IN THE HIGH COURT OF SOUTH AFRICA

                         

                            GAUTENG DIVISION, PRETORIA
   
Delete whichever is not applicable  
(1)	  Reportable     Yes / No
(2)	  Of interest to other Judges  Yes / No
(3)	  Revised.

Date:    June  2014                            

Signature…………..	
          CASE NO: 21203/2014                                                                                                            

								DATE:  17/6/2014
In the matter between:
ANISSIA BOTHA                                                   First  Applicant

PETRUS JOHANNES VAN DYK                            Second Applicant

and

ADROIT COMMUNICATIONS (PTY)  LTD               Respondent                                                     

  “ A house divided by itself
cannot stand”
Abraham Lincoln

                               J U D G M E N T
____________________________________________________________

Ismail J:

[1]	The applicants in this matter seek an order whereby the respondent
is liquidated. The applicants aver that the respondent is factually 
insolvent. They are also seeking the winding up of the respondent on 
another ground, namely that it would be just and equitable to do so, as 
the directors of the respondent are at loggerheads and that a situation has 
prevailed where the directors are in deadlock. 

[2]	The respondent has in total 6 directors and it appears that there are 
two camps consisting of three directors in each camp. 

[3]	The applicants are two directors as well as shareholders and they 
hold in total 24 % of the companies shares and on the other side two 
directors, Mr Hall and Mr Munnnik, together with another director 
hold a 48% stake in the company.

[4]	At the commencement of the proceedings Mr Smit, acting for the 
applicants, informed me that the applicants will not pursue the 
argument that the respondent is factually insolvent. In fact they will accept 
that the respondent is solvent. 

[5]	Notwithstanding the admission that the respondent is solvent the 
applicants will still seek an order that the respondent be wound up on the 
ground that it would be just and equitable to do so.

Background

[6]	The respondent is a company wherein various entities hold certain 
shares. The companies and entities who are shareholders of the 
respondent have been specified in paragraph 22 of the founding affidavit. 
For the purposes of this judgment I do not propose to repeat the entities 
who hold the relevant percentage of shares in the respondent.

[7]	It might be mentioned that there were several matters which found its 
way to this court against the respondent. There was an application brought 
by an employee who sought an order that the company be placed under 
business rescue which was opposed by the company through the efforts of 
Mr Munnik and Mr Hall without the approval of the other directors. There 
was also an application brought by messrs Munnik and Hall whereby they 
sought the winding up of the respondent wherein they averred that there 
was a deadlock within the existing board of directors. 

[8]	The applicants are of the view that the company is being run by the 
executive directors of the respondent namely Mr Munnik and Mr Hall to the 
exclusion of the non-executive directors. They have taken certain decisions 
such as laying of employees of the company unilaterally without holding a 
board meeting to discuss such an issue or at the least informing the other 
directors. 

[9]	Mr Munnik and Mr Hall admit that there is a deadlock in the board 
and they have decided that they would run and manage the company on a 
day to day basis without involving the other directors. This conduct on their 
part the applicants submit on its own reflects and signifies mismanage –
ment. 

Legal principles

[10]	The applicants case is based on section 81(1) (d) of the new 
Companies Act. Weiner J in Muller v Lilly Valley (Pty) Ltd [2012] 1All SA 
187 (GSJ) stated that the legal basis for the winding up under section
81(1) (d) (iii) is the same as that that under s 344(h) of the old Companies
Act.

[11]	Mr Smit, submitted that there was authority that a company albeit 
be solvent could be wound up on the just and equitable ground, where the 
parties lost faith in the management of the company.  In Budge and Others 
NNO v Midnight Storm Investment 256 (Pty) Ltd and Another 2012 (2) SA 
28 (GSJ) at para [5] of the judgment Meyer J deals with the aspect of
winding up of a company on this basis referring to what Coetzee J, in Rand 
Air (Pty) Ltd v Ray Bester Investments (Pty) Ltd 1985(2) SA 345 (W),
at 349G-350H, stated, where he, referred to the long history of the just and 
equitable ground for winding up and to the five categories of cases that 
may be brought under it.  
“ The first…..

The third is that of deadlock which results in the management of the companies’ affairs, 
because the voting power at board and general meeting level is so divided between 
dissenting groups, that there is no way of resolving the deadlock other than by making a 
winding up order. The kind of case which falls most frequently to be dealt with under this 
heading is one where there are only two directors or only two shareholders, usually in a 
private company, who hold equal voting shares or rights and have irreconcilably have 
fallen out.

Fourthly, grounds analogous to those for the dissolution of partnerships. Where the 
company is a private one and its share capital is held wholly or mainly by the directors 
and it is in substance a partnership in corporate form, the Court will order its winding up 
in the same kind of situation that it would order the dissolution of a partnership on the 
ground that it is just and equitable to do that ….” 

[12]	Mr Smit submitted that Mr Hall and Mr Munnik were running the 
company unilaterally and without the other members of the board being
consulted or resolutions, on important aspects, being taken at board level. 
Munnik and Hall dismissed 28 employees in January 2014 without board 
approval. Furthermore, they changed the core business activities of the 
respondent without consulting the other directors or informing them 
thereof. In their response both Munnik and Hall conceded that there is a 
deadlock at board level as well as within the general body of shareholders.
They seem to labour under the belief that because the company is making 
a profit it is permissible for the executive directors to run the affairs of the 
respondent to the exclusion of the non-executive directors. It is quite 
apparent that all “ is not well within Adriot “

[13]	Mr Smit relied upon King III in volume 2 of Henockberg , on the role 
and function of the board.  He also referred to various aspects from King III 
in chapter 2. Some of the points raised were:

“2   the board should collectively provide effective corporate governance that involves monitoring the 
     relationship between the board and management of the company, and between the company and 
     stakeholders;

19. Directors should exercise objective judgment on the affairs of the company independently from 
     management, but with sufficient management information to enable a proper and objective 
     assessment to be made.

48. The collective responsibility of management vest with the CEO and as such the CEO bears the 
     ultimate responsibility for all management functions. The board delegates to management via the 
     CEO, who will in turn delegate to those reporting to him.

Principle 2.18: The board should comprise a balance of power, with a majority of non-executive directors. 
The majority of non-executive directors should be independent.  

63. The board should ensure that there is an appropriate balance of power and authority on the board. No
     one individual or block of individuals should be able to dominate the board’s decision-making. 

What appears, above ,are some guidelines from King III. The list is not 
exhaustive.

Despite the deadlock at the respondent the two directors are of the view 
that they are entitled to run the day to day activities of the company.

[14]	Section 81 of the new Companies Act stipulate:

“ (1)	A  may order a solvent company to be wound up if-
 
(a)	  the company has-

(i)	resolved, by special resolution, that it be wound up by 

the court; or
 
(ii)	applied to the court to have its voluntary winding- up by

the court;  
    
(b)	 the practitioner of a company appointed during business rescue 

 proceedings has applied for liquidation in terms of section 141(2)(a),

 on the grounds that there is no reasonable prospect of the company 

 being rescued; or

                  ( c)     …

                  (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’s business cannot be conducted to the
                                              advantage of shareholders generally, as a result of the
                                              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;

                ( e)  ….

                (f)   …”  

[15]	Another grievance which the applicants raised is that when business 
rescue proceedings were brought against the respondent, Munnik and Hall 
opposed the application on behalf of the respondent without obtaining a 
resolution of the board to do so. 

In the matter of Gainsford and Others NNO  v Haib AB 2000 (3) SA 635 
(W) at 638I-640B the question of the applicants authority to act on behalf of 
the respondent was questioned. The court stated:

“ the applicant raised the point in limine regarding the authority of Brian Kakn Inc to act 
on behalf of the respondent herein and in terms of Rule 7 (1) called upon them to file a 
power of attorney indicating their authority so to act. 
Rule 7 provides that:
‘ (1) Subject to the provisions of subrules  (2) and (3) a power of attorney to act need 
not be filed, but the authority of anyone acting on behalf of a party may, within 10 days 
after it has come to the notice of the party that such person is so acting, or with the 
leave of the Court on good cause shown at any time before judgment, be disputed, 
whereafter such person may no longer act unless he satisfied the Court that he is 
authorized so to act, and to enable him to do so the Court may postpone the hearing of 
the action or application.   

Mr Erasmus on the other hand relied upon the matter of Wolhuter Steel v 
Jatu Construction 1983 (3) SA 815 (O) at 823 C where the court stated:
“ It would be quite ludicrous to hold that a director, or a company acting through its 
directors, is not an interested party when it comes to deciding whether it and/or they 
have the right to be heard on the return day of the rule nisi”  

[16]	Ironically, Hall and Munnik themselves instituted proceedings by way 
of motion for the winding up of the respondent. This application has not 
been enrolled. This begs the question what has changed since their
institution for the winding up proceedings.

[17]	Munnik and Hall have applied to intervene in these proceedings. It
was submitted on behalf of the applicants that they have not shown or 
provided any information nor demonstrated any interest for intervening 
apart from stating that they are directors of the respondent. 
 
In Erasmus Superior Court Practice at B1-103, the authors state:
‘It is not sufficient for the applicant merely to state that (a) he or she has an interest in 
the action: he or she must make such allegations as would show, (b) that he or she has 
a prima facie case, (c) that his or her application is seriously made and (d) is not 
frivolous. (see footnote 7 and the cases referred to there). 

[18]	Mr Erasmus, acting for the intervening parties, submitted that the 
court would be loathed to wind up a solvent company which has people 
working for it, who derive their livelihood from the company. That is a 
consideration which any court in its discretion would take into the equation 
when determining the question of winding up or not. On the other hand the 
court is bound to look at all the surrounding factors, more particularly the 
manner in which this company is functioning. It is common cause that there 
is a deadlock at both board and shareholders level.  

Counsel suggested that the applicants who are not satisfied with the 
manner in which the company is operated should resign as directors and 
they should sell their shares.
In my view this would be nothing other than a hostile takeover by some 
directors at the expense of others. In political terms a coup d etat.
 
[19]	In the matter of In re Yeninde Tabacco Comapany, Limited 1916 CD 
426 the court  ‘held, affirming the decision of Astbury J., that if this was a case of 
partnership there would clearly be a ground for dissolution, and that the same principle 
ought to be applied where there was in substance a partnership in the guise of a private 
company. The p0osition amounted to a complete deadlock, and it was “ just and 
equitable” that the company be wound up’. 
See also Moosa N.O v Mavjee Bhavan (Pty) Ltd & Another 1967 (3) Sa 
131 at 137E-H. 

[20]	Mr Erasmus submitted that the court should dismiss the application 
alternatively it should wind up the respondent provisionally, in order to hold 
a general meeting of shareholders, where new directors could be 
appointed. This suggestion could have been a plausible solution, however,   
I am told that it is common cause that the shareholders of the company is 
also deadlocked. 

[21]	Accordingly I am of the view that in the exercise of my discretion it 
would make no difference to order a provisional winding up order in the 
light of the prevailing situation.

[22]	In the circumstances I make the following order:

(1)	   the application for intervention is dismissed with costs;

(2)	   The respondent company is wound up with cost.

                                                   _________________________
                                                                 I s m a i l     J

                                                                                                    

APPEARANCES : 

For the Applicants :               Adv  J G Smit instructed by Natalie Lubbe 
                                                Attorneys, Johannesburg                                            

For the fourth respondent:     Adv F J Erasmus instructed by Cillie and 
                                                 Reyneke  Attorneys, Pretoria. 

Date of hearing:                       5 June 2014.     

Judgment delivered :               17 June 2014