Standard Bank of South Limited Dankie Beleggings (Pty) Ltd (20201/2019) [2020] ZAGPPHC 150 (15 May 2020)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE NO: 20201/2019

15/5/2020

In the matter between:

THE STANDARD BANK OF SOUTH LIMITED

APPLICANT (REG NO. 62/000738/06)

and

DANKIE BELEGGINGS (PTY) LTD

RESPONDENT

(REG NO. 1972/000795/07)

JUDGMENT

PHAHLANE, AJ

[1] This is an application for the respondent’s liquidation under circumstances where the respondent is unable to pay its debt as and when it falls due for payment. The applicant brought this application for the winding-up of the respondent pursuant to, and in terms of the provisions of sections 344 (f) and (h) read with section 345 (1)(a) of the Companies Act 61 of 1973 (“the Act”). Despite the repeal of the Act by the Companies Act 71 of 2008, section 9 (1) of Schedule 5 of this Act provides that chapter 14 of the 1973 Companies Act continues to apply with regards to the winding-up and liquidation of companies under the Act.[1]

[2] The respondent is indebted to the applicant in the amount of R20 million pursuant to the Medium-Term Loan Agreement (“the agreement”) entered into between the parties on 18 November 2016. The applicant advanced to the respondent an amount of R19 million which was to be paid within a period of 120 months. By agreement between the parties, the respondent also opened a current

account which purpose was to service the interests on the loan under the agreement. There is no written agreement in terms of the current account opened and it is not in dispute.

[3] As security for the respondent’s indebtedness to the applicant, the respondent registered mortgage bonds over three farm properties

owned by the respondent, with the total amount of the mortgage bonds being R27.5 million (Twenty-Seven Million Five Hundred Thousand

Rand). The respondent caused the mortgage bonds to be registered over the properties in favour of the applicant, specifically for the amount of the monies lent and advanced by the applicant to the respondent as set out in the mortgage bonds and the agreement. This aspect is confirmed by the respondent at paragraph 53 of its answering affidavit where it stated that:

‘’These mortgage bonds operated as continuing security and covering bonds in favour of the applicant in respect of any amount due and payable by the respondent to the applicant”.

[4] The estimated amount of interest accruing on the loan amount was R205 746,00 which was supposed to be debited to the respondent’s current account on a monthly basis. In terms of the agreement, the respondent was obliged to make annual payments R1.9 million on the capital amount of R19 million from 31 August 2017. The respondent failed to make the first capital repayment of R1.9 million which was due and payable on 31 August 2017 in terms of the agreement. An extension was granted to the respondent to pay the first instalment together with the second instalment in 2018, and that did not happen. The third instalment which was supposed to be paid in August 2019 was also not paid.

[5] The respondent is further indebted to the applicant in respect of its current account. According to the certificate of balance, the balance owing on the respondent’s current account as at 16 October 2018 was R793 667,92 together with interest thereon at the rate of 12.50% per annum, and R19 million on the capital amount of loan together with the interest at 12.5%, which interest is calculated daily and compounded monthly.

[6] As a result of the respondent’s failure to comply with its obligations in terms of the agreement and the current account, the applicant caused letters of demand to be sent to the respondent. The first letter of demand was sent on 9 November 2018 by registered post. On 14 November 2018, another letter of demand was issued for the sheriff to serve on the respondent and on 7 December

2018, the sheriff effected a personal service upon Mr NJ Pretorius, who is the Director of the respondent. On both these letters, the respondent was given ten (10) days to rectify its default but the respondent did not respond, comply or rectify its default. On 14 January 2019, the applicant caused the statutory demand in terms of section 345 (1)(a) of the Act to be served on the respondent and service was effected by the sheriff on 21 January 2019. The respondent still failed to respond to the statutory demand or make payments of the amounts demanded.

[7] The respondent had in its answering affidavit stated that ‘the allegations in the appellant’s founding papers are denied insofar as they are inconsistent with what it has stated’ and further that the application for liquidation constitutes an abuse of the court processes. The respondent contends that the applicant should not have launched winding-up proceedings because its assets far exceed its liabilities and contends further that it is not insolvent.

[8] It is common course between the parties that the respondent is not trading or conducting business as it is a property-owning company. The respondent having denied the averments made by the applicant, it however does not dispute being indebted to the applicant or being in default of paying the amounts due to the applicant. It resists the application by raising several issues which among others include the following:

8.1 That the respondent intends instituting a damages claim against the applicant for R10 million.

That the employees and trade unions were not served with the application.

That the respondent has sixteen employees who work on the farm and who are all breadwinners who will adversely be affected, should the respondent be liquidated in that they will lose their jobs without being notified.

8.4 That the applicant was duty bound in terms of section 81 of the National Credit Act (NCA) to assess the application for the medium-term loan with the knowledge that the respondent was not earning any income.

[9] The following paragraphs are noted in the answering affidavit:

“12. In this affidavit, repeatedly reference will be made to the entity Jawiklane (Pty) Ltd [Registration Number: 1967/003209/07] (hereinafter referred to as “Jawiklane”)

13. I am a share holder and director of the respondent and Jawiklane.

1.4 Jawiklane operates a huge farming operation, at the immovable properties owned by the respondent.

1.5 The farming activities include the production and planting of crop (ie. maize), the farming with cattle and the production of other produce. The farm’s potential annual income is in the excess of R25 million. The potential harvest of maize on the farm is between 5 and 7 tons per hectare.

1.6 Jawiklane provides employment for 16 people supporting big households. These employees and their household are sheltered and housed on the farms owned by the respondent.

1.7 As in all farming operations, Jawiklane is reliant on, inter alia, operating capital, implements and machinery, to effectively farm”.

[10] As already indicated that the respondent is resisting the application, the respondent’s case is that the applicant knew that it was not conducting business and that it would be financed and subsidised by Jawiklane. It is the respondent’s contention, as also argued by advocate Wannenburg, that Jawiklane is relevant for purposes and context of this application and the party to be liable to pay the debt owed to the applicant in terms of the agreement. The respondent also alleges in its answering affidavit that when it applied for a loan in terms of the agreement, the applicant considered the assets, liabilities and income of both the respondent and Jawiklane for purposes of granting the medium-term loan.

[11] It appears that Jawiklane had applied for an agricultural production loan from the applicant and this loan was first declined but

subsequently approved. The respondent alleges that because the applicant failed to timeously grant the agricultural production loan to Jawiklane, Jawiklane suffered damages which the respondent says it intends claiming as stated at para 8.1 supra. The respondent further alleges that the applicant knew that the respondent could only be able to pay its loan from the proceeds from the harvest made by Jawiklane. The respondent had in paragraph 84 of its answering affidavit stated that:

“As a result, the applicant made it impossible for Jawiklane and the respondent to properly perform in terms of all the credit agreements concluded, including the instalment sale agreements referred to”.

At paragraph [89] it stated that: “the applicant made it impossible for Jawiklane to generate an income”.

[12] Advocate Coertzen on behalf of the applicant addressed the court with regards to a counterclaim by the respondent against the applicant for R10 million and argued that the respondent has not issued summons in relation thereto. Advocate Wannenburg on behalf of the respondent confirmed that there is no counterclaim as yet, as the respondent has not issued any summons or counterclaim against the applicant but indicated that there is however a pending action between the applicant and Jawiklane. That being the case, the issues raised regarding the counterclaim are irrelevant to the current matter because the respondent had in its answering affidavit, made it clear that the damages which it intends claiming against the applicant for R10 million relates to Jawiklane.

[13] Having said that, it is clear from the notice of motion and founding affidavit that the application before this court relates to the applicant and the respondent being Dankie Beleggings. Of importance, the medium-term loan agreement signed between the applicant and the respondent does not indicate or identify Jawiklane as being a party to this agreement. Counsel for the respondent argued and submitted that Jawiklane and the respondent should be taken as one for purposes of this application.

[14] There is no evidence placed before court to support the submissions and there is also no documentary evidence to support the argument that Jawiklane should be considered as a party, if at all, to the agreement in question. Both Jawiklane and Dankie Beleggings bear

different registration numbers (as individual companies), which is an indication that they are different entities, though the director is the same. It might be that Mr Pretorius is the Director of both companies but the crux of the application before this court relates to the agreement signed with Dankie Beleggings and not Jawiklane.

[15] With regards to the arguments raised and submissions made on behalf of the respondent that the applicant considered both the respondent and Jawiklane for purposes of granting the loan, and as such Jawiklane should be liable to pay the applicant in terms of the agreement, in my view, the arguments and submissions have no merit. On the same vein, the allegation that the applicant, in delaying to provide

finance to Jawiklane wherein Jawiklane could not harvest in time and thus making it impossible for Jawiklane to finance the respondent in order to pay for the loan, which is the heart and essence of this applicantion, in my view is irrelevant and unfounded. It is common cause that the respondent is dealing with property and Jawiklane is dealing with farming.

[16] I can find no nexus between the agreement signed between the applicant and respondent with regards to the medium-term loan and the agreement entered into between the applicant and Jawiklane. The respondent’s counsel could also not refer the court to a specific clause in the medium- term loan agreement between the applicant and the respondent which would entitle the court to consider the respondent and Jawiklane to be one, for purposes of this application. It therefore follows that counsel’s argument that the employees of the respondent and the trade unions were not served with the application, cannot stand because this is not the case of the respondent on the papers. On the version of the respondent in its answering affidavit, those employees are the employees of Jawiklane. The only relevant party to be served with the application, in my view, is the Director of Dankie Beleggings, Mr Pretorius. The return of service indicates that he was personally served by the sheriff, and this aspect was not disputed.

[17] I am therefore inclined to agree with advocate Coertzen’s submission that the respondent in seeking to oppose the application

before court, is relying on the agreement that was entered into by other parties and not itself, and that the respondent (Dankie

Beleggings) is the one that entered into an agreement for a loan. In the circumstance, the application and submission that both the respondent and Jawiklane should be considered as one for purposes of this application is rejected and dismissed.

[18] Turning to the question whether the respondent should be liquidated, it was argued and submitted on behalf of the applicant that,- given the fact that applicant relies on section 345 and the fact that the respondent failed to respond at all, to the section 345 notice, the court should grant the order for winding-up. The question which must be determined by this court is whether the respondent is unable to pay its debts and whether the respondent’s denial of the applicant’s claim is based on bona fide grounds.

[19] It is trite that the unpaid creditor has a right, ex debito justitiae to a winding- up order against the respondent’s company that has not paid its debt. The application in this case has been initiated in terms of section 344(f) and section 345 of the Act. Section 344 (f) provides that “a company may be wound-up by the court if the company is unable to pay its debts as described in section 345, while Section 345(1)(c) on the other hand provides that a company shall be deemed to be unable to pay its debts if it is proved to the satisfaction of the court that the company is unable to pay its debts”.

[20] Counsel on behalf of the respondent argued that the applicant relies on sequestration procedure, which is a wrong procedure to follow. He further argued that the applicant did not allege in its papers that there are other creditors being owed by the respondent or that the respondent cannot pay the other creditors. The applicant on the other hand argued that it does not know who the other creditors of the respondent are because from the papers, the applicant appears to be the only creditor. There is no rule which requires or obliges the applicant to know exactly who else the respondent is indebted to, in order for it to be able to institute liquidation proceedings.

[21] Section 346 (1)(b) of the Act provides that an application to the court for the winding-up of a company may be made by one or more of its creditors (including contingent or prospective creditors). It follows that there was no obligation on the applicant

to mention the other parties or creditors whom it does not know exist, and the applicant was justified as of right, to approach the court alone.

[22] Though the respondent failed to pay its debts in terms of the agreement, it argues that it is not insolvent. It was argued on behalf of the applicant that the respondent is both factually and commercially insolvent.

[23] In dealing with commercial insolvency, the Supreme Court of Appeal in Murray and Others NNO v African Global Holdings (Pty) Ltd and Others[2] referred to LAWSA[3] where the author stated that:

“A company is unable to pay its debts when it is unable to meet current demands on it, or its day-to-day liabilities in the ordinary course of business, in other words, when it is “commercially insolvent”. The test is therefore not whether the company’s

liabilities exceeds its assets, for a company can be at the same time commercially solvent and factually solvent, even wealthy. The primary question is whether the company has liquid assets or readily realisable assets available to meet its liabilities as they fall due, and to be met in the ordinary course of business and thereafter whether the company will be in a position to carry on normal trading, in other words whether the company can meet the demands on it and remain buoyant”.

At para 29, it stated that:

‘Liquid assets’ in this context mean assets that are available to the company for the purpose of meeting its obligations………. When for whatever reason, a company is unable to access any liquid assets it is illiquid and unable to pay its debts as they fall due”.

[24] In Standard Bank of South Africa v R-Bay Logistics[4] the court stated that:

“[27] There has been judicial debate about whether, for the purposes of Section 344(f) of the old Companies Act, it is possible for the Court to conclude, upon evidence of actual insolvency, that a company is "unable to pay its debts". Certainly, proof of the actual insolvency of a respondent company might well provide useful evidence in reaching the conclusion that such company is unable to pay its debts but that conclusion does not necessarily follow. On the other hand, if there is evidence that the respondent company is commercially insolvent (ie cannot pay its debts when they fall due) that is enough for a Court to find that the required case under Section 344(f) has been proved. At that level, the possible actual solvency of the respondent company is usually only relevant to the exercise of the Court's residual

discretion as to whether it should grant a winding-up order or not, even though the applicant for such relief has established its case under Section 344(f).”

[25] I have already indicated that the respondent does not dispute being indebted to the applicant in the manner alleged by the applicant or being in default of paying the amounts due to the applicant.

[26] In Boschpoort Ondernemings (Pty) Ltd v Absa Bank Ltd[5] the court stated that:

“[3] It was not disputed that the appellant had, since 1 October 2010, been in arears in respect of its obligations to pay the bank more than R29 million……. There was also no dispute that the appellant had been served with the relevant demand in terms of section 345 of the old Act and was in default in respect thereof.

[16] For decades our law has recognised two forms of insolvency: factual insolvency (where a company’s liabilities exceeds its assets) and commercial insolvency (a position in which a company is in such a state of illiquidity that it is unable to pay its debts, even though its assets may exceed its liabilities)”.

[27] In holding the view that the so-called factual solvency of a company is not, in itself a determination of whether a company should be placed in liquidation or not, the court in Boschpoort Ondernemings (Pty) Ltd v Absa Bank Ltd[6] supra stated that:

“[24] Factual solvency in itself is accordingly not a bar to an application to wind up a company in terms of the old Act on the ground that is commercially insolvent…….

[26] ……The high court did however correctly find that the appellant was unable to pay its debts. The hight court ought

to have applied s 344(f), read with s345 of the old Act. The reason is that application had been made for the liquidation of a company which was insolvent in the generally understood sense of that term. Under the old Act, this justifies an order winding up the appellant”.

[28] The respondent purports to rely on the provisions of section 81 of the NCA and avers at paragraph 35 of its answering affidavit that the applicant was duty bound to access whether the respondent would be in a position to repay the loan before granting it. Advocate Wannenburg argued that a proper assessment should have been done because by granting a R19 million loan to the respondent, the applicant granted the loan on the premise that the respondent cannot repay the money because it is not gaining an income as it is a property owing entity. Counsel further argued that the NCA was enacted to ensure that financial institutions such as the applicant make sure that entities or companies to whom it borrows money, can actually repay the money they borrow. Counsel also argued that the applicant gave money to the respondent knowing very well that the respondent will not be in a position to repay the debt, but that Jawiklane will do so.

[29] Advocate Coertzen on the hand argued, and correctly so, that the the NCA does not apply to the agreement between the parties because the respondent is a juristic person. Counsel further argued that mortgage bonds were registered to secure the bond as the principal debt is twenty times more than the R250 000.00 required by the Act.

[30] It is true that the NCA does not apply to this agreement. Section 81 falls under Part D of the NCA. In terms of section 78(1) of the NCA, Part D does not apply to a credit agreement in respect of which the consumer is a juristic person. The respondent is a juristic person and Part D therefore does not apply to the respondent. Added to this is the fact that the amount of the principal debt, and the fact that the indebtedness of the respondent is secured by mortgage bonds, the agreements constitutes a “large agreement” as contemplated in section 4(1)(a) read with section 9(4) of the NCA, entered into by the respondent as a juristic person. Consequently, the provisions of the NCA do not apply to the respondent or to the agreement between the parties.

[31] Logic dictates that when an entity or a company applies for a loan or finance from a financial institution (ie. bank), its application is approved based on the information provided by the representative making the application - with regards to whether the entity or company will be able to repay the loan. One would assume that when such loan is approved and the entity or company concludes an agreement thereto, the bank concerned is satisfied that the entity or company making the application will comply with its obligation under the agreement it signs, and will discharge its debt owed to the bank. It would therefore be unwise and careless to assume that the applicant in this matter advanced a loan of R19 million to the respondent on the premise that the respondent will not be able to repay it, as counsel argued. On the same breath, the respondent registered mortgage bonds worth R27 million in favour of the applicant as security and the applicant was satisfied. There is also no clause in the agreement which stipulates that Jawiklane would be responsible for the loan repayment or that it is party to this agreement as I indicated above.

[32] Advocate Wannenburg also argued that by applying for liquidation, the applicant is merely asking the court to be a debt collector because resorting to this procedure is a means of putting pressure on the respondent to pay a debt which the respondent disputes on reasonable grounds. Counsel submitted that the applicant will not suffer prejudice if the matter is referred to trial so that the parties can properly ventilate the issues between them. He insists that the applicant can still issue summons in order to recover the debt as the court would at the end, order the respondent to pay the applicant and the property of the respondent be given a special executor to deal with it. However, counsel also argued that since the Business Rescue Proceedings came into effect, the court can also make a Business Rescue Order. He submitted that Jawiklane is generating an annual income of more than R25 million and has been

financing the respondent and that granting the order would directly affect Jawiklane and its employees.

[33] In terms of section 347(1) of the Act, the court shall not refuse to make a winding-up order on the ground that the assets of the company have been mortgaged to an amount equal to or in excess of those assets or that the company has no assets. Subsection (1A) on the other hand provides that whenever the court is satisfied that an application for the winding-up of a company is an abuse of the court's procedure or is malicious or vexatious, the court may allow the company forthwith to prove any damages which it may have sustained by reason of the application.

[34] I do not agree with the respondent’s submission that the applicant is abusing the court processes or that the applicant should

not under any circumstances resort to liquidation proceedings. The respondent has not shown any grounds which justify this submission,

nor has it shown any grounds which may amount to an inappropriate procedure to pursue liquidation proceedings. On the other hand, the respondent has not proven any damages it may suffer by reason of this application as contemplated by section 347(1A).

[35] Where the respondent’s indebtedness has prima facie been established, the onus is on the respondent to show that this indebtedness is indeed disputed on bona fide and reasonable grounds. The grounds upon which this application is disputed is based on the damages which the respondent says have been suffered by Jawiklane. I have already ruled that Jawiklane is not a party to the agreement which is at the heart of this application. The discretion to refuse the granting of a winding-up order where an unpaid creditor applies therefor, is a very narrow one that is rarely exercised and in special or unusual circumstances only.[7] I am of the view that the respondent has failed to discharge the onus of demonstrating that its indebtedness to the applicant has indeed been disputed on bona fide and reasonable grounds.

[36] Counsel on behalf of the respondent seems to be contradicting himself by submitting that the court should grant a business rescue order, while at the same time submits that the court should refer the matter to trial and judgment can be granted in favour of the applicant, wherein the respondent can be ordered to pay the applicant. This is not the case of the respondent on paper and any submissions made from the Bar which are contradictory to the case of the respondent carries less weight.

[37] An important aspect raised by advocate Wannenburg was that Jawiklane is generating an annual income of more than R25 million and has been financing the respondent. If this is the position, one wonders why the respondent is failing to honour the agreement which it signed with the applicant in terms of the Loan Agreement. Having said that, i could not find any connection between the prejudice which the employees of Jawiklane would suffer, if any, and the respondent if Jawiklane is capable of generating an annual income of more than R25 million.

[38] I have seriously considered the circumstances of this case, as well as the arguments and submissions made on behalf of both parties, and I can find no substantial reasons to exercise my discretion why a final order for a winding-up should not be granted in favour of the applicant. I am satisfied that the applicant has succeeded in establishing on a preponderance of probabilities that the respondent is liable, and that the respondent is unable to pay its debts as and when they become due.

[39] In the circumstances, the following order is made:

1. The respondent, DANKIE BELEGGINGS (PTY) LTD (REG NO. 1972/000795/07) is hereby placed under a final winding-up in the hands of the Master of the High Court.

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

P. D. PHAHLANE

ACTING JUDGE OF THE HIGH COURT GAUTENG DIVISION, PRETORIA

For the Applicant

: ADV. YVAN COERTZEN

Instructed by

: NEWTONS INC

BROOKLYN FORUM BUILDING NIEUW MUCKLENEUK, PRETORIA Tel: (012) 425-0200

For the Respondent

: ADV. W. WANNENBURG

Instructed by

: DE KLERK VERMAAK & PARTNERS

INC THREE RIVERS, VEREENIGING

Tel: (016) 454-0222

C/O HUTTEN AND ODENDAAL INC WAPADRAND, PRETORIA

Tel: (012) 807-2930

Date of Judgment

: 15 MAY 2020

[1] Van Zyl & another v Off the Shelf Investments Seventy Eight (Pty) Ltd (1323/2018) [2019] ZASCA 175 (2 December 2019) at para 6; Boschpoort Ondernemings (Pty) Ltd v Absa Bank Ltd [2013] ZASCA 173 (SCA); 2014 (2) SA 518 (SCA) :- this court held that the word ‘solvent’ in item 9(2) means commercially solvent. In the result, commercially insolvent companies may only be wound up under Chapter 14 of the 1973 Act. See also Murray & others NNO v African Global Holdings (Pty) Ltd & others [2019] ZASCA 152 (22 November 2019) para 23.

[2] (306/2019) [2019] ZASCA 152 (22 November 2019) at para 28

[3] LAWSA Vol 4(3), 2nd Edition 2014 at para 74

[4] 2013 (2) SA 295 at para 27

[5] [2013] ZASCA 173 (SCA); [2014] 1 All SA 507 (SCA); 2014 (2) SA 518 (SCA)

[6] Ibid at 24 and 26

[7] Afgri Operations Ltd v Hamba Fleet Management (Pty) Ltd (542/16) [2017] ZASCA 24 (24 March 2017) at 16