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REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

CASE NO: 39230/2013

DATE: 24 NOVEMBER 2014

NOT REPORTABLE

NOT OF INTEREST TO OTHER JUDGES

DU BUYS, LEON.................................................................................................................APPLICANT

and

STARLING RANCH (PTY) LTD.............................................................................1^st RESPONDENT

DU BUYS, ALLEN...................................................................................................2^ND RESPONDENT

BARNARD, LENETTE PATRICIA.......................................................................3^rd RESPONDENT

JUDGMENT

KHUMALO J

INTRODUCTION

[1] The Applicant is the youngest of the Du Buys siblings that owns a farm known as Portion 1 and Remaining Extent of the farm, Pretoriuskloof 553, Registration Division, L Q, that is located in Limpopo and 856.5320 H and 1180.3082 H in extent ("the family farm"). The family farm is registered in the name of Starling Ranch (Pty) Ltd ("the First Respondent"). The Applicant, his eldest brother Allen Du Buys and sister Lynette Patricia Barnard, 2^nd and 3^rd Respondent respectively are all shareholders in the 1^st Respondent, holding 16%, 51% and 33% shares in that order.

[2] This is an Application for the winding up of the First Respondent sought by the Applicant on the basis that it would be just and equitable to do so.

Factual background

[3] The family farm was bought by Du Buys senior, the parties' deceased father, in 1975 in partnership with the 2^nd Respondent, each holding a 50% share in the 1^st Respondent. In 1985 the deceased donated to each of the other two siblings, the Applicant and the 3^rd Respondent a 16% share in the 1^st Respondent and remained with 18%. 3^rd Respondent transferred 1% of her shares to 2^nd Respondent making the latter a majority shareholder with a 51% shareholding. In 1993 when the deceased passed away, 3^rd Respondent inherited the remainder of the deceased shares in 1^st Respondent and all the movable property in the family farm, including the cattle.

[4] 1^st Respondent is solvent and the family farm is its sole asset. 2^nd Respondent is its sole director.

[5] The Applicant is alleging that it would be just and equitable to wind up the 1^st Respondent as:

[5.1] the Respondents and himself are constantly and continuously involved in disputes. There is no trust or communication between them.

[5.2] He has been refused access to the books/financials of the 1^st Respondent since 2007 and only received for the first time some of the financial statements in May 2013 after threatening to apply for winding up of the 1^st Respondent.

[5.3] 2^nd Respondent has leased 2036.84 hectares of the family farm to the 3^rd Respondent's son, Jan Buys Barnard ("Jan"), far below its market value at a nominal amount of R2 000 per month plus vat with an escalation clause of only 5% per year without the consent of the Applicant. The market related monthly rental that was confirmed by Agri Lephalale is R10 140.00 for 2036.84 hectares of land.

[5.4] He also became aware in November 2012 that 3^rd Respondent's husband ("Bernard') is renting out land and houses built on the farm to a company called Lonerock Construction (Pty) Ltd and had allowed the company to build a tar road through the farm. On May 2013 he received a written confirmation from Lonerock Construction that they pay monthly amounts of R15 000 and R20 000 for rental of the chalets and site camp respectively, to the 3^rd Respondent's husband instead of 1^st Respondent.

[5.5] The Respondents each year allow farmers to hunt making up to approximately R300 000 to R400 000 per year and refuse to divulge the information relating to the income generated from this business activity.

[5.6] 2^nd Respondent is not acting in accordance with his fiduciary duties towards the 1^st Respondent and the shareholders. Accordingly if his conduct persists, Applicant will continue to suffer irreparable harm or injury, alternatively, remain to be in a disadvantaged position. Applicant has for that reason in a letter dated November 2012 given the Respondents an option to buy his 16 % shares or alternatively to transfer 400 hectares of the farm to him in lieu of his 16% shares. The Respondents refused both options. It will therefore be just and equitable to place the 1^st Respondent under liquidation.

[5.7] No shareholder's meeting was ever conducted on behalf of the 1^st Respondent.

[5.8] No dividends have been paid out by the First Respondent to the shareholders. The 2^nd Respondent as director declared that the financial position of the company does not justify payment of dividends. The auditors also confirmed that no dividends have been declared by the 1^st Respondent.

[6] The Respondents are opposing the Application and in their answering affidavit deposed to by the 2^nd Respondent deny that it would be just and equitable for the 1^st Respondent to be wound up, alleging that:

[6.1] At the time of the acquisition of the farm, 2^nd Respondent paid all the expenses towards the purchase price whilst Du Buys senior farmed in cattle for his own account and paid for the monthly expenses of the farm. On the deceased's demise in 1993, 2^nd Respondent took over the monthly expenses and cattle farming, having bought the cattle from 3^rd Respondent.

[6.2.] From 2007 Jan Barnard ("Jan"), the 3^rd Respondent's son, has been renting a portion of the family farm from 2^nd Respondent and paying the farm's monthly expenses. Therefore the rental (of R2 000) that Jan and 2^nd Respondent are paying for the 2036.8402 hectares is justified since they are responsible for the upkeep and maintenance of the improvements. The lease agreement was signed by 2^nd Respondent as the sole director and ratified by the 3^rd Respondent. Applicant refused in 2011 to sign the agreement and rejected a payment of his rental portion that is equivalent to his 16 % shares since 2011.

[6.3] There is one lease agreement signed for the chalets and site camp for the rental amounts of R5 000 and R15 000. 3^rd Respondent is entitled to the rental amounts and has designated payment of the rental into the bank account of JSF Barnard, her husband. Barnard pays over R5 000 of the rental amount to the 2^nd Respondent. 1^st Respondent is entitled to the rental income. The payment is to end temporarily in September 2013.

[6.4] 2^nd Respondent has in 2007 withdrawn his activities at the farm and moved his cattle maize activities to Thabazimbi and Potchefstroom whilst 3^rd Respondent and her husband moved into the rest of the farm.

[6.5] No dividends were ever paid as 2^nd Respondent carries the burden of paying for every expense towards the upkeep, infrastructure and fencing of the farm and has never sought any contributions from Applicant and the 3^rd Respondent.

[6.6] There is nothing untoward in any of the business dealings conducted by the 1^st Respondent. The company can fully account for all of its business dealings and agreements. Applicant was furnished with the financials on 30 April 2013.

[6.7] 2^nd Respondent has assisted Applicant to set up a farming business that applicant presently runs in Rietfontein, 16km from the family farm.

[6.8] Applicant has however made an impractical demand that 320 hectares of the farm that lies on the other side of the road separated from the rest of the farm and consists of about 16 % of farmland be cut off and be transferred to him. As a result tension has built up between the Applicant and the Respondents since this demand and worsened in 2011.

[6.9] Applicant has failed to take any steps from his side to resolve any dispute or to traverse any of the remedies afforded to him in terms of the Companies Act 71 of 2008.

[7] The Respondents therefore deny that the relationship between the three shareholders has broken down or that there is no trust between them and allege that it is the Applicant that does not trust the Respondents.

[8] Their motion in the premises is for the winding up application to be dismissed with costs.

[9] Applicant has filed a reply, in brief basically denying that his demand for the portion of the farm with an alternative offer to sell is impractical and that the 2^nd Respondent has been solely liable for the expenses of the farm as he has also paid for the upkeep of the buildings and gate. He also bought, inter alia, a Nissan LDW for the farm. He further denied that 2^nd Respondent assisted him to set up his farming business.

The law applicable

[10] The winding up of solvent companies is dealt with in ss 79 and ss 81 of the new Companies Act, Act 71 of 2008 71 of 2008 ("the Act). The particular section in the Act under which a solvent company in the circumstances of the 1^st Respondent can be wound up on the basis that it is just and equitable, s 8 (1) (d) reads as follows:

A court may order a solvent company to be wound up if-

(d) the company, one or more directors or one or more shareholders have applied to the court for an order to wind up the company on the grounds, that-

(i) the directors are deadlocked in the management of the company and the shareholders are unable to break the deadlock, and-

(aa) irreparable injury to the company is resulting, or may result, from the deadlock; or

(bb) the company business cannot be conducted to the advantage of shareholders generally, as a result of a deadlock;

(ii) the shareholders are deadlocked in voting power, and have failed for a period that includes at least two consecutive annual general meeting dates, to elect successors to directors whose terms have expired; or

(iii) it is otherwise just and equitable for the company to be wound up...”.

[11] Applicant has indicated, as it also appears in his Counsel's heads of argument that as one of the shareholders his Application is in terms of s 81 (1) (d) (iii) due to the breakdown concerned with an application under the alternative ground for winding up where it is 'otherwise just and equitable for the company to be wound up'.

[12]In Cilliers v Duin & SEE 2012 (4) SA 203 (WCC), Binns-Ward J discussed, with reference to the use of the word 'otherwise', the concept of deadlock in the context of s 8 (1) (d) (iii) and suggested that a wider and loose sense of the concept found in the context of the so called "deadlock principle", applies in respect of consequences of a breakdown of trust and confidence between members of a company which, because of its peculiar character, is in substance akin to a partnership, and thus amenable -subject to important qualifications -to dissolution as a partnership would be, if relations between the partners became untenable through no fault of the partner claiming dissolution. The proposition was contrary to the rigidness with which the words 'just and equitable' were interpreted to exclude any other grounds of deadlock forming a basis of winding up, restricting them to s 8 (1) (d) (i) and (ii); see Budge and Others NNO v Midnight Storm investment 256 (Pty) Ltd and Another 2012 (2) SA 28 (GSJ). The use of the word 'otherwise' in the subsection was found not to limit what is meant by just and equitable but on the contrary to extend the grounds of winding up to include other cases of deadlock; see Thunder Cats investments 92 (Pty) Ltd v Nkonjane Economic Prospecting and investment (Pty) Ltd 2014 (5) SA 1 (SCA).

[13] In Knipe and Others v Kameeihoek (Pty) Ltd and Another 2014 (1) SA 52 (FB) D, it was held that:

"the following principles were relevant: A solvent company would be wound up on just and equitable grounds under s 81 (1) (d) (iii) for the same reasons as an insolvent company under s 344 (h) of the 1973 Act. These reasons included the deadlock in the management of the company's affairs, oppression, both of which were relevant here.

Malan A J in Thunder Cats said that a winding up of a company in terms of s 344 (h) on the basis of it being just and equitable 'postulates not facts but only a broad conclusion of law, justice and equity, as a ground for winding up'.

[14] This matter is about the alleged loss of trust and the failure of the relationship between the shareholders, which is defined and referred to as the 'the deadlock principle' in Thunder Casts. As illustrated in the authorities already mentioned, the principle is founded on the analogy of a partnership and is strictly confined to those small domestic companies in which, because of some arrangement, express, tacit or implied, there exists between the members in regard to the company's affairs a particular personal relationship of confidence and trust similar to that existing between partners with regard to the partnership business. The company can only function if the relationship of confidence and trust between the parties is maintained. In Apco Africa (Pty) Ltd and Another v Apco worldwide inc [2008] ZASCA 64; 2008 (5) SA 615 (SCA) it was mentioned that 'the super imposition of equitable considerations in such a case may justify the dissolution of such a company under the just and equitable provision/ The provision does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way/

[15] The 2^nd Respondent in this case has hinted in defence of his actions that as sole director he is permitted to acting and deciding solely.

[16] Apco gives an illustration of a further principle besides the principle of justiciable winding up of a company where there is lack of confidence in the conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business, that lack of confidence is not justifiable if it springs merely from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company, but is justifiable if in addition there is a lack of probity in the director's conduct of those affairs. Applicant's Counsel has also hinted on the second principle being applicable as well in this case.

Issues to be determined in casu

[17] The issues to be determined are simple and straightforward, that is :

[17.1] Whether the relationship between the parties has broken down such that there is no trust as alleged by Applicant? if so,

[17.2] Whether the Applicant is the sole cause of the breakdown of the relationship?

[17.3] Whether the company is a domestic company similar to a partnership to qualify to be wound up on just and equity ground?

Breakdown or failure in the relationship

[18] Applicant's biggest grievance against the Respondents is the fact that he has virtually been kept in the dark on the operations of the farm, which operations are disadvantageous or prejudicial to him as a shareholder and of no benefit to the 1^st Respondent as the money generated that is supposed to be an income of the 1^st Respondent is used by the 2^nd and 3^rd Respondents as they wish and for their own personal benefit. He alleges that this, understandably so, has resulted in the breakdown of the relationship between him and the Respondents.

[19] 2^nd Respondent has concluded lease agreements in respect of the family farm excluding the Applicant, not consulting or reporting to Applicant as a shareholder either on the agreements or their terms and conditions. The agreements involve the use of the farm by the 3^rd Respondent's family for profit, not gainful to the 1^st Respondent or himself, initiated and arranged by the 2^nd Respondent. The 3^rd Respondent's family in turn lets out the properties in the farm and the proceeds go to 3^rd Respondent's husband and a portion to 2^nd Respondent. Information relating to other operations has been kept from the Applicant, like the exact amount generated from hunting activities that takes place at the family farm and to what happens to the proceeds, proving 2^nd Respondent's lack of probity in the manner in which he runs the 1^st Respondent's affairs. All this is to the prejudice of the Applicant. He alleges to have lost confidence in the 2^nd Respondent's fair management of the affairs of the 1^st Respondent to the benefit of all the shareholders.

[20] Respondents have not denied Applicant's allegations that since 2007 he has not been given access to the financial statements of the 1^st Respondent, which statements could have assisted Applicant as a shareholder to ascertain how the business is operated in the instance the director could not or was not willing to fulfill his duty to report to shareholders. The Applicant was as a result disadvantaged. Applicant seems to have been furnished with financial statements for the first time on 21 May 2013 after he threatened the Auditors in November 2012. The situation is exacerbated by the fact that whilst access to financial statements was denied no dividends were declared as well. All this caused by the manner in which the 2^nd Respondent conducts the business of the 1^st Respondent, conducting and sanctioning activities not to benefit the 1^st Respondent and all its shareholders, but himself, 3^rd Respondent and her family. The income generated being distributed between them without accounting. This indicates that Applicant is under absolute dominance and 2^nd Respondent in apparent breach of his fiduciary duties towards the company and all its shareholders. The conduct has as alleged by Applicant led to him not having any trust or confidence in the other shareholders/parties.

[21] The Applicant states that he has always believed the company to be of a domestic partnership nature as the siblings are shareholders and therefore requiring not only a fiduciary duty to the 1^st Respondent but a duty of trust and bona fides between the shareholders, that 2^nd Respondent failed to adhere to. The Respondents are not disputing that fact and actually indicated that the company was previously run by their deceased father, Du Buys senior and the eldest brother, consensually, as a family business with the shares continuing to be kept within the family. The company is therefore supposed to be run with some form of cohesion between the shareholders for it to sustain its existence and be of benefit to all the shareholders, otherwise it would continue to be run oppressively and to the prejudice of the Applicant. Alternatively the Respondents should have allowed the Applicant to then opt out as offered.

Fault of the Applicant

[22] In turn the 2^nd Respondent could not explain the decisions that he had taken that Applicant had proven to be neither beneficial to all the shareholders nor to the 1^st Respondent and also his failure to consult or include and report to shareholders on the decisions he make on the business activities of the 1^st respondent, furnish or give them access to the financial statements. He attempted to justify only one business deal, also unconvincingly, the lease agreement he concluded with Jan. Unconvincingly since he claimed that Jan was paying and leasing the farm since 2007 but the agreement that he sought Applicant to sign was only concluded in 2011. He also alleged that in 2007 he moved all his farm operations to Thabazimbi and Potchestroom. At the same time he could not point out any actual or specific conduct of the Applicant that contributed in causing the break down in the relationship of the shareholders in relation to the 1^st Respondent. He instead allege that the fact that Applicant demanded a portion of the farm to be transferred to him in lieu of his 16% share in the 1^st Respondent, which can hardly be regarded as unreasonable, when there is lack of trust or confidence was the cause of the tension between the parties. There is no reference made to the option to sell his shares that Applicant gave the Respondents as an alternative, which Respondents refused, even though admitting that the relationship has broken down and got worse in 2011 when the Applicant made the demand. The Respondents have not offered any solution and the situation cannot be allowed to proceed. It therefore would be just and equitable for the 1^st Respondent to be wound up.

[23] 2^nd Respondent has indicated that he no longer run any activities from the farm and he moved his cattle farming and everything in 2007 already to Thabazimbi. So in essence the 3^rd Respondent, her husband and son are the ones that are running the farm whilst the Applicant is excluded from any participation. There is an standoff between the parties with no solution on sight. The winding up of the company can only be the only solution as Applicant's offered options have been refused. 2^nd Respondent as well agrees that the relationship between the Applicant, 3^rd Respondent and himself had deteriorated and led to a final breakdown in communication, although during 2011.

[24] Applicant has established a proper case for the granting of an order placing the 1^st Respondent under provisional liquidation on just and equitable grounds. He has proven that there is a deadlock in the running of the 1^st Respondent resultant from the breakdown of his relationship with his siblings which is neither due to his fault and his loss of confidence and trust in the management of the 1^st Respondent by the 2^nd Respondent. There is no mutual trust between Applicant and the Respondents and therefore I cannot find any prospects of a working relationship.

[25] The Applicant need only establish prima facie that it is indeed just and equitable for the company to be placed under provisional liquidation as compared to an order for final liquidation where he has to prove such justification and equitability on a balance of probabilities. I therefore make the following order:

[25.1] The First Respondent is placed under provisional winding up in the hands of the master of the above Honourable Court;

[25.2] All interested persons are called upon to come and show cause on 12 January 2015 at lOhOO, if any, why a final order of winding up of the First Respondent should not be granted.

[25.3] A copy of this order be forthwith served on the Respondent company at its registered office and be published in the Government Gazette and in a local daily newspaper;

[25.4] A copy of this order be forthwith served upon the Respondent company's employees at its principal place of business;

[25.5] A a copy of this order be forthwith forwarded to each known creditors by prepaid registered post.

N V KHUMALO J

JUDGE OF THE HIGH COURT

GAUTENG DIVISION: PRETORIA

Appearances:

On behalf of the Applicant: T Colyn

Casper Le Roux Inc

c/o Andrea Rae Attorneys

On behalf of Respondent: P J Greyling

Instructed by: Wilsenach, Van Wyk,

Goosen & Bekker

Ref: S White, Pretoria

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