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REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA (WESTERN CAPE HIGH COURT, CAPE TOWN)

CASE NO: 14432/08

In the matter between:

FADEL HENDRICKS N.O. First Applicant

IQBAL SURVe N.O. Second Applicant

JOHANNES HENDRIKUS DE LOOR N.O. Third Applicant

GATSHA MAZITHULELA N.O. Fourth Applicant

NEIL STOCKINSTROM GARDINER N.O. Fifth Applicant

NIGEL GWYNNE-EVANS N.O. Sixth Applicant

SUSAN THERESE LARGIER HARRISON N.O. Seventh Applicant

(In their capacities as trustees of the Cape Biotech Trust,

Trust No. T2102/2003)

and

CAPE KINGDOM (PTY) LTD Respondent

(Registration No. 2006/016604/07)

JUDGMENT DELIVERED ON 7 DECEMBER 2009

SHOLTO-DOUGLAS, AJ

[1] This is the extended return day of a provisional order for the winding-up of the respondent, granted on 4 November 2008. The principal issue dealt with relates to the interpretation of and compliance with s 346(4A) and s 346A of the Companies Act 61 of 1973 ("the Act").

The legislation

[2] The Act was amended with effect from 1 January 2003 by the Insolvency Second Amendment Act 69 of 2002. The preamble to the latter Act reads as follows:

"To amend the Insolvency Act, 1936, so as to require notice of a petition for the sequestration of a debtor's estate to be given to employees of the debtor, registered trade unions representing such employees, the South African Revenue Service and the debtor; to provide for the service of sequestration orders on such employees, trade unions and the South African Revenue Service; to make further provision regarding a debtor's rights to compensation; and so as to effect certain textual corrections; to amend the Companies Act, 1973, so as to require notice of an application for the winding-up of a company to be given to employees of the company, registered trade unions representing such employees, the South African Revenue Service and the company; to provide for the service of winding-up orders on such employees, trade unions, the South African Revenue Service and the company; to make provision regarding a company's rights to compensation; and to provide for matters incidental thereto."

[3] The amendments effected to the Act as are relevant to this application were the introduction of s 346(4A) and s 346A.

[4] Section 346(4A) reads as follows:

"(a) When an application is presented to the court in terms of this section, the applicant must furnish a copy of the application -

(i) to every registered trade union that, as far as the applicant can reasonably ascertain, represents any of the employees of the company; and

(ii) to the employees themselves -

(aa) by affixing a copy of the application to any notice board to which the applicant and the employees have access inside the premises of the company; or

(bb) if there is no access to the premises by the applicant and the employees, by affixing a copy of the application to the front gate of the premises, where applicable, failing which to the front door of the premises from which the company conducted any business at the time of the application;

(iii) to the South African Revenue Service; and

(iv) to the company, unless the application is made by the company, or the court, at its discretion, dispenses with the furnishing of a copy where the court is satisfied that it would be in the interests of the company or of the creditors to dispense with it.

(b) The applicant must, before or during the hearing, file an affidavit by the person who furnished a copy of the application which sets out the manner in which paragraph (a) was complied with."

[5] Section 346A reads as follows:

"(1) A copy of the winding-up order must be served on -

(a) every trade union referred to in subsection (2);

(b) the employees of the company by affixing a copy of the application to any notice board to which the employees have access inside the debtor's premises, or if there is no access to the premises by the employees, by affixing a copy to the front gate, where applicable, failing which to the front door of the premises from which the debtor conducted any business at the time of the presentation of the application;

(c) the South African Revenue Service; and

(d) the company, unless the application was made by the company.

(2) For the purposes of serving the winding-up order in terms of subsection (1), the sheriff must establish whether the employees of the company are represented by a registered trade union and determine whether there is a notice board inside the premises of the company to which the employees have access."

The facts

[6] Until 2008 the respondent carried on business as a producer, supplier and distributor of nutraceuticals, principally based on buchu, a small flowering shrub native to South Africa. It did so from its principal place of business in Westlake and a factory or bottling plant on a farm near Paarl.

[7] During the course of 2007 the respondent applied to the applicants, as trustees of the Cape Biotech Trust ("the trust"), a trust founded by the Department of Science & Technology as part of its strategy to facilitate and invest in the biotech economy, for funding for its operations. As a result, the trust having considered and approved the application, it made available a sum of approximately R10 million to the respondent on terms that entitled it to take shares in the respondent and appoint a director to its board. The loan was governed by the provisions of a shareholders' agreement in terms of which the respondent submitted a project plan and cash flow proposal to the trust to receive funding for the proposed project.

[8] At all material times one Mr. Stander ("Stander") was the managing director (or chief executive officer) of the respondent. The majority shareholder of the respondent was a trust wholly controlled by Stander. Until August 2008, four other persons held directorships in the respondent.

[9] From about April 2008 the respondent began to experience cash flow difficulties, a fact which was reflected in the draft financial statements prepared for the 16-month period ending 31 December 2007 and produced toward the middle of 2008.

[10] As a result of these and other concerns, the trust requested that a financial audit of the respondent be undertaken. Stander saw this as an attempt to "dig up dirt" on him. Nonetheless, he claims that he co-operated with the audit, which, whether correctly described as "limited" (by the trust) or "the fullest possible" (by Stander), yielded information which troubled the trust. By 22 August 2008, when a meeting of the directors of the respondent was held, they expressed concern about the result of the audit and, in particular, Stander's allegedly irregular expenditure of company funds.

[11] Stander's reaction, on 27 August 2008, was forthwith to terminate the employment of the respondent's chief financial officer, to terminate the appointment of the auditors and to suspend and thereafter dismiss two employees of the respondent who had raised financial irregularities and cash flow difficulties with Stander.

[12] These events were followed by the resignation of the non-executive directors of the respondent, leaving only Stander and the trust's representative on the board as directors. To obviate this inconvenience, Stander appointed a wage-earning labourer employed by the respondent as a fellow director. Stander and his new fellow director were able to procure the payment of funds lent by the trust to the respondent from an account held at Investec Bank.

The winding-up application

[13] This application for the winding-up of the respondent was launched on 5 September 2008.

[14] Prior to the hearing of the application for a provisional order of liquidation, a candidate attorney in the employ of the trust's attorneys attempted to serve a copy of the liquidation application at the respondent's principal place of business. This occurred over the lunch hour and she found the principal place of business locked and unoccupied. (Stander has made something of the fact that the attempt at service occurred over the lunch hour. He alleged that the premises were in fact occupied, but that the occupants had left the office for the duration of the lunch adjournment. Although nothing of substance turns on this dispute, it is significant that Stander makes no effort to identify who would have been present at the premises prior to and after the lunch adjournment on the day in question, or to furnish an affidavit by that person confirming the allegations. On the face of it, no one other than Stander was likely to have been found at the Westlake premises).

[15] Subsequently, another candidate attorney in the employ of the applicants' attorneys personally served a copy of the liquidation papers on two of the three employees referred to in the founding affidavit. An attorney subsequently served a copy of the application on the third employee. It is not insignificant that two of those employees subsequently deposed to affidavits in support of the trust's application to wind up the respondent.

[16] The respondent filed the answering affidavit of Stander after these service affidavits had been filed. Stander, deposed to a lengthy answering affidavit in which all manner of points were taken in an effort to defeat the trust's application. The trust's claim to be a creditor of the respondent was disputed, as was the trust's contention that the winding-up of the respondent would be just and equitable. The basis of the opposition now advanced by Stander, namely that s 346(4A)(a)(ii) of the Act had not been complied with, was not raised.

[17] In the event, a provisional order of winding-up was made. This did not end Stander's involvement in the matter. Without applying to be joined as a party to the proceedings, he opposed a separate application brought by the provisional liquidators for an extension of the powers given to them by the Master ("the liquidators' application"). In that application he raised the contention that the provisional order had been improperly or incorrectly granted because there had been inadequate or improper service on the employees as required by s 346(4A)(a)(ii) of the Act. Notwithstanding this, the relief sought by the provisional liquidators was granted. I shall return briefly below to deal with that aspect of the judgment of the court dealing with the allegation of improper or incomplete service.

[18] Thereafter, and without seeking to be joined as a party to the winding-up proceedings, Stander filed further lengthy affidavits.

[19] At the hearing of the application for the provisional winding-up of the respondent, the position was that there had been no compliance with the provisions of the subsection, read literally, in that no copy of the application had been affixed to any notice board to which the applicant and the employees had access inside the premises of the company, nor had a copy of the application been affixed to the front gate of the premises, or to the front door of the premises from which the company conducted any business at the time of the application.

[20] What had occurred was that personal service of the application had been effected on three named employees of the respondent concerning whom the deponent to the founding affidavit had stated:

"I am aware that the Respondent has 3 employees (excluding Stander) none of whom are currently working at the Respondent's principal place of business."

[21] In his opposing affidavit, Stander did not deal with the two important components of this statement, namely, that the respondent had three employees and that none of them were then to be found at the respondent's principal place of business.

[22] For the reasons set out above, any attempt at compliance with s 346(4A)(a)(ii) of the Act in the precise terms set out in that section would have been futile if its aim was to bring to the attention of those employees the existence and contents of the application.

[23] The provisional order was served by the Sheriff, who furnished his return in which he stated that service had been effected in compliance with s 346A of the Act (i.e., on the employees, by doing so upon Stander at the address indicated in the order). He added the comment that Stander had confirmed that there were no employees at the given address. Stander did not say to the sheriff that there were, however, employees elsewhere. In addition, a copy of the order was sent to each of the said employees by registered post.

[24] On 4 November 2009, shortly before the hearing of this application, Stander, again purporting to represent the respondent, filed a notice of intention to take a point in limine at the hearing of the matter which was accompanied by an affidavit deposed to by Stander. In it the allegation of defective service was squarely taken. Stander alleged that at 5 September 2008 the respondent had 12 employees. Three of those worked at the respondent's principal place of business and were those suspended on 27 August 2008. Three more were non-executive directors. Stander counted himself as an employee and listed four further employees employed at the farm near Paarl in addition to a Ms Perkins, who did not work at the principal place of the respondent's business. The trust was clearly unaware of her appointment as an employee, which is said probably to have taken place in the early part of September 2008, at about the time that this application was launched. The statement is made in such obviously vague terms as to the date of Ms Perkins' employment as to give rise to the inference that Stander would prefer that the court was kept in the dark in this regard.

[25] It is clear also that in addition to the service of the provisional order having been effected by the Sheriff as described above, a candidate attorney in the employ of the trust's attorneys served a copy of the application papers on one of the claimed employees of the respondent (co-incidentally the one appointed by Stander as a director) at the Paarl farm. As to the other three employees alleged to be working there, one was no longer employed at the farm, another had gone home for the day and the third was in hospital. The papers were left with the only employee present on the farm. A copy of the papers was also served on Ms Perkins.

Discussion

[26] At the hearing before me, Stander was represented by counsel. The matter was argued as if Stander was entitled to be represented at the proceedings and to advance such arguments as were advanced on his behalf. I will accept that this is so, without deciding as much.

[27] In the heads of argument, filed purportedly on behalf of the respondent, but really on behalf of Stander, the argument was restricted to the contention that there had been non-compliance with the provisions of s 346(4A)(a)(ii) of the Act. (Although reference is made in the heads to non-compliance with s 346(4A)(b) of the Act, affidavits were filed, which, if there was compliance with s 346(4A)(a)(ii), would constitute compliance with s 346(4A)(b). The argument was not taken further in oral submissions). During argument, however, Mr Burger, who appeared with Mr Farlam for Stander, raised what he referred to as a "new point". He extended the objection to the nature of service effected on the employees prior to the grant of the provisional order of winding-up to an objection that the provisional order had not been properly served in terms of s 346A of the Act.

[28] While making no concession in regard to whether or not the trust had made out a proper case for the winding-up of the respondent on the basis that it was unable to pay its debts or that it was just and equitable to do so, Mr Burger made no submissions in that regard at all and left the matter in the hands of the court. While this did not amount to an outright concession of the merits of the applicants' claim, the opposition was pertinently restricted to the service point. In my view, that was the correct approach to take. On a proper consideration of the papers it is clear that on the appropriate test, the trust has established the grounds for the winding-up of the respondent on which it relied in the founding affidavit. It is, to be fair, correct that the evidence in the founding affidavit was bolstered to some considerable extent by facts contained in affidavits filed after the granting of the order of provisional liquidation. However, those affidavits have been fully dealt with by Stander and there was no suggestion before me that either party had been prejudiced by the rather free and easy approach to the filing of the affidavits adopted in this matter.

[29] In the circumstances, the only issues to be decided in this application are the following:

[29.1] should the provisional order of liquidation be set aside because it was granted when there had not been proper compliance with the provisions of s 346(4A)(a)(ii) of the Act; and/or

[29.2] should the granting of a final order of liquidation be refused, postponed or otherwise dealt with because there has not been proper compliance with s 346A of the Act?

[30] Mr Burger's submission is that the provisional order should not have been granted because s 346(4A)(a)(ii) of the Act had not been complied with according to its terms. He submitted that an applicant is not enjoined by the language of the statute to launch an enquiry into the existence of employees and then to effect personal service on them; it is required simply to follow the method of notification set out in the section, irrespective of whether or not that serves the purpose of the section as articulated in the preamble to the amending legislation.

[31] It seems plain that the provisions of s 346(4A)(a)(ii) of the Act are peremptory in nature. This is the view to which Davis, J came in his judgment in the liquidators' application. He summarised his view, expressed in paragraph [29] of the judgment, as follows:

"To sum up, a court cannot condone non-compliance with the requirement that a copy of the application must be furnished on the parties which are specified in s 346(4A). I do not consider that the inherent jurisdiction would extend the power of the court."

This view is in accordance with that of Blieden, J who reached the similar conclusion in Roberts v The Taylor of Buckingham CC (Unreported judgment in WLD, Case No. 21864/2008, handed down on 28 November 2008).

[32] In Standard Bank of SA Ltd v Sewpersadh and Another 2005 (4) SA 148 (C), the court, in dealing with the essentially identical corresponding section in the Insolvency Act, held as follows at 156B-D:

"It is clear from the above that the legislature used the word 'must' and did not use the word 'may'. The furnishing of copies of the application to the Commissioner for Inland Revenue, the employees and trade unions was therefore made peremptory (obligatory) and not permissive. (See Berman v Cape Society of Accountants 1928 (2) PHM47 (C).) The word 'must' was also used by the legislature in defining the obligation of the petitioner as far as proof of service is concerned. The applicant was left with no option of filing an affidavit. It was necessary to do so."

[33] The trust did not contend that the provisions of s 346(4A)(a)(ii) or s 346A of the Act were anything other than peremptory. Rather, what was contended by Mr Fitzgerald, who appeared with Mr Butler for the trust, was that in the circumstances of this case, where the very employees whom the legislature intended should be given notice of a winding-up application would not be notified thereof by literal compliance with the section, and they were personally served with copies of the papers, s 346(4A)(a)(ii) of the Act was complied with.

[34] By the time the matter came before me, service of the papers had been effected on all the employees identified by Stander, save for the non-executive directors. Most of those received personal service and the service on the others was likely to have the desired effect of alerting them to the proceedings (of which they were no doubt already acutely aware).

[35] The argument was that there had in the circumstances been substantial compliance with the section. I was referred in this regard to the following passage from the judgment of Davis, J in the liquidators' application:

"[28] But the answer may well lie, not so much in the inherent jurisdiction of the court to condone non-compliance, as in the nature of the concept of compliance itself. In this connection L C Steyn: Die Uitleg van Wette (5de uitgawe) at 201, in dealing with the question of compliance, says the following:

"Somtyds egter word ook in hierdie verband slegs sogenaamde 'wesenlike' nakoming vereis, maar dit word oorwegend gegee dat die korrekte standpunt gestel is in Maharaj and Others v Rampersand 1964(4) SA 638 (A) at 646 C-D, waar verklaar word...

The enquiry I suggest is not so much whether there has been exact, adequate or substantial compliance, but rather where there has been compliance therewith. This enquiry postulates an application of the injunction to the facts and a resultant comparison between what the position is and what, according to the requirements of the injunction, it ought to be. It is quite conceivable that a court might hold that even though a position as it is not identical to what it ought to be the injunction has nevertheless been complied with. In deciding whether there has been compliance with the injunction, the object sought to be achieved by the injunction and the question of whether this object has been achieved, are of importance."

[29] To sum up, a court cannot condone non-compliance with the requirement that a copy of the application must be furnished on the parties which are specified in section 346(4A). I do not consider that the inherent jurisdiction would extend the power of the court. But a court may, in my view, determine whether the applicant has been in substantial compliance with each of these sections. In other words, it is for the court to determine whether the nature of the furnishing of the application, pursuant to the section, has been met.

[30] To express this point in another way, the means adopted by the applicant to comply with the section is something which the court is required to determine to decide whether there has been substantial compliance as I have set it out."

[36] The approach suggested by Davis J accords with the approach in Maharaj and Others v Rampersand 1964 (4) SA 638 (A) at 646C-D, and Moela v Shoniwe 2005 (4) SA 357 (SCA) at [7] to [8]. In Maharaj v Rampersad, supra the Appellate Division emphasised that:

"[i]t is quite conceivable that a Court might hold that, even though the position as it is, is not identical with what it ought to be, the injunction has nevertheless been complied with. "

[37] In Unlawful Occupiers, School Site v City of Johannesburg 2005 (4) SA 199 (SCA) par [24], Brand JA stated as follows in the context of the peremptory notice requirements of s4(2) of the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of

1998:

"The question whether in a particular case a deficient s 4(2) notice achieved its purpose, cannot be considered in the abstract. The answer must depend on what the respondents already knew. The appellant's contention to the contrary cannot be sustained. It would lead to results which are untenable. Take the example of a s 4(2) notice which failed to comply with s 4(5)(d) in that it did not inform the respondents that they were entitled to defend a case or of their right to legal aid. What would be the position if all this were clearly spelt out in the application papers? Or if on the day of the hearing the respondents appeared with their legal aid attorney? Could it be suggested that in these circumstances the s 4(2) [notice] should still be regarded as fatally defective? I think not. In this case, both the municipality's cause of action and the facts upon which it relied appeared from the founding papers. The appellants accepted that this is so. If not, it would constitute a separate defence. When the respondents received the s 4(2) notice they therefore already knew what case they had to meet. In these circumstances it must, in my view, be held that, despite its stated defects, the s 4(2) notice served upon the respondents had substantially complied with the requirements of s 4(5).'

[38] In Southern Witwatersrand Exploration Co Ltd v Bisichi Mining Plc [1997] 3 All SA 691 (W), Cameron, J held that to determine whether or not a specific provision had been substantially complied with regard must be had to the rationale of the required procedure in order to give effect thereto. In this case that rationale is expressed in the preamble to the amending Act and is "to require notice of an application for the winding-up of a company to be given to employees of the company".

In African Christian Democratic Party v The Electoral Commission [2006] ZACC 1; 2006 (5) BCLR 579 (CC) at par [27]- [28] and par [33], O'Regan, J

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