E Sacks Futeran and Co (Pty) Ltd v Linorama (Pty) Ltd; Ex parte Linorama (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Tebbutt J
• Judgment Date: 27 March 1985
• Citation: 1985 (4) SA 686 (C)
• Hearing Date: 22 March 1985
• Court: Cape Provincial Division

Tebbutt J:

Two matters are before me. One is an application by C E Sacks Futeran & Co (Pty) Ltd (to whom I shall refer as "the applicant") for the provisional liquidation of Linorama (Pty) Ltd (to whom I shall refer as "Linorama"). The other is an application by Linorama under s 311 of the Companies Act 61 of 1973 for the calling of meetings of preferent, secured and D concurrent creditors to consider an offer of compromise by one Thomas Richard van Zyl in his capacity as a director of Linorama. Linorama opposes the granting of the provisional liquidation order and the applicant opposes the s 311 compromise offer and the application for the order for the calling of meetings to consider it.

It is common cause that Linorama is unable to pay its debts and E is insolvent and I must now decide which of the applications should be granted.

It is now well established that while the Court has a discretion whether or not to wind up a company unable to pay its debts, where an unpaid creditor - and that is what the applicant is - seeks a winding up, the Court's discretion is F very narrow for an unpaid creditor who cannot obtain payment and who brings his claim within the Companies Act, as against the company, is entitled ex debito justitiae to a winding up order (see Joubert The Law of South Africa vol 4 para 387 at 363, 364 and cases there cited; Sammel v President Brand Gold Mining Co Ltd 1969 (3) SA 629 (A) at 662; SAA Distributors (Pty) G Ltd v Sport en Spel (Edms)Bpk 1973 (3) SA 371 (C) at 373 - 374.) The principle that an unpaid creditor is entitled to an order ex debito justitiae applies, however, only as against the company and not as between creditors (Joubert (op cit para 387 at 364)). The Court therefore, in the exercise of its discretion, should take the views of creditors into account, where the majority of those creditors consider that a winding H up should not be granted. The views of the majority are not conclusive and they cannot fetter the Court's discretion but they must be given great weight (see the Sport en Spel case at 375A).

In the present case the alternative to a winding up is the offer of settlement proposed by Van Zyl on behalf of Linorama. The granting of an order to call meetings of creditors to I consider such an offer is also in the discretion of the Court (see Henochsberg Companies Act 3rd ed at 530). It was suggested in argument before me that an onus rests on an applicant for the calling of meetings of creditors to consider an offer of compromise to satisfy the Court that creditors are likely, at such meetings, to approve the offer. I do not know that such an onus exists. What is clear, however, is that the Court must be J satisfied, even at the

Tebbutt J

A stage when it is asked to call the meetings of creditors, that the offer merits the Court's approval and, in considering whether this is so, the wishes of the majority of creditors must obviously weigh heavily with the Court (see Ensor NO v South Pine Properties (Pty) Ltd and Another 1978 (2) SA 755 (N) B at 767B - 768B). This again does not mean that the Court will not also consider the offer itself. Despite the fact that a majority of creditors may express themselves in favour of an offer, the Court is not relieved from enquiring whether the offer should receive its approval prima facie when it is asked to call meetings of creditors and more definitely when the scheme's eventual sanction is sought (cf Ex parte Ensor NO: In C re Cape Natal Litho (Pty) Ltd 1978 (3) SA 908 (D) at 915E; Ensor NO v South Pine Properties (supra at 765H - 766C)) and, where an offer is vague or has objectionable features, the Court will not exercise its discretion and order the calling of meetings (see Ex parte De Villiers and Another 1970 (2) SA 536 (C) at 537B).

The facts in the present case are that the applicant has an D unpaid and unsecured claim against Linorama for R28 221,94. The total of its creditors is some R460 960,05. A large number of these have already been canvassed as to what their attitude to the offer of compromise will be. Of these, apparently some 84% have indicated that they are in favour of the offer. Several of them originally stated that they were not prepared to consider the offer until a provisional liquidator had been E appointed and had had the opportunity of...