Orestisolve (Pty) Ltd t/a Essa Investments v Ndft Investment Holdings (Pty) Ltd and Another

• Jurisdiction: South Africa

Orestisolve (Pty) Ltd t/a Essa Investments v Ndft Investment Holdings (Pty) Ltd and Another
2015 (4) SA 449 (WCC)

2015 (4) SA p449

Citation	2015 (4) SA 449 (WCC)
Case No	18414/14
Court	Western Cape Division, Cape Town
Judge	Rogers J
Heard	May 18, 2015
Judgment	May 28, 2015
Counsel	CJ van Coller for the applicant.; WJ van der Merwe for the respondent.; JJ Botha SC for the intervening party (the Namakwaland Diamond Fund Trust).

Flynote : Sleutelwoorde B

Company — Winding-up — Application — By creditor — Abuse of process — Rule that court will refuse application as constituting abuse of process where company bona fide disputing debt on reasonable grounds (Badenhorst rule) — Ambit — Provisional and final stages — Burden of proof. C

Company — Winding-up — Grounds — Inability to pay debts — Discretion of court to refuse winding-up — When it arises — Competing application for business rescue — Difference of opinion among creditors on need for liquidation — Company solvent and misguidedly but genuinely disputed applicant's claim — Companies Act 61 of 1973, s 345(1) read with s 344(h). D

Headnote : Kopnota

The facts

NDFT and Essa concluded an agreement under which Essa was to earn a commission for helping NDFT to obtain an overdraft. When a dispute arose E as to whether Essa had earned its commission, it made a demand for payment under s 345(1)(a) of the (old) Companies Act 61 of 1973 and followed it up with an application for the provisional liquidation of NDFT. The provisional order was granted and the second respondent (the Trust) — NDFT's sole shareholder and largest creditor by virtue of its loan-account claim — given leave to intervene to oppose final liquidation. F

The issues

The issues on the return date were —

(i)

whether Essa was a creditor of NDFT;

(ii)

whether NDFT genuinely (bona fide) disputed its claim on reasonable grounds; G

(iii)

whether NDFT was factually or commercially insolvent; and

(iv)

whether the court should, if these questions were answered in Essa's favour, nevertheless refuse to grant a winding-up order.

The law

The Badenhorst rule [*] states that a court will refuse an application for the H liquidation of a company if the company bona fide disputes the applicant's claim on reasonable grounds. Though its object is to prevent the abuse of the liquidation process for the enforcement of debts, it is now treated as an independent rule not requiring proof of actual abuse of process. Hence disputes relating to liability must be distinguished from disputes about the other requirements for liquidation. Since the court will refuse the application even where the applicant proves its claim, the Badenhorst rule is more I appropriate in provisional applications, when an onus may be cast on the company to explain the basis of the claimed dispute (ie its bona fides and

2015 (4) SA p450

A reasonability). At the final stage, however, Plascon-Evans [†] will apply and proof of the claim will leave little scope for a finding that the debt is nevertheless genuinely disputed. The requirement of bona fides is satisfied if the company genuinely wishes to contest the claim and believes it has reasonable prospects of success. Lack of bona fides will usually go B hand-in-hand with an intention to delay, which would in turn indicate that the company is unable to pay its debts and militate against the exercise of a discretion in its favour (see below).

While a company's deemed inability — in terms of s 345(1) — to pay its debts does not give rise to a rebuttable presumption, the court has a residual discretion to deny the application for liquidation, and the reason the C company gives for its refusal to pay (eg bona fides and reasonability: see (c) below) might result in the court exercising it in the company's favour. The ambit of the discretion is debated, [‡] but whatever its limits, there must be a valid reason why the liquidation order should be withheld if the applicant complied with the applicable statutory requirements. Such reasons would include —

(a)

that there are competing applications for liquidation and business D rescue;

(b)

that there is a difference of opinion among the creditors on the need for liquidation — in particular, opposition by a major creditor; or

(c)

the company is commercially solvent and a presumption of commercial insolvency arose merely because it misguidedly but genuinely disputed the claim and therefore refused pay it.

E The decision

As to (i): Although the facts tended to show that Essa's claim was duly established, it was, in the light of the findings below, not necessary to decide this point.

As to (ii): While it was similarly unnecessary to decide this point, any reliance F by NDFT on the Badenhorst rule would have failed, not for lack of bona fides, but because its grounds for disputing the claim were not reasonable.

As to (iii) and (iv): The clear evidence that NDFT was commercially solvent and the fact that its largest shareholder opposed liquidation would compel the court to exercise its discretion against the granting of a final order.

Provisional order accordingly discharged. (For the details of the court's reasoning, G see in particular paras [7], [13] – [15], [18] – [21] and [65] – [82] at 453I – J, 455G – 456H, 457H – 458I and 468C – 473A.)

Cases Considered

Annotations

Case law

Southern Africa H

Absa Bank Ltd v Erf 1252 Marine Drive (Pty) Ltd and Another [2012] ZAWCHC 13: referred to

Absa Bank Ltd v Newcity Group (Pty) Ltd and Other Cases [2013] 3 All SA 146 (GSJ): considered

2015 (4) SA p451

Absa Bank Ltd v Rhebokskloof (Pty) Ltd and Others 1993 (4) SA 436 (C): A considered

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

Body Corporate of Fish Eagle v Group Twelve Investments (Pty) Ltd 2003 (5) SA 414 (W): doubted

Boschpoort Ondernemings (Pty) Ltd v Absa Bank Ltd 2014 (2) SA 518 (SCA): B applied

Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk 2014 (2) SA 494 (SCA): dictum in paras [10] – [12] applied

Budge and Others NNO v Midnight Storm Investments 256 (Pty) Ltd and Another 2012 (2) SA 28 (GSJ): dictum in para [14] applied

Commercial Business Brokers v Hassen 1985 (3) SA 583 (N): C compared

Dippenaar NO and Others v Business Venture Investments No 134 (Pty) Ltd [2014] 2 All SA 162 (WCC): considered

Ex parte De Villiers and Another NNO: In re Carbon Developments (Pty) Ltd (in Liquidation) 1993 (1) SA 493 (A): dictum at 504I – 506F applied

Ferndale Investments (Pty) Ltd v DICK Trust (Pty) Ltd 1968 (1) SA 392 (A): compared D

FirstRand Bank Ltd v Evans 2011 (4) SA 597 (KZD): compared

Gluckman v Landau & Co 1944 TPD 261: dictum at 268 applied

Golden Mile Financial Solutions CC v Amagen Development (Pty) Ltd [2010] ZAWCHC 339: dictum in paras [8] – [10] applied

Hülse-Reutter and Another v HEG Consulting Enterprises (Pty) Ltd (Lane and Fey NNO Intervening) 1998 (2) SA 208 (C): dictum at 218D – 220C applied E

Johnson v Hirotec (Pty) Ltd 2000 (4) SA 930 (SCA): dictum in para [6] applied

Kalil v Decotex (Pty) Ltd and Another 1988 (1) SA 943 (A): dictum at 975J – 979F applied

Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) ([2012] 2 All SA 262; [2012] ZASCA 13): F dictum in para [18] applied

Nedbank Ltd v Applemint Properties 22 (Pty) Ltd [2014] ZAGPPHC 1042: dictum in paras [20] – [21] applied

Ngqumba en 'n Ander v Staatspresident en Andere; Damons NO en Andere v Staatspresident en 'n Andere; Jooste v Staatspresident en Andere 1988 (4) SA 224 (A): G dictum at 259E – 263D applied

Paarwater v South Sahara Investments (Pty) Ltd [2005] 4 All SA 185 (SCA): dictum in para [4] applied

Payslip Investment Holdings CC v Y2K Tec Ltd 2001 (4) SA 781 (C): dictum at 783G – I applied

Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A): H applied

Porterstraat 69 Eiendomme (Pty) Ltd v PA Venter Worcester (Pty) Ltd 2000 (4) SA 598 (C): referred to

Rawlins and Another v Caravantruck (Pty) Ltd 1993 (1) SA 537 (A): dictum at 541I – 542B applied

Rosenbach & Co (Pty) Ltd v Singh's Bazaars (Pty) Ltd 1962 (4) SA 593 (D): considered I

SAA Distributors (Pty) Ltd v Sport en Spel (Edms) Bpk 1973 (3) SA 371 (C): dictum at 373B – H applied

Sammel and Others v President Brand Gold Mining Co Ltd 1969 (3) SA 629 (A): considered

Ter Beek v United Resources CC and Another 1997 (3) SA 315 (C): doubted J

2015 (4) SA p452

Venter Agentskappe (Edms) Bpk v De Sousa 1990 (3) SA 103 (A): referred to A

Vesta Estate Agency v Schlom 1991 (1) SA 593 (C): compared

Watson v Fintrust Properties (Pty) Ltd 1987 (2) SA 739 (C): compared.

Australia

Re KL Tractors Ltd (1954) VLR 505: compared.

England B

Commissioners for Her Majesty's Revenue and Customs v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116: compared

In re Southard & Co Ltd [1979] 3 All ER 556 (CA) ([1979] 1 WLR 1998): considered

Re a Company [1984] 1 WLR 1090 (Ch) ([1984] 3 All ER 78): compared

Re a Company, ex parte Fin Soft Holdings SA [1991] BCLC 737 (Ch): not followed C

Re Cade & Son Ltd [1992] BCLC 213: considered

Re Demaglass Holdings Ltd [2001] 2 BCLC 633: considered

Re Lympne Investments Ltd [1972] 2 All ER 385 (Ch): compared

Re Welsh Brick Industries Ltd [1946] 2 All ER 197 (CA): not followed

Salford Estates (No 2) Ltd v Altomart Ltd [2014] EWCA Civ 1575: dictum in para [33] applied D

Tallington Lakes Ltd and Another v Ancasra International Boat Sales Ltd [2012] EWCA Civ 1712: dictum in paras [39] – [41] applied.

Case Information

CJ van Coller for the applicant.

WJ van der Merwe for the respondent. E

JJ Botha SC for the intervening party (the Namakwaland Diamond Fund Trust).

The return day of an order for the provisional...