EVZ Industriele Dienste 2 CC v Early Moon Trading 361 CC (92335/15) [2020] ZAGPPHC 80 (28 February 2020)

IN THE REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURTOF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

CASE NO: 92335/15

28/2/2020

EVZ INDUSTRIELE DIENSTE 2 CC

APPLICANT

Registration no 2005/029101/23

and

EARLY MOON TRADING 361 CC

RESPONDENT

JUDGMENT

KHUMALO J

Introduction

[1] The Applicant , alleging to be a creditor of the Respondent company, Early Moon Trading 361 CC ("EMT"), is seeking an order placing EMT under final liquidation on the basis that EMT is commercially insolvent based on its inability to pay its debts as set out ins 345 (1) (a), of the Companies Act 61 of 1973 ("the Act"), alternatively on s 81 (1) (c) (i) and (ii) as read against s 163 of the Companies Act 71 of 2008 ("the 2008 Act").

[2] EMT is a Close Corporation which specialises in contractor projects relating to plumbing, general and building construction as well as civil engineering. Its main client being the Municipalities.

[3] The Applicant is a Close Corporation with a sole member that did business with EMT as a sub-contractor on some of the contractor projects that EMT would have been commissioned to do by the Municipalities, delivering roads and infrastructure services for EMT.

Historical Background

[4] It is common cause that on or about 4 September 2013 the Applicant and EMT concluded a subcontractor agreement that was partly verbal and partly written on two main contractor projects that were awarded to EMT by the City of Tshwane Municipality, namely, the Mopani Unit B and Garankuwa Unit 1.

[5] The Applicant delivered in terms of the subcontractor agreement the related road services to the Municipality between the period 18 April 2013 and 26 October 2016. ETM proceeded to issue invoices dated 6 October 2015 and 4 May 2016 in respect of those services to the Municipality. ETM failed to make or produce certain payments as agreed and was in breach of the agreement. Applicant alleges that an amount of R 1 476 369.05 is owing plus interest calculated at 10.5% per annum from date of invoice.

[6] Notwithstanding Applicant's numerous demands for payment, the amount remains owing. The Applicant consequently through its attorneys issued and sent a letter in terms of the provisions of s 345 of the Act. The twenty one (21) day period as stipulated in the Act expired without ETM making a payment or tendering any security to the debt. According to the Applicant there was no response at all. Consequently the Applicant alleges that ETM is commercially insolvent and avoiding the payment of its lawful creditors, alternatively not in a position to make such payments. It in view of that believes that the debts owed by ETM to all its creditors could be sufficiently settled through the sale of the Respondent's assets.

[7] ETM denies that the correct amount owed to the Applicant is an amount of R1 476 369.05 plus interest, but an amount of R1 157 787.95. It disputes that the amounts due are R671202.00 and R799 194.05 but R545.71 and 617 512.95 respectively. The amounts having been recalculated by the Municipality and a 10% deduction effected.

[8] In its Answering Affidavit ETM opposes the application, proclaiming to be commercially solvent and undertaking to pay the amount of R1 157 787.95 it alleges is owing to the Applicant into the trust account of its attorneys until finalisation of the matter.

[9] ETM also disputes that the amounts are (due to be paid) payable, which stance it alleges to have instructed its attorneys to convey to the Applicant in response to the s 345 letter, that the money will be paid to it only after the arbitration process between the Tshwane Municipality and its sister company called Misty Blue Tradings CC ("Misty Blue") is finalised. The sole member of ETM is also a sole member of Misty Blue Tradings CC. Misty Blue has also engaged the Applicant as subcontractor for the contractor projects awarded to it by the Tshwane Municipality in Soshanguve, a different area. Tshwane Municipality is claiming back from Misty Blue an amount of RS 575 933.00 it alleges is an overpayment Tshwane Municipality made or undue enrichment on that contract. Misty Blue Trading paid over the amount to the Applicant. ETM alleges that if the Municipality is successful in the arbitration

the Applicant will have to repay the money to Misty Hills to be paid back to the Municipality. Subsequently any money held on behalf of the Applicant will be paid to Tshwane Municipality and any shortfall be paid by the Applicant directly to Tshwane Municipality.

[10] As a result of the close relationship between the two companies being owned by the same person therefore represented by the same deponent who is a sole member of the two companies and Mr Muller, a sole member of the Applicant, they came to an agreement that EMT will withhold any amounts due by it to the Applicant pending finalisation of the arbitration between the Tshwane Municipality and Misty Blue Trading. Only in the event that Misty Blue is successful, will the money due by ETM become payable to the Applicant.

[11] ETM has therefore submitted that the Applicant entitled to payment only on success of Misty Blue in the arbitration. Furthermore ETM denies that payment of interest on the invoiced amounts was agreed upon. It alleges that payment into its attorneys' trust is sufficient security for the alleged debt and therefore argues that the Application be dismissed or alternatively the matter be sent to trial.

[12] The Applicant in its Reply maintains that the contract between itself and the Respondent was exclusive and did not include any other party, a subcontractor or the client, that is Tshwane Municipality directly. It alleges not to have a relationship with the client or to have been nominated as a subcontractor in that contract. The Applicant therefore argues that it was entitled to invoice and receive payment as and when the work that it had done had been measured by ETM's appointed engineer, Lameck Mtete. It pointed out that it had physically done the work on behalf of ETM and the latter has been paid for it.

[13] The Applicant furthermore confirmed that after the s 345 letter was sent to ETM, it received a letter from ETM attorneys stating that their client disputes that the amounts due and owing are payable in terms of the agreement, the correctness of the amounts and that it is duty bound to pay. It further confirmed that its attorneys were also informed that payment would be made into the

trust account of ETM attorneys. Applicant however indicates that its attorneys had then requested proof that the money had been paid into the Attorneys account and an undertaking that it would not be disposed of or repaid to Tshwane Municipality until litigation has been finalised. Neither an undertaking nor confirmation of payment into the trust account of ETM's attorneys has been received until the filing of Applicant's Replying Affidavit.

[14] The Applicant asserts that it is within its right to bring up the Application and in the absence of proper security, the deemed provisions of s 345 of the Act apply and it therefore must succeed in its application. Also in the absence of security, what is stated in the correspondence confirms that ETM is commercially insolvent.

[15] What later transpired was a filing of Supplementary Affidavits by ETM confirming that the undertaking has been fulfilled in that the amount as indicated in the Affidavit has now been paid into the Attorney's trust account and applies for the court to exercise its discretion to allow the Affidavits. The Affidavit was deposed to by the ETM's attorney of record. The filing was opposed by the Applicant on the basis that it was irregular since it was filed without seeking the court's consent.

[16] The Affidavit was for explanatory purposes, intended to bring to the attention of the court the fulfilment of the undertaking albeit, late. The Affidavit indicated that the amount was erroneously kept in the s 78 investment account which was not a trust account and had to be transferred to the trust account. The alternative would have been a submission from the bar which the court was inclined not to accept. The Affidavits were allowed on that basis, having considered the argument by both Counsel

[17] Having accepted the Supplementary Affidavits the onus was upon the Applicant to prove that ETM is indeed commercially insolvent irrespective of it raising a defence that an agreement exists to defer payment (dispute of fact) and having now fulfilled an undertaking to pay the amount into the trust account, albeit after the pleadings. The Applicant must establish its entitlement to an order on a prima facie basis that the dispute raised by the ETM is not genuine or based on reasonable grounds. That is determined at the time when the deemed insolvency is to be assumed.

Legal framework

[18]. Irrespective of the ground upon which an application for winding up is brought, the court has a discretion whether or not to grant a winding up order; F & C Building Construction Co (Pty) Ltd v Macshei Investments (Pty) Ltd 1959 (3) SA 841 (D) at 844; SAA Distributors (Pty} Ltd v Sport en SPEL (Edms) Beperk 1973 (3) SA 371 © at 373. The court's discretion has to be exercised judicially mindful of its inherent jurisdiction to prevent abuse of its processes.

[19] Whether a Company is able or not to pay its debts, the liquidation proceedings are not meant for the enforcement of a debt that the debtor company disputes on bona fide and reasonable grounds; see Badenhorst v Northern Construction Entreprises (Pty) ltd 1956 {2) SA 346 Tat 347H·348C. The liquidation proceedings are therefore not for determining if the amount owing or due is payable. The proceedings are not for settling disputes between the parties. However the dispute must be genuine and raised on reasonable grounds. ETM will have to show on a balance of probabilities that the defence raised is genuine and reasonable.

[20] The fact that one is factually unable to pay one's own debts or commercially deemed to be insolvent, is not a bar to raising a defence if it is bona fide and based on reasonable grounds. The Respondent will have to show on a balance of probabilities that its indebtedness to the Applicant is disputed on bona fide and reasonable grounds, the court will thereupon refuse the winding up order, in which case the wind up proceedings may be postponed until the dispute has been adjudicated upon in the right forum. In that case it would

consequently not be enough that the Applicant has made a case on the probabilities.

[21] On the other hand the Respondent does not have to establish, even on probabilities that the company under his direction will as a matter of fact succeed in an action which might be brought against it by the Applicant to enforce the disputed claim. It must just show that the alleged facts if proved at the trial, would constitute a good defence to the claims against it; see Huiser -Reuter and Another v Heg Consulting Enterprises (Pty) ltd (Lane Fey NNO Intervening 1998 (2) SA 208 (C) at 218D·219C. Notwithstanding Applicant having established its claim on a prima facie basis, a court will ordinarily

refuse application if the claim is bona fide disputed on reasonable grounds.

[22] The court determines if the defence is bona fide (genuine). Bona fides are a question of fact. In Orestisolve v NDFT Holdings 2015 (4) SA 449 (WCC) Rogers J stated at 5411-542B that:

"bona fides in the context of the Badenhorst -rule, does not in my view require that the company should hold a belief that at trial its defence to the claim would definitely succeed or even be more likely than not to succeed. It would be sufficient, I think, that the company genuinely wishes to contest the claim and believes it has reasonable prospects of success." (my emphasis)

[23] It is therefore not for this court to determine whose version is correct, whether or not the debt due is payable. Only after the dispute is resolved (a due debt has been established) can the Applicant proceed to apply for the winding up of the debtor company, when the court will then determine if Indeed there is a cause for the latter's liquidation, see Orestsolve.

[24] Section 345 (1) reads:

(1) a company or body shall be deemed to be unable to pay its debts if-

(a) a creditor, be cession or otherwise, to whom the company is indebted in a sum not less than one hundrend 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) ,....

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,....

[25] The section therefore sets out that a company shall be deemed to be unable to pay its debts on non-payment in response to a statutory demand. A company is however not deemed to be unable to pay its debts merely because an established claim has not been paid or secured; what must be shown is that the company has neglected to pay or secure or compound for the claim. The word neglected" found not to be proper (as in English decision) to describe a refusal to pay where the claim is bona fide disputed on some substantial ground; see Lympne Investments Ltd [1972] 2 All ER 385 (Ch) at 389.

[26] Despite the deemed inability to pay debts created by s 345 (1) (a), if the evidence shows that the company is not in fact commercially insolvent, it may also be relevant in this regard that the company's failure to pay is attributable to a genuine dispute concerning the claim, even if the court in the event considers the grounds of dispute ill founded.

[27] Applicant is represented by Mr Wessels and EMT by Mr Harmse. Following the issues in dispute being defined, Mr Harmse referred to [16] of Orestsolve t/a Essa Investments/ NDFT Investments 2015 (4) SA 449 wherein reference is made to In Ter Beek United Resources CC and Another 1997 (3) SA 315 ©, where the court considering a statutory demand given in terms of the comparable provisions of the Close Corporation Act 69 of 1984, Van Reenen J found that the Company was not, at the time of the statutory demand, bona fide disputing the claim on reasonable grounds. He thus concluded that the company had indeed neglected to make payment going on to express a view that the deeming effect of a statutory demand could be neutralised by evidence rebutting the inference of an inability to pay, in that case, evidence of protracted settlement negotiations; at 3301-332A. Rogers J was of the opinion that the deeming effect may be neutralised by the company's refusal to make payment in response to statutory demand, particularly in conjunction with other circumstances, providing a basis for the court to exercise its discretion against liquidation.

Analysis

[28] In casu the fact that there is a debt and how it arose is not in dispute. The amount of the debt was supposedly in dispute although the Applicant in its Reply has challenged or responded to ETM's allegation on the amount. Also ETM contended that the amount although

due, it is not yet payable. "Not payable" in the context where it means that the specified amount of money although due, the time has not arrived where payment is required. ETM argues the debt has been incurred, but that payment does not need to be remitted until there is completion or finalisation of the arbitration proceedings as per agreement between the parties.

[29] The Applicant has in its Founding Affidavit alleged that upon issuing a statutory demand there was no response nor was security tendered, that being the case, ETM is deemed commercially insolvent, there being no de facto finding or allegation of it being factually insolvent. Is therefore a bona fide dispute, a genuine defence?

[30] Actually ETM responded to the demand, through its attorneys who informed the Applicant's attorneys that ETM disputes the claim specifically the correctness of the amount of the debt, indicating exactly what is owed according to ETM and that the money was not yet due for payment. The Applicant's attorneys were also informed as per ETM's undertaking that the money will be paid into the trust account of ETM's attorneys and to be paid to Applicant only on finalisation of the litigation. The allegations are confirmed by the Applicant. The only litigation process ongoing at the time was between the Tshwane Municipality and Misty Blue. It is therefore evident that ETM raised a dispute on the actual amount of the debt and also on whether the debt is due and payable at the time of the demand, prior the Application. The response by the Applicant in the letter was not a denial of the allegations made by ETM but instead a demand that confirmation of payment to the attorney's trust be furnished and duly requesting an undertaking that the money will not be paid over to the Municipality until finalisation of the litigation.

[31] ETM has also alleged in relation to the delayed payment that an agreement was entered into with the Applicant represented by Muller, the Applicant's sole member, that the money will be due and payable after finalisation of the arbitration proceedings. Although the Applicant denies the existence of such an agreement it has nevertheless confirmed that it agreed that on payment of the money into the attorney's trust, ETM delay the disposal of the amount until finalisation of the litigation. On the question of the agreement there being a dispute of fact, the court is enjoined to apply the Plascon-Evans Rule. The main consequence is simply that, in terms of the above-mentioned general rule, where the affidavits in this case raise real and bona fide disputes of fact, the court is bound to accept the respondent's version of the facts. The matter is to be decided on the version of the Respondent, looking at what Applicant has admitted, the agreement to delay payment did exist. lt therefore cannot be said that there was neglect in response to the Applicant's s 345 demand. ETM did raise a dispute at the time, that judging by the Applicant's response was "bona fide" and premised on reasonable ground," confuting the deemed inability to pay.

[32] On the question of whether or not ETM is factually insolvent, no facts were put forward by the Applicant to substantiate its allegations from which the court could determine ETM actual financial status . It has argued however that the fact that, notwithstanding having received the payment from the Municipality, ETM could not pay the amount into its Attorneys' trust account in accordance with its undertaking indicate that it was factually insolvent. ETM's subsequent payment of the money into the attorney's trust account rebuts the mentioned presumption or inference of factual insolvency. The lateness sways the Issue of the costs of the Application.

[33] Furthermore Applicant argued that ETM's final winding up would be just and equitable for the same reason, that despite receiving payment earmarked for payment to the Applicant ETM failed to pay it to the Applicant. This must fail also on the basis that the amount has been paid into the trust account, albeit late. The payment therefore rebuts an allegation that ETM is not capable of meeting its current creditor demands, specifically that of the Applicant. The Applicant had allegedly agreed with ETM that the money can be kept in trust and disposed on the finalisation of the existing litigation.

[34] A recent decision of the SCA in Freshvest Investments (Pty) ltd v Marabeng Pty ltd (1030/ 2015 [2016] ZASCA 168) confirmed that If a defence is not unreasonable and if a lack of bona fides cannot readily be inferred from the papers, the liquidation application is likely to be dismissed.

[35] Under these circumstances the Applicant has failed to establish a case for the winding up of ETM, the Respondent.

The following order is therefore made:

1. The Application for the winding up of the Respondent is refused.

2. No order as to costs.

N V KHUMALO J

JUDGE OF THE HIGH COURT

GAUTENG DIVISION, PRETORIA

On behalf of Applicant: AJ WESSELS

Instructed by:

Strydom & Bredenkamp Inc

Ref: Mr H Strydom/HE0242

Tel: 012 460-1930

Fax: 012 460 8565

On behalf of Respondent: C L H HARMS

Instructed by:

VENN MULLER ATTORNEYS

Ref: Ms S Van Rooyen/11744

Tel: 012 346 0934

Fax: 012 346 0867