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REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

 

(1)    REPORTABLE: YES/NO

(2)    OF INTEREST TO OTHER JUDGES : YES/NO

(3)    REVISED: YES/NO

CASE NO: 45341/19

22/7/2019

 

In the matter between:

 

JOHANNES MARTINUS DANIEL DAFFUE                                   APPLICANT

 

and

 

JOHAN ESPACH                                                                                 FIRST RESPONDENT

CROCODILE COTTAGE PROPERTIES (PTY) LTD                   SECOND RESPONDENT

(In liquidation)

CROCODILE RIVER HOUSE (PTY) LTD                                     THIRD RESPONDENT

(In liquidation)

JOHANNES ZACHARIAS HUMMAN MULLER N.O.                FOURTH RESPONDENT

ANA PAULA DE OLVEIRA N.O.                                                      FIFTH RESPONDENT

COMPANIES & INTELLECTUAL PROPERTY                           SIXTH RESPONDENT

COMMISSION

ABSA BANK LIMITED                                                                     SEVENTH RESPONDENT

JUDGMENT

 

VAN DER SCHYFF, AJ

Introduction

 

[1]        The applicant in this matter approached the urgent court seeking an order that the second and third respondents, both solvent companies that are under final liquidation in which he holds a 50% shareholding, be placed under business rescue, alternatively that the order by which the companies were placed in liquidation is set aside on the ground that it was obtained in his absence, further alternatively for an interim order which would enable the companies to trade pending the subsequent hearing of the business rescue and/or rescission application.

[2]        The first respondent, the only respondent who opposes the application, was afforded seven days to file his answering affidavit before the matter was enrolled. The first respondent argued that the matter was not urgent.

[3]        Due to the fact that urgency is determined on a case-by-case basis I requested counsel to argue both the urgency and merits of the application.

 

The facts

[4]       Despite the fact that the documents filed in this application amount to approximately 720 pages, the facts underpinning the application are quite simple. It can essentially be summarised as follows: two solvent companies with the same two shareholders were liquidated in an application brought in terms of s 81 of the Companies Act, No 71 of 2008. One shareholder now wishes to prevent the dissolution of the companies and preserve them as a going business concern, while the other shareholder could not care less for the economic value of the companies but just wants to realise his shareholding and shake the proverbial dust off his feet.

[5]       A more detailed exposition of the facts, is as follows:

5.1.       The applicant and the first respondent started a business enterprise around 1997. They founded two companies. The one company acquired an immovable property while the other company leased this property and conducted the trading business.

5.2.       They were the only shareholders and both were managing directors. The business was operated akin to a partnership and based on mutual trust.

5.3.       However, the relationship between the companies' two shareholders-cum­ managing directors deteriorated in the face of mutual disillusionment, internal wrangling and distrust.

5.4.       The applicant and first respondent found it impossible to work together and were frequently at loggerheads. To their credit, however, they succeeded in concluding a management agreement in 2016 which inter alia that provided for:

5.4.1.        the first respondent's resignation as a joint managing director and employee of the third respondent;

5.4.2.        a dividend pre-payment of R20 000,00 , or pro rata share thereof, to be made on a monthly basis to the first respondent

5.4.3.        the appointment of an independent manager.

5.5.      At this stage, the acrimony between the applicant and first respondent did not paralyze and seriously interfere with the normal operations of the companies after the agreement was concluded.

5.6.      The first respondent left the property as agreed and for a period of approximately 13 months, he received on a monthly basis the R20 000,00 dividend pre-payment as provided for in the agreement.

5.7.      From February 2018 there was an interruption in the continuum of monthly dividend prepayments. Thereafter sporadic payments were made to the first respondent. The applicant's explanation is that the trading company went through a difficult period that is often experienced during the first six months of the year, but as business picked up it was possible to make payments again, hence the payments commenced again in the second half of the year.

5.8.      The first respondent, convinced that the applicant was intent on causing him financial harm and dishonouring the agreement, instituted liquidation proceedings in the High Court and premised the liquidation application on the dual bases that (i) he is a creditor of the companies because he did not receive all the dividend prepayments he was entitled to, and (ii) a deadlock exists which can only be resolved through liquidation.

5.9.       Both the second and third respondent companies were finally wound up on 10 April 2019, despite both being solvent companies. The final winding-up orders were granted in the absence of the applicant. Despite him being represented by an attorney, the applicant contends that he was not aware of the date on which the final liquidation applications were set down.

5.10.    The applicant contends that he became aware that the companies were finally liquidated on 20 May 2019. He attempted to negotiate with the provisional liquidators to allow the companies to trade whilst in liquidation. The provisional liquidators were prepared to agree but subject to the consent of both shareholders. The first respondent refused to consent to the continued trading. It is evident from the first respondent's approach that he has no interest in trading through the second and fourth respondents as prospering companies. He, as I have mentioned, desires the dissolving of the companies and liquidating is 50% shareholding thereby severing ties with the applicant for good.

5.11.    On 28 June 2019 the applicant delivered the notice of motion and founding affidavit to the first respondent's legal representative. The application was also delivered by e-mail to the fourth and fifth respondents on 28 June 2019 and by Sheriff on 1 July 2019. Service on the sixth respondent was effected by e-mail on an undisclosed date and by Sheriff on 3 July 2019. Service on the seventh respondent was done by e-mail on 28 June 2019. Service on the South African Revenue Service and the Master of the High Court was effected by e-mail on 14 and 15 July 2019 and by hand on 16 July.

5.12.    The matter was enrolled for hearing in the urgent court on 16 July 2019 and was argued on 17 July 2019.

5.13.    By this time the relationship between the parties has deteriorated to the extent that they completely distrust each other - a fact evinced by the tone in which the affidavits filed in this application were drafted and the content of the affidavits.

Urgency

[6]        The applicant contends that the matter is urgent. He states that the fact that the trading company had to cease trading due to the final liquidation order having been granted and the respondent's subsequent refusal to allow the company to trade, create the risk of a solvent company becoming insolvent and this in itself creates a sense of urgency. In addition counsel argued that there is sufficient case law substantiating the argument that business rescue proceedings, by their very nature, should be conducted with the optimum possible expedition (DH Brothers Industries v Gribnitz and Others 2014 (1) SA 103 (KZP) par [27]; Koen v Wedgwood Village Golf Laundry Estate 2012 (2) SA 378 0.NCC) ; Knipe v Kameelhoek (Pty) Ltd and Others (2120/2016) [2017] ZAFSCH 116 (22 June 2017)).

[7]        The applicant states that it is common cause that the trading company was under financial strain from February 2019.

[8]        This begs the question as to why the application for business rescue was only instituted at the end of June 2019. Business rescue proceedings undoubtedly should be conducted with the optimal possible expedition, but this does not entitle an applicant to act leisurely from February 2019 and then at a whim to approach the court on an urgent basis in June 2019, without tendering a sufficient explanation.

[9]        As far as the rescission application is concerned, it is accepted that the applicant became aware of the final liquidation order on 20 May 2019. Despite this he only served the application for rescission on 28 June 2019.

[10]     The applicant provides an explanation for the failure of filing of an opposing affidavit in the liquidation application, but for the reasons set out below I do not deem it necessary to deal with it in detail. The applicant does not, however, set out a valid reason for only filing the application for rescission 28 court days after becoming aware of the existence of the liquidation order. The question falls to be determined whether this (28 court days) is a time period which would be considered reasonable in the circumstances of this case. In Gisman Mining and Engineering Co (Pty) Ltd (In Liquidation) v LTA Earthworks (Pty) Ltd 1977 (4) SA 25 (W) at 27-28, McEwan J held that where no time period is stated within which a document is to be filed, guidance might be obtained from a rule regulating a similar situation. Prima facie a reasonable time would "certainly be no longer than the time prescribed" in a similar rule, "unless there were some special circumstances applying". The 20 day period provided for in rule 31(2)(b) of the Uniform Rules of Court is of relevance as well as the court's reasoning in Nkata v First Rand Bank Ltd and Others 2014 (2) SA 412 (WCC) para 26 and 27, where the court held that there is no reason why a litigant should have more time when seeking rescission in terms of the common law than under rule 31(2)(b). I accept that time periods prescribed in rule 31(2)(b) cannot be prescriptive but it provides guidance in the determination of a "reasonable time".

[11]      The applicant explains that the urgency of the application arose when he became aware of the fact that the liquidators would not guarantee that he would be refunded for carrying the operational costs of the companies from his own pocket, and again when the first respondent refused consent to the provisional liquidators to trade.

[12]      This does not explain why the application for rescission was not filed as soon as possible after the applicant became aware of the existence of the liquidation order. When a rescission application is considered on the normal motion court roll, a court may well be convinced that 28 court days do not constitute an undue delay in the circumstances, considering that rule 31(2)(b) does not apply. However, when the court is approached on an urgent basis to rescind an order that the applicant has been aware of for 28 court days prior to the application being served on a respondent, the delay needs to be explained in sufficient detail to satisfy the court that urgency exists.

[13]      In addition it is trite that a final liquidation order has the effect of putting an end to business operations with the resultant liquidation of assets and distribution to creditors in order of ranking. A liquidation order divests the management or directors of the control of the liquidated entity and vests same in the hands of the Master until a liquidator has been appointed. The liquidators are limited to the powers they are endowed with. Mr van der Westhuizen, acting on behalf of the liquidators, confirms in an affidavit dated 12 July 2019, that the provisional liquidators have not been given express powers, either by the Master or the Court to continue trading activities. Significantly, no application has been made to extend the liquidators' powers to enable them to carry on any part of the business of the company.

[14]       For all the above reasons I am of the view that such urgency as may exist, was self-created.

[15]       I must add that, as far as the application for the rescission of the liquidation order and the interim relief sought are concerned, it is fatal that the application was only served on the Master by email, one court day preceding the date on which the application was enrolled to be heard. The Master has a direct and substantial interest in this application and will not be competent for the court to set aside the final liquidation order under circumstances where the Master of the High court has not been given adequate notice (GCC Engineering (Pty) Ltd and Others v Maroos and Others 2019 (2) 379 (SCA)). The applicant sought to overcome this difficulty in submitting that a rule nisi would afford the Master sufficient time to respond. I do not agree. A rule nisi brings about a change in the status quo, which without having affording a party with a substantial interest the opportunity to take part in the court proceedings, would have been inappropriate..

 

Order

In the result the following order is made:

1.            The application is struck from the roll.

2.            The applicant is to pay the costs of the application.

 

 

 

E VAN DER SCHYFF

ACTING JUDGE OF THE HIGH COURT

 

 

 

Counsel for applicant                 Adv M Louw

Instructed by                               JF van Deventer Inc

Counsel for 1^st respondent         Adv MP van der Merwe SC

Instructed by                              Weavind & Weavind

Date of hearing                          17 July 2019

Date of judgment:                      22 July 2019

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