Klass v Contract Interiors CC (In Liquidation) and Others
| Jurisdiction | South Africa |
| Citation | 2010 (5) SA 40 (W) |
Klass v Contract Interiors CC (In Liquidation) and Others
2010 (5) SA 40 (W)
2010 (5) SA p40
|
Citation |
2010 (5) SA 40 (W) |
|
Case No |
08/31973 |
|
Court |
Witwatersrand Local Division |
|
Judge |
Levenberg AJ |
|
Heard |
February 4, 2009 |
|
Judgment |
February 23, 2009 |
|
Counsel |
SF du Toit SC (with HF Oosthuizen) for the applicant. |
Flynote : Sleutelwoorde B
Close corporation — Liquidation — Setting-aside of liquidation order — Discretion of court — Applicable principles set out — Where appropriate, court to have regard to commercial morality, public interest and whether continuation of winding-up would be a contrivance or instrument of injustice — C Member of close corporation contractually binding herself to support application for setting-aside of winding up — Whether such member's application for setting-aside of liquidation to be granted — Companies Act 61 of 1973, s 354, read with Close Corporations Act 69 of 1984, s 66.
Headnote : Kopnota
D After a review of the authorities on the subject, the court set out the following principles as being applicable to the exercise of the court's discretion to set aside a winding-up proceeding under s 354 of the Companies Act 61 of 1973 (read with s 66 of the Close Corporations Act 69 of 1984 in the case of a close corporation):
The court's discretion is practically unlimited, although it must take E into account surrounding circumstances and the wishes of interested parties such as the liquidator, creditors and members.
The court should ordinarily not set aside a winding-up where creditors or the liquidators remain unpaid or inadequate provision has been made for the payment of their claims.
Where the claims of the liquidator and all creditors have been satisfied, F the court should have regard to the wishes of the members, unless those members have bound themselves not to object to the setting-aside order, or the member concerned will receive no less as a result of the order sought than would be the case if the company remained in liquidation.
In deciding whether or not to grant a setting-aside order, the court G should, where appropriate, have regard to commercial morality, the public interest, and whether the continuation of the winding-up proceedings would be a contrivance or render the winding-up the instrument of injustice.
The court's discretion is not limited to discharging a company or close corporation only when there is a commercial purpose in setting aside H the winding-up order. (Paragraphs [65] and [66] at 53C - 54E.)
The second respondent, a member of a close corporation that was being wound up, had contractually bound herself to support the application for the setting-aside of the winding-up order. The court held that public policy had an interest in upholding the sanctity of contracts, and that the fact that there I was an agreement between the only two remaining parties having an interest in the discharge of the corporation from liquidation, was in itself a sufficient ground to set aside the liquidation order in circumstances in which no other party was likely to be hurt by the discharge. The court held further that if the application to set aside the winding-up order was not granted as a result of the second respondent's objection, it would not be in line with commercial morality, which required, inter alia, that parties honour their J contractual undertakings. If the winding-up was permitted to persist it
2010 (5) SA p41
might allow the winding-up to become an instrument of injustice in that it A might permit the second respondent to escape her obligation to buy out the applicant's interest in the corporation in terms of a settlement agreement between them. The court accordingly granted an order setting aside the winding-up of the first respondent. (Paragraph [67] at 53H - 54E.)
Cases Considered
Annotations B
Reported cases
Southern Africa
Birkenruth Estates (Pty) Ltd v Unitrans Motors (Pty) Ltd (formerly Malbak Consumer Products (Pty) Ltd) and Others 2005 (3) SA 54 (W) ([2005] 3 All SA 128): referred to C
Delmas Milling Co Ltd v Du Plessis 1955 (3) SA 447 (A): applied
Denel (Edms) Bpk v Vorster 2004 (4) SA 481 (SCA) ((2004) 25 ILJ 659; 2005 (4) BLLR 313): dictum at 487J applied
Desai and Others v Greyridge Investments (Pty) Ltd 1974 (1) SA 509 (A): referred to
Ex parte Chenille Corporation of SA (Pty) Ltd and Another: In re Chenille Industries (Pty) Ltd D 1962 (4) SA 459 (T): dictum at 464G - 465G applied
Ex parte Liquidator Natal Milling Co (Pty) Ltd 1934 NPD 312: applied
FJ Hawkes & Co Ltd v Nagel 1957 (3) SA 126 (W): dictum at 132C applied
Goodman v Suburban Estates Ltd (In Liquidation) and Others 1915 WLD 15: considered
OK Bazaars v Bloch 1929 WLD 37: dictum at 44 applied E
Rapp and Maister v Aronovsky 1943 WLD 68: dictum at 75 applied
Robin v Guarantee Life Assurance Co Ltd 1984 (4) SA 558 (A): dictum at 567A - F applied
Storti v Nugent and Others 2001 (3) SA 783 (W): distinguished
Ward and Another v Smit and Others: In re Gurr v Zambia Airways Corporation Ltd 1998 (3) SA 175 (SCA) ([1998] 2 All SA 479): dictum at 180H applied F
Wilkins NO v Voges 1994 (3) SA 130 (A): referred to.
England
Re Calgary and Edmonton Land Co Ltd [1975] 1 All ER 1046 (Ch): considered G
Re Telescriptor Syndicate Ltd [1903] 2 Ch 174: dictum at 180 applied
Reigate v Union Manufacturing Co (Ramsbottom) Ltd and Elton Cap Dyeing Co Ltd [1918] 1 KB 592 (118 LT 483; [1918 - 19] All ER Rep 143): dictum at 605 applied
Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 ([1939] 2 All ER 113): dictum at 227 applied. H
Statutes Considered
Statutes
The Close Corporations Act 69 of 1984, s 66: see Juta's Statutes of South Africa 2009/10 vol 2 at 1-381
The Companies Act 61 of 1973, s 354: see Juta's Statutes of South Africa 2009/10 vol 2 at 1-280. I
Case Information
Application for an order setting aside the winding-up of the first respondent. The facts appear from the reasons for judgment.
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. J
2010 (5) SA p42
Cur adv vult. A
Postea (February 23).
Judgment
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.
2010 (5) SA p43
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...
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