Choice Holdings Ltd and Others v Yabeng Investment Holding Co Ltd

• Jurisdiction: South Africa
• Judge: Goldstein J, Selvan AJ and Fevrier AJ
• Judgment Date: 29 September 2000
• Counsel: B W Burman SC (with him C G Lamont) for the first appellant. W H G van der Linde SC (with him J I du Toit) for the second and third appellants. D M Fine SC (with him F H Odendaal SC) for the respondent.
• Docket Number: A5040/99
• Court: Witwatersrand Local Division

Choice Holdings Ltd and Others v Yabeng Investment Holding Co Ltd
2001 (3) SA 1350 (W)

2001 (3) SA p1350

Citation	2001 (3) SA 1350 (W)
Case No	A5040/99
Court	Witwatersrand Local Division
Judge	Goldstein J, Selvan AJ and Fevrier AJ
Heard	August 23, 2000; September 19, 2000
Judgment	September 29, 2000
Counsel	B W Burman SC (with him C G Lamont) for the first appellant.; W H G van der Linde SC (with him J I du Toit) for the second and third appellants.; D M Fine SC (with him F H Odendaal SC) for the respondent.

Flynote : Sleutelwoorde B

Company — Winding-up — Application for — Loan creditor accepting convertible redeemable preference shares in settlement of loan claim — Such transforming creditor to shareholder — Loan thereby extinguished — Such transformation significant in context of winding-up C application in view of distinction in s 346(1)(b) and s 346(1)(c) of Companies Act 61 of 1973 between 'creditors (including contingent or prospective creditors)' and 'members' of company — Creditors entitled without qualification to apply for winding-up of company but members required to comply with s 346(2) — Members, in terms of s 346(2) read with s 344, not entitled to apply for winding-up by reason of company being unable to D pay its debts.

Company — Winding-up — Application for — By creditor — Whether holder of preference shares a creditor of company — During duration of such shareholdership vinculum juris existing between shareholder and company which may ripen into enforceable debt — This fact not rendering such shareholder a prospective or contingent creditor within E meaning of Act as that would render nugatory distinctions between shareholders and creditors in Companies Act 61 of 1973.

Company — Winding-up — Application for — By holder of preference shares — Such shareholder cannot apply for winding-up order as creditor on basis that preference shares redeemable — Redemption of preference shares governed by s 98(1) of Companies Act 61 of 1973 — Nor can F preference shares be returned to company against payment of price paid therefor — Such amounting to company re-acquiring shares and s 85(4) of Act applicable thereto.

Company — Winding-up — Application for — By prospective shareholder — Prospective shareholder entitled to shares by reason of vinculum juris (in casu loan) between it and G company — Such shareholder cannot be in better position than shareholder for purposes of winding-up proceedings — Cannot be contingent or prospective creditor of company in respect of amount of loan. H

Company — Shares and shareholders — Redeemable preference shares — Redemption of — Such governed by s 98(1) of Companies Act 61 of 1973 — Nor can preference shares be returned to company against payment of price paid therefore — Such amounting to company re-acquiring shares and s 85(4) of Act applicable thereto.

Company — Shares and shareholders — Shareholders — Member of company, in terms of s 346(2) read with s 344 of Companies Act 61 of 1973, not entitled to apply for winding-up of company by reason of it being unable to pay its debts.

Company — Shares and shareholders — Shareholders — Holder of preference shares — Whether a creditor for purpose of application for winding-up of company — During duration of such shareholdership vinculum juris existing between shareholder and company which may ripen into enforceable debt — This fact not rendering such shareholder a prospective or contingent creditor within meaning of Companies Act 61 of 1973, as that would render nugatory Act's own distinctions between shareholders and creditors — Cannot be contingent or prospective creditor of company.

Headnote : Kopnota

Where a loan creditor of company has accepted convertible redeemable preference shares in the company in settlement of its loan claim against the company, the conversion of the amount of the loan to preference shares has the effect of transforming the creditor into a shareholder and thus of extinguishing the loan. This is a significant transformation in the context of an application for the winding-up of I the company since the Companies Act 61 of 1973, as amended, in s 346(1)(b) and s 346(1)(c) distinguishes between, inter alia, the 'creditors (including contingent or prospective creditors)' and the 'members' of a company sought to be wound-up. The creditors are without further qualification entitled to apply for winding-up but the members must, in addition, clear the hurdles reflected in s 346(2) of the Act. Furthermore, when regard is had to s 346(2) read with s 344, a J

2001 (3) SA p1351

shareholder is not entitled to apply for winding-up by reason of the company being unable to pay its A debts. (Paragraph [20] at 1355H - 1356B.)

A 'contingent or prospective' creditor of a company is one which is linked to the company concerned by a vinculum juris 'which may ripen into an enforceable debt on the happening of some event or on some future date'. In the event of the redemption of preference shares, the company pays its shareholders the sum concerned and in this sense there is, throughout the duration of the shareholdership, a B vinculum juris between shareholder and company which may ripen into an enforceable debt. However, this fact cannot render a shareholder, including a shareholder of preference shares, a prospective or contingent creditor within the meaning of the Companies Act because such an interpretation would render nugatory the Act's own distinctions between shareholders and creditors in relation to winding-up proceedings. (Paragraphs [21] and [22] at 1356B - C and C 1357B - C/D.)

The holding of redeemable preference shares in a company cannot be undone simply to enable the holder to become a creditor for the purpose of applying for the winding-up of the company. The redemption of redeemable preference shares is governed by s 98(1) of the Companies Act. For the holder of the preference shares simply to return the shares to the company against payment by the company of the amount paid D therefor would in effect amount to the company re-acquiring the preference shares and would require compliance with s 85(4) of the Companies Act. (Paragraphs [24] and [25] at 1357E and F/G - H.)

A prospective shareholder entitled to shares in a company by reason of a vinculum juris between it and the company cannot be in a better position than that of a shareholder for purposes of winding-up E proceedings and cannot thus be a contingent or prospective creditor of the company. (Paragraph [33] at 1360D - E read with paras [20] and [21] at 1355H - 1356C.)

Cases Considered

Annotations

Reported cases F

Alum-Phos (Pty) Ltd v Spatz and Another [1997] 1 B All SA 616 (W): dictum at 633d applied

Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (T): applied

Gillis-Mason Construction Co (Pty) Ltd v Overvaal Crushers (Pty) Ltd 1971 (1) SA 524 (T): considered G

Holzman NO and Another v Knights Engineering and Precision Works (Pty) Ltd 1979 (2) SA 784 (W): considered

Kalil v Decotex (Pty) Ltd and Another 1988 (1) SA 943 (A): dictum at 980B applied

Radebe and Others v Eastern Transvaal Development Board 1988 (2) SA 785 (A): dictum at 793D - F applied. H

Statutes Considered

Statutes

The Companies Act 61 of 1973, ss 85(4), 98(1), 344, 346(1), (2): see Juta's Statutes of South Africa 2000 vol 2 at 1-149, 1-153, 1-203, 1-204.

Case Information

Appeal from the decision of a single Judge (Schwartzman J) sitting in the Witwatersrand Local Division. The facts appear from the I reasons for judgment.

B W Burman SC (with him C G Lamont) for the first appellant.

W H G van der Linde SC (with him J I du Toit) for the second and third appellants.

D M Fine SC (with him F H Odendaal SC) for the respondent. J

2001 (3) SA p1352

Cur adv vult. A

Postea (29 September 2000).

Judgment

Goldstein J:

Introductory B

[1] On 12 October 1999 Schwartzman J granted a final winding-up of the first appellant, to which I shall refer as 'Choice', at the behest of the respondent, to which I shall refer as 'Yabeng'. The second appellant, to whom I shall refer by his surname (Strydom), intervened in the proceedings in the Court a quo to resist the application of Yabeng. The third appellant, to which I shall refer C as 'ROI', was a second intervening party in that Court.

[2] On 26 November 1999 Schwartzman J gave leave to appeal to this Court but restricted such leave to the following findings:

'1.

The applicant (Yabeng) was a creditor of the respondent (Choice) in the amount of R40 000 000 plus interest. D

2.

The applicant (Yabeng) was a creditor of the respondent (Choice) in terms of the Cutfin agreement.'

[3] In Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (T) the Court held at 347H - 348B that an application for liquidation cannot succeed where the claim upon which E it is based is disputed by the defendant in good faith. In Kalil v Decotex (Pty) Ltd and Another 1988 (1) SA 943 (A) Corbett JA said the following at 980B:

'In regard to locus standi as a creditor, it has been held, following certain English authority, that an application for liquidation should not be resorted to in order to enforce a claim which F is bona fide disputed by the company. Consequently, where the respondent shows on a balance of probability that its indebtedness to the applicant is disputed on bona fide and reasonable grounds, the Court will refuse a winding-up order. The onus on the respondent is not to show that it is not indebted to the applicant: it is merely to show that the indebtedness is disputed on bona fide and reasonable grounds. G

[4] It follows that, if Choice has a bona fide defence based on reasonable grounds to the claims of Yabeng, Yabeng cannot be said to be a creditor of Choice as the Court a quo found it to be.

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