to be unable to pay its debt as set out in section 345(1)(a)(i) of the Companies Act, the applicant attempted to have the demand served on the registered address of the respondent. The registered address of the respondent had been vacated and occupied by an unrelated third party who was unwilling to take receipt of the demand. The notice of demand was brought to the

attention of the respondent by e-mailing the demand to the deponent of the opposing affidavit, Ms Ronica Ravathan, the sole director of the respondent. The applicant’s submission is therefore that although the demand was not delivered at the registered address of the respondent, there had been substantial compliance with the provisions of section 345(1)(a) of the Companies Act. The applicant

mainly relies on the judgment of Van Dijkhorst J in Nathaniel & Efthymarkis Properties v Hartbeesspruit Landgoed CC 1996 (2) B All SA 317 (T).

11. The respondent submitted that the provisions of section 345(1)(a)(i) of the Companies Act are peremptory and must be strictly complied with. The respondent relied mainly on the judgment of Coetzee J in Phase Electric Co (Pty) Ltd v Zinman Electrical Sales {Pty) Ltd 1973 (3) SA 914 (W). In this matter it was held that there was no compliance with the provisions of the relevant section if the relevant letter of demand is not delivered by leaving it at the company's registered office and the learned Judge went so far as to say it was irrelevant that the letter was received.

12. In BP and JP Investments (Pty) Ltd v Hardroad (Pty) Ltd 1977 (3) 753 (W) Moll J referred to in the Phase Electric (supra) and held that the provisions of section 345(1)(a)(i) must be strictly complied with, in particular the mode of service prescribed.

On appeal in the BP and JP Investments (Pty) Ltd matter supra, the Full Bench on Appeal agreed with the dictum in Phase Electric (supra).

13. Having considered the aforegoing cases, the view is held that the provisions of section 345(1)(a)(i) of the Companies Act are peremptory, requiring service of the demand by delivering at the registered office of the respondent. If the legislature intended other forms of service, it would have been provided for. Strict compliance with the provisions regarding service, are a prerequisite for the deeming of the respondent as being unable to pay its debts (see Van Zyl N.O. v Look Good Clothing CC 1996 (3) SA 523 (SE) at 529). The explanation of the applicant that the respondent was no longer at its registered address, is not an excuse for not complying with the relevant section requirements. Therefore the applicant cannot rely on section 345(1)(a)(i) of the Companies Act.

14. The second ground upon which the applicant relies, is that the respondent is unable to pay its debt as contemplated in section 345(1)(c) of the Companies Act. The applicant did not receive payments from the respondent, which could be accredited to the undisputed overdraft facility agreement. The respondent admitted that it stopped trading and that business has come to a standstill. Despite instalment payment settlement proposal offers made by the respondent, the respondent

still failed to make any payment to the applicant. The applicant established on a balance of probabilities that a debt prima facie exists.

15. The respondent opposes the application on the following grounds :

15.1. The applicant unlawfully ceased to operate as a bank and exited from the Republic of South Africa;

15.2. The applicant caused damage to the respondent;

15.3. The applicant is avoiding an action for damages;

15.4. The applicant is abusing the court process by having instituted a liquidation application;

15.5. The applicant seeks to manipulate business rescue proceedings of another company, Island Site Investments 180 (Pty) Ltd in relation to certain voting powers;

15.6. The applicant has not taken the Court into confidence regarding previous historic litigation.

16. It appears from the judgment of Mavundla J under Case No 52590/2017 that the

applicant's decision to cease conducting business in South Africa, was lawfully.

17. The respondent made little and/or no attempt to indicate a factual basis to

substantiate the alleged claim for damages. It is expected of the applicant to at least show some factual estimate of the damages. It is not possible to determine that the applicant is avoiding an action for damages. The respondent's liquidators, if so appointed, will certainly pursue a damages claim if it is in the interest of the respondent and other creditors.

18. The allegation of the respondent that the applicant seeks to manipulate business rescue proceedings, is not substantiated by fact to show that the duly appointed business rescue practitioners is not able to protect the interests of the entity under business rescue. The applicant remains a creditor of the respondent of an indebtedness that was not denied prior to this application. The applicant further holds a cession of securitatum debiti over the book debt claims by the respondent against debtors.

19. The indication that the applicant failed to take the Court into its confidence

regarding previous litigation, is disputed and does not assist any of the parties in this application.

20. The applicant showed that a debt prima facie exists. The respondent must show that it disputes the debt on reasonable grounds. In the respondent's argument the principle of concursus creditorum is advanced to the extent that it was never the applicant's intention with the application, to advance the interest of other creditors.

There is no indication that other creditors will be prejudiced because of the application. A provisional winding-up order to be

served on creditors and published according will show if the argument of the respondent relating to the concursus creditorum principle is sufficient to counter the prima facie debt that exists. In circumstances where the respondent already ceased the business, it may indeed be in the interest of a concursus creditorum to grant a provisional winding-up order to be served on creditors and published accordingly will show if the argument of the respondent

relating to the concursus creditorum principle is sufficient to counter the prima facie debt that exists on the basis that the application is an abuse of the court process.

21. In the matter of Orestisolve (Pty) Ltd t/a Essa Investments v NDFT Investments Holdings (Pty) Ltd & Another 2015 (4) SA 449 (WCC) Rogers J stated with reference to the relevant legal principles, the following :

"[7] In an opposed application for provisional liquidation the applicant must establish its entitlement to an order on a prima facie basis, meaning that the applicant must show that the balance of probabilities on the affidavits is in its favour (Kalil v Decotex (Pty) Ltd and Another 1988 (1) SA 943 (A) at 975J - 979F). This would include the existence of the applicant's claim where such is disputed. (I need not concern myself with the circumstances in which oral evidence will be permitted where the applicant cannot establish a prima facie case.)

[8] Even if the applicant establishes its claim on a prima facie basis, a court will ordinarily refuse the application if the claim is bona fide disputed on reasonable grounds. The rule that winding-up proceedings should not be resorted to as a means of enforcing payment of a debt, the existence of which is bona fide disputed on reasonable grounds, is part of the broader principle that the court's processes should not be abused. In the context of liquidation proceedings the rule is generally known as the Badenhorst rule, from the leading eponymous case on the subject, Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (T) at 347H - 348C, and is generally now treated as an independent rule, not dependent on proof of actual abuse of process (Blackman et al, Commentary on the Companies Act Vol 3 at 14 - 82 to 14 - 8). A distinction must thus be drawn between factual disputes relating to the respondent's liability to the applicant and disputes relating to the other requirements for liquidation. At the provisional stage the other requirements must be satisfied on a balance of probabilities with reference to the affidavits. In relation to the applicant's claim, however, the court must consider not only where the balance of probabilities lies on the papers, but also whether the claim is bona fide disputed on reasonable grounds. A court may reach this conclusion even though on a balance of probabilities (based on the papers) the applicant's claim has been made out (Payslips Investment Holdings CC v Y2K Tee Ld 2001 (4) SA 781 (C) at 783G - I). However, where the applicant at the provisional stage shows that the debt prima facie exists, the onus is on the company to show that it is bona fide disputed on reasonable grounds (Hulse-Reutter and Another v HEG Consulting Enterprises (Pty) Ltd (Lane ad Fey NNO Intervening) 1995 (2) SA 208 (C) at 218D- 219C).

[9] The test for a final order of liquidation is different. The applicant must establish its case on a balance of probabilities. Where the facts are disputed, the court is not permitted to determine the balance of probabilities on the affidavits but must instead apply the Plascon-Evans rule (Paarlwater v South Sahara Investments (Pty) Ltd [2005] 4 All SA 185 (SCA) para 4; Golden Mile Financial Solutions CC v Amagen Develpment (Pty) Ltd [2010] ZAWCHC 339 paras 8 - 10; Budge and Others NNO v Midnight Storm Investments 256 (Pty) Ltd and Another 2012 (2) SA 28 (GSJ) para 4.

[10] The difference in approach to factual disputes at the provisional and final stages appears to me to have implications for the Badenhorst rule. If there are genuine disputes of fact regarding the existence of the application, it will fail on ordinary principles unless it can persuade the court to refer the matter to oral evidence. The court cannot, at the final stage, cast an onus on the respondent of proving that the debt is bona fide disputed on reasonable grounds merely because the balance of probabilities on the affidavits favours the applicant. At the final stage, therefore, the Badenhorst rule is likely to find its main field of operation where the applicant, faced with a genuine dispute of fact, seeks a referral to oral evidence. The court might refuse the referral on the basis that the debt is bona fide disputed on reasonable grounds and should thus not be determined in liquidation and that it must be shown that there was service of the demand on the respondent 'by leaving the same at its registered office"."

22. Upon reading and considering the affidavits and annexures thereto, and submissions by both parties with reference to relevant case law, I am satisfied that the applicant has made a prima facie case that the granting of a provisional order of winding-up of the respondent on the ground that the respondent is unable to pay its debt. The issues raised by the respondent in opposing the claim of the applicant, is not regarded sufficient to constitute a bona fide dispute on reasonable grounds.

23. The following order is made:

23.1. The respondent is hereby placed under provisional winding-up;

23.2. All persons who have a legitimate interest, are called upon to put forward their reasons why this Court should not order the final winding­ up of the respondent on 1 September 2020 at 10h00 or as soon thereafter as the matter may be heard;

23.3. A copy of this order be served on the respondent at its registered office;

23.4. A copy of this order be published forthwith once in the Government Gazette;

23.5. A copy of this order be forwarded to each known creditor by prepaid registered post or by e-mail;

23.6. A copy of this order be forwarded to each of the established employees of the respondent by prepaid registered

post or by e-mail;

23.7. A copy of this order must be served on the South African Revenue Services;

23.8. A copy of this order must be served on the respondent;

23.9. The parties to enrol the matter for 1 September 2020;

23.10. Costs of the application are costs in the winding-up.

P.H. KIRSTEIN

ACTING JUDGE OF THE HIGH COURT

GAUTENG DIVISION, PRETORIA

Date heard:

17 March 2020

Date of judgment :

14 May 2020

Representation for the applicants : Adv A E Bham SC and Adv A Kolloori

Instructed by Mervyn Taback Inc.

Representation for the respondent : Adv M R Hellens SC and Adv L Acker

Instructed by Van der Merwe & Van

der Merwe Attorneys

[1] At paras 24-26.