Norval NO v Square One Power Solutions (Pty) Ltd (24831/05) [2006] ZAGPHC 41 (2 May 2006)

IN THE HIGH COURT OFSOUTH AFRICA(WITWATERSRANDLOCAL DIVISION)CASE NO.05/24831In the matter between:LUTHERNORVALN.O.ApplicantandSQUARE ONEPOWER SOLUTIONS (PTY)LTDRespondentJUDGMENTTheapplicant applies for the winding up of the respondent under section 344(h) and section 344(f) read with section 345(1)(c) of the Companies Act 61 of 1973 (“the Act”).The applicant,as trustee of the Norval Family Trust (the trust),is a shareholder of the respondent being the owner of 2 000 ordinary shares in thesharecapital of the respondent. Thetrustacquired these shares pursuant to a shareholders agreement (“the agreement”) signed on30 August 2000.The respondent is a subsidiary of a company styled Square One Solutions Group Ltd (“Square One”) whose shares are listed on the Johannesburg Stock Exchange.Square Oneacquired 50% plus 1 share of the issued share capital of the respondent in terms of the agreement. The applicant contends that it was intended by the parties thattherespondentwould operatealong the lines of an incorporated partnership. He relies,inter alia,for this proposition on clause 16.1.1 of the agreement which states that “the relationship between them shall be governed by the principlesofthe utmost good faith as such principles are understood in the context of a partnership.” However, this must be read in context, more particularlywithclause 16.2 of the agreementwhichreads as

follows:“The parties record that it is not their intention to form a partnership by entering into this agreement.”The applicant applies to wind up the respondent on two grounds,firstlythat it is just and equitable,and secondly,that the respondent is unable to pay its debts.The second ground, according to what is stated on the papers, appears to be a subsidiary ground.The applicant’s contentions relating to the fact that it is just and equitableto wind up respondent,are based on the following complaints that the applicant has:a.He did not receive financial statements in respect of the respondent company.b.He has not been invited to annual general meetings.c.He is in the dark as to the financial state of the respondent.d.The trust has not been issued with a share certificate.e.It is apparent according to the applicant that “the respondent has something to hide”.The applicant accordingly states that the relationship between the respondent and the trust has deteriorated beyond any possibility of repair. In this regard, hepoints to the fact that the applicantin pursuance of this deteriorationlaunched urgent proceedings against him for the procurement of an interdict. He states that the application was “largely inconclusive” and that although the respondent obtained a temporary interdict against him, the matter“died a natural death”.Hestates furtherthat the application was

“misconceived, was borne of malicious intent and should never have been pursued”. Hestates that hedid notelect to contest the matter that the litigation is indicative of the poor management of the respondent.For these reasons the applicant states that it is being unlawfully excluded from the businessaffairs of the respondent, and therefore it is just and equitable that the respondent company be wound up.The authorities are clear that,although the applicant is a member, the court must consider whether it ought to interfere at all bearing in mind the power of the general meeting and the basic principle that each member is bound by the decision of the majority lawfully taken even ifadverse to his interests. SeeSammel v President Brand Gold Mining Company Ltd1969 (3) SA 629Aat 678.Thus the mere loss of confidence in the management of the company’s affairs with the resultthat one isoutvoted in the general meeting or otherwise, is not sufficient to entitle the applicant to an order; loss of confidencemust be justifiable, that is,it must be found on conduct by the directors or the members which is fraudulent or otherwise wrongful, oppressive or unfair.SeeMoosaN.O.vMavjeeBhawan(Pty) Ltdand another1967 (3) SA 131(T) at 137. In addition the conduct must not be whollyunconnected with the administration of the company’s affairs. SeeWackrill v Sandton International Removals (Pty) Ltd1984

(1)SA 282W at 291. AsNestadtJsaid inErasmusv Pentamed Investments (Pty) Ltd1982 (1) SA 178(W) at 183:“The court should not permit section 344(h) to become a launching platform, at theinstance of the minority shareholders, for the unwarranted interference in the internal management of the company acting within its powers.”It appears that the applicant is attempting to rely uponthe “deadlock principle” which would be applicable in the case of a “domestic” company, that is a company with a small membership or as the applicant is attempting to contend in this case, a company which would operate as a partnership. In this regard I refer to what is stated abovein regard to theclausesrelating to the concept of partnership in the agreement. The deadlock principle is derived fromin reinYenidje Tobacco Company Ltd[1916] 2 SA 426(SCA).Thisprincipleis “founded on the analogyof a partnership and is. strictly confined to those small domestic companies in which, because of some arrangement, express, tacit or implied, there exists between the members in regard to the company’s affairs,a particular personal relationshipof confidence and trust similar to that existing between partners in regard to the partnership business. Usually that relationship is such that it requires the members to actreasonably and honestly towards one another and with friendly cooperationin running the company’s affairs.

If by conduct which is either wrongfulor not as contemplated by the arrangement, one or more of the membersdestroys that relationship, the other member or members are entitled to claim that it is just and equitablethat the company should be wound up, in the same way as, if they were partners,they could claim dissolution of the partnership”. PerTrollipJ(as he then was) in theMoosacase (supra) at 137 – 138.The court is however enjoinedin exercising its jurisdiction based upon the application of the “deadlock principle” not to disregard the fact that,quamembers,the parties have acquired those rights and assumed those obligations which membership of a company entails.Anapplicantfor liquidationmustshow that such deadlock is in factaffecting the running of the company and that there is no longera reasonable possibilityof the companyoperating its business properly as a result of such ‘deadlock”.The applicant failed to take the court into its confidence in disclosing the true circumstances surrounding the interdict application that was launched by the respondent against the applicant, his wife and a close corporation of which the applicant and his wife were members. The applicant in his personal capacity did oppose the application but despite same, the applicant and his wife were found to have acted unlawfully and an interdict was granted against them interdicting and restraining them

from approaching, contacting or soliciting or in any other way touting the applicant’s customers for a period of eight months.It appears that the deterioration in the relationship between the applicant and the respondent may in fact be partially due to the applicant’s own conduct, and it is trite that when an applicant relies on section 344(h) of the Act it must come to court with “clean hands”. That is he must not himself be wrongly responsible for or have connived at bringing about the state of affairs which he asserts results in it being just and equitable to wind up the company. SeeWackrill v Sandton International Removals(supra) at 292.Section347(2)of the Actprovidesthat,even ifthe courtwas satisfied that the applicant had established a case for winding up and it was obliged to grant the application, the courtis entitled to refuse a winding up order if it is satisfied that some other remedy is available to the applicant, and that they are acting unreasonably in seekingthat the company is wound up instead of pursuing that other remedy.In such a situation, the respondent would have an onusto provethat some other remedy is available and that the applicant is acting unreasonably.In the present case,it is my view that the applicant has not established the basis for a winding upon the groundthat it would bejust and equitable. The complaints which he alleges are not those which

would fall within the“deadlock”principle. He has other remedies which he can pursue.The applicant’s second ground of winding up is based upon the fact that the respondent is unable to pay its debts.In this regard the respondent sought to file a supplementary affidavit dealing with its financial position. The applicant opposed theintroduction of this affidavit and I ruled that I would not have regard to such affidavit and the matter would continue on the affidavits thathad already beenfiled.The applicant,in seekingthe winding up on the grounds that the respondent is unable to pay its debts,relies upon an e-mail from the respondent’s managing director dated 15 August 2005 addressed to all of the respondent’s staff stating that the respondent was running at a loss of R900 000.00 and that costs exceeded income by R150 000.00 per month. The applicant states that the respondent has not chosen to explain its financial position in a satisfactory manner and the appropriate inference that it is unableto pay its debts falls to be drawn.The respondent contends that the e-mail sent out to its staff was “an example of typical rationalisation sent out by companies on a daily basis”. It further states that the company is on a rationalisation drive but by no means insolvent or facing liquidation. Furthermore it states that one of the reasons that it is seeking to rationaliseis partly due to the

conduct of Norval and the losses he caused at theBloemfonteinbranch which was the reason for the interdict being granted againsthim. It further refers to the e-mail in which it is said “we have a shortfall of R150 000.00 per monthin terms of our GP targetand cash flow is extremely tight. We will need a lot of team work to assist us in closing this gap.”(my emphasis).The respondent states thatthe shortfall related to its GP target and thatit is and has always been able to meet its commitments and pay its debts, and that the business is now trading profitably on a monthly basis. The applicant relies on certain hearsay evidence in regard to rumours of an inability to payits debts but no such proof was placed before the court by the applicant.A company’s inability to pay its debts may be proved in any manner. Failure to pay on demand,a debt which is due,would constitute such evidence in that a company which is not in financial difficulties ought to be able to pay its way from its current revenue or readily available resources.SeeRosenbach & Co (Pty) Ltd / Singh’s Bazaars (Pty) Ltd1962 (4) SA593D at 597 perCaney J. However, other facts may afford such proof, e.g. that a number of creditors have sued the company for payment of monies due to them, that assets of the company have beenattachedor are being sold in execution orthat a negotiable instrument has been dishonoured.However, the

applicant has not provided proof of any of these aspects.The contents ofthe e-mail is thesoleevidence upon which it relies and in my view this is insufficient to show that the company is unable to pay its debts.Accordingly, in my view the applicant has failed to show that the company falls to bewound up either in terms of section 344(h) of the Companies Act,or in terms of section 345 of the Companies Act.Accordingly the application is dismissed with costs.S WEINERAJDate of Judgment :02 MAY 2006

IN THE HIGH COURT OF

SOUTH AFRICA

(

WITWATERSRAND

LOCAL DIVISION)

CASE NO.05/24831

CASE NO.

05/24831

In the matter between:

LUTHERNORVALN.O.ApplicantandSQUARE ONEPOWER SOLUTIONS (PTY)LTDRespondent

LUTHER

NORVAL

N.O.

Applicant

and

SQUARE ONE

POWER SOLUTIONS (PTY)

LTD

Respondent

JUDGMENT

Theapplicant applies for the winding up of the respondent under section 344(h) and section 344(f) read with section 345(1)(c) of the Companies Act 61 of 1973 (“the Act”).The applicant,as trustee of the Norval Family Trust (the trust),is a shareholder of the respondent being the owner of 2 000 ordinary shares in thesharecapital of the respondent. Thetrustacquired these shares pursuant to a shareholders agreement (“the agreement”) signed on30 August 2000.The respondent is a subsidiary of a company styled Square One Solutions Group Ltd (“Square One”) whose shares are listed on the Johannesburg Stock Exchange.Square Oneacquired 50% plus 1 share of the issued share capital of the respondent in terms of the agreement. The applicant contends that it was intended by the parties thattherespondentwould operatealong the lines of an incorporated partnership. He relies,inter alia,for this proposition on clause 16.1.1 of the agreement which states that “the relationship between them shall be governed by the principlesofthe utmost good faith as such principles are understood in the context of a partnership.” However, this must be read in context, more particularlywithclause 16.2 of the agreementwhichreads as follows:

The

applicant applies for the winding up of the respondent under section 344(h) and section 344(f) read with section 345(1)(c) of the Companies Act 61 of 1973 (“the Act”).The applicant

,

as trustee of the Norval Family Trust (the trust)

is a shareholder of the respondent being the owner of 2 000 ordinary shares in the

share

capital of the respondent. The

trust

acquired these shares pursuant to a shareholders agreement (“the agreement”) signed on

30 August 2000

.

The respondent is a subsidiary of a company styled Square One Solutions Group Ltd (“Square One”) whose shares are listed on the Johannesburg Stock Exchange.

Square One

acquired 50% plus 1 share of the issued share capital of the respondent in terms of the agreement. The applicant contends that it was intended by the parties that

the

respondent

would operate

alon

g the lines of an incorporated partnership. He relies

inter alia

for this proposition on clause 16.1.1 of the agreement which states that “

the relationship between them shall be governed by the principles

of

the utmost good faith as such principles are understood in the context of a partnership.

” However, this must be read in context, more particularly

with

clause 16.2 of the agreement

which

reads as follows:

“The parties record that it is not their intention to form a partnership by entering into this agreement.”

“

The parties record that it is not their intention to form a partnership by entering into this agreement.

”

The applicant applies to wind up the respondent on two grounds,firstlythat it is just and equitable,and secondly,that the respondent is unable to pay its debts.The second ground, according to what is stated on the papers, appears to be a subsidiary ground.The applicant’s contentions relating to the fact that it is just and equitableto wind up respondent,are based on the following complaints that the applicant has:a.

The applicant applies to wind up the respondent on two grounds,

firstly

that it is just and equitable

and secondly

that the respondent is unable to pay its debts.

The second ground, according to what is stated on the papers, appears to be a subsidiary ground.The applicant’s contentions relating to the fact that it is just and equitable

to wind up respondent

are based on the following complaints that the applicant has:

a.

He did not receive financial statements in respect of the respondent company.b.He has not been invited to annual general meetings.c.He is in the dark as to the financial state of the respondent.d.The trust has not been issued with a share certificate.e.It is apparent according to the applicant that “the respondent has something to hide”.

He did not receive financial statements in respect of the respondent company.

b.

He has not been in

vited to annual general me

etings.

c.

He is in the dark as to the financial state of the respondent.

d.

The trust has not been issued with a share certificate.

e.

It is apparent according to the applicant that “

the respondent has something to hide

”.

The applicant accordingly states that the relationship between the respondent and the trust has deteriorated beyond any possibility of repair. In this regard, hepoints to the fact that the applicantin pursuance of this deteriorationlaunched urgent proceedings against him for the procurement of an interdict. He states that the application was “largely inconclusive” and that although the respondent obtained a temporary interdict against him, the matter“died a natural death”.Hestates furtherthat the application was “misconceived, was borne of malicious intent and should never have been pursued”. Hestates that hedid notelect to contest the matter that the litigation is indicative of the poor management of the respondent.For these reasons the applicant states that it is being unlawfully excluded from the businessaffairs of the respondent, and therefore it is just and equitable that the respondent company be wound up.The authorities are clear that,although the applicant is a member, the court must consider whether it ought to interfere at all bearing in mind the power of the general meeting and the basic principle that each member is bound by the decision of the majority lawfully taken even ifadverse to his interests. SeeSammel v President Brand Gold Mining Company Ltd1969 (3) SA 629Aat 678.Thus the mere loss of confidence in the management of the company’s affairs with the

resultthat one isoutvoted in the general meeting or otherwise, is not sufficient to entitle the applicant to an order; loss of confidencemust be justifiable, that is,it must be found on conduct by the directors or the members which is fraudulent or otherwise wrongful, oppressive or unfair.SeeMoosaN.O.vMavjeeBhawan(Pty) Ltdand another1967 (3) SA 131(T) at 137. In addition the conduct must not be whollyunconnected with the administration of the company’s affairs. SeeWackrill v Sandton International Removals (Pty) Ltd1984 (1)SA 282W at 291. AsNestadtJsaid inErasmusv Pentamed Investments (Pty) Ltd1982 (1) SA 178(W) at 183:

The applicant accordingly states that the relationship between the respondent and the trust has deteriorated b

eyond any possibility of repair. In this regard, he

points to the fact that the applicant

in pursuance of this deterioration

launched urgent proceedings against him for the procurement of an interdict. He states that the application was “

largely inconclusive

” and that although the respondent obtained a temporary interdict against him, the matter

died a natural death

He

states further

that the application was “

misconceived, was borne of malicious intent and should never have been pursued

”. He

states that he

did not

elect to contest the matter that the litigation is indicative of the poor management of the respondent.For these reasons the applicant states that it is being unlawfully excluded from the business

affairs of the respondent, and therefore it is just and equitable that the respondent company be wound up.

The authorities are clear that

although the applicant is a member, the court must consider whether it ought to interfere at all bearing in mind the power of the general meeting and the basic principle that each member is bound by the decision of the majority lawfully taken even if

adverse to his interests. See

Sammel v President Brand Gold Mining Company Ltd

1969 (3) SA 629Aat 678.

1969 (3) SA 629A

Thus the mere loss of confidence in the management of the company’s affairs with the result

that one is

outvoted in the general meeting or otherwise, is not sufficient to entitle the applicant to an order; loss of confidence

must be justifiable, that is

it must be found on conduct by the directors or the members which is fraudulent or otherwise wrongful, oppressive or unfair.

See

Moosa

v

Mavjee

Bhawan

(Pty) Ltd

and another

1967 (3) SA 131(T) at 137. In addition the conduct must not be wholly

1967 (3) SA 131

unconnected with the administration of the company’s affairs. See

Wackri

ll v Sandton International Removals (Pty) Ltd

1984 (1)

SA 282W at 291. As

Nestadt

J

said in

Erasmus

v Pentamed Investments (Pty) Ltd

1982 (1) SA 178(W) at 183:

1982 (1) SA 178

“The court should not permit section 344(h) to become a launching platform, at theinstance of the minority shareholders, for the unwarranted interference in the internal management of the company acting within its powers.”

The court should not per

mit section 344(h) to become a l

aunching platform, at the

instance of the minority shareholders, for the unwarranted interference in the internal management of the company acting within its powers.

It appears that the applicant is attempting to rely uponthe “deadlock principle” which would be applicable in the case of a “domestic” company, that is a company with a small membership or as the applicant is attempting to contend in this case, a company which would operate as a partnership. In this regard I refer to what is stated abovein regard to theclausesrelating to the concept of partnership in the agreement. The deadlock principle is derived fromin reinYenidje Tobacco Company Ltd[1916] 2 SA 426(SCA).Thisprincipleis “founded on the analogyof a partnership and is. strictly confined to those small domestic companies in which, because of some arrangement, express, tacit or implied, there exists between the members in regard to the company’s affairs,a particular personal relationshipof confidence and trust similar to that existing between partners in regard to the partnership business. Usually that relationship is such that it requires the members to actreasonably and honestly towards one another and with friendly cooperationin running the company’s affairs. If by conduct which is either wrongfulor not as contemplated by the arrangement, one or more of the membersdestroys that relationship, the other member or members are entitled to claim that it is just and equitablethat the company should be wound up, in the same way as, if they were partners,they could claim dissolution

of the partnership”. PerTrollipJ(as he then was) in theMoosacase (supra) at 137 – 138.The court is however enjoinedin exercising its jurisdiction based upon the application of the “deadlock principle” not to disregard the fact that,quamembers,the parties have acquired those rights and assumed those obligations which membership of a company entails.Anapplicantfor liquidationmustshow that such deadlock is in factaffecting the running of the company and that there is no longera reasonable possibilityof the companyoperating its business properly as a result of such ‘deadlock”.The applicant failed to take the court into its confidence in disclosing the true circumstances surrounding the interdict application that was launched by the respondent against the applicant, his wife and a close corporation of which the applicant and his wife were members. The applicant in his personal capacity did oppose the application but despite same, the applicant and his wife were found to have acted unlawfully and an interdict was granted against them interdicting and restraining them from approaching, contacting or soliciting or in any other way touting the applicant’s customers for a period of eight months.It appears that the deterioration in the relationship between the applicant and the respondent may in fact be partially due to the applicant’s own conduct, and it is trite that when an applicant

relies on section 344(h) of the Act it must come to court with “clean hands”. That is he must not himself be wrongly responsible for or have connived at bringing about the state of affairs which he asserts results in it being just and equitable to wind up the company. SeeWackrill v Sandton International Removals(supra) at 292.Section347(2)of the Actprovidesthat,even ifthe courtwas satisfied that the applicant had established a case for winding up and it was obliged to grant the application, the courtis entitled to refuse a winding up order if it is satisfied that some other remedy is available to the applicant, and that they are acting unreasonably in seekingthat the company is wound up instead of pursuing that other remedy.In such a situation, the respondent would have an onusto provethat some other remedy is available and that the applicant is acting unreasonably.In the present case,it is my view that the applicant has not established the basis for a winding upon the groundthat it would bejust and equitable. The complaints which he alleges are not those which would fall within the“deadlock”principle. He has other remedies which he can pursue.The applicant’s second ground of winding up is based upon the fact that the respondent is unable to pay its debts.In this regard the respondent sought to file a supplementary affidavit dealing with its financial position. The applicant

opposed theintroduction of this affidavit and I ruled that I would not have regard to such affidavit and the matter would continue on the affidavits thathad already beenfiled.The applicant,in seekingthe winding up on the grounds that the respondent is unable to pay its debts,relies upon an e-mail from the respondent’s managing director dated 15 August 2005 addressed to all of the respondent’s staff stating that the respondent was running at a loss of R900 000.00 and that costs exceeded income by R150 000.00 per month. The applicant states that the respondent has not chosen to explain its financial position in a satisfactory manner and the appropriate inference that it is unableto pay its debts falls to be drawn.The respondent contends that the e-mail sent out to its staff was “an example of typical rationalisation sent out by companies on a daily basis”. It further states that the company is on a rationalisation drive but by no means insolvent or facing liquidation. Furthermore it states that one of the reasons that it is seeking to rationaliseis partly due to the conduct of Norval and the losses he caused at theBloemfonteinbranch which was the reason for the interdict being granted againsthim. It further refers to the e-mail in which it is said “we have a shortfall of R150 000.00 per monthin terms of our GP targetand cash flow is extremely tight. We will need a lot of team

work to assist us in closing this gap.”(my emphasis).The respondent states thatthe shortfall related to its GP target and thatit is and has always been able to meet its commitments and pay its debts, and that the business is now trading profitably on a monthly basis. The applicant relies on certain hearsay evidence in regard to rumours of an inability to payits debts but no such proof was placed before the court by the applicant.A company’s inability to pay its debts may be proved in any manner. Failure to pay on demand,a debt which is due,would constitute such evidence in that a company which is not in financial difficulties ought to be able to pay its way from its current revenue or readily available resources.SeeRosenbach & Co (Pty) Ltd / Singh’s Bazaars (Pty) Ltd1962 (4) SA593D at 597 perCaney J. However, other facts may afford such proof, e.g. that a number of creditors have sued the company for payment of monies due to them, that assets of the company have beenattachedor are being sold in execution orthat a negotiable instrument has been dishonoured.However, the applicant has not provided proof of any of these aspects.The contents ofthe e-mail is thesoleevidence upon which it relies and in my view this is insufficient to show that the company is unable to pay its debts.Accordingly, in my view the applicant has failed to show that the company falls to bewound up either in terms of section 344(h) of the Companies Act,or in terms of section 345 of the Companies Act.Accordingly the application is dismissed with costs.S WEINERAJDate of Judgment :02 MAY 2006

It appears that the applicant is attempting to rely upon

the “

deadlock principle

” which would be applicable in the case of a “

domestic

” company, that is a company with a small membership or as the applicant is attempting to contend in this case, a company which would operate as a partnership

. In this regard I refer to what is stated above

in regard to the

clauses

relating to the concept of partnership in the agreement

. The deadlock principle is derived from

in re

in

Yenidje Tobacco Company Ltd

[1916] 2 SA 426(SCA).

[1916] 2 SA 426

This

principle

is “

founded on the analogy

of a partnership and is

. strictly confined to those small domestic compan

ies in which, because of some arrangement, express

, tacit or implied, there exists between the members in regard to the company’s affairs

a particular personal relationship

of confidence and trust similar to that existing between partners in regard to the partnership business. Usually that relationship is such that it requires the members to act

reasonably and honestly towards one another and with friendly cooperation

in running the company’s affairs. If by conduct which is either wrongful

or not as contemplated by the arrangement, one or more of the members

destroys that relationship, the other member or members are entitled to claim that it is just and equitable

that the company should be wound up, in the same way as

, if they were partners

they could claim dissolution of the partnership

”. Per

Trollip

(as he then was) in the

case (supra) at 137 – 138.

The court is however enjoined

in exercising its jurisdiction based upon the application of the “

” not to disregard the fact that

qua

members

the parties have acquired those rights and assumed those obligations which membership of a company entails.

An

applicant

for liquidation

must

show that such deadlock is in fact

a

ffecting the running of the company and that there is no longer

a reasonable possibilit

y

of the company

operating its business properly as a result of such ‘deadlock”

The applicant failed to take the court into its confidence in disclosing the true circumstances surrounding the interdict application that was launched by the respondent against the applicant, his wife and a close corporation of which the applicant and his wife were members. The applicant in his personal capacity did oppose the application but despite same, the applicant and his wife were found to have acted unlawfully and an interdict was granted against them interdicting and restraining them from approaching, contacting or soliciting or in any other way touting the applicant’s customers for a period of eight months.

It appears that the deterioration in the relationship between the applicant and the respondent may in fact be partially due to the applicant’s own conduct, and it is trite that when an applicant relies on section 344(h) of the Act it must come to court with “clean hands”. That is he must not himself be wrongly responsible for or have connived at bringing about the state of affairs which he asserts results in it being just and equitable to wind up the company. See

Wackrill v Sandton International Removals

(supra) at 292.

Section

347(2)

of the Act

provides

that,

even if

the court

was satisfied that the applicant had established a case for winding up and it was obliged to grant the application, the court

is entitled to refuse a winding up order if it is satisfied that some other remedy is available to the applicant, and that they are acting unreasonably in seeking

that the company is wound up instead of pursuing that other remedy

In such a situation, the respondent would have a

n onus

to prove

that some other remedy is available and that the applicant is acting unreasonably.

I

n the present case

it is my view that the applicant has not established the basis for a winding up

on the ground

that it would be

just and equitable. The complaints which he alleges are not those which would fall within the

deadlock

principle. He has other remedies which he can pursue.

The applicant’s second ground of winding up is based upon the fact that the respondent is unable to pay its debts.

In this regard the respondent sought to file a supplementary affidavit dealing with its financial position. The applicant opposed the

introduction of this affidavit and I ruled that I would not have regard to such affidavit and the matter would continue on the affidavits that

had already been

filed

The applicant,

in seeking

the winding up on the grounds that the respondent is unable to pay its debts

relies upon an e-mail from the respondent’s managing director dated 15 August 2005 addressed to all of the respondent’s staff stating that the respondent was running at a loss of R900 000.00 and that costs exceeded income by R150 000.00 per month. The applicant states that the respondent has not chosen to explain its financial position in a satisfactory manner and the appropriate inf

er

ence that it is unable

to pay its debts falls to be drawn.

The respondent contends that the e-mail sent out to its staff was “

an example of typical rationalisation sent out by companies on a daily basis

”. It further states that the company is on a rationalisation drive but by no means insolvent or facing liquidation. Furthermore it states that one of the reasons that it is seeking to rationali

s

e

is partly due to the conduct of Norval and the losses he caused at the

Bloem

fontein

branch which was the reason for the interdict being granted against

him

. It further refers to the e-mail in which it is said “

we have a shortfall of R150 000.00 per month

in terms of our GP target

and cash flow is extremely tight. We will need a lot of tea

m work to assist us in closing this gap.

(my emphasis).

The respondent states that

the shortfall related to its GP target and that

it is and has always been able to meet its commitments and pay its debts, and that the business is now trading profitably on a monthly basis. The applicant relies on certain hearsay evidence in regard to rumours of an inability to pay

its debts but no such proof was placed before the court by the applicant.

A company’s inability to pay its debts may be proved in any manner. Failure to pay on demand

a debt which is due

would constitute such evidence in that a company which is not in financial difficulties ought to be able to pay its way from its current revenue or readily available resources.

Rosenbach & Co (Pty) Ltd / Singh’s Bazaars (Pty) Ltd

1962 (4) SA

593D at 597 per

Caney J. However, other facts may afford such proof, e.g. that a number of creditors have sued the company for payment of monies due to them

, that assets of the company have been

attached

or are being sold in execution or

that a negotiable instrument has been dishonoured

However, the applicant has not provided proof of any of these aspects.

The contents of

the e-mail is the

sole

evidence upon which it relies a

nd in my view this is insufficient to show that the company is unable to pay its debts.

Accordingly, in my view the applicant has failed to show that the company falls to be

wound up either in terms of sectio

n 344(h) of the Companies Act,

or in terms of section 345 of the Companies Act.

Accordingly the application is dismissed with costs.

S WEINER

AJ

Date of Judgment :

02 MAY 2006