Klass v Contract Interiors CC (In Liquidation) and Others

• Jurisdiction: South Africa
• Judge: Levenberg AJ
• Judgment Date: 23 February 2009
• Citation: 2010 (5) SA 40 (W)
• Docket Number: 08/31973
• Hearing Date: 04 February 2009
• Counsel: SF du Toit SC (with HF Oosthuizen) for the applicant. TW Beckerling SC for the second respondent. No appearance for the first and third respondents.
• Court: Witwatersrand Local Division

Levenberg AJ:

Introduction B

[1] This is an application to set aside the winding-up of the first respondent (the corporation) and to discharge it from liquidation, in terms of s 354 of the Companies Act 61 of 1973 (the Companies Act), read with s 66 of the Close Corporations Act 69 of 1984 (the Close C Corporations Act).

[2] All of the creditors of the corporation (including SARS) and the members have been paid and the liquidator supports the application for relief.

D [3] The applicant (Klass) is a member of the corporation, with a 30 percent member's interest. The second respondent (Watney) is Klass' ex-wife. She holds a 70 percent member's interest in the corporation.

[4] The corporation was placed in liquidation at the instance of Klass because he claimed that, as a result of the breakdown in the matrimonial E relationship with Watney, Watney had conducted herself in a manner which was unfairly prejudicial and oppressive to him as a minority member. In that application Klass sought an order compelling Watney to purchase his member's interest at a fair market value, alternatively, that the company be placed in liquidation.

F [5] Ultimately, as part of the divorce settlement between the parties, a final winding-up order was granted with Watney's consent. Accordingly, there has been no finding that Klass' allegations, that Watney behaved in a manner that was unfairly prejudicial to him, were justified.

[6] The corporation was solvent at the time of its winding-up, as is G demonstrated by the fact that it is now common cause that all of its creditors have been paid off.

Summary of the facts

A. The divorce

H [7] Klass and Watney were not only husband and wife. They were also business partners. They held interests in a number of companies and close corporations in various proportions and were actively engaged in those companies and close corporations.

[8] Included among their business interests were their respective shares I in the corporation.

[9] During March 1999 Klass and Watney agreed that their marriage relationship had irretrievably broken down and that they should divorce. Klass subsequently instituted action in this court for divorce as well as a distribution of the assets of the estate in terms of s 7(3) of the Divorce Act 70 of 1979. Watney defended the divorce and counterclaimed for an J order of distribution.

Levenberg AJ

[10] As a result of the breakdown in the parties' personal relationship, A there was a breakdown in their business relationship, giving rise to various commercial disputes.

[11] Klass launched the application to wind up the corporation on 23 March 2001 under case No 2001/7019 (the liquidation application). Although the precise nature and basis of this application are not set out B in the founding papers, I infer from the nature of the allegations made against Watney that the application for liquidation was based on the 'just and equitable' ground set forth in s 68 of the Close Corporations Act.

[12] While the liquidation application was pending, the court presiding C over the divorce action appointed two referees to determine the value of the parties' assets, including the fair market value of the parties' shareholdings in the corporation. On 31 October 2001 the referees valued Klass' 30 percent interest in the corporation at R1 999 960.

B. The divorce settlement

[13] On 26 April 2002 the parties entered into a written divorce D settlement (the first settlement agreement).

[14] The following provisions of the first settlement agreement are relevant to the present application:

[14.1]

Clause 4 provides: E

'4.1

Contract Interiors will be placed in final liquidation, with immediate effect, and more specifically by requesting the above honourable court to grant a liquidation order under case No 01/7019.

4.2

The plaintiff and the defendant will each one nominate a liquidator. However it is immaterial for purposes of this F settlement whether one or both of the persons so nominated be appointed or not.'

[14.2]

Clause 10 provides:

'It is recorded that the plaintiff and the defendant intend to proceed, or are considering whether to proceed, with enquiries in G terms of the Companies Act and/or Close Corporations Act and/or Insolvency Act pertaining to the various entities and that nothing which is contained in this agreement will either limit or restrict the plaintiff or defendant to do so, or to contend that the plaintiff/defendant is either indebted to the plaintiff/defendant and/or the entities.'

[14.3]

Clause 14 provides: H

'The provisions of this agreement shall not be capable of being varied (save by a court of competent jurisdiction), amended, added to, supplemented, novated or cancelled unless this is contained in writing and signed by both parties.'

[15] Pursuant to the first settlement agreement a final award liquidating I the corporation was granted on 3 May 2002.

C. The second settlement agreement

[16] Unfortunately, the divorce settlement did not bring the parties' disputes to an end. Acrimonious litigation between the parties continued appertaining to their various interests, including the corporation. J

Levenberg AJ

A [17] During May 2002 Klass, acting through a company of which he was the sole shareholder and managing director, applied to hold an insolvency enquiry into the corporation's affairs.

[18] Klass alleges that:

B 'The main motivation to hold an enquiry into the affairs of Contract Interiors was to find out what the second respondent had done to the assets and business of Contract Interiors, more particularly if those assets had been unlawfully dealt with. Any recovery by Contract Interiors from the second respondent would benefit the creditors of Contract Interiors.'

C [19] A retired magistrate was appointed to conduct the enquiry. But the enquiry did not proceed as a result of a point in limine taken by Watney.

[20] Watney states in her answering affidavit in this application that:

'23.2

Irrespective thereof, in view of the fact that I wanted to avoid any further acrimony with the applicant and to continue with D Contract Interiors as a going concern, retain its key staff, clients and goodwill, I did approach the applicant, following which [the second settlement agreement] was concluded. In this regard, subsequent to the liquidation of Contract Interiors, I agreed with the liquidators that, notwithstanding the liquidation, several outstanding interior design and interior construction contracts F would be completed to enable the liquidators to collect the outstanding debtors and this did in fact take place from the date of liquidation (3 May 2002) until October 2002. The goodwill of Contract Interiors was thereby preserved in the eyes of its customers.'

[21] The second settlement agreement (the second settlement agreement) referred to in the previous paragraphs was concluded on 14 August 2002 between Klass and Watney. The material terms of the second settlement agreement were as follows:

'2.

LYNNE and BRIAN wish to vary the Agreement of Settlement [ie the first settlement agreement] as set out hereunder and to record G the subsequent agreement reached between them in regard to their affairs.

3.

VARIATION OF AGREEMENT OF SETTLEMENT

This agreement is hereby varied as follows:

3.1

H CONTRACT INTERIORS CC

It is recorded that:

3.1.1

LYNNE and BRIAN wish to apply to discharge the liquidation order granted by the High Court of South Africa (Witwatersrand Local Division) on 3 May 2001 and agree jointly to do all things necessary for this I purpose. The costs of this application shall be paid equally by LYNNE and BRIAN in equal shares . . . .

3.2

It is also recorded that:

. . .

3.2.2

Upon the discharge of Contract Interiors CC from J liquidation:

Levenberg AJ

3.2.2.1

LYNNE shall purchase BRIAN's interest in A Contract Interiors for the sum of R2 000 000,00 which shall be paid by LYNNE to BRIAN within thirty days of the payment by the purchaser in respect of the Stara sale referred to in paragraph 3.3.2 below, or 28 February 2003 whichever occurs first. The effective B date of the purchase by LYNNE of BRIAN's interest shall be the date of the order discharging the liquidation of Contract Interiors CC.

. . .

8.

Paragraph 10 of the Agreement of Settlement shall be regarded as C pro non scripto.

9.

LYNNE and BRIAN record that save for the variations to this agreement as set out above, the remaining provisions of the Agreement of Settlement of 26 April 2002 shall remain unaltered and of full force and effect.

10.

FULL AND FINAL SETTLEMENT D

Save as is recorded in this agreement and in the provisions of the agreement of settlement which remain unaltered, neither party shall have any further claim against the other arising out of their previous relationship with each other whether as spouses, members, shareholders, directors or otherwise.' E

[22] The second settlement agreement also contained other provisions appertaining to the disposition of the parties' mutual interests in various enterprises which are not relevant for the purposes of this application. The provisions of the second settlement agreement, insofar as they relate to the parties' interests (other than their interests in the corporation), F were subsequently given effect to.

D. The first application for discharge

[23] The corporation was not thereafter discharged from liquidation. Nevertheless, on 3 April 2003, Klass (through his attorneys) demanded payment of the sum of R2 million together with interest from 18 January 2003. G

[24] Watney's attorneys responded on 4 April 2003. They took the position that Watney was not obliged to make any payment as it was a precondition to payment that the corporation be discharged from liquidation. Watney's...