Dongastro Emperio (Pty) Ltd v SB Guarantee Company (RF) (Pty) Ltd and Others (2023-059459) [2024] ZAGPPHC 1300 (5 December 2024)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE NO.: 2023-059459

(1) REPORTABLE: NO

(2) OF INTEREST TO OTHER JUDGES: NO

(3) REVISED: NO

DATE: 5 December 2024

E van der Schyff

In the rescission application between:

Dongastro Emperio (Pty) Ltd

Applicant

and

SB Guarantee Company (RF) (Pty) Ltd

First Respondent

Master of the High Court

Second Respondent

Richard Pollock

Third Respondent

Asif Lativ

Fourth Respondent

In the liquidation application between:

SB Guarantee Company (RF) (Pty) Ltd

Applicant

Dongastro Emperio (Pty) Ltd

Respondent

JUDGMENT

Van der Schyff J

Introduction

[1] The first respondent, SB Guarantee Company (RF) (Pty) Ltd (hereafter SBG), obtained a provisional liquidation order against the applicant, Dongastro Emperio (Pty) Ltd (hereafter Dongastro), on 30 August 2023.

[2] The application was thereafter postponed, and the return date was extended in order to allow Dongastro, who belatedly opposed the matter, to file an answering affidavit. The answering affidavit was filed on 4 December 2023. Dongastro proceeded to file a further affidavit on 26 January 2024. A third affidavit, a supplementary answering affidavit, was filed on 29 January 2024. SBG thereafter filed a replying affidavit in response to the various answering affidavits. The opposed return date for the final liquidation was ultimately extended to 13 May 2024. On 18 April 2024, subsequent to a notice of set down being served, Dongastro's attorneys of record withdrew, and new attorneys of record entered their appearance on behalf of Dongastro.

[3] On 10 May 2024, a few days prior to the hearing of the matter on the opposed roll on 13 May 2024, Dongastro launched a rescission application. The court refused to stay the liquidation proceedings pending the rescission application being heard but granted a postponement with specific instructions to Dongastro regarding bringing the liquidation application to the knowledge of their employees. This aspect will be revisited later. The return date for the final liquidation application was extended to 18 November 2024. SBG filed an answering affidavit in the rescission application on 27 June 2024. Dongastro filed its replying affidavit on Friday, 15 November 2024.

[4] Dongastro did not separately set the rescission application down for hearing. Since the rule nisi was extended to 18 November 2024, the liquidation was set down for final adjudication, and no substantive application for a postponement was filed, I accepted that the applications would both be argued on the same date. I need to add that it was indicated on the unsigned joint practice note that the court would also be requested to deal with the rescission application.

[5] When the matter was called, Dongastro's attorney of record sought a postponement from the bar. He submitted that the rescission application was not ripe for hearing despite the founding, answering, and replying affidavit being filed because no heads of argument were filed by Dongastro. Consequently, he submitted that circumstances necessitate the extension of the rule nisi in the liquidation application.

[6] Counsel for SBG submitted that the rescission application and the application for the final liquidation order should be heard together because the same grounds raised in the rescission application are raised in opposition to the liquidation application. Counsel for SBG submitted that the applications should proceed and emphasised that no substantive postponement application was filed.

[7] I indicated to counsel that I intended to deal with both applications. Dongastro's attorney of record then requested for the matter to stand down until Friday, 22 November 2022. He indicated that he was not prepared to argue the rescission application. I stood down the matter and reserved costs. I requested Dongastro's attorney to file an affidavit showing cause why an order should not be granted that he bears the costs of the postponement de bonis propriis.

[8] When the matter was called on Friday, 22 November 2024, Dongrastro was represented by counsel. SBG's counsel commenced with argument and presented submissions in relation to both the rescission application and the liquidation application.

[9] After SBG's counsel concluded, Dongastro's counsel submissions were again that the rescission application is not ripe for hearing and should be postponed, with the rule nisi to be extended. Once again, no substantive postponement application was filed.

[10] I dismissed the postponement application and indicated that counsel should address me on rescission and liquidation applications. In the circumstances of this matter, it would have resulted in an unnecessary duplication if the rescission- and liquidation applications were argued separately since Dongastro did not raise any matter in the rescission application that is not also raised in its opposition to the final liquidation order, save that the provisional order was granted in its absence. The applications might have been argued simultaneously, but it goes without saying that they stand to be considered separately. If a case is made out for rescission, that

will be the end of the matter.

Background

[11] It is common cause that Standard Bank South Africa and Dongastro entered into a written home loan agreement. A written indemnity agreement was concluded between Dongastro and SBG. The principal debt advanced in terms of the loan agreement was R5 435 013.16.

[12] As security for the indebtedness arising from the loan agreement, Dongastro registered a mortgage bond in favour of SBG. Dongastro failed to effect full and punctual payment of the amounts due in terms of the loan agreement. Dongastro admits having fallen into arrears with its repayment obligations, citing the constraints of the COVID-19 pandemic as the cause for its breach.

[13] Premised on the breach, a notice, as contemplated in terms of section 345 of the Companies Act 61 of 1973 (the 1973 Companies Act), were served at Dongastro's registered address via the Sheriff of the Court. Dongastro claims that these notices did not come to the attention of its representatives.

Grounds for rescission

[14] Dongastro submits that it was not in willful default when the provisional order was granted since it was unaware of the legal proceedings. Dongastro disputes its indebtedness and claims that it 'had always believed that its account' with Standard Bank was not in arrears and that it would have opposed the application if it had knowledge thereof. Dongastro avers that it only became aware of the provisional liquidation order being granted after it received an email on 13 October 2023 from the provisional liquidator informing it of the provisional liquidation order being granted. The application for Dongastro's winding-up was ostensibly served by affixing at the principal door of the applicant's registered address, and Dongastro denies receipt thereof.

[15] As to the substance of the liquidation application, Dongastro avers that the letter of demand sent by SBG does not comply with the requirements of section 345 of the 1973 Companies Act in that it does not warn the applicant that the failure to pay will result in an application for liquidation being instituted. I pause to note that this submission is not supported by the documents filed.

[16] Dongastro indicates that, contrary to the provisions of section 346 (4A)(a)(i) and (ii) of the Companies Act, no papers were served on their employees.

Condonation

[17] Dongastro concedes that it was required in terms of the Uniform Rules of Court to have issued a rescission application within 20 days of gaining knowledge of the provisional liquidation order being granted and that the rescission application should have been brought by 6 November 2023.

[18] Dongastro's explanation for only issuing the rescission application in May 2024 is that it had to change attorneys. As a result, the delay is attributed to a 'lack of legal knowledge and not having been advised by its previous attorneys of record.' The first consultation with its new attorneys was on 8 May 2024, when it was advised of the possibility of bringing this application. Dongastro avers that the delay of 'slightly over' six months is not unreasonable.

Discussion re condonation and rescission

[19] Dongastro faces two hurdles in the condonation application. The first is the vague and one-dimensional explanation for not issuing the rescission application timeously.

[20] Dongastro does not take the court in its confidence to explain why its erstwhile attorneys of record's mandate were terminated and which steps it took to secure the service of the new attorneys of record. This failure is even more relevant in circumstances where Dongastro filed an affidavit dated 29 January 2024 explaining how all arrears would be paid and contending that it is not insolvent and can pay all its debts due to a new contract concluded with a foreign company.

[21] Dongastro did not provide a reasonable explanation for its delay. To exacerbate Dongastro's position, it did not make out a case that it has good prospects to succeed in the rescission application if condonation was granted. The papers filed shows that a section 345 notice was served by the Sheriff at its registered address by affixing.

[22] Rule 4(1)(a)(v), as it applied at the time provided for the service of legal process on a company at its registered office by affixing a copy to the main door of such office if there is no employee willing to accept service. The return of service, duly signed by the Sheriff, states that the application was served by affixing at the registered address. A signed return of service has the same evidentiary value as an affidavit. and the absence of an affidavit by the Sheriff is of no concern. Neither the service of the section 345 notice nor the service of the liquidation application on Dongastro was irregular.

[23] Dongastro did not make out a case that the provisional order was erroneously sought or granted. As a result, the late filing of the rescission application cannot be condoned and the condonation application stands to be dismissed.

The liquidation application

[24] As stated above SBG seeks an order placing Dongastro in final winding-up. For the reasons set out below, I am not granting a final order, and the rule nisi stands to be extended pending service of the application on Dongastro's employees.

[25] It is common cause that the application was served on Dongastro's employees by serving the application at Dongastro's registered address. It is likewise common cause that Dongastro's registered address is not its principal place of business.

[26] SBG contends that since the application was advertised in the Government Gazette and Citizen newspapers, it has taken all reasonable steps to bring the order to the employees' attention. In addition, SBG submits that Basson J gave specific instructions to Dongastro on 13 May 2024 and indicated that it is their responsibility to ensure that their employees obtain the necessary knowledge of the liquidation application. Dongastro is silent on whether it engaged with its employees on the matter.

[27] It is trite that when a company is finally wound up, all employment contracts are automatically terminated. Employees have an independent, direct, and substantial interest in the legal proceedings relating to the winding-up of their employer company. They are highly vulnerable in liquidations because their salaries and wages are most probably at risk. Joubert explains that their vulnerability is exacerbated by the fact that they are not in a position to spread their risk between different enterprises in the way creditors and shareholders are able to do.[1] It has been held that furnishing information to employees and trade unions of the company is peremptory.[2]

[28] In casu, and due to the order handed down by Sasson J, both SBG and Dongastro were obliged to ensure that the employees acquired knowledge of the application. SBG knew that Dongastro's principal place of business and its registered address are different and situated in different provinces. Yet, it elected to serve the application on employees at the registered address in a different province. Dongastro, on the other hand, was instructed by a court of law to ensure that its employees were informed of the application, and the provisional order that was granted. Still, I am unable to determine whether the employees did indeed obtain knowledge of the

application. The papers do not reflect that the application or provisional order was effectively served on them.

[29] Service on employees of a company facing winding-up proceedings is not a 'technical requirement entrenched in statute to benefit the applicant or respondent in applications of this matter. It is solely for the benefit of the employees. The applicant is a well-established commercial entity frequently dealing in matters of this nature. It cannot expect this court to turn a blind eye to its lackadaisical approach to service on the employees of the respondent company. Without proof of effective service to the employees, the matter cannot be finalised, and the rule nisi stands to be extended.

Costs

[30] When the issue of costs is considered, counsel for SBG submitted that the wasted costs occasioned by the standing down of the matter have to be paid by the directors of Dongastro Emperio (Pty) Ltd because to hold otherwise would be to prejudice the body of creditors. Counsel for Dongastro Emperio (Pty) Ltd did not oppose the notion. I agree that the wasted costs are to be paid by Dongastro Emperio (Pty) Ltd.

[31] As for the remaining costs associated with the extension of the rule nisi, no costs order is made. Both SBG and Dongastro failed to provide proof of effective service of the application and provisional

order on the employees.

ORDER

In the result, the following order is granted:

1. The application to condone the late filing of a rescission application is dismissed with costs.

2. The rule nisi is extended to 19 May 2025 in the opposed motion court.

3. The applicant's legal representatives must enroll the matter accordingly.

4. The liquidation application and the provisional order, together with this order, must be served by the applicant in the liquidation application on the employees and trade unions as prescribed in section 346A of the Companies Act 61 of 1973.

5. The directors of Dongastro Emperio (Pty) Ltd are to pay the wasted costs occasioned by the standing down of the matter on 20 November 2024.

Judge of the High Court

Delivered: This judgment is handed down electronically by uploading it to the electronic file of this matter on Caselines. It will be emailed to the parties/their legal representatives as a courtesy gesture.

For the applicant in the liquidation application: Adv. C.G.V.O. Sevenster Instructed by: Vezi De Beer Incorporated For the respondent in the liquidation application: Adv. W.B. Ndlovu Instructed by: Peter Zwane Attorneys Date of the hearing: 20 and 22 November 2024 Date of judgment: 5 December 2024

[1] J.E. Joubert A comparative study of the effects of liquidation or business rescue proceedings on the rights of employees of a accompany Unpublished LLD Thesis 2018, UNISA, 28.

[2] EB Steam Company (Pty) Ltd v Eskom Holdings SOC Ltd [2014] 1 All SA 294 (SCA) at para 22- 23.