Pienaar v Thusano Foundation and Another

• Jurisdiction: South Africa
• Citation: 1992 (2) SA 552 (BG)

Pienaar v Thusano Foundation and Another
1992 (2) SA 552 (BG)

1992 (2) SA p552

Citation	1992 (2) SA 552 (BG)
Court	Bophuthatswana General Division
Judge	Friedman AJP
Heard	January 1, 1991; February 1, 1991
Judgment	February 21, 1991

Flynote : Sleutelwoorde

F Company — Winding-up — Application for in terms of s 344(h) of Companies Act 61 of 1973 (RSA) on grounds that winding-up would be just and equitable — Association not for gain incorporated under s 21 of Act 61 of 1973 to consolidate, administer and finance vast drought relief project — Company funded entirely by State and for practical purposes G parastatal body controlled by State — Members becoming such by virtue of being State appointees or nominees, and having no commercial or pecuniary interest in company, nor being shareholders in commercial sense — Commission of enquiry investigating company finding mismanagement and lack of proper administration — State funding of H company thereafter ceasing - Company provisionally liquidated — Prior to return day company's work-force dismissed — Confirmation of rule opposed — State officials charged with administering and being responsible for company firmly of view that other State departments carrying out company's objectives and projects and that because of lack of resources company's future existence no longer necessary in that very I reason for its existence fallen away — Considering structure and membership of company, and fact that money invested therein in the main taxpayer's money, this an instance where Court entitled to broaden ambit and extend catalogue of cases where 'just and equitable' to wind up a company — Court might and should take into account cases of this nature J where there was wastage or indeed

1992 (2) SA p553

A mismanagement of public funds and Court could not countenance or permit this situation to continue — Therefore, in case of s 21 company, one formed for purpose of conducting cultural or social or communal or group interests, if there was mismanagement and if its main object no longer capable of achievement, this was a proper case where Court might grant B final winding-up order in order to protect public interest.

Headnote : Kopnota

The first respondent company, an association not for gain, had been incorporated under s 21 of the Companies Act 61 of 1973 (as a company limited by guarantee) in order to consolidate, administer and finance an existing vast, all-embracing project known as 'Drought Relief', which C operated some 75 depots in Bophuthatswana, distributing rations to approximately 12 500 families, providing water where required and rendering substantial service to families in need. The company was funded by the Governments of Bophuthatswana and South Africa and was for practical purposes a parastatal body controlled by the Government of Bophuthatswana. Its members, including its chairman (the Minister of Finance), its managing director (the second respondent) and the applicant, became members by virtue of being State appointees or D nominees, and were not members in their own right. They had no commercial or pecuniary interest in the company, nor were they shareholders in the commercial sense of the term. Complaints concerning the company led to the appointment by its chairman of a board of enquiry (the R Commission) to investigate allegations of irregular activities. The board's report severely criticised the second respondent's lack of appropriate skills, as well as certain shortcomings in management, E financial control and general administration of the project. Shortly after the appointment by the State President of Bophuthatswana of a further commission of enquiry into the affairs of the company, the South African Government discontinued its funding. Application was then made in terms of s 344(h) of the Companies Act for the provisional liquidation of the company on the ground that it was just and equitable that it be wound up. Reliance for this contention was placed on, inter alia, the mismanagement of the company, lack of proper control, F dissatisfaction with its management and specifically with the competence and ability of second respondent, the ensuing deadlock, and the fact that South Africa had discontinued its funding. On these facts the company was provisionally liquidated. Prior to the return day the Government of Bophuthatswana in its turn terminated its financing of the company, and its entire labour force was then dismissed. Confirmation of the rule was strenuously opposed by the second respondent. State G officials having special knowledge of the company were firmly of the view that other departments of State were carrying out the company's objectives and projects such as 'Drought Relief' and that because of the lack of resources its future existence was no longer necessary; they were of the opinion that the company should be placed under final liquidation in that the very reason for its existence had fallen away.

Held, that, in considering whether to grant a final winding-up order on the grounds that it was just and equitable to do so, the Court had to be H satisfied that the applicant had established this on a balance of probabilities and had to exercise a judicial discretion based on broad principles of law, justice and equity.

Held, further, that taking the applicant's case in its totality, powerful and uncontroverted facts were that the Governments of both Bophuthatswana and South Africa, who previously subsidised the company, had decided not to do so and that the work-force had been discharged; it I was inconceivable that the company could discharge the vast and numerous projects to which it had committed itself without the injection of finance from its former sources.

Held, further, that the Court had to consider and balance the justice and equity of the competing interests of, on the one hand, the applicant, who was the managing director of a large State-controlled organisation, supported by the Minister of Finance and other functionaries, who were in favour of final liquidation for a variety of reasons, including the fact that the substratum of the company had J disappeared,

1992 (2) SA p554

A as well as for reasons of mismanagement and a lack of confidence in the management of the company, and, on the other hand, of the second respondent, who opposed the granting of a final order.

Held, further, that the second respondent's membership of the company derived from his employment in a Government-funded institution and not in his own right and he had no financial interest or stake in the company, such as was held by the Government; balancing his interest as B against that of the Government on any basis of 'justice and equity', there was no comparison between the competing interests, and the interests of the Government in this respect, and consequently those of the public, had to take precedence over the interests of the second respondent who really had no financial interest in the matter.

Held, further, that, applying the provisions of s 347(2) of the Companies Act, the Court had to come to the assistance of the applicant because the second respondent had failed to discharge the onus of C proving that some other remedy was available to the applicant, or that he was acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.

Held, further, that in casu, because the company was a s 21 company and its members were employed by the Government and, except for the second respondent, offered no objection and, in fact, the application for liquidation was supported by same, it was almost a case of a voluntary winding-up by members.

D Held, further, that the substantial issue was that, because the company was in effect a State company, due weight had to be given to the wishes of the members of the Government who were charged with administering and being responsible for the company.

Held, further, that, considering the structure and membership of the company, and the fact that the money invested in it was, in the main, taxpayers' money, this was an instance where the Court was entitled to E broaden the ambit and extend the catalogue of cases where it was 'just and equitable' to wind up a company; the Court might and should take into account cases of this nature where there was a wastage or indeed mismanagement of public funds and it could not countenance or permit this situation to continue.

Held, therefore, that in the case of a s 21 company, one which was formed for the purpose of conducting cultural or social or communal or group interests, if there was mismanagement and if its main object was F no longer capable of achievement, it was a proper case where the Court might grant a final winding-up order to protect the public interest.

Held, further, that in casu there was clearly a concatenation of certain important factors, for example, the mismanagement of the company and loss of confidence coupled with the lack of finance, each of which would be sufficient to justify an order for the final winding-up of the company on the grounds that it was just and equitable to do so: the cumulative effect of these factors, coupled with the disappearance of G the substratum of the company, pointed overwhelmingly in the direction that on principles of 'justice and equity' it was right and proper to place the company in final liquidation. Rule nisi confirmed.

Case Information

Extended return day of a provisional order of liquidation. The facts H appear from the reasons for judgment.

J P de Bruin SC (with him J Pistor) for the applicant.

A S van der Spuy SC (with him L Lever) for the respondent.

Cur adv vult.

Postea (21 February 1991). I

Judgment

Friedman AJP:

This is the extended return day of a provisional order of liquidation granted against the first respondent...