Standard Bank of SA Ltd v Paradise Creek 34 (Pty) Ltd (2599/2022) [2023] ZAMPMBHC 63 (27 September 2023)

SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

(MPUMALANGA DIVISION, MBOMBELA)

CASE NO: 2599/2022

(1) REPORTABLE: NO

(2) OF INTEREST TO OTHER JUDGES: YES

(3) REVISED: YES

27/09/2023

In the matter between:

STANDARD BANK OF SA LTD

Applicant

and

PARADISE CREEK 34 (PTY) LTD

Respondent

This judgment was handed down electronically by circulation to the parties and/or parties’ representatives by email. The date and time for hand-down is deemed to be 27 September 2023 at 10:00.

JUDGMENT

MASHILE J:

[1] This is an application for the provisional alternatively, final liquidation of the Respondent (“Paradise”). The application is founded on the provisions of Sections 344(f) and (h), read with sections 345(1)(a) and 346 of the Companies Act, 61 of 1973 (“the Act”). Paradise is opposing the application notwithstanding that it does not deny its indebtedness to the Applicant (“STD Bank”) and that it has failed to pay as per the statutory demand in terms of Section 345(1) of the Act issued

and properly served on Mr Christoffel Antonie Roux (“Roux”) and at the registered address of Paradise Creek. Roux is a trustee and beneficiary of Elsjan Trust, a Shareholder in Paradise Creek.

[2] Paradise vigorously contends that it is factually solvent in that its assets exceed its liabilities. The essence of the defense of Paradise, it would appear, is that Mjejane Farm Management (Pty) Ltd (“Mjejane”) for which Paradise has stood surety will settle the debt owed to STD Bank. Paradise has also launched a counter-application with this Court that the liquidation application be stayed pending the finalisation of the liquidation application of Mjejane or discharge of the rule nisi on the return day of provisional liquidation application.

[3] Additionally, Paradise is also applying to this Court for an order that should this Court in the Mjejane liquidation application grant a final order, the application be held in abeyance until the finalisation of the lodging of a liquidation and distribution account, in which the Applicant will be awarded a secured claim.

FACTUAL MATRIX

OVERDRAFT FACILITY

[4] The factual background is common cause albeit that the parties’ extrapolation thereof is radically different. Mjejane operated an overdraft facility with STD Bank under current account number 0[...] conducted at the Malelane Branch of STD Bank in Mpumalanga. On 8 February 2018 at Nelspruit, STD Bank and Mjejane concluded a written agreement in terms of which the former extended an overdraft facility to Mjejane under current account number mentioned above.

[5] In terms of the Agreement, STD Bank advanced a loan of R6 200 000.00 to Mjejane, which was the maximum credit limit of the overdraft facility recorded in the Agreement. The most pertinent terms of the Agreement comprised, among others:

5.1 There was no fixed term within which the Overdraft facility had to be repaid. The facility would be reviewable annually and would be payable in full on demand in the event of Mjejane defaulting;

5.2 Interest would accrue on the outstanding balance at the rate of 3% per annum above the prime interest rate ruling of STD Bank from time to time. The prime rate was 10.25% per annum at the time of the signing of the Agreement. The interest would be debited to the Business Current Account of Mjejane being Account Number 8[...] on monthly basis;

5.3 A certificate signed by any of the managers of STD Bank, whose appointment need not be proved, specifying the amount which Mjejane owes to STD Bank and stating that such amount is due, owing and payable, would on its mere production be sufficient proof of any amount due and/or owing by Mjejane in terms of the Agreement, unless the contrary is proved;

5.4 The Overdraft facility was granted to Mjejane at the sole discretion of STD Bank. If there was a material deterioration in the financial position of Mjejane, STD Bank could immediately suspend or withdraw, without notice to Mjejane, all or part of the limit, or reduced the limit (if applicable), and all amounts owing under the overdraft facility and current account would immediately become due and payable to STD Bank;

5.5 Default in terms of the Agreement would occur if Mjejane breached the terms of the Agreement and failed to remedy the breach within the time period specified in STD Bank written notice to do so, or if, in the STD Bank’s reasonable opinion, in the financial position of Mjejane; there was a material deterioration in the financial position of Mjejane, or if a provisional or final order was passed placing Mjejane in liquidation;

5.6 Overdraft facilities were repayable on demand and if Mjejane was in default of its obligations under the overdraft Agreement, STD Bank could terminate the facility and immediately claim repayment of all amounts owing to it.

[6] STD Bank duly advanced the loan to Mjajane in the form of the overdraft facility in the agreed amount of R6 200 000.00. In the reasonable opinion of STD Bank there was a material deterioration in the financial position of Mjejane and an order was granted placing Mjejane in liquidation. Mjejane has therefore contravened the Agreement in consequence of which the full amount owing in terms of the Overdraft agreement became due and payable to STD Bank.

[7] In terms of a certificate of balance certified by a manager of STD Bank, the outstanding balance due and owing by Mjejane on the Overdraft facility as on 25 August 2021, was the amount of R4 378 244.37, together with interest thereon at the rate of 10% per annum, calculated daily and compounded monthly in arrears, as from 25 August 2021 to date of payment, both dates included.

DEED OF SURETYSHIP

[8] It is common cause that on 9 February 2016, Roux executed and signed a written deed of Suretyship (“suretyship”) on behalf of Paradise. In terms of the Suretyship Paradise bound itself as surety and co-principal debtor to STD Bank for the payment

when due of all of the present and future indebtedness of Mjejane. The indebtedness had to arise in connection with the banking and finance facilities agreement concluded or to be concluded between STD Bank and Mjejane. This included the Overdraft Agreement on or about the date of the Suretyship howsoever arising and owing by Mjejane to STD Bank from time to time.

[9] The conclusion of the Suretyship and the terms thereof have been admitted by Paradise. The relevant terms of the Suretyship are, amongst others that:

9.1 The total amount which STD Bank may recover from the Respondent would be limited to a maximum aggregate amount of R6 200 000.00, inclusive of interest, costs, fees and charges that may be levied, for which Mjejane may be or become liable to STD Bank;

9.2 Paradise expressly renounced the benefits of the legal exceptions of excussion and division;

9.3 The liability of Paradise under the Suretyship would not be affected by any compromise or other arrangement with Mjejane or any other person; or any time, indulgence or other favour given to Mjejane; or any delay or omission in the enforcement of the rights of STD Bank; or any failure to inform the Respondent of any breach by Mjejane;

9.4 The rights of STD Bank against Paradise would not be affected if Mjejane or any other surety is placed in liquidation (whether provisional or final); is in business rescue proceedings, and STD Bank does not prove its claims against the liquidator or trustee concerned or submit proof of its claims to the business rescue practitioner concerned;

9.5 The Suretyship is in addition to any other Suretyship or security which STD Bank holds at any time for any debts;

9.6 The liability of Paradise would only end when all amounts owing pursuant to the debts of Mjejane have been paid in full; or when STD Bank cancels the Suretyship in writing;

9.7 A certificate signed by any of the managers of STD Bank, whose appointment need not be proved, will on its mere production be sufficient proof of any amount due and/or owing to STD Bank in terms of the Suretyship, unless the contrary is proved;

9.9 No compromise or other arrangement regarding the claim of STD Bank against Mjejane will, if STD Bank does not give written consent, release Paradise from liability under the Suretyship.

[10] STD Bank alleges that in view of the provisions of the Suretyship, Paradise as surety and co-principal debtor for the obligations of Mjejane, has become indebted to it for payment of the balance due and owing by Mjejane on the Overdraft Account. In a 7- day written letter of demand dated 19 November 2021 served on Roux on 8 December 2021, STD Bank demanded payment of the full balance due, owing and payable by Paradise Creek. When Paradise Creek failed to pay as per the demand, STD Bank launched this application.

ASSERTIONS

[11] Paradise asserts that it is common cause that the claim of STD Bank against Mjejane, the principal debtor, is secured with a cession of book debts to STD Bank. In this regard Paradise referred this Court to the matter of Bank of Lisbon & South Africa v The Master of the Supreme Court [1] where the Court held that a cession of book debts constitutes a pledge and is a recognised form of security in a winding-up. Paradise pointed out Mjejane has considerable valuable book debts. The book debts include substantial amounts of money which became due to Mjejane as a result of it disposing of its sugar crop.

[12] When Mjejane went into provisional liquidation, a concursus creditorum came into being. The unavoidable consequence of this was that the liquidators were compelled to retain the funds and distribute them to the creditors who have proved their claims, in the ranking order of their security. Had it not been for the above fact, STD Bank would have been paid already. Paradise argues further that it has shown that it has invested in an extensively in property and that in all those properties there is substantial equity far larger than the debt due to STD Bank.

[13] In view of the above, says Paradise, it is factually solvent. In these circumstances, the contemporary approach is to avoid liquidation

where possible. In this regard, the Court was referred to the matter of Orestisolve v NDFT Holdings [2]where factual solvency became one of the factors considered when the Court decided whether or not the Court could exercise its discretion to refuse or grant a liquidation order. Paradise readily accepts that the discretion that the Court enjoys in refusing liquidation is narrow usually requiring the Court to demand special or unusual circumstances to be demonstrated before it can refuse. The matter of Afgri Operations v Hamba Fleet [3]was cited as demonstrating the point made.

[14] For STD Bank, it was contended, all that must be shown is that it is a creditor of Paradise owed an amount not less than R100.00. The amount has been outstanding for not less than three weeks and that it has served the statutory demand, which Paradise has despite such service failed to observe. STD Bank strongly felt that it is neither here nor there that Paradise has shown that it has substantial investment in property, the equity of which is far larger than what is owed to STD Bank. The crux of this, says STD Bank, is that Mjejane concluded an agreement with STD Bank, the terms of which it has contravened triggering the provisions of the Suretyship executed by Paradise in favour of STD Bank to set in.

STATUTORY PROVISIONS

[15] The starting point is the provisions of the Act in terms of which this application is brought. Section 344 deals circumstances that may lead to the winding-up of a company by Court. Of significance here are sub-paragraphs (f) and (h), which respectively provide that a company may be wound up by the Court if:

“(f) the company is unable to pay its debts as described in section 345;

(h) It appears to the court that it is just and equitable that the company should be wound-up.”

[16] Section 345(1)(a) describes circumstances under which a company will be deemed to be unable to pay its debts and it prescribes that a company or body corporate shall be deemed to be unable to pay its debts if:

“(a) A creditor, by cession or otherwise, to whom the company is indebted in a sum not less than one hundred rand then due –

(i) has served on the company, by leaving the same at its registered office, a demand requiring the company to pay the sum so due; or

(ii) in the case of any Body Corporate not incorporated under this Act, has served such demand by leaving it at its main office or delivering it to the secretary or some director, manager or principal officer of such body corporate or in such other manner as the Court may direct, and the company or body corporate has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; or

(a) any process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned by the sheriff or the messenger with an endorsement that he has not found sufficient disposable property to satisfy the judgment, decree or order or that any disposable property found did not upon sale satisfy such process;

(c) it is proved to the satisfaction of the Court that the company is unable to pay its debts.”

CASE AUTHORITY

[17] The Applicant must satisfy the Court on a balance of probabilities that it is entitled to a liquidation order. Where a company is unable to pay its debts within the meaning of Section 345, an Applicant for winding-up does not have to prove that it is just and equitable to wind up the Respondent. A Court does not have to concern itself with the question of advantage to creditors. A winding-up order will be issued if a company is proved to be unable to pay its debts. See, Caltex Oil (SA) (Pty) Ltd v Govender’s Fuel Distributors (Pty) Ltd and Others[4].

[18] A Court will ordinarily refuse to order a winding-up where the claim is bona fide disputed on reasonable grounds. Where a Respondent refuses to pay a debt in response to a statutory demand under section 345 because it denies liability on some substantial ground, the requirements for a winding-up under section 345 will not be satisfied. In this regard it could be instructive to refer to Paragraph 11 of Orestisolve (Pty) Ltd t/a Essa Investments v NDFT Investment Holdings (Pty) Ltd and Another[5]. Where an Applicant demonstrates the prima facie existence of the debt on the papers, the Respondent bears the onus to show that the debt is bona fide disputed on reasonable grounds. See, Hülse- Reutter and Another v HEG Consulting Enterprises (Pty) Ltd[6].

[19] While the Court has a discretion whether to grant the order for liquidation or not as was concluded in Boschpoort Ondernemings (Pty) Ltd v ABSA Bank Ltd[7], an unpaid creditor who cannot obtain payment is entitled to a winding-up order and the Court’s discretion to refuse such an order is very narrow in such circumstances. See, ABSA Bank Ltd v Rhebokskloof (Pty) Ltd [8]and Afgri Operations supra.

ANALYSIS

[20] The first assertion by Paradise for why this Court should dismiss the application for its liquidation is that the Principal debtor, Mjejane, has ceded its book debts to STD Bank. The debt of STD Bank against Paradise is as such secured. It follows therefore that, so continues the argument, STD Bank will be paid because the book debts are well above what is due to STD Bank. Well, that might be so but the problem is that Mjejane has contravened the agreement that it has concluded with STD Bank. The breach by Mjejane consists in the following:

20.1 Having breached the agreement, Mjejane has failed to remedy the breach within the time stipulated in the statutory demand;

20.2 STD Bank has resolved that in its reasonable opinion there has been a significant deterioration in the financial outlook of Mjejane;

20.3 This Court has on 27 September 2022 granted a final winding-up order against Mjejane.

[21] The breach as aforesaid has triggered the provisions of the Suretyship executed by Paradise in favour of STD Bank. One of the terms of the Suretyship is that Paradise has categorically renounced the benefits of the legal exceptions of excussion and division. As such, Paradise cannot seek to avail itself of a remedy when it has agreed that it will not raise it as a defence in these circumstances.

[22] It was strongly argued on behalf of Paradise that it has invested substantially in immovable properties. Proof of valuation of the various immovable properties in which it has invested was provided showing that there is also a sizable equity far in excess of what is owed to STD Bank. Furthermore, Paradise said that approximately fifty-five of its employees were likely to lose their employment if a liquidation order was granted.

[23] Paradise was set on showing that the equity in the properties in which it has invested is far larger than what it owes to STD Bank and that obviously STD Bank will be paid should one of those properties be sold. This is of little assistance in circumstances where Paradise provided no date on which it would sell the immovable properties and realise the equity with which it intends to settle the debt. As a matter of fact, the amount owed was still owing and due on the date of the hearing of this matter.

[24] The further assertion of loss of employment by at least fifty-five of paradise’s employees rings hollow in the absence of their particulars. Paradise also contended that the contemporary attitude is to avoid liquidation in favour of business rescue. I find this rather odd and offbeat because while the contention is well-founded, Paradise did not bother to show that it applied for business rescue at any stage.

[25] The assertion that if this Court grants the liquidation order, it must stay its execution until finalisation of the final liquidation application of Mjejane. I have already stated above that this contention cannot find favour with this Court because it has been superseded by events in the first place. Secondly, it would not have stood in view of the provisions of the agreement between paradise and STD Bank. It must be recalled that the agreement specifically legislated against the granting of liquidation as one of those events that would trigger STD Bank’s rights to terminated the agreement and claim payment of the whole amount.

[26] Similarly, the argument advanced in the alternative to the above, that the order to liquidate Paradise must be put in abeyance until such time that the liquidator pays the secured claims in ranking order must fail. This has to be the case because such contention is anomalous and inimical to the provisions of the Suretyship signed by Paradise. In other words, there is only one party that executed the Suretyship in favour of STD Bank and only that party alone is being sued to honour its obligations arising in terms of the Suretyship.

[27] In view of the agreement between STD Bank and Mjejane having been contravened, which event has brought about the application of the Suretyship, I regard all the cases referred to by Paradise as irrelevant to justify a dismissal of the application. As such, I find that there are no special or unusual circumstances warranting this Court to exercise its discretion in favour of refusal

of the liquidation.

[28] The provisions of Sections 344(f) and 345(1)(a) and (c) are clear – it is the company inability to settle its debts as and when they arise. This has happened in that:

28.1 Paradise is indebted to STD Bank in the sum not less than R100.00;

28.2 Paradise has, despite it having been called upon to pay the amount owed to STD Bank, failed to settle the debt within the period mentioned in the demand.

[29] I note that Paradise argues that STD Bank has not shown that it is just and equitable that it be wound-up. It is not necessary in this instance for STD Bank to prove that it is just and equitable to wind-up Paradise because it has established, in the opinion of this Court, that the debt arises in the context of Section 345. Paradise is unable to pay its debts as an when they arise. See, the Caltex Oil (SA) (Pty)Ltd case supra.

[30] STD Bank has, on a balance of probabilities satisfied this Court that it is entitled to a liquidation order. Paradise has failed to prove that its dispute of the liquidation claim is bona fide and that such grounds are reasonable. In the circumstances, I am constrained to grant the application consequently I make the following order:

1. Paradise is placed under final liquidation in the hands of the Master of the High Court;

2. The costs of the application shall be those in the liquidation;

3. The counter-application is dismissed with costs.

B A MASHILE

JUDGE OF THE HIGH COURT OF SOUTH AFRICA

MPUMALANGA DIVISION, MBOMBELA

APPEARANCES:

Counsel for the Applicant: Adv W Coertzen Instructed by: Newtons Inc Counsel for the Respondent: Adv MP Van Der Merwe SC Instructed by: Weavind & Weavind Inc Date of Judgment: 27 September 2023

[1] 1987 (1) SA 276 (A) at 294

[2] 2015 (4) SA 449 at 453I – J

[3] (542/2016) (2017) ZASCA 24 (24 March 2017)

[4] 1996 (2) SA 552 (N) at 557

[5] 2015 (4) SA 449 (WCC)

[6] 1998 (2) SA 208 (C) at 218D–219C

[7] [2014] 1 All SA 507 (SCA) at Paragraph 20 - 24

[8] 1993 (4) SA 436 (C) at 440F–441A