Gainsford and Van Wyk NNO v Joubert and Another (15404/08) [2009] ZAGPPHC 108 (10 September 2009)

IN THE HIGH COURT OF SOUTH AFRICA

(NORTH GAUTENG DIVISION)

CASE NO: 15404/08

In the matter between:

GAINSFORD, GAVIN CECIL N.O. 1st Applicant

VAN WYK, ALTA N.O. 2nd Applicant

and

JOUBERT, DIANE MARYLYNNE 1st Respondent

JOUBERT, STEPHEN PIERRE 2nd Respondent

CORAM: EBERSOHN AJ

DATE HEARD: 17TH AUGUST 2009

DATE JUDGMENT HANDED DOWN: 10TH SEPTEMBER 2009

JUDGMENT

EBERSOHN AJ.

[1] The applicants are the duly appointed liquidators of Quantum Communications (Pty) Ltd.(in liquidation) ("Quantum").

[2] The first respondent was the sole director of Quantum.

[3] Quantum was liquidatd under case no. 6247/07 (Estate No. T. 802/07 Pretoria Master of the High Court) in this court it being an application brought by Glocell Service Provider Company (Pty) Ltd. ("Glocell"). Glocell alleged that it was a major creditor of Quantum whilst Quantum, on its part, alleged that Glocell was in fact indebted to Quantum.

[4] The applicants' attempt to recover a last month's salary and retrenchment packages paid by Quantum to the first respondent and her husband, both being employees of Quantum, after the winding-up application had been launched but prior to the final winding-up

order.

[5] The winding-up application of the company was launched on 22 February 2007.

[6] The two sets of payments relate to the salaries for March 2007 as well as retrenchment payments.

[7] Quantum was placed under an order of final winding-up by the court on 2 May 2007. in terms of the provisions of section 348 of the Companies Act, the winding-up of Quantum is deemed to have commenced at the time of presentation to court of the application for its winding-up, being 22 February 2007.

[8] The payments to the respondents constitute dispositions and the applicants claim declarations from this court that said the

dispositions are void. For purposes thereof, the applicants rely on section 341(2) of the Companies Act.

[9] Section 341(2) of the Companies Act provides as follows:

"Every disposition of its property o by any company being wound up and unable to pay its debts made after the commencement of the winding-up, shall be void unless the court otherwise orders."

[10] There are accordingly two basic requirements the applicants have to satisfy to succeed, namely:

a) the fact that Quantum was unable to pay its debts; and b) that a court should order the dispositions to be void.

[11] The allegation that Quantum was unable to pay its debts at the said date was made by the liquidating applicant Glocell in the application for winding-up.

[12] In paragraphs 4.1 to 4.22 on pp.40-52 of the papers, the first respondent extensively deals with and met Glocell's allegations.

[13] In brief summary, Glocell alleged that the company was indebted to it as at 9 February 2007 in the amount of some R12 million of which R8,8 million was allegedly "currently due and payable" at that time

[14] It is clear from, not only the first respondent's answering affidavit, but also from the preceding correspondence between the said parties, going as far back as October 2006, that the initial starting point of the alleged outstanding amount due, being an amount of some R7,78 million, formed the subject matter of negotiations between the parties as well as various reconciliations and credits to be passed. Significantly, in respect of this, Glocell as the liquidating creditor itself conceded in par. 4.7 on p.44 of the papers, that:

"It was agreed that this was an ongoing process and that GSPC [Glocell] would be prepared to pass any credits to the company

account once these had been lodged and proved by the company. In order to resolve these, it was agreed that Irshad should travel to Cape Town to meet with Henda and members of her team in order to resolve as a matter of urgency."

[15] Quantum also appeared to have been the object of a call sponsor fraud' perpetrated on it and in respect of which Quantum has not received payment of fraudulent use of lines allocated and invoiced to it and in respect of which it was entitled to a credit. At the time in question it was already indicated that the estimated costs of the fraud would be closer to R2 million. It apparently has subsequently been established that the total fraud credit approaches the amount of R15 million thus the eagerness on the part of Glocell to liquidate Quantum in a clear attempt to rid itself of a vast creditor.

[16] With regard to what is stated in paragraph [14] supra, it is significant, that the liquidating creditors response in par, 4.9 on p. 45 of the papers, was that:

"Hussain agreed to forward to call sponsor fraud information to DI". ("DI" is the first respondent).

[17] In order to identify and calculate the extent of the call sponsor fraud, essential information and data had to be obtained by Quantum from the liquidating creditor Glocell. It was only during the course of January 2007 that "crucial identifiers" for call sponsors could be established which could lead to a reconciliation of the specific amount. Once this had been identified, historical data still had to be obtained from the liquidating creditor. The liquidating creditor had not up to the time of presentation of the winding-up order, presented Quantum with the information. Accordingly, although the company knew that it had been entitled to a credit in excess of whatever amount the liquidating creditor might even itself state might be due to it, the self-same liquidating

creditor prevented Quantum from calculating this amount.

[18] The call sponsor issue" has been explained by the first respondent to this court in paragraph 4.12 on p.46 as follows:

"Cell phone users with certain contracts could 'sponsor' up to five 'pay as you go' users which users would then obtain airtime for cell phone usage on the account of the sponsor's cell phone number/account In summary, the Company was being invoiced for airtime

usage without being credited with the airtime linked (or sponsored) by cell phone users in respect of which the Company was entitled to payment. This linkage or sponsorship was done on a huge scale and in a largely fraudulent manner (and often directly with the networks, bypassing service providers such as the Company). In fact, when Vodacom launched the call sponsor program, we instructed Glocell that none of our lines were to be activated with this service. Despite this, call sponsorship took place. This Honourable Court must with respect understand that this could potentially have resulted in a five-fold billing for the Company without consequent credit."

[19] The first respondent stated that the principle of the passage of credit for fraudulent call sponsor amounts was conceded by Glocell, the liquidating creditor, but never implemented by Glocell.

[20] In addition to the aforesaid, and whilst the call sponsor fraud credit reconciliation was still to be sorted out, a repayment plan had been agreed to between Glocell and Quantum.

[21] It is also to be noted that the winding-up order was preceded by a so-called "reconnection application". The basis for this was that after the launch of the winding-up order, Glocell cut Quantum's life-line" to business by disconnecting Quantum's access to the cellular line services rendered by it, on the same day as the service of the winding-up application.

[22] In the reconnection application, already, the outstanding credit due to Quantum was pointed out to be approximately R15,485 million.

[23] In view of the aforesaid, what apparently happened was that the liquidating creditor simply and unilaterally decided to "pull

the plug" on Quantum's business and to terminate Quantum's MTN business. Significantly, despite the difficulties experienced by Quantum as a result of the unilateral termination by the liquidating creditor, the company further, on the liquidating creditors own version in the winding-up application, continued to make regular payments to Glocell and which Glocell accepted. These have been detailed in par. 4.17 on pp.49 and 50 of the papers.

[24] The respondents' deponent stated that it was clear that, taking into account the huge extent of the fraudulent claims and the amounts to be credited in respect thereof, the amounts due to Quantum by Glocell far exceeded that which the liquidating creditor alleged was due to it. This allegation appears to be further substantiated by the lesser amount later proved by Glocell as its claim in the liquidated estate. In this regard the court refers to par.4.19 on p.51 of the papers.

[25] It is against the above-mentioned backdrop that the winding-up application must be considered. The first respondent made the point that, despite all of the aforesaid and despite the prior expressed comments by the liquidating creditor in writing that it would "sort the matter out", make full reconciliations, credit all the credits due it, unbeknown to Quantum resolved on 16 February 2007 to launch the winding-up application which was then presented to court on 22 February 2007.

[26] It is in these circumstances that the first respondent stated that, at the time of the commencement of the winding-up of the

company, it was fully capable and able to pay its debts and it was not insolvent. It was fully operational as a business concern,

despite the liquidating creditor's best attempts to close it down. As referred to above, these later attempts in closing the company down "outside" the winding-up order, was successful, despite the reconnection application"

[27] Contrary to even the liquidating creditors' best attempts, the only attempt by the applicants in satisfying the requirement of section 341(2) of the Companies Act regarding the alleged inability of the company to pay its debts at the commencement of winding-up, is contained in the mere four sentences comprising paragraph 25 of the founding affidavit. The paragraph reads as follows:

"As the end of February 2007, Quantum Communications was insolvent and its liabilities exceeded its assets. In fact, Quantum

Communications had virtually no assets, and had liabilities of at least R12 442 394,67. Annexed hereto marked "FA7" is a copy of the second meeting report which sets out the liabilities of Quantum Communications. As can be seen from the report, Glocell

proved a claim in the estate in the amount of R14 407 361,32."

The second meeting report itself has little evidential value.

[28] It is clear that the abovementioned allegation of inability to pay has been met by the respondents, not merely by a simple or bald denial, but by an extensive and meticulous setting out of opposing facts. These opposing facts indicate that the credits due to Quantum at the time far exceeded even the liquidating creditor's proven claim. The respondents also detailed circumstances which would have entitled them to this credit and obliged the liquidating creditor, if it had kept its word, to honour and pass these credits.

[29] It is trite that, in motion proceedings and where there arises a dispute of fact, that the applicant can only succeed if such of the allegations made by it, which are admitted by a respondent, together with the respondent's allegations, entitles such an applicant to an order. (Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd

1984 (3) SA 620 (AD)).

[30] In the present instance and applying the abovementioned principle, the applicants cannot succeed and the respondents have

discharged such onus as what there may be on them, on a balance of probabilities.

[31] The court considered referring the matter for the hearing of oral evidence but have decided against it for obvious reasons. The applicants elected to come to court on motion proceedings in which they failed to prove their case.

[32] Furthermore, a court's discretion to declare a disposition not void is firstly discretionary and secondly is controlled only by the general principles which are applied to every kind of judicial discretion, namely that the court must decide what would be just and fair in the circumstances of the case. (Henochsberg on the Companies Act at the Commentary on section 341). It has been held that, in order for a court to decide what would be just and fair in the circumstances of the case, it should have regard to the particular circumstances of the case and to the issues of "good faith and honest intentions of the persons concerned.(Herrigel NO v Bon Roads Construction Company (Pty) Ltd 1980 (4) SA 669 (SWA) at 678; Rousseau v Malan 1989 (2) SA 451 (C) at 459).

[33] A disposition which was valid when effected (as the payments in the present instance had been) and which only retrospectively became invalidated by virtue of the operation of the provisions of Section 348, which "antedates" the commencement of winding-up to a date prior to the actual granting of the order, would ordinarily be validated by a court if it amounts to no more than the bona fide carrying on of the company's operations in the ordinary course. In this regard the quotation from in re Wiltshire Iron Company; Ex parte Pearson (1868) LR 3 Chapp 443 at 447 as quoted as follows in Henochsberg (supra) is apposite:

" Where a company actually trading, which it is in the interest of everyone to preserve, and ultimately to sell, as a going concern, is made the object of winding-up petition, which may fail or succeed, if it were to be supposed that transactions in the ordinary course of its current trade, bona fide entered into and completed, would be avoided and would not, in the discretion given to the court, be maintained, the result would be that the presentation of a petition, groundless or well-founded, would, ipso facto, paralyse the trade of the company and great injury, without any counterbalance or advantage, would be done to those interested in the assets of the company."

[34] In the present instance, the two respondents were the employees of the company who actually saw to the running thereof. As a result of the subsequent actions of the liquidating creditor, it was clear that the operations of the company would need to be shut down and/or the employees "be let go" or be retrenched. The two respondents should not be seen as ordinary creditors but as employees and it would be in the ordinary course of business of any company facing a possible closure of its business, to prudently retrench its employees. Mr. Davis, for the respondents argued that there was no suggestion on the papers that the payment of the salaries (for only one month) was anything but the normal salaries. There is also no indication that the retrenchment packages had not been properly calculated in strict accordance with the applicable labour provisions. I agree with Mr. Davis.

[35] The dispositions had clearly been in the ordinary course of a company in distress and had not been with the intent to prefer any creditor.

[36] The details of having acted in the normal course of business and how retrenchment packages had been calculated in respect of all of the company's 14 employees have been set out in par.6 on pp.56-57 of the papers. It has been stated justifiably so, that it was surprising to note that the applicants chose to only "come after" the respondents and did not attempt to set aside the other payments of retrenchment packages to other employees as dispositions. This aspect and the failure or unwillingness of the applicants as liquidators to pursue the company's rights of recourse against Glocell for the recovery of vast amounts of credits, causes concern and according to Mr. Davis, displays some element of vexatiousness. I agree with him.

[37] Mr. Davis further argued that the applicants sought to create some atmosphere and/or insinuate improper conduct in the respondents'

initial attempted opposition of the winding-up application prior to the withdrawal thereof. It is clear that the respondents initially

sought to oppose the winding-up application but, upon the failure of the reconnection application, was forced to close their business down as a result of the separate "closing down" perpetrated by the liquidating creditor outside the winding-up application. On the papers there can not be any finding that any of the respondents acted other than bona fide at all relevant times.

[38] I accordingly find that the applicants have not succeeded in satisfying either of the requirements of section 341(2) and the

application has to be dismissed with costs. To ensure that the claim against Glocell is investigated by the liquidators a copy of this judgment will be forwarded by the Registrar to the Master of the High Court.

[39] The following order is accordingly made:

"1. It is declared that the payments set out in the prayers in the notice of motion are not void and the application is accordingly

dismissed with costs including the costs of senior counsel.

2. The Registrar is directed to forward a copy of this judgment to the Pretoria Master of the High Court (Estate No. T.802/07)."

P.Z. EBERSOHN

ACTING JUDGE OF THE HIGH COURT

Applicants' counsel: Adv. J. Smit

Applicants' attorneys: Edward Nathan Sonnenberg

c/o Adams & Adams Tel. 012x 481 1500 Ref. G. Wolter

Respondents' counsel: N. Davis SC

Respondents' attorneys: Routledge Modise Attorneys

c/o Jacobson & Levy Tel. 012x320 2202

Ref. Mr. J. Levy/K945