Thaw Trading And Investments 005 CC v Aobakwe Louw Properties (Pty) Ltd, In Re; Thaw Trading And Investments 005 CC v Central Lake Trading 214 (Pty) Ltd (1667/2012) [2014] ZANWHC 4 (23 January 2014)

IN THE NORTH WEST HIGH COURT

(MAFIKENG)

Case No.: 1667/2012

DATE: 23 JANUARY 2014

In the matter between:

THAW TRADING AND INVESTMENTS OO5 CC.....................APPLICANT

And

AOBAKWE LOUW PROPERTIES (PTY) LTD.....................RESPONDENT

Case No.: 1666/2012

THAW TRADING AND INVESTMENTS OO5 CC......................APPLICANT

CENTRAL LAKE TRADING 214 (PTY) LTD.........................RESPONDENT

JUDGMENT

LANDMAN J:

Introduction

[1] This is the return day of two provisional winding up orders. Thaw Trading and Investments 005 CC, the applicant, applies for the liquidation of Central Lake Trading 214 (Pty) Ltd and Aobakwe Louw Properties (Pty) Ltd, in two separate applications. I shall refer to the respondents as “Central Lake” and “Abokawe” respectively. It is the applicant’s case that Central Lake is indebted to it in an amount of R2 283 864.60 while Aobakwe owes it an amount of R6 559 902.37. Secondly it is alleged that both respondents are deemed unable to pay their debts, as contemplated in section 345 of the Companies Act 61 of 1973 which remains applicable by virtue of item 9 of Schedule 5 of the Companies Act 71 of 2008. Mr Louw, a director of both respondents applied to intervene in his personal capacity should he no longer be permitted to represent the respondents but the respondents were held to be entitled to oppose the provisional order.

[2] Each respondent opposes the application by raising certain legal issues and disputing the applicant's claims. In addition the

respondents allege that they are solvent. I shall deal with the application against Central Lake in full and then turn to the merits

of the case against Aobakwe.

Central Lake

[3] Central Lake (and Aobakwe) has raised or adverted to a number of legal issues, namely:

(a) Striking out

(b) Abuse of process

(c)Papers filed on the registrar before filing with the master.

(d)Service of the section 245 notice.

(e)Absence of an affidavit in terms of section 346(4A)(b) regarding furnishing of notice to SARS and Central Lake’s employees.

Striking out

[4] This aspect is dealt with in one of the set of heads filed on behalf of the respondent. It was not dealt with in oral argument and even though it stands I find no need to make a decision on this aspect.

Abuse of process

[5] A complaint was made that an action was instituted and is pending in respect of the debt allegedly owed by Central Lake to the applicant. This does not preclude an application for liquidation but such an application must fail if the respondent has a bona fide and reasonable defence. See Exploitatie- en Beleggingsmaatschappij Argonauten 11 BV and Another v Honig 2012 (1) SA 247 (SCA). This aspect will be explored in due course.

Whether an applicant may rely on the deemed inability to settle a debt under the new dispensation

[6] Mr Pistor SC (with him Mr Silver), who appeared for the respondents, relied on HBT Construction and Plant Hire CC v Uniplant Hire CC 2012 (5) SA 197 (FB) for his submission that it is no longer permissible to rely on a deeming provision to secure the liquidation of a company. I respectfully decline to follow the conclusion reached in this judgment. I prefer the reasoning expounded by Snellenburg AJ in

Scania Finance Southern Africa (Pty) Ltd v Thomi-Gee Road Carrier CC, Absa Bank Ltd v Fernofire Betlhehem CC 2013 (2) SA 439 (FB) who concluded at para 12 that:

“…. The misconception of requiring a creditor to prove insolvency before being able to rely on Chapter 14 of the previous Act is apparent

merely from the provisions of section 345, read with 344 of the 1973 Act, which clearly does not provide for factual insolvency, merely a deemed inability to pay its debts (and also if it is proved to the satisfaction of the court that the company is unable to pay its debts). The section has always brought about a peculiar consequence, namely that the debtor was deemed to be unable to pay its debts, although it may well be able to pay other debts. One of the grounds available to such debtor to oppose the application for winding-up on this basis was to prove solvency. Then the court still retained its discretion.”

[7] I may add that in view of my conclusion that the applicant may rely on Central Lake’s deemed inability to satisfy its debt to the applicant, I find it unnecessary to consider whether the applicant has shown actual or commercial insolvency. However, the question of whether Central Lake is insolvent will be considered when I turn to the exercise of my discretion whether to grant a final winding-up order.

Filing on Master after lodging with Registrar

[8] In EB Steam Company (Pty) Ltd v Eskom Holdings Soc Ltd (979/2012) [2013] ZASCA 167 (27 November 2013) the Supreme Court of Appeal considered whether the applicant in that appeal had complied with section 346A (4A)(a) of the Companies Act of 1973. In doing so the SCA found it necessary to put this subsection in the context of the other applicable sections and said at para 10:

“Section 346(4)(a) provides that ‘[b]efore an application for the winding up of a company is presented to the Court’ a copy of the application shall be lodged with the Master or, in certain circumstances, with another officer in the public service designated for that purpose. There is a significant body of authority that holds that an application is presented to the court when it is lodged with the Registrar6 and there is no need for us to review it in this case. The effect then of s 346(4)(a) is that it is peremptory for the applicant to lodge the application with the Master before lodging the application with the Registrar. The Master then furnishes a report to the court before the hearing of the application.”

[9] It was not necessary for the court to deal with the situation where there was a less than perfect compliance with section 346(4)(a) as there is in this case. Here the applicant’s attorneys filed the application with the Master after lodging it with the Registrar. This is not compliance with the subsection. Mr Pistor SC submits that as the subsection is peremptory the provisional order should not have been granted.

[10] This raises the question whether the failure to comply with the subsection leads to invalidity. The Supreme Court of Appeal has held in Unlawful Occupiers, School Site v City of Johannesburg 2005 (4) SA 199 (SCA) at para 22 that:

“[I]t is clear from the authorities that even where the formalities required by statute are peremptory it is not every deviation from the literal prescription that is fatal. Even in that event, the question remains whether, in spite of the defects, the object of the statutory provision had been achieved”.

[11] This approach was affirmed again in Nokeng Tsa Taemane Local Municipality v Dinokeng Property Owners Association & Others 2011 2 All SA 46 (SCA) at para 14 where it was stated:

“It is important to mention that the mere failure to comply with one or other administrative provision does not mean that the whole procedure is necessarily void. It depends in the first instance on whether the Act contemplated that the relevant failure should be visited with nullity and in the second instance on its materiality. . .”

[12] The Constitutional Court has adopted a similar approach. In construing municipal electoral legislation the court said in African

Christian Democratic Party v Electoral Commission and Others 2006 (3) SA 307 (CC)at para 25 that: “[a] narrowly textual and legalistic approach is to be avoided”. And in Liebenberg NO and Others v Bergrivier Municipality 2013 (5) SA 246 (CC) at para 25 and 26 the same court said:

“Rather, the question is whether the steps taken by the local authority are effective when measured against the object of the Legislature, which is ascertained from the language, scope and purpose of the enactment as a whole and the statutory requirement in particular.

Therefore, a failure by a municipality to comply with relevant statutory provisions does not necessarily lead to the actions under scrutiny being rendered invalid. The question is whether there has been substantial compliance, taking into account the relevant statutory provisions in particular and the legislative scheme as a whole.”

[13] In EB Steam the SCA explained at para 24 that the purpose of the filing of the application with the Master was the following:

“As the Master is the person who will have to oversee the winding-up there are obvious reasons for ascertaining in advance whether the Master is aware of reasons why a winding up order should not be granted.”

[14] The application was served before the provisional order was granted. The Master has had an opportunity to report to the court. The Master did not do so then and has not done so now. I am of the firm opinion that the failure to comply with the peremptory obligation is not to be visited with nullity. That would be pointless.

Service of the notice in terms of section 345

[15] The Sheriff’s return of service of the application on Central Lake’s employees by fixing it to the main door of the registered address which is also the principal place of business is incorrect in several respects but there I no doubt that it was properly furnished in terms of section 346(4A) of the Companies Act of 1973.

Absence of an affidavit in terms of section 346(4A)(b) regarding furnishing of notice to SARS and Central Lake’s employees

[16] The situation which arises for decision here did not pertinently arise in EB Steam. In EB Steam it was found that the purpose of sub-section 346A (4A) was: “so far as reasonably feasible to bring the application to the attention of the employees”. It was also pointed out that if the court hearing the application is not satisfied that the method adopted to furnish the application papers to the employees is appropriate to achieve the statutory purpose then it should require a different and more effective method to be adopted. The court then pointed out that in order for a court to perform this function properly it will be necessary for applicants, in the founding affidavit or the affidavit in terms of s 346(4A)(b), to deal with whether the respondent has employees and if so where those employees are working or are likely to be found. It is only in the light of this information that the court hearing the application can decide whether there has been compliance with the requirements of the section.

[17] The SCA concluded at para 25:

“The fact that the requirement that these persons be furnished with the application papers is peremptory means that it is not permissible for the court to grant a final winding-up order without that having occurred. Does that mean that it is equally impermissible for the court to grant a provisional winding-up order? In my view it does not”.

[18] The respondent does not allege that the application was not furnished to the employees. The complaint relates merely to the absence of the required affidavit. In these circumstances, as the affidavit has been furnished before a final order is granted and as there are no prejudicial consequences, the late furnishing of the affidavit satisfies and furthers the purpose and intent of the Act.

[19] I am satisfied that the applicant has furnished the employees of Central Lake (there being no evidence of a trade union representing

them) and SARS with a copy of the application.

The merits as regards Central Lake

[20] The applicant’s claim is that it concluded an oral agreement with Central Lake to build low costs houses for the Ga-Segonyana

Local Municipality. It is alleged that Central Lake tendered for and was awarded a contract to build these houses by the Ga-Segonyana

Local Municipality. The applicant alleges that it built these houses. It would be paid once the municipality paid Central Lake. It alleges that the municipality has paid lake but Central Lake refuses to pay the applicant for the work done.

[21] Central Lake says that it has a bona fide defence to the claim. It is simply this. Central Lake did not have a contract to build houses for the Ga-Segonyana Local Municipality. Central Lake did not enter into a contract with the applicant for it to build houses. Central Lake did not receive any payment. Central Lake says that the Aobakwe concluded the contract with the Ga-Segonyana Local Municipality and that Aobakwe engaged the applicant to build the houses.

[22] If this is a bona fide defence then the application should fail. It is to that question that I turn. Central Lake which has the same director or controlling mind as Aobakwe could have produced the contract between Aobakwe and the Ga-Segonyana Local Municipality. It has not done so.

[23] Central Lake says it has not received payment from the municipality. But it has invoiced the municipality for work allegedly done by it. Central Lake says this was an error made by an employee who has since died. However, payments were made because the director wrote to the municipality explaining that it should pay what is due to Central Lake and provided details of Central Lake’s bank account. Mr Louw says that the arrangement set out in the letter was not put into operation. However, Central Lake’s bank statements were produced. They show that it has received payments from the municipality. It has paid that over to Aobakwe.

[24] The arrangements set out in the letter were in fact implemented. It is inconceivable that a municipality would pay monies to an entity with which it does not have a contractual agreement. The defence is one which would succeed were it not for the facts that it is unsupported by the facts. It is therefore not a bona fide and reasonable defence.

[25] On 16 October 2012 a written demand in terms of section 345 of the Companies Act 61 of 1973 was served by the Sheriff on Central Lake at its registered address. No reply was received to the written demand from the respondent. Central Lake is deemed to be unabale to pay its debt.

Discretion

[26] It was submitted on behalf of Central Lake that should its opposition be unsuccessful nevertheless this court should exercise its discretion against making the provisional order final because:

(a) The applicant “did not really dispute the averments in the further affidavit”;

(b) Central Lake’s bank statements show that it is not insolvent commercially or otherwise;

(c) A final liquidation order signals the end of Central Lake but a refusal of such relief permits the applicant to pursue its action;

(d) The liquidation process is expensive and the applicant will only get a portion of its claim while continuation of the action may lead to full payment;

(e) The applicant is the only creditor so there is no body of creditors which may benefit from the liquidation; and

(f) There is no evidence that Central Lake’s future business activities will constitute a risk for any creditor.

[27] Are there sufficient factors for me to deny the relief to which the applicant would be entitled were it not for the discretion vested in this court? I have decided to exercise my discretion in favour of Central Lake. I do so because:

(a) There is credible evidence to the effect that Central Lake is solvent;

(b) It would be beneficial to the economy to preserve such a company instead of liquidating it; and

(c) The action turns on a limited point namely did Aobakwe and not Central Lake contract with the applicant and therefore it is capable of being resolved in a short time.

Reserved costs of the postponement on 12 September 2013

[28] When Central Lake adverted to the absence of the affidavit relating to the furnishing of the application to the employees of Central Lake, on 12 September 2013 Kgoele J postponed the application for the delivery of such an affidavit and reserved the costs. Clearly these costs are for the applicant’s account. It was obliged to ensure that this affidavit was filed but failed to do so. In fact there was no such affidavit and it was attested to after the application had been postponed. I intend ordering the applicant to pay the costs occasioned by the postponement.

Costs of the application

[29] I am of the view that costs should follow the result even though the result was achieved by the narrowest of margins. But there is no warrant to make a punitive order. Costs of two counsel are warranted by the complexity of the matter.

Aobakwe

[30] The issues which have been considered as regards Central Lake were also raised by Abokwe and in my view meet the same result. The reserved costs should be paid by the applicant.

The merits as regards Abokwe

[31] Briefly stated it is common cause that the applicant and Aobakwe agreed that the applicant would erect low-cost houses in respect of building projects at Tswaing (Delareyville), Naledi (Vryburg), Tlokwe (Potchefstroom) and Kuruman phase 1 on certain terms and conditions. It is the applicant’s case that it has done so and that Aobakwe is indebted to it for the balance of the price as follows:

Balance due on Tswaing Contract: R 1 743 658.35

Balance due on Vryburg Contract: R 3 169 412.94

Balance due on Tlokwe Contract: R 1 402 931.00

Amount due for material delivered: R 270 597.00

Minus overpayment - R 26 697.00

AMOUNT DUE: R 6 559 902.37

For reasons which will become obvious I only find it necessary to deal with the Tlokwe contract.

[32] The applicant complied with its obligations in terms of the Tlokwe contract and constructed 170 wall-plates and 170 finishes for Aobakwe. The invoices were provided by hand to the Aobakwe. The deponent says the Aobakwe duly claimed and received payment from the Provincial Department for the construction work in respect of the Tlokwe contract.

[33] Aobakwe disputes that any amount is payable in respect of the Tlokwe contract. Aobakwe’s defence can be succinctly stated. They are:

(a) The amount claimed is not due and payable.

(b) There is no agreement on the amounts charged.

(c) The contract stipulates that Aobakwe is only obliged to pay when the client ie the Provincial Government pays it; and it has not been paid in full by the Province.

(d) It overpaid the applicant by an amount of R7 million and this amount covers the amount owed.

[34] The law is clear. For the respondent to successfully oppose this application, it must show, without attracting a substantive onus, that its indebtedness to the applicant is disputed on bona fide and reasonable grounds. See Desert Star Trading 145 (Pty) Ltd and Another v No 11 Flamboyant Edleen CC and Another 2011 (2) SA 266 (SCA).

[35] In my view Aobakwe has not acquitted its evidentiary burden of showing that it has a bona fide and reasonable defence to the

applicant’s claim for R1 402 931.00 in respect of the Tlokwe contract. That the applicant has shown that it is a creditor for this amount and that Aobakwe is unable to pay this debt. I come to this conclusion for the following reasons:

(a) It is noteworthy that Aobakwe does not raise a defence of bad performance in relation to this contract. However in resisting the claim for summary judgment, where the claims were combined, it raised the defence that the concrete used in the construction was substandard and produced reports from Civil Laboratories to substantiate this. In its answering affidavit Aobakwe concedes that the applicant did not lay the slabs and that the strength of the concrete was not a term of the contract.

(b) The plea, which is part of the papers in this application, admits that the applicant, as the plaintiff, complied with its obligations

as regards this contract. See para 47 ad para 20 of the plea. This is confirmed in the answering affidavit and, I infer, includes the provision of the necessary certificates.

(c) In its plea Aobakwe says in respect of this contract that “the amounts and quantities charged were not agreed upon”. This is also raised in its answering affidavit where it is said that Aobakwe disputes that the applicant supplied and utilized all the material for which it claims payment. See para 53.6 of the answering affidavit. No details are supplied which support this defence.

(d) The alleged term of the contract, that Aobakwe would not be liable to pay any amount even where the agreed milestone was reached, is not substantiated. Payments, as regards other oral contracts were made on this basis even though it is alleged that this was done as a favour to the applicant.

(e) Aobakwe could and should have provided some information and documentation that the Provincial Government has not paid what it

owes in the case of the Tlokwe contract; particularly where it appears that there is no complaint of mal-performance.

(f) The defence that Aobakwe overpaid the applicant by some R7 million is not supported by any documentation. In so far as this is a defence of payment the onus lies on Aobakwe to prove this. But Aobakwe is not, at this stage, obliged to do so. Nevertheless, in view of the onus, some details and documentation should be supplied to support the defence. Nothing has been produced.

[36] I find that as Aobakwe has failed to pay the sum demanded by the applicant in the written demand in terms of section 345 of Act 61 of 1973 in respect the Tlokwe contract that it is unable to pay its debts as contemplated by this section. Aobakwe should be wound up.

[37] In the light of this conclusion I do not find it necessary to investigate the others claims of the applicant against Aobakwe.

[38] The submissions made on behalf of Abokwe are identical to those made in respect of Central Lake. In my view none of the submissions or the factors are sufficient to cause me to exercise my discretion against granting a final order.

[39] In the result I make the following order:

A. In application 1666/2013:

1. The provisional order for the liquidation of Central Lake Trading 214 (Pty) Ltd is discharged.

2. The applicant is ordered to pay the costs of the respondent and the costs of the intervening party which costs shall include the reserved costs and where applicable the costs of two counsel.

B. In the application 1667/2013:

1. The provisional order for the liquidation of Aobakwe Louw Properties (Pty) Ltd is made final.

2. The costs of the application are to be costs in the insolvent estate save for the costs reserved on 12 September 2013.

3. The applicant is to pay the costs (if any) of the intervening party which were reserved on 12 September 2013.

A A LANDMAN

JUDGE OF THE HIGH COURT

APPEARANCES:

DATE OF HEARING : 12 & 13 DECEMBER 2013

DATE OF JUDGMENT : 23 JANUARY 2014

COUNSEL FOR APPLICANT : ADV P A SWANEPOEL

COUNSEL FOR RESPONDENTS : ADV J H F PISTOR WITH HIM ADV M D SILVER

ATTORNEYS FOR APPLICANT : MINCHIN & KELLY

ATTORNEYS FOR RESPONDENTS : KGOMO, MOKHETLE & TLOU ATTORNEYS