Makhuva and Others v Lukoto Bus Service (Pty) Ltd and Others

• Jurisdiction: South Africa
• Judge: van der Spuy AJ
• Judgment Date: 15 September 1986
• Hearing Date: 19 June 1986
• Court: Venda Supreme Court

Van der Spuy AJ:

This is a matter in which the three applicants G are seeking to place first respondent, a public passenger carrier, under judicial management in most unusual circumstances.

The three applicants had previously applied to this Court by way of an urgent motion for the liquidation of first respondent. That motion was dealt with by me on 12 June 1986 H and, after having raised various difficulties which included the absence of proof of any debt owing by first respondent and that applicants should resolve their domestic difficulties with the second and third respondents by way of the company's internal mechanisms, rather than apply to Court for liquidation, applicants withdrew the application and no order I was made on those papers.

On 19 June 1986, the present notice of motion was first placed before me. The notice of motion with the founding affidavit of first applicant was dated 16 June 1986 and was served on respondents in the late afternoon of 17 June 1986. and was called in this Court as a matter of extreme urgency on 19 June 1986, during the recess of this Court during the holiday period J 15 June - 31 July.

Van der Spuy AJ

A In the founding affidavit first applicant sets out that he is a secretary and one of five directors of first respondent. He sets out that first respondent was incorporated and registered on 12 September 1983 in the Republic of Venda and that it has since carried on the business of a passenger transport service throughout Venda. Furthermore, he states that first respondent has an authorised capital of R2 000 divided into 2 000 ordinary B shares of R1 each, and that all the shares have been issued.

This fact was not established in the founding papers nor in the papers later filed, ie the supplementary affidavit, the answering affidavit and the replying affidavit. The parties, however, agreed that the share certificates should be produced, and they were in fact filed with the Registrar after I had reserved judgment. They have now been placed in the file and C marked exh E.

According to this exhibit, the three applicants and second and third respondents hold two sets of share certificates, evidencing firstly allotment to each of them of the shares subscribed to in the memorandum of the association, the D relevant certificates being dated 12 September 1983 and, secondly, the issue of 399 shares to each of the parties on 20 November 1984, which in effect made each of the parties the holder of 400 shares in the capital of first respondent.

It appears that when applicants and the aforementioned two respondents took control of first respondent they came to an agreement regarding their shareholding and their powers and E duties inter se, and that agreement was filed as annexure A to the founding affidavit. The agreement was signed at Thohoyandou on 20 November 1984, the same day when the aforementioned blocks of 399 shares for each of the said members were issued to them.

The agreement records that the first directors of the company F would be the second respondent, Mr Muthige, the second applicant, Mr Mufamadi, the third applicant, Mr Highson Makhuvha and the first applicant Mr Alpheus Makhuvha. It further records that, until the first general meeting, a quorum for a meeting of directors shall be three directors and, thereafter, a quorum for a general meeting shall be four members in person or represented by proxy or by power of attorney.

G The agreement further records that second respondent will be the first chairman of first respondent and that he would have a casting vote in a meeting of directors, or in any general meeting of the company. The agreement then goes on to provide that there will be no further issue of shares, other than those H already referred to, and that if there were to be further issues of shares, they should only be issued with the approval of the shareholders in general meeting.

It is then recorded that, as from 1 March 1984, second respondent would be appointed as manager at a salary of R3 000 a month, which was to be increased to R3 600 a month as from 1 September 1984. It is further recorded that the appointment I would be valid for one year, and that the position would then be reviewed.

It was further recorded that, with effect from 1 March 1984, third respondent would be appointed as chief mechanic at a salary of R2 500 a month, which was to be increased to R3 000 a month as from 1 September 1984, and that this appointment was J to be valid for one year and that the position would then be reviewed.

Van der Spuy AJ

A In regard to the manager, the agreement specifically provides that he shall be entrusted with the official day to day management of the business of first respondent.

Clause 9.4.2 provides:

'It is however specifically recorded that the manager shall not incur extraordinary expenditure on behalf of the company B without the prior approval of the board of directors, nor shall the manager take any decision relating to major policy, disposal of assets of the company and/or the acquisition of motor vehicles on behalf of the company.'

Clause 9.4.3 provides:

'The manager shall be responsible to the company and shall attend meetings of the board of directors and when required to C do so to report to the board in regard to the progress of the business of the company, and shall at all times keep the board of directors fully informed in regard to the financial affairs of the company.'

Clause 10 provides:

'In so far as the "non working" directors of the company are required from time to time to carry out certain functions D and/or duties on behalf of the company (other than those duties falling under the functions of the manager and the chief mechanic in terms of their respective appointments), it is hereby agreed that the said "non working" directors shall be remunerated for their service in this regard at the rate of R1 000 per month.'

In regard to the duties of the 'non working' directors, the founding affidavit sets out that the 'non working' directors, E that is the three applicants, could be required from time to time to carry out certain functions and/or duties, and I was informed that these initially included inspection of bus routes, but later merely required attendance of directors' meetings.

F Paragraph 9.1 from the founding affidavit records:

'The "non working" directors' services of bus inspection continued but their remuneration was discontinued towards the end of 1985 despite the fact that there was no resolution by the board of directors to that effect. The manager, Mr Muthige, unilaterally took the decision to discontinue the remuneration without further ado.'

The founding affidavit chronicles a number of complaints G against the management of first respondent by second respondent.

The first complaint is that the applicants had never received share certificates but in view of the fact that exh E has now been produced, I hold that there was no basis whatever for that complaint.

The next complaint is that no financial statements were placed H before board meetings by the manager to enable the deponent together with other members of the board to be informed in regard to the financial affairs of first respondent.

The third complaint is that regular board meetings had been held once a week whereat the affairs were fully discussed, but at one stage second respondent stated that such meetings were I unnecessary and 'a waste of time' and they should be discontinued.

The founding affidavit then avers:

'9.5 Since then, the company's affairs have been conducted in complete secrecy by Mr Muthige (second respondent) without any report being made to the other directors, J albeit (sic ) myself or the other two applicants.'

Van der Spuy AJ

A The founding affidavit proceeds to set out that since no board meetings have been called by the manager, first applicant and the other two applicants decided on their own initiative to requisition a meeting on 13 May 1986 at which meeting the agenda required a discussion as to past, present and future prospects of first respondent as well as the production of financial statements and reports on first respondent's affairs.

B It is then said that at the said meeting second respondent failed to give the necessary explanation and to present any of the items mentioned above, professing not to have understood the contents of the agenda.

At a subsequent meeting called by second respondent and held on 10 June 1986 at the Venda Sun Hotel, second respondent again C failed to explain anything about the past, present and future prospects of the company. Nor did he present any financial statements and reports.

It is stated that at this meeting second respondent indicated that first respondent was experiencing serious financial problems as its cash flow was poor and since some of first respondent's cheques had been dishonoured by the bank. He D indicated that 'this downfall' could only be avoided if an amount of R100 000 were raised from whatever source.

This suggestion was, however, rejected by applicants who were all along labouring under the impression that the company was in a sound financial state, bearing in mind that first respondent received substantial government subsidies on a monthly basis.

E The founding affidavit then continues to state:

'we did not deem it necessary to throw money into a bottomless pit without satisfying ourselves about the position of the first respondent through an acceptable auditors' report.'

(Italicising by me.)

F The affidavit continues to set out further instances of misconduct or mismanagement by second respondent, in that he allegedly bought 'a big cold room without even consulting us' concerning which it is stated:

'It is my feeling and that of the other two applicants that this is a serious abuse of managerial powers by Mr Muthige as the company is not...