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Shanmugam v Peter N.O and Others (11638/2015) [2016] ZAKZDHC 16 (20 April 2016)

Liquidators-joint liquidators-two of three signed contract-contract invalid

The applicant seeks an order interdicting the liquidators of CKT Express CC (in liquidation) from selling or transferring an immovable property to a third party purchaser pending the determination of an action which he has instituted and in which he seeks transfer of the property to him.

The basis of the applicant’s claim is that he purchased the property from the liquidators in June 2012, that the agreement is still valid and that they are precluded from selling the property to someone else.

The liquidators contend that the agreement relied on by the applicant was invalid ab initio, that it was in any event cancelled by reason of a breach by him and, further, that his claim for transfer of the property has become prescribed.

 

The facts are briefly as follows. The close corporation owns the property in question, which is described as Portion 6 of Erf x. It was placed in final liquidation in February 2012 and the first and second respondents were appointed as liquidators on 21 February 2012. They decided to sell the property to the applicant and signed a written agreement of sale on 5 June 2012. The agreement was not signed by the third respondent, who was appointed as the third liquidator on 4 June 2012.

On 2 July 2012 a firm of attorneys gave the applicant written notice that he was in breach of the agreement in that he had not made certain payments and on 16 August 2012 they notified him of the cancellation of the agreement. Most of the money which he had paid towards the purchase price was refunded to him, which he says he accepted under protest. The property was sold by public auction nearly three years later, on 18 June 2015. The successful bidders were the applicant’s sister and one Ryan Naidoo, whose wife was the sole member of the close corporation in liquidation. That agreement was cancelled on 16 September 2015 due to a failure by the purchasers to comply with their obligations. On 3 November 2015 the property was again sold by public auction.

During the confirmation period a higher offer was accepted by the liquidators and the property was sold by private treaty. On 3 November 2015 the applicant instituted an action in this court in which he seeks an order for the transfer of the property to him, against a tender to perform all his obligations as purchaser in terms of the agreement of 5 June 2012.

On 23 November 2015 he launched an application to interdict the transfer of the property pending the final determination of the action to which I have referred, and a rule nisi together with an interim interdict was granted on that day. The matter then came before me on the opposed roll, with the applicant seeking confirmation of the rule nisi and the respondents its discharge.

Counsel for the applicant submitted that because he seeks an interdict pendente lite the test is whether the applicant has shown a prima facie right, though open to some doubt, and whether the balance of convenience favours him. There are no material disputes of fact on the papers and the matter is essentially one of law. I deal firstly with the issue relating to the validity of the agreement.

In terms of section 2(1) of the Alienation of Land Act  no alienation of land shall be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority. It is by now trite that corporate entities, being unable to act other than through natural persons, cannot give written authority to their representatives, and that therefore the written-authority requirement does not apply when a functionary of a company  signs a contract for the sale of land.It was held in Northview that the principle also applies to close corporations and that a member, authorised as such to sign, does not require written authority to sign such a contract. Where a member however authorises a third person to enter into such a contract the authorisation must be in writing.

In the present matter the agreement was not signed by a member of the close corporation, but by two of the three liquidators. Counsel submitted that section 2(1) nevertheless finds no application as the liquidators were not agents as contemplated in the section and their actions were those of the close corporation. This seems to me to be correct. It has been held that when a liquidator performs the functions of the former board of directors his acts are the acts of the company.[5] And in AMS Marketing[6] the court referred with approval to Gower[7]who says when a liquidator concludes a contract he does so on behalf of the company. It follows that when there is only one liquidator he does not need written authority to sign a contract for the sale of land as he is in the same position as a duly authorised functionary of the company. If one of several liquidators signs such a contract the only question is whether he was authorised to do so, as in the case of a functionary of a company.

In terms of section 282 of the Companies Act of 1973 liquidators are required to act jointly in performing their functions.  The third respondent was appointed as a joint liquidator the day before the other two signed the agreement. It is not disputed that he had not authorised them to do so. Counsel for the applicant submitted that as a matter of probability he must have become aware of the agreement and ratified it. But there is no evidence that he did. And if he became aware of the agreement there is no evidence that he knew it required to be ratified. It would appear that none of the liquidators realised at the time that when the first and second respondents signed the agreement the third respondent had already been appointed. In any event, the effect of the third respondent’s affidavit, read with the answering affidavit deposed to by the fourth respondent, is that he did not authorise the conclusion of the agreement, nor did he ratify it. There is nothing on the papers to gainsay this, and it must of course be born in mind that the agreement was not in existence for long as it was cancelled on 16 August 2012. It follows in my view that the agreement of 5 June 2012 was invalid as the two liquidators who signed it could not bind the close corporation without the authority of the third liquidator.

 

[9] I deal briefly with the two alternative points relied on by the liquidators. The first is that even if the agreement was validly concluded it was later cancelled as a result of a breach by the applicant of his obligations. Counsel for the applicant accepted in argument that the applicant was in breach and that the cancellation would have been proper if it was duly authorised. It appears from the papers that it was only authorised by the two liquidators who had signed the agreement, and not by the third respondent. Their answer to this is that the cancellation was ratified by the third respondent, who signed the subsequent sale agreement together with the other liquidators. Counsel for the applicant contested this on the basis that he may not even have known of the cancellation. This is a double-edged sword for the applicant. If the sale to the applicant did not come to the notice of the third respondent then he could not have ratified it. If it did come to his notice then it is inherently improbable that he would have co-signed a new agreement without knowledge of the cancellation of the first agreement. And if he signed the new agreement with knowledge of the cancellation of the first one then he ratified the cancellation. It seems to me that if the agreement on which the applicant relies was validly concluded then its subsequent cancellation was valid.

 [10] The second alternative point relates to prescription. The liquidators contend that any claim that the applicant may have had for transfer was extinguished by prescription. They say the letter of cancellation was sent to him on 16 August 2012, and any claim he may have had for transfer arose not later than the date on which he received that letter. His summons was issued on 3 November 2015. He does not dispute that this was more than three years after his claim arose. The only basis on which he contends that his claim has not prescribed is that the fourth respondent told him that the liquidators would not rely on the breach notice and acknowledged their obligation to transfer the property to him. She disputes this and says she in any event had no authority to speak for the liquidators as she was only asked to perform certain administrative tasks. It is true that in his affidavit the applicant refers to the fourth respondent as the agent of the liquidators. That does not constitute evidence that she was their agent or authorised to bind them, and there is no other evidence that she was. It follows in my view that any claim which the applicant may have had for transfer of the property was extinguished by prescription.
[11] The applicant has in my view not made out a prima facie case, not even one open to some doubt. It seems plain that the agreement on which he relies was invalid for want of authority, was in any event cancelled because he failed to comply with his obligations, and he waited longer than the prescriptive period to try and enforce his claim for transfer.

The rule nisi is discharged with costs, including those reserved on 23 November and 8 December 2015 and those occasioned by the employment of senior counsel.

Newton Global Trading (Pty) Limited (Under Business Rescue) v Da Corte
[2015] JOL 34899 (SCA)

Business rescue proceedings –– Resolution taken by company to commence business rescue –– Whether failure to comply with section 129(3) and (4) of the Companies Act 71 of 2008 renders proceedings a nullity –– Resolution to commence business rescue has not been set aside – Standing of business rescue practitioner appointed on strength of resolution – Standing of business rescue practitioner cannot be challenged on ground of non-compliance with procedural requirements – section 129.

The appellant conducted a business of chrome processing. Experiencing financial difficulty, the appellant, by resolution dated 31 May 2013, commenced voluntary business rescue, under supervision, in terms of section 129(1) of the Companies Act 71 of 2008.

In July 2014, the appellant launched an urgent application against the respondent, seeking an order interdicting the latter, or any person in his employ, from entering the appellant’s business premises and prohibiting them from removing any mineral related material or any tangible object from it, or from operating any part of the chrome processing plant.

Opposing the application, the respondent raised two preliminary points. The second of those related to the appellant’s alleged lack of locus standi to institute the application proceedings due to an alleged failure by the appellant to comply with the provisions of section 129 of the Act. It was contended that the consequence of such failure was that the business rescue proceedings were a nullity and the appointed business rescue practitioner, who deposed to the founding affidavit, lacked the necessary standing to act on behalf of the appellant. The court below upheld that point, and dismissed the application.

Held that section 129 deals with business rescue proceedings. Section 129(3) sets out the steps to be taken within five business days after a company has adopted and filed a resolution, and section 129(4) prescribes the steps to be taken after appointing a practitioner. In the present matter, the notice of the appointment of the business rescue practitioner, in terms of section 129(4)(a), appeared to have been filed three days out of time. The respondent’s objection therefore was that the appellant had failed or omitted to publish a copy of the notice of the practitioner’s appointment as business rescue practitioner, as is required in terms of section 129(4)(b), and omitted to publish a notice of the resolution to commence business rescue in terms of section 129(3)(a) – and accordingly did not strictly comply with the relevant provisions of the Act. Section 129(5) provides that if a company fails to comply with any provision of subsections (3) or (4) its resolution to begin business rescue proceedings and place the company under supervision lapses and is a nullity. Referring to case law, the Court held that as long as the resolution to commence business rescue has not been set aside, the standing of the business rescue practitioner appointed on the strength of that resolution, cannot be challenged on the ground of non-compliance with the procedural requirements set out in section 129 of the Act. The fact that the respondent was not an “affected person” could not alter that position.

The appeal was therefore upheld, and the respondent’s point in limine was dismissed.

Gihwala and others v Grancy Property Limited and others
[2016] JOL 35573 (SCA)

Company law – Company directors – Orders of delinquency in terms of section 162(5)(c) of the Companies Act 71 of 2008 – Directors found to have been guilty of gross abuses of their positions, in circumstances where they owed a fiduciary duty to ensure that company complied with terms of an agreement – Orders of delinquency justified

wo actions, brought by the first and second respondents, were consolidated in the high court. The Court upheld most of the claims of the first respondent (“Grancy”). It gave judgment against the first and second appellants for payment of certain amounts. In addition it ordered the first and second appellants to disclose books of account and financial records relating to a related entity’s affairs, and ordered that a statement of account be rendered to Grancy with regard to a business venture. Lastly, in terms of section 162(5)(c) of the Companies Act 71 of 2008, the Court declared the first and second appellants to be delinquent directors. Before the present Court, lay an appeal by the appellants, and a cross-appeal by Grancy against the dismissal of two of its monetary claims.

The background facts were as follows. In February 2005, the parties concluded an agreement in terms of which an English businessman befriended by the first appellant, would through Grancy, acquire a one-third share in a company (SMI), which would in turn acquire a 58% stake in another company. To that end Grancy provided funding of around R3,5 million. Disputes arose when the first and second appellants refused to recognise that Grancy was entitled to a shareholding in SMI or any information about its business or how its money had been invested.

Held that the issues for determination on appeal were whether the 2005 agreement was breached and, if so, in what respects; whether Grancy had financial claims arising out of the breach of the agreement; whether those claims were precluded by the rule in Foss v Harbottle; whether Grancy was entitled to orders against the first and second appellants in terms of section 424 of the Companies Act 61 of 1973 or section 77(3) of the Companies Act 71 of 2008; whether Grancy was entitled to an order for access to the books and accounting records of SMI and for the rendering of an account in relation to its investment; whether section 162 of the 2008 Act was unconstitutional and, if not, whether the high court was correct to make orders of delinquency in relation to the first and second appellants.

The Court found that from the outset, there were clear breaches of the agreement. The Court examined each of the monetary claims, and upheld the cross-appeal in regard to one of the two claims which had been dismissed in the court below. It also varied the high court’s orders in respect of some of the other monetary claims. In so doing, the Court held that the relevant claims were not excluded by the rule in Foss v Harbottle.

Finally, the court upheld the orders of delinquency in relation to the first and second appellants, finding that they had been guilty of gross abuses of their positions as directors of SMI, to which they owed a fiduciary duty to ensure that it complied with the terms of the agreement concluded with Grancy.

Voltex (Pty) Limited trading as Voltex Bramley v Mnguni
[2016] JOL 35898 (GJ)

Provisional sequestration – Application for final order

In terms of a contract concluded between a close corporation and the applicant, the latter sold and delivered goods to the close corporation on credit. Subsequently, the applicant concluded a written contract with the respondent wherein the respondent bound himself as surety and co-principal debtor for and on behalf of the close corporation. When the close corporation failed to honour its obligation to repay the debt, the applicant sued it and the respondent. The action was not defended, and default judgment was obtained. About 10 months later, the applicant issued a writ of execution against the respondent. The sheriff was unable to execute the warrant as he found the premises locked.

As a result, in May 2014, the applicant instituted proceedings in this Court against the respondent where it asked, inter alia, for the estate of the respondent to be provisionally sequestrated. A provisional order was granted, and the applicant now sought final sequestration.

In opposing the application, the respondent contended that the close corporation was not insolvent, but, on the contrary, was solvent and highly profitable.

Held that the sheriff’s return simply showed that the respondent could not be located. It was not shown that there was no disposable property to satisfy the judgment. The applicant failed to show that the applicant was factually insolvent. It failed to show that the respondent would not be able to relinquish the debt should his estate be returned to him. It had also failed to show that a final order sequestrating the respondent’s estate would be to the advantage of all creditors.

The order provisionally sequestrating the respondent’s estate was set aside, and the application for an order finally sequestrating the respondent’s estate was dismissed.

Engen Petroleum Limited v Plastic Brown Containers (Pty) Ltd (11693/2014) [2016] ZAKZDHC 20 (10 May 2016)

Application for final winding up-opposed- Section 345(1)(a) of the old Companies Ac requires that a statutory letter of demand be sent to collect the outstanding debt.

The application for the liquidation of the respondent arose as a result the applicant’s claim for goods sold and delivered to the respondent for an amount of R513 000, which remained unsatisfied. The respondent was a cash customer of the applicant and was allocated customer account number 10077812. A special procedure was followed for purchasing goods from the applicant. The respondent would place orders telephonically to the applicant. The whole process would then be captured in an electronic management system of the applicant, which calculated the amount of the order and then issued a unique order number for that particular order. The details thereof would be then communicated to the respondent who would in turn make payment in advance and provide proof of payment to the applicant’s credit controller. The credit controller would then authorise the release of the paid up goods from the applicant’s warehouse. This authorisation would simultaneously raise an invoice by a system known as SAP and an instruction to the applicant’s logistic and transport service provider, Ensign Shipping & Logistics, to release the goods to the respondent. The respondent would then either elect to collect the goods or the applicant would deliver the goods at the designated address.

The applicant avers that during February 2014 it dismissed one of its employees, Goodman Morapane, a Sales Manager, for attempting to perpetrate a fraud against the applicant for the benefit of the respondent. On or about January 2013 to March 2013, the respondent, with the assistance of Morapane, was able to obtain the release of lubricants to the value of R513 000 without making any form of payment to the applicant.

Morapane manipulated the applicant’s system by instructing one of the applicant’s employees at its depot, Synod Ngubane, to bypass the applicant’s electronic computer management system by manually authorising the release of the goods from an Ensign warehouse on the pretext that the respondent’s customer account number was still in the process of being opened, hence it could not be captured on the electronic system. Morapane had informed Ngubane that upon the allocation of the customer account number the transaction would be captured on the SAP electronic system and the respondent would be invoiced. The very same goods were collected by the respondent from Ensign, which signed for them, but were never paid for them. Morapane continued with the same modus operandi a number of times.

According to the applicant, in December, being its financial year end, its stock on hand is balanced and any missing stock would have been discovered by the applicant. On the 19^th of December 2013, Morapane gave Ngubane the respondent’s customer account number and order numbers to raise an invoice for the respondent in respect of the goods already collected by the respondent. This ensured that the applicant’s stock balanced. The delivery notes were attached to the founding affidavit indicating the various collections of ordered goods from the applicant by the respondent in annexure D1 to D6 of the founding affidavit.

The respondent’s defence is that it had no dealings with the applicant concerning the claim of R513 000. It denies that it is indebted to the applicant and that it is unable to pay its debts. It also denies any illicit or collusive dealings with Morapane. It avers that there were bona fide dealings between itself and Morapane’s Close Corporation, Golden Rewards, which had invoiced it for R550 620 for goods sold and delivered. It avers that it settled the entire amount due to Golden Rewards, save for R120 000 which was set off as a result of goods sold by the respondent to Golden Rewards.

It is trite that for a final winding up order, the applicant must show on a balance of probabilities that the debt is not bona fide disputed on reasonable grounds. The question which needs to be determined first is whether the applicant is a creditor of the respondent. Section 345(1)(a) of the old Companies Ac requires that a statutory letter of demand be sent to collect the outstanding debt. When a company receives such a statutory demand, its options are limited to settling the amount owed, giving security for the claim to the satisfaction of the creditor or showing on balance of probabilities that the alleged indebtedness is disputed on bona fide and reasonable grounds. Furthermore, if the company neglects to adequately respond to the Section 345(1)(a) letter of demand, it runs the risk of being deemed to be unable to pay its debts and ultimately face a liquidation on its deemed insolvency.

If the company elects to dispute the alleged indebtedness, it must send a detailed response within the three weeks referred to in Section 345(1)(a)  regarding the basis upon which the alleged liability to pay is disputed. It is therefore imperative upon the respondent:‘to allege facts which, if proved at a trial, would constitute a good defence to the claims against the company’.

The onus rests on the applicant to show that on a balance of probabilities that the debt is not bona fide disputed on reasonable grounds.

[20] In my consideration of whether the applicant has discharged the onus on a balance of probabilities, I have holistically considered all the facts in this matter. The respondent has tried to raise factual disputes, which I find to be not fundamental factual disputes

[21] I am satisfied that the applicant has discharged the evidentiary burden resting upon it. The non-responsive attitude of the respondent to the calls for payment leaves a lot to be desired. It was only when the applicant brought the application for provisional liquidation that it expressly stated for the first time that it had dealings with Morapane. If payment had been made to his entity, this should have been disclosed timeously to the applicant.

I make the following order:

(a) That the provisional order granted by this court on the 15^th of September 2015, be hereby confirmed.(b) That the costs hereof be in liquidation.