Pinfold and Others v Edge to Edge Global Investments Ltd

• Jurisdiction: South Africa
• Judge: Steyn J
• Judgment Date: 27 September 2013
• Citation: 2014 (1) SA 206 (KZD)
• Docket Number: 8744/13
• Hearing Date: 13 September 2013
• Counsel: GS Harpur SC for the applicants. GM Parker (attorney) for the respondent.
• Court: KwaZulu-Natal High Court, Durban

Steyn J: A

[1] On 13 September 2013 the applicants applied for leave as required by s 81(1)(e) of the new Companies Act 71 of 2008 (hereinafter referred to as 'the Act'). After hearing all submissions and a consideration of the papers filed, I was satisfied that an order should be granted without delay and accordingly granted the order as per prayers 2 and 3 of the notice of B motion, and informed the parties that my reasons would follow. Hereunder are the reasons for my order.

[2] The application highlighted the duties [1] of directors and focused on the conduct of the directors of the respondent company. The directors in C casu appear to have lost sight of their role in managing the public company, namely to act as agents of the shareholders, to act in the interests of the shareholders and shareholders' investments, and to act in the best interests of the company. The complaints of the shareholders in casu were that the directors acted fraudulently, illegally and misapplied the assets of the company, and failed to account to the shareholders.

[3] Section 81(1)(e) of the Act reads as follows: D

'(1) A court may order a solvent Company to be wound up if —

. . .

(e)

a shareholder has applied, with leave of the court, for an order to wind up the company on the grounds that —

(i)

The directors, prescribed officers or other persons in control E of the company are acting in a manner that is fraudulent or otherwise illegal; or

(ii)

The company's assets are being misapplied or wasted; . . . .'

[4] Mr Parker, appearing on behalf of the respondent, submitted in his written heads that since the matter served before the court as an F application the ordinary principles and rules relating to applications should apply. Therefore, so it was argued, mere allegations of misconduct were insufficient for the purposes of s 81. The court was invited to take into account the defences raised by the respondent and, in light thereof, was asked to dismiss the application or to refer it to oral evidence. Mr Harpur SC, appearing on behalf of the applicants, submitted G that the evidence against the directors of the respondent was overwhelming. Furthermore, the court did not need to make a definite finding regarding the grounds that were required in terms of s 81(1)(e) — all that was required was that the court be satisfied that there was prima facie evidence that supported the allegations. He submitted that the directors failed to make full and proper disclosure as demanded of them H and that innocent members of the public remained at risk, should the court not grant the permission applied for.

[5] Since the provision refers to fraudulent conduct [2] it is necessary to consider what would constitute fraudulent conduct. Fraud is defined in I

Steyn J

A our common law as 'unlawfully making, with the intent to defraud, a misrepresentation which causes actual prejudice or which is potentially prejudicial to another'. [3] Although the aforesaid definition finds application in the context of criminal law, it remains relevant in the corporate context.

B [6] In my view s 81 of the Act serves as a safeguard to prevent solvent companies from being faced with frivolous applications to be liquidated on either or both of the grounds listed in s 81(1)(e) of the Act. It grants protection to solvent companies by requiring that a court should first grant leave. Where applications are brought male fide or without C substance, leave ought not to be granted. A solvent company is afforded an opportunity to set forth whatever submissions it wishes to make to a court and to show that the application is without substance. Essentially the provision fulfils a filtering function.

[7] In my view the discretion to be exercised in terms of s 81 is a very broad discretion and the onus of satisfying the court that the directors D acted fraudulently or illegally is an evidential onus that requires an applicant to place sufficient evidence before a court, that the grounds exist. Reading the section it appears that prima facie...