Gordon NO and Rennie NO v Standard Merchant Bank Ltd and Others

• Jurisdiction: South Africa
• Judge: De Kock J and Baker J
• Judgment Date: 09 August 1983
• Citation: 1984 (2) SA 519 (C)
• Hearing Date: 30 May 1983
• Court: Cape Provincial Division

De Kock J:

Plaintiffs in this matter are the joint liquidators of Rooderust (Pty) Ltd ("Rooderust") which was placed under a final winding up order on 18 April 1979. It is alleged in the summons and must be accepted for present purposes that second defendant was at all material times a director of Rooderust and controlled and managed the day to day affairs of that company. In their first claim against second defendant plaintiffs seek an order in terms of s 424 (1) of the

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Companies Act 61 of 1973 declaring that second defendant shall be personally responsible without limitation of liability for all the debts or liabilities of Rooderust, alternatively for R250 000 of the debts and liabilities of Rooderust. Second defendant has excepted to this claim as disclosing no cause of A action and the issue before the Court at this stage is whether on the facts alleged by plaintiffs in their particulars of claim the exception is well founded or not.

The following paragraphs in the summons are relevant to the claim under consideration:

"6.

At all material times:

(a)

Rooderust was a wholly owned subsidiary of Master Homers Ltd which, in turn, was a wholly owned subsidiary of Master Development Corporation Ltd (hereinafter referred to as MDC);

(b)

second defendant was a director of Rooderust and had a beneficial interest of C approximately 36% in the share capital of MDC;

(c)

third defendant was a director of Rooderust, chairman of MDC and the managing director of first defendant;

(d)

first defendant was the controlling company of MDC, having invested in and holding D approximately 54% of the share capital of MDC;

(e)

the principal asset of Rooderust was a township, being Wellington Township Extension 28, comprising 360 erven of which more than 300 had been sold to individual purchasers in terms of instalment sales governed by the Sale of Land on Instalments Act 72 of 1971. This township is hereinafter E referred to as Rooderust's immovable property.

7 (a)

Towards the end of 1976 MDC was experiencing increasing financial difficulties. It was then indebted inter alia to the Bank of Johannesburg as trustee for debenture holders in the sum of R2 million and accrued F interest of which the sum of R1 million and the accrued interest was payable on or before 28 February 1977, failing which the whole of the debenture debt would become due and payable.

(b)

At a meeting of directors of MDC on 3 November 1976 third defendant told the meeting inter alia :

(i)

G that he had held a discussion with second defendant who was concerned that the cash flow problems of MDC could lead to judicial management or worse; and

(ii)

that it was necessary to devise a strategy for the short term future; and

(iii)

that first defendant as a bank would stand behind H MDC until the end of March 1977.

(c)

By February 1977, MDC was unable without the financial assistance of first defendant, to meet its aforesaid obligations to the Bank of Johannesburg on due date and the said Bank was not prepared to extend such due date.

(d)

On 4 February 1977 third defendant informed second defendant that he desired to give the board of directors of

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first defendant at a meeting to be held on 8 February 1977 an indication of the probable loan assistance to be provided by first defendant to MDC and requested second defendant:

(i)

to provide him with the latest estimate of funds A required by MDC from first defendant by the end of February; and

(ii)

to advise him in regard to the nature and value of the security which would be available to first defendant.

(e)

On 7 February 1977 and in reply to the said request, second defendant reported to third defendant, inter alia :

(i)

B that the cash flow shortage of MDC would be R820 000 by 28 February 1977 and would rise to R1,13 million by 31 March 1977 for which first defendant should provide:

(ii)

that first defendant could have as security, inter C alia, a mortgage bond over the immovable property owned by Rooderust.

(f)

First, second and third defendants were aware at the time of the facts alleged in subQuotes (a) to (e) hereof.

(g)

On 8 February 1977 third defendant conveyed the said information, reported to him by second defendant, to first defendant's board D of directors, who then resolved that 'authority be and is hereby given to make a loan facility of up to R1,1 million available to MDC, to enable the company to repay the debentures to the Bank of Johannesburg.

8 (a)

On or about 22 February 1977 and notwithstanding the resolution referred to in para 7 (g) hereof, third defendant and one Thompson, then a manager of first E defendant, jointly acting on behalf of first defendant, and purporting to act in response to an 'application' by Rooderust, granted an alleged loan of R250 000 to Rooderust against the security of a first mortgage bond over Rooderust's immovable property.

(b)

On or about 28 February 1977 second defendant, purporting to act on behalf of Rooderust by virtue of a resolution taken at F a meeting of the directors of Rooderust held on that date, accepted the terms and conditions of the said alleged loan.

(c)

It was an express term of the said loan that:

(i)

the capital and interest be repaid to first defendant on 30 days' notice but in any event not later than 31 G December 1977;

(ii)

that each residential stand forming part of the immovable property secured under the mortgage bond would only be released by first defendant from the operation of the said bond upon payment of the sum of R1 200 by Rooderust to first defendant.

9 (a)

Purporting to act pursuant to the said loan, first defendant, with the knowledge and consent of second and third defendants, paid R200 000 directly to the Bank of Johannesburg on or about 28 February 1977 in partial discharge of MDC's aforesaid debenture indebtedness to that bank, and on or about 30 March 1977, R50 000 to Master Management Service Ltd (hereinafter referred to as MMS), which was a wholly owned subsidiary of MDC.

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(b)

No portion of the loan of R250 000 was ever paid to or received by Rooderust.

10 (a)

On 7 April 1977 a mortgage bond was registered over Rooderust's immovable property in favour of first defendant, purporting to secure the indebtedness of A Rooderust to first defendant arising out of the said alleged loan agreement.

(b)

The power of attorney to pass the said bond was signed by second defendant, purporting to act on behalf of Rooderust, by virtue of B a resolution taken at a meeting of its board of directors purportedly held on 15 March 1977.

11.

The said transaction was reflected in the books of account of Rooderust as:

(a)

a loan of R250 000 by first defendant to Rooderust; and

(b)

a loan, thereafter, of the said sum by C Rooderust to MMS............

35.

In entering into the aforesaid transaction Rooderust was represented by second defendant, who controlled and managed the day to day affairs of that company.

36.

Second defendant acted in the following manner in D regard to the said transaction:

(a)

he failed to apply his mind to the merits and demerits of the loan insofar as it affected the interests of Rooderust;

(b)

he agreed to the encumbrance of the immovable property of Rooderust without ensuring that Rooderust obtained any or adequate security or quid pro quo therefor;

(c)

he knew that no reasonable director, acting E in the interests of Rooderust, could have agreed to the transaction;

(d)

he failed to ensure that the proceeds of the loan would be utilised by Rooderust in its interests;

(e)

he failed to ensure that Rooderust was adequately secured when lending the said sum F to...