IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG DIVISION, PRETORIA

19/5/2016
                                                                                                                              CASE NUMBER 26201/15

In the matter between

BURCO CIVILS CC                                                                                                                           Applicant

DELETE WHICHEVER IS NOT APPLICABLE
(1)	REPORTABLE: YES/NO
(2)	OF INTEREST TO OTHERS JUDGES: YES/NO
(3)	REVISED

........19/5/2016.........    ..............................................
         DATE                           SIGNATURE	

and

ALIDA ADRIANA STOLZ                                                                                                    First Respondent
WILLEM HENDRIK STEYN                                                                                           Second Respondent

______________________________________________________________________

JUDGMENT
______________________________________________________________________

THULARE AJ

[1] 	The Applicant seeks an order declaring the respondents personally liable for claims 	which creditors are unable to recover in the liquidation of Caveoplant (Pty) Ltd 	(Caveoplant). 

[2] 	It is common cause that Caveoplant has been placed under final winding up in the hands 	of the Master of the High Court. Caveoplant is indebted to the applicant in the amount 	of R1 066 196-80. Despite notices in terms of section 345 of the Companies Act, 2008 	(Act No. 71 of 2008) (the new Companies Act), Caveoplant failed and or refused to pay 	the amounts owed to the applicant. As a result, an application for the liquidation of 	Caveoplant was launched.

[3] 	The applicant, in anticipation of the liquidation, launched this application to protect its 	interests in terms of section 424 of the Companies Act, 1973 (Act No. 61 of 1973) (the 	Companies Act), alternatively in terms of section 218 (2) of the new Companies Act.

[4] 	The applicant alleges that, as a result of the material misrepresentations by the 	respondents, more specifically that the first respondent was authorized to act on behalf 	of Caveoprox (Pty) Ltd (Caveoprox) and that Caveoprox had sufficient funds to pay the 	applicant and other creditors, were they to let their equipment to Caveoprox, the 	applicant concluded an agreement, believing it to be with Caveoprox, in June 2014, in 	terms of which Caveoprox required plant from applicant to be let to EC Mining.

[5] 	The applicant alleges that it was advised by the first respondent, subsequent to the 	conclusion of the agreement, that Cavoeprox name have changed to Caveoplant with a 	new VAT number 4920266402, and that all suppliers, including applicant, were to 	ensure that the details were correct on all the invoices as from 1 August 2014, and that 	no invoices will be paid unless the correct details were on the invoice. The first 	respondent assured that it is only a name change as management and all services will 	still be done by herself.

[6] 	The applicant alleges that it subsequently established that:

	(a) 	 Cavoeprox and Caveoplant are two separate entities,
	(b) 	Caveoprox has its own registration number, its own VAT number and is a well-			established company, established in 2009. It has not changed its name to 				Caveoplant, and the sole director is a Mr Sittert who has been such a director 			since 2010. It was not the entity that concluded the agreement with the 				applicant. 
	(c) 	Caveoplant has its own registration number and its own VAT number and was 			established during March 2014, approximately 2 months prior to the conclusion 			of the agreement between the applicant and the first respondent.
	(d) 	The first respondent and/or her company or companies do not have sufficient 			funds to pay for equipment rented.
	(e) 	The first respondent at all relevant times, was a director of Caveoplant and was 			never a director of Caveoprox.

[7] 	The applicant alleges that the first respondent carried on the business of Caveoplant 	recklessly and/or with gross negligence and/or with the intent to defraud among others, 	the applicant and/or for a fraudulent purpose. 

[8] 	Over and above the misrepresentations referred to earlier in this judgment, applicant 	alleges that the first respondent entered into inter alia agreements with the applicant at 	a time when there was no reasonable prospect of honouring any monetary payment, 	that she failed or neglected to initiate business rescue proceedings, rely on the 	provisions of section 129 (7) of the new Act or to initiate liquidation proceedings when 	Caveoplant was under financial distress. As a consequence, the applicant alleges that 	the first respondent, during the business dealings between applicant and Caveoplant:

	(a) 	did not act in good faith and for a proper purpose, and
	(b) 	did not act in the best interest of Caveoplant and
	(c) 	did not act with the degree, skill and diligence that may be reasonably expected.

[9] 	The applicant submits that the conduct set out above constituted the carrying on of the 	business of Caveoplant fraudulently and in contravention of sections 22 and 76 of the 	new Companies Act and that the first respondent was knowingly a party to that 	conduct, that her conduct was fraudulent and in the premise, the first respondent is to 	be held personally liable to the applicant in terms of section 424 of the Companies Act, 	in the alternative, the first respondent is to be held personally liable to the applicant in 	terms of section 218 (2) of the new Companies Act.

[10]	 The applicant alleges that the second respondent also made himself guilty of the same 	conduct, and that in particular as Manager, he did not correct the first respondent when 	she introduced their company but instead brought the applicant under the impression 	that it was doing business with Caveoplant as an established company which had the 	means to pay the bills to the creditors. In addition, the majority of the requests for 	postponement in respect of payment was made by him. It is the applicant’s view that he 	did not at all comply with the provisions of the Companies Act as stipulated alternatively 	he conducted the affairs of Caveoplant in a fraudulent manner and it is prayed that he 	be held personally liable for the debts of Caveoplant.

[11] 	The respondents oppose the application. The first respondent is the deponent of their 	opposing affidavit.

[12] 	Her allegations are that during or about July 2013 she and her husband, second 	respondent, identified a business opportunity to rent out earth moving equipment to 	mines. At the time, they did not own any such equipment and did not have a registered 	company. They envisaged themselves to be an earth moving equipment brokerage, 	hiring equipment and renting same to mines at a marked-up price. 

[13] 	Time being of the essence, and her impression that it took long to register a company, 	together with her husband they approached friends of theirs, the Sitterts, who had a 	dormant company that was not trading, namely Caveoprox. The Sitterts agreed and 	authorized them to use Caveoprox to explore the business opportunity. Upon that 	authorization 	and provision of company particulars and banking details by Mrs Sittert, 	Caveoprox commenced trading.

[14] 	The understanding with the Sitterts was that should the business opportunity prevail, 	she would register a separate company, together with an accompanying VAT number, to 	ensure that she became the director of a profit bearing company. It was not their 	intention, nor did they foresee that their conduct would be construed as unlawful. She 	takes exception to any allegation that their conduct was fraudulent.

[15] 	On 16 July 2014 Caveoprox obtained an order for the rental of earth moving equipment 	from an entity known as EC Mining. The deal was brokered by Jacques of a company 	known as Solefela Earthmoving CC in January 2014. The contact person at EC Mining 	was Vince Lategan, who contacted her on 10 June 2014. The respondents had no control 	over EC Mining.

[16] 	As part of the order EC Mining required two excavators, which Caveoprox leased from 	the applicant. At all relevant times the applicant was aware that Caveoprox acted as a 	broker and that the equipment was to be used by EC Mining. Accordingly Caveoprox 	made out an order to the applicant on 30 July 2014. The applicant was also informed of 	the intention to register. The applicant was also forwarded with EC Mining’s particulars.

[17] 	The applicant delivered the Case 20 Ton Excavator (BR 18) and a Case 20 Ton Excavator 	(BR 03) to the site of EC Mining on 31 July 2014 and 11 August 2014 respectively.

[18] 	Thirty days after the equipment started operating on EC Mining site she would make out 	an invoice to EC Mining which would then become due and payable thirty days after 	delivery. This meant that a period of sixty days would lapse from the date on which 	Caveoprox would be paid and by which time it could pay its suppliers.

[19] 	During the sixty days period she endeavoured to obtain a VAT number for Caveoplant 	which she secured. After obtaining the VAT number, as initially envisaged from day one, 	she sent out a letter to all customers and all suppliers with the new company’s details. 	At all relevant times she was de facto the contact and manager for both companies. The 	intention behind the letter was simply to ensure that payment be made to and from the 	correct entity.

[20] 	At no point was there an intention for her to mislead or defraud any customer or 	supplier. She is not a legally trained professional and did not intend nor foresee that her 	letter to customers and suppliers could be perceived as a misrepresentation or 	fraudulent. As intended, Caveoplant took over the operation of the existing agreements.

[21] 	The applicant had the opportunity to investigate the affairs and had the full choice to 	refuse or at the very least communicate with her in this regard. The applicant elected to 	accept the change. The applicant makes unfounded allegations in retrospect. The 	applicant was fully aware with whom and on what basis it was doing business. The 	applicant had knowledge of the fact that Caveoplant was to be registered and that same 	would take over the lease agreement.

[22] 	The first supplier invoice sent to the applicant on 31 August 2014 was from Caveoplant. 	Applicant replied on 10 September 2014 via e-mail with pro forma invoices made out to 	Caveoplant for August 2014. On 12 September 2014 the applicant requested an invoice 	for the night shift. Caveoplant sent an order on 19 September 2014. On 18 September 	2014, after receiving first payment from EC Mining, Caveoplant paid over an amount to 	applicant. Applicant was aware of the factual position.

[23] 	EC Mining did not pay Caveoplant for the amounts due for the months of September 	and October 2014, in the sums of R884 995-91 and R700 899-47 respectively. This 	caused immediate cash flow constraints on the part of Caveoplant. On 18 November 	2014 Vince Lategan from EC Mining informed her that due to problematic equipment 	breakdowns there would be delays in effecting payments. Without the equipment that 	broke down, known as 2 FEL’s, production was at a minimum.

[24] 	Applicant had knowledge of the problems Caveoplant were having in obtaining 	payment. This is because there was also communication between applicant and EC 	Mining, which caused applicant, in the face of non-payment, to convince her to keep the 	equipment in site and not remove them from Harmony Mine where they were to be 	utilized. Applicant stopped operations on 20 December 2014.

[25] 	When EC Mining effected partial payment to Caveoplant, Caveoplant effected partial 	payment to the applicant. 

[26] 	In January 2015 Caveoplant met with EC Mining where EC Mining assured that 	everything was fine and that they will be effecting payment over a period of eight 	months. EC Mining effected payments in January and February 2015, which Caveoplant 	used to partially pay its suppliers, including the applicant, immediately.

[27] 	Caveoplant ultimately instituted legal proceedings against EC Mining for the recovery of 	the outstanding debt. In the interim, it has been learnt that EC Mining has been 	liquidated. The prospects of recovering any amounts from EC Mining seem remote at 	best. EC Mining was Caveoplant’s biggest client and after this, Caveoplant had no means 	with which to pay its credtors. The view is that Caveoplant has no remedy against the 	liquidation application, which informed the decision that Caveoplant would not oppose 	the liquidation application brought against it.

[28] 	The resolution of the applicant, attached to the applicant’s papers on pages 20 and 21 	and marked annexure “A” to the founding affidavit deposed to by Wiilem Hendrik 	Burger (Burger), does not authorise Burger to institute legal action against 2nd 	respondent in his personal capacity for payment of all monies not recovered from 	Caveoplant in liquidation. It only authorizes him to take such actions and measures for 	the first respondent in her personal capacity. On that point of departure, applicant’s 	motion against second respondent must fail.

[29] 	The respondents deny an intention to defraud, and to that end they allege that the 	applicant had background knowledge of and was aware of the relationship between 	themselves and Caveoprox, and that it was intended that Caveoplant would be 	established and take over from Caveoprox. The case of the respondents is that at the 	time, when he was made aware of the intention to register a new company, he did not 	have a problem.

[30]	 To take this aspect further, the applicant was served with the particulars of the new 	entity, Caveoplant, per letter, and advised to make invoices into the new names and 	VAT number. The respondent’s case is that even at that stage, the applicant did not 	have any problems with the arrangement that was then in place. In furtherance of 	associating itself with the change of entity with whom it did business, it changed its 	billing documents accordingly. The Applicant itself took active steps to ensure that 	Caveoplant and not Caveoprox were being billed correctly.

[31] 	The case of the respondent is that the applicant, if it was not party to the then 	arrangement, could have easily investigated the affairs and even chosen to refuse to do 	business with an entity unknown to it, or at most sought a meeting to discuss the 	change. The applicant however accepted the change, which it knew was coming. The 	case of the respondent is that the applicant is making these unfounded allegations in 	retrospect, in other words, portraying a situation which looks good now as it is flavoured 	with the benefit of hindsight, but which does not reflect what the true position then. 

[32] 	The respondent’s case is further that the applicant was aware that Caveoplant was a 	broker, who had EC Mining as a main client. It was also aware that its earth moving 	equipment was being used by EC Mining at Harmony Mine, where it delivered the 	machinery. It was also aware of the route of payment, in that Caveoplant could only bill 	after the machinery had been working for 30 days on site, and that EC Mining would 	then have 30 days to pay that bill. In other words, a supplier in the applicant’s 	position could only be paid by Caveoplant after 60 days.

[33] 	This knowledge was confirmed by the fact that when EC Mining started experiencing 	financial problems around September 2014 when the machinery in use experienced 	breakdowns, Caveoplant could not pay applicant as was to be. Applicant itself directly 	communicated with EC Mining around payment. Applicant was aware that Caveoplant 	could not pay them as a supplier because Caveoplant was not being paid by EC Mining, 	which could not produce because of breakdowns. The case of respondents is that the 	failure of EC Mining to remain in business had a ripple effect. It could not pay 	Caveoplant, which in turn could not pay applicant. If that be the case, the failure of 	Caveoplant to pay its creditors, including applicant, cannot be attributed to 	recklessness, negligence or any fraud on the part of Caveoplant or the respondents.

[34] 	The issue is whether the respondents contravened the provisions of section 22(1) and 	76 (3) of the Companies Act, and if so, whether, in terms of section 218, the 	respondents are liable to the applicant for the loss suffered as a result of that 	contravention. 

[35] 	In Howard v Herrigel and Another NNO 1991 (2) SA 660 (AD) at 664H -665B Goldstane JA 	said the following:

“The correct approach in a case such as the present was laid down by this Court in Tamarillo (Pty) Ltd v B N Aitken (Pty) Ltd 1982 (1) SA 398 (A) at 430G-431A. Miller JA said this:
‘A litigant is entitled to seek relief by way of notice of motion. If he has reason to believe that facts essential to the success of his claim will probably be disputed he chooses that procedural form at his peril, for the Court in the exercise of its discretion might decide neither to refer the matter for trial nor to direct that oral evidence on the disputed facts be placed before it, but to dismiss the application. (Room Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd 1949 (3) SA 1155 (T) at 1168.) But if, notwithstanding that there are facts in dispute on the papers before it, the Court is satisfied that on the facts stated by the respondent, together with the admitted facts in the applicant’s affidavits, the applicant is entitled to relief (whether in respect of all his claims or one of them) it will make an order giving effect to such finding, with an appropriate order as to costs. (Cf Stellenbosch Farmer’s Winery Ltd v Stellenvale Winery (Pty) Ltd 1957 (4) SA 342 (C) at 235; Burnkloof Caterers (Pty) Ltd v Horseshoe Caterers (Green Point) (Pty) Ltd 1976 (2) SA 930 (A) at 938.) The court does not exercise a discretion in motion proceedings whether or not to grant claims established by the admitted or undisputed  facts; except perhaps in very extraordinary circumstances the applicant has a right to an order in respect of such established claims. (Rooms Hire case at 1166.)”

[36] 	Section 218(2) which provides as follows:

“218  Civil actions
…
(2) Any person who contravenes any provision of this Act is liable to any other person for any loss or damage suffered by that person as a result of that contravention.”

[37] 	Section 22(1) provides as follows:

“22. Reckless trading prohibited. – (1) A company must not carry on its business recklessly, with gross negligence, with intent to defraud any person or for any fraudulent purpose.”

[38] 	Section 76(3) provides as follows:

“76. Standards of directors conduct. – … (3) Subject to subsections (4) and (5), a director of a company, when acting in that capacity, must exercise the powers and perform the functions of director –
(a)	In good faith and for a proper purpose;
(b)	In the best interests of the company; and
(c)	With the degree of care, skill and diligence that may reasonably be expected of a person –
		(i)  Carrying out the same functions in relation to the company as those 			      carried out by that director; and
		(ii) Having the general knowledge, skill and experience of that director.”

[39]	 In determining whether the respondents can be said to be reckless or grossly negligent, 	we have to establish what that means in our law. In S v Dhlamini 1988 (2) SA 302 (AD) at 	308D-E Steyn JA said:

“Gross negligence, in our law, both criminal and civil, connotes a particular attitude or state of mind characterized by an entire failure to give consideration to the consequences of one’s actions, in other words, an attitude of reckless disregard of such consequences. See eg Rosenthal v Marks 1944 TPD 172 at 180; S v Smith an Andere 1973 (3) SA 217 (T) at 218D-F and Bickle v Joint Ministers of Law and Order 1980 (2) SA 764 (R) at 770D-E.” 

[40]	 Henochsberg on the Companies Act, 71 of 2008, in his discussion of recklessness, 	comments as follows:

“It is submitted, carrying on any business of the company recklessly means carrying it on by conduct which evinces a lack of any genuine concern for its prosperity.”

	Following Brand AJA as he then was, in L & P Plant Hire BK en andere v Bosch en Andere 	2002 (2) SA 662 (SCA) at 678A-B at paragraph 40, when it comes to creditors, the 	interpretation of the provisions must be limited to apply to reckless or gross negligent 	conduct of business which have an adverse effect on the creditors’ claims against the 	company.

[41] 	The respondents have demonstrated a lack of skill, and may have been out of place and 	chose an inappropriate route for the purpose of commencing their business operations. 	However, that lack of aptitude or their ineptitude, in my view, cannot be said to have 	amounted to using the business to incur obligations recklessly grossly negligent, as 	interpreted in our law. In my understanding, to carry on business recklessly or grossly 	negligent is to carry on business by conduct which evinces a lack of any genuine concern 	for its prosperity, which conduct has an adverse effect on the creditors’ claims against 	the company.

[42] 	As regards fraud, in R v Latib 1973 (3) AD 982 at 984G-985B Steyn JA said:

“In a transaction on credit, the representation as to ability to pay is a representation by the purchaser of a present that he will be able to pay when payment falls due, rather than a representation as to what his financial condition will in fact be at a future date, if his belief is genuine, even though somewhat optimistic, the representation is not false, whatever his financial position may turn out to be at the due date. His ability to pay at the time of purchase and his prospects in relation to the date of payment, would, of course, be relevant to show whether or not he did in fact entertain such a belief, but what is placed in issue is a state of mind rather than a financial condition. The same applies in a cash transaction. The instant ability to pay may there be of decisive importance, but even in such a transaction a buyer whose money has been stolen or who has inadvertently overdrawn his account at his bank, may unexpectedly find himself quite unable to pay for a purchase already concluded. That the representation here in question is primarily a representation as to the state of mind of the accused, appears from Rex v Persotam supra. In that case it was contended, upon an indictment in terms similar to this charge, inter alia that it did not allege a representation of present intention. In that connection Stratford, J.A., observed:

‘The representation alleged is that the accused was ‘able and willing to pay’ on the day and place stipulated. In my judgment a representation of this kind can only mean ‘I am bona fide in making this bargain, I intend to implement it’. The representation is the exact antithesis of saying ‘I am mala fide – I have no intention of paying you’. I agree with the learned Judge, therefore, when he says that the allegation in the indictment ‘at least involves a representation that the purchaser intends to meet the draft on presentation’ … The truth is that there is always an implied representation of good faith by the purchaser of the goods on credit.”…

[43] 	It cannot be said, on the facts, that from inception the respondents were involved with a 	fraudulent scheme with a bogus company. Neither can it be said that from inception 	they had no intention that payment for the services ordered and received through 	them, to which applicant’s claim relate, was ever to be made. In my view, it cannot be 	said that they were both unable, unwilling and did not intend to pay, when they 	concluded their agreements with the creditors, including the applicant. It follows that I 	am unable to find that the respondents conducted their business for a fraudulent 	purpose. There was never an indication, when they incurred credit, that the business 	will never be able to satisfy the claims of its creditors. The respondents genuinely 	believed in the success and prosperity of their business. 

[44] 	The respondents in their papers indicate that applicant became aware of their non-	payment by EC Mining, which applicant acknowledges. Most importantly, they allege 	that when they asked the applicant to remove its machinery from site, the applicant 	convinced them not to remove the machinery from site despite non-payment, and 	indicated utilization thereof irrespective of the lack of payment. All that the applicant 	says, in answer hereto, is that EC Mining was not a party to the applicant’s agreement 	with Caveoplant. This in my view, indicates how cold aloof and unjustifiably removed 	from the reality applicant is.

[45] 	Furthermore, respondents indicate that they continued engagement with EC Mining, 	resulting in partial payments in December 2014, January 2015 and February 2015, and 	that consequently applicant received partial payments in those months. More 	importantly, is the allegation that EC Mining gave a glimmer of hope that everything will 	be fine and that the arrear payment will be worked in the payments of the following 	eight months. Applicant’s response thereto is simply that it never agreed that payment 	to it would be delayed if EC Mining did not pay. This is against the background that 	Caveoplant was a broker, with a six month turn-around payment to applicant from date 	of service. The Applicant confirms its knowledge that between March 2015 and May 	2015, respondents took legal action against EC Mining, which initially denied 	indebtedness and was later liquidated.

[46] 	Against this background, I am unable to find that the respondents contravened section 	76 (3) of the Companies Act.

[47] 	In my view, to succeed on the basis of section 218(2), it must not only be shown that a 	person contravened any provisions of the Act, and that another person suffered 	damage. It must also be shown that such damage suffered was as a result of that 	contravention. In other words, there must be proof of a causal link or connection 	between the contravention of the Companies Act, and the debts or liabilities for which 	the person may be held liable. 

[48] 	The section, in my view is not some backdoor for businessmen and women, through 	which to seek to use as an escape route and derive an unfair advantage of getting others 	to personally carry the cost of their business risk, which risk they must naturally and 	ordinarily carry under the circumstances caused by the loss of money or some interest 	as a result of external business pressures. In my view, what is envisaged in the section, is 	any contravention, whether it amounts to an offence or not, which has an adverse 	effect on the creditors’ claims.

[49] 	From the facts as set out in the papers before me, in my view, the real and proximate 	cause of the inability of Caveoplant to pay its creditors which include the applicant, is 	the financial difficulties experienced by EC Mining. In my view, the failure of Caveoplant 	was as a result of external forces, and not internal forces and more specifically it was 	not as a result of the conduct of the respondents. There is nothing to indicate that the 	respondents were not attentive to the affairs of Caveoplant.

	For these reasons I make the following order:

		The application is dismissed with costs.

                        

DM THULARE
ACTING JUDGE OF THE HIGH COURT

Date of Hearing:			11 May 2016
Counsel for the Applicant:		Adv DA de Kock
Attorney for the Applicant:		Langenhoven Pistorius & Partners
Counsel for the Respondents:		Adv SJ van Rensburg
Attorney for the Respondents:	Danie Potgieter Attorneys
Judgment delivered on:		19 May 2016