Standard Bank of South Africa v 324 Church Street Investments 1 CC (15230/2012) [2012] ZAWCHC 231 (4 December 2012)

REPORTABLE JUDGMENT

Republic of South Africa

IN THE HIGH COURT OF SOUTH AFRICA

(CAPE OF GOOD HOPE PROVINCIAL DIVISION)

Case No: 2819/2012

In the matter between

THE STANDARD BANK OF SOUTH AFR1CAL LIMITED .................Applicant

and

324 CHURCH STREET INVESTMENTS 1 CC .......................................................First Respondent

Counsel for the Plaintiff: Adv. R Howie

Adv. M Adhikari

Instructing Attorneys: Bowman Gilfillan

Counsel for Defendant: Mr K Titus (Attorney)

Instructing Attorneys

Date of Hearing: 29 October 2012

Date of Judgment 4 December 2012

IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE HIGH COURT, CAPE TOWN)

Case No:15230/2012

In the matter between:

THE STANDARD BANK OF

SOUTH AFRICA

Applicant

versus

324 CHURCH STREET INVESTMENTS 1 CC

Respondent

JUDGMENT: 4 DECEMBER 2012

Mansingh, AJ

[1] This is an application for the provisional liquidation of the respondent.

[2] Tire application docs not fall to be deeded essentially on the respondent's Version. Plascon-Evans Paints v Van Riebeeck Paints 1984 (3) SA 620 (A) 643H-I. Instead, applicant ts only required to make out a prima facie case. Kalif v Decotex (Pty) Ltd and Another 1988 (1) SA 943 {A) 978D-979C

THE APPLICANT'S CLAIH*:

[3] The applicant's claim is:

3.1. In February 2008, the parties concluded a written finance loan agreement in terms of which the applicant lent R7 million to the respondent, [“the agreement”) to assist in financing its acquisition of Erf 95960, Cape Town-19 Hope Street. Cape Town, ("|he property').

3.2. Its terms included a non-variation clause.

3.3 The agreement expired on 30 November 2011.

3.4 All amounts awing there under are due and payable.

3.5. The respondent has failed to make payment since 5 March 2012.

3.6 As at 12 July 2012. the respondent owed the applicant R6 154 076.34.

THE RESPONDENT'S DEFENCES:

[4] The Respondent's defences are:

4 1. That the applicant “promised" lo advance development funding to it. This leg fails. The loan agreement contains a non-variation clause No written amendment in this respect was effected to the agreement. Further, respondent failed to allege when, where and between whom it was so agreed and whether such person had the requisite authority. "This defence is not borne out by the terms of the agreement, not the objective facts.

4 2 Plea for lime and Valuation of R300 00 00 Respondent seeks to rely on a valuation dated 10 January 5012, in which the properly is valued at R8 300 000, 00 Francis Edward Gormley. ("Gormley"), placed the valuation of the properties owned by Green Willows Properties 153 (Pty) Ltd In the matter Standard Bank Ltd v Green Willows Properties 153 (Pty) Ltd the related matter between R60 and R70 million in the sequestration application by Irish Bank

Resolution Corporal ion Ltd for Gormley's sequestration (case no. 6747/2012). He then alleged in the Green Willows master that they are actually worth R113 500, 00. This valuation of R113 500, 00 was rejected in the Green Willows matter and the parties are referred to that judgment. Given Gormley's own view of the decreased value of the Gneen Willows properties the same view is attributable lo the respondent's property which is situated on the same street and in the same precinct as the Green Willows properties. Further, the property was valued by Ms Natalie Ginsberg during June 2011 at R3 800 000,00, a value which she reviewed and confirmed On 6 July 2012. The fair value is between R3 251 050. 00 (2010 valuation) and R3 600 000 00 (2011 valuation confirmed in 2012.) Given the fair value and respondent has been unable to find a purchaser for 17 months, even if given lime to find purchaser, responded would not be able to use the net proceeds of the sale to even pay the applicant's claim.

It is trite that a creditor who cannot obtain payment of his debt ts entitled to a winding-up order, and is not bound to give time to the debtor. Rosenbach & Co. (Pty} Ltd v Singh's Bazaars {Pty) Ltd 1962 (4) SA 593 (D) at 597G. Where a respondent does not have assets that can be readily sold in a reasonable time to pay a large debt without closure of the business, then the respondent is commercially insolent and should be wound up. Irvin & Johnson Ltd v Oelofee

Fisheries Ltd 1954 (1) SA 231 (E) at 238B and 23 9 A.

4.3. Respondent claims it can not be deemed unable to pay its debts: It is common cause that in March 2012. the applicant delivered a statutory demand to (he respondent in terms of s69 (1)(a) (a) the Close Corporations act 69 of 1934 ("the Act"}. Responded

fails to pay applicant's claim or to compound it to the satisfaction of the applicant.

Respondents security is Insufficient based on Gormley's confession on the diminished value and the independent valuation conducted.

Further, respondent Failed 'jo secure the whole debt within the 21 day period Accordingly. the respondent is deemed unable to pay its debts.

4.4. Respondent has suplus income- not withstanding the fact that respondent's financial statements record a net cash flow deficit in 2010 and 2011. the respondent alleges it has surplus income to cover its operational and property costs in full. This is rejected on two basis. First, it does not have requisite cash on hand to pay the applicant's claim. The balance sheet for 2011 reflects an operational loss of R595 636,00 with no cash or cash equivalents on hand. Second, respondent failed to disclose on its papers why its representations in the financial statements are wrong, nor is there any evidence to support its allegation that it has the surplus income it claims to have.

4 5. Contingent and Prospective Liabilities; In terms of s69(2) of the Act, such liabilities must be taken into account when determining whether a close corporation is unable to pay its debts.

4.6. Creditor supremacy

Respondent's relied on the case of ABSA Bank Ltd v Newcity Group (Pty) Ltd, Cohen v Newcity Group (Pty} Ltd and Another [2012] ZAGPJHC 144, Sutherland J pointed out that, "where a creditor has a debt which the company cannot pay; in such case the creditor is entitled, ex debito justitiae, to a winding-up order". At para [31]. Sutherland J held, "In plain terms, it now seems now to be incorrect to speak of sn entitlement' to a winding up order simply because the applicant is an unpaid creditor. The rights of creditors no longer have pride of place and been levelled with those of shareholder's, employees, and with the public interest too The norm that infuses the law about the governance of companies after the advent of the Companies Act, 2008, means that the age of creditor supremacy is over."

Respondent implored the court to exercise its discretion under s 347 of the Compares Act, read with the Compares Act, 2008, "to make any Interim order or any other order it may deem just..." rather than to allow applicant to insist "on a manner of execution that is disproportionate and manifestly unfair to the respondent, given the fact that the sale in execution of the immovable property by the respondent will achieve the applicant's stated objective of simply wishing to get the monies owed to it by the respondent, but will be considerably cheaper, more expedient end equitable (than a liquidation)''

The argument that creditors no longer have pride of place is of no assistance lo the respondent because not only is the phrase broad and undefined, but nowhere is it recorded that it impinges on a creditors statutory right to apply for the winding up of a company, nor does the responded qualify as a shareholder, employee or member of the public.

Further, respondent relied on Jafta v Schoeman and Others; Van Rooyen v Stoltz and Others [2004] ZACC 25; 2005 (2) SA 140 (CC), Mokgoro J held "it must be accepted that execution in itself is not an odious thing it is part and parcel of normal economic life. It is only when there is disproportionately between the means used to the execution process to exact payment of the judgment debt, compered to other available means to attain the same purpose, that alarm bells should start ringing. If there are no other proportionate means to attain the some end. execution may not be may not be avoided." Respondent submitted chat judicial oversight in execution of debt is

required to determine whether a creditor has the right to deny a debtor the right to insist on "more proportionate means to attain the same end."

This is a red herring. The Jafta case is distinguishable on the facts. Further respondent's contention that a sale by the respondents

will yield more and cost less than the "costly and time consuming machinery of liquidation" were unsubstantiated. The

proportionality test ts not applicable to this matter The applicant can obtain no relief other than a provisional liquidation order.

THE LAW:

[5] In the recent unreported judgment of Scania Finance Southern Africa

(Pty) Ltd / Thomie-Gee Road Carriers CC, case no, 958/2012 Free State High Court Snellenburg AJ after a consideration of the recent

authorities held that in terms of s S of Schedule 5 of Companies Act 71 of 2003. a creditor may approach a court for the liquidation of a company or close corporation on the ground of its inability to pay its debts in terms of s 344{f) He held further that s 345 (and s 69 of the Close Corporations Act) is still a deeming provision Such an applicant need not prove that the respondent company is insolvent in order to rely on Chapter XIV of the previous Act.

[6] In Scania 15 Finance para [12] & [13], supra the court disagreed with the finding in HBT Construction & Plant Hire CC v Uniplant Hire CC 2012 (5) SA 197 (FB} The court held that it was incorrect to require a creditor lo prove insolvency before being able to rely on Chapter XIV of Hie previous Companies Act. The court held that ss 3449(f) and 345 of the previous Act still applies to companies and if a company is to be wound up due to an inability to pay its debts, ss 344 (f) and 345 can still be used. The court held further that what the legislature has in effect brought about, by the repeal Of S 68 and the amendment of a 66 of the Close Corporations Act is that the grounds of winding-up 'insolvent' close corporations by order of court are now the same as the grounds for winding-up of 'insolvent' companies and if the application for winding- up is made on the basis of s344(f) the applicant may rely on me deeming provisions of s 345 of the old Act. Regarding close corporations, the same ground will be used, to wit. s 344(f) read with s 69 of the Close Corporations Act.

[7] The court held that the onus of proving solvency rested on the respondent and the respondent would have to satisfy the requirements

of s 4(1} of the 2008 Act. i.e. the debtor would have to satisfy the solvency test. See also, Body Corporate for Fish Eagle v Group Twelve Investments 2003 (5) SA 414 (WLD) at 428 (J).

[8] The solvency test in section 4 (1) of the 2000 Act requires inter alia that

8.1 that the assets of the company, fairly valued equal or exceed the liabilities of the company as fairly valued, and

8.2. that she company will be able to pay its debts as when mey become due in the ordinary

course- of business. (Scania Finance supra at para [14]

[9] In Scania Finance supra at para [10] and [20] the court referred with approval to (wo unreported judgments. First Rand Bank Ltd v Lodhi Properties Investments CC and Others {case no. 38326/2011. NGHC) and First Rand Bank Ltd v Bunker Hills In vestments 499 CC (case no 32130/2011. SGHC) in which the courts held that |he legislature did not in the 2008 Act intend to do away with a liquidation on the grounds of commercial insolvency.

[10] Respondent referred to the case of AB5A Bank Ltd v Newcity Group (Ply) Ltd, Cohen v Newcity Group (Pty) Ltd & Another [2012] ZAGPJHC 144. This case merely deals with the Court's discretion. The Court did not find that the proof of Tactual insolvency is a pre-requisite which has to be satisfied before a creditor can apply for the winding-up of the company on the basis that it is unable to pay its debts Furthermore, this case dealt with business rescue as an alternative to liquidation.

THE RESPONDENTS INABILITY TO PAY ITS DEBTS:

[11] The respondent does not trade and therefore has no source Of income. Except for owing immovable property, the responded I does no! have any readily liquid or realizable assets available to settle its indebtedness. The amount owing is substantial and nothing has been put forward indicating any hope of possible payment.

[12] The mere selling of its assets to meet ts debts is indicative of financial difficulty and an acknowledgment that liquidation must ensue. Metso ND Engineering {Edms) Bpk v Specsolprojects CC [2006] JOL 17452 (T) at para

JUST AND EQUITABLE:

[13] Furthermore, it is just and equitable that the respondent be liquidated. Rand Air (Pty) Ltd v Ray Bester investments (Pty) Ltd 1935 (2) SA 345 (W); Cuninghame v First Ready Developments 249 2010 (5) 325 (SCA) [14] and Scania Finance at para [23].

[14] Green Willows and the respondent are related properties and a second bond over Green Willows properties was a prerequisite for the applicant to conclude the finance loan agreement with respondent

[15] On ;ts own version, Ihe onry way respondent tan settle the applicant's claim is if il can sell tfie property. This would inevitably lead to closure of the respondent's business.

[16] in the circumstances, the applicant has established a prima facie case for the liquidation of the respondent.

THE ORDER-

1. The respondent is placed under provisional liquidation.

2. A rule nisi is issued calling upon all persons interested to show cause, if any, to this Court on Tuesday 22 January 2012 at 10h00 or so soon thereafter as the matter may be heard:

2.1. why the respondent should not ba placed under final liquidation; and

2.2. why the costs of this application should not be costs in the liquidation.

3 Service of this Order shall be effected

3.1. by -Sheriff at the registered office of the respondent

3.2 by one publication In each of the Cape Times and Die Burger newspapers, and

3.3. on the South African Revenue Service.

URD MANSINGH, AJ