This is an opposed application for the compulsory winding
up of the respondent on the basis that it is commercially insolvent and unable
to pay its debts. The application is brought in terms of the provisions of
section 206(f) of the Companies Act [Chapter 24:03].
The applicant contends that, on the basis of the papers
filed, it has been established that the applicant is entitled to an order for
the liquidation of the respondent, and an order to that effect is sought. The
respondent argues that this application is nothing but a debt collection tool
disguised as an application for compulsory liquidation. It is contended, by the
respondent, that the application is an abuse of court process, regard being had
to the fact that the debt sought to be enforced is disputed on bona fide
grounds.
The respondent raised three main points in limine, but
before I deal with these preliminary issues I propose to set out the brief
factual background to this dispute.
Background
The Agricultural Rural Development Authority (ARDA), a body
corporate, plans, promotes, co-ordinates and carries out services for the
development, exploitation, utilization, settlement or dispersion of State land.
The respondent concluded a written Build, Operate and Transfer Agreement (BOT)
with the Agricultural Rural Development Authority (ARDA) for a period of 20
years, commencing 1 March 2009. In terms of this agreement, the respondent had
to crop, build and develop upon land made available by the Agricultural Rural
Development Authority (ARDA) at Chisumbanje. The respondent was required to
cultivate crops, more specifically sugar-cane. Such sugar-cane was, in due
course, produced for the production of ethanol. A close relationship exists
between the respondent and a company known as Green Fuel (Pty) Ltd which
operates a large factory/plant on the Chisumbanje Estates manufacturing
bio-ethanol from sugar-cane. Such bio-ethanol is a source of high quality, high
octane, clean, efficient, renewable energy used as a vehicle fuel on its own,
blended with petrol (up to 20%), or used as petrol octane enhancer. The
Zimbabwe Government has awarded the Green Fuel venture national Project Status
in view of the long term energy solution which it provides. The respondent, by
necessity, requires agricultural inputs for the production of sugar-cane. It is
against this background that the applicant became involved in the sale and
delivery of substantial quantities of fertilizer products to the
respondent. During the year 2009 through
to 2010, the respondent purchased certain quantities of fertilizer from a
company known as Brocline Investment (Pty) Ltd, trading as Nutrichem. In due
course, the name of this company was formally changed to Profert (Zimbabwe)
(Pvt) Ltd.
This application has been instituted by Profert (Zimbabwe)
(Pvt) Ltd and essentially deals with the non-payment of fertilizer delivered to
the respondent.
The applicant has two claims for payment against the
respondent. The first claim relates to what is termed the “Legacy Debt.” This
amount refers to amounts dating before 28 November 2013 and allegedly
acknowledged in writing by the respondent. The amount being claimed in the
first instance is US$567,879=80. The second claim refers to amounts in terms of
a Memorandum of Agreement executed on 28 November 2013. The figure claimed by
the applicant is US$682,221=81. Both amounts have been disputed by the
respondent who alleges that the applicant grossly inflated the prices of the
fertilizer products. The respondent contends that as soon as the correct prices
have been quantified, sufficient guarantees have been put in place to liquidate
the debt.
The Basis of
the Applicant's Claims
From about 2014, the dispute between the parties dragged on
without an end in sight. A considerable volume of e-mail communications was
exchanged between the parties. As usual, there were allegations and
counter-allegations but the debt remained unpaid. On 10th October
2014, the applicant's legal practitioners addressed the following letter to the
respondent:-
“10 October 2014
The Directors
Macdom Investments (Pvt) Ltd
54 Edinburg Road
Vainona
Harare
To
be served by the Sheriff
Re: PROFERT ZIMBABWE (PVT) LTD
1. We are instructed to direct the notices set out
hereunder on behalf of our said client, Profert (Zimbabwe) (Pvt) Ltd
(“Profert”).
2. We are instructed that Macdom Investments (Pvt) Ltd ('Macdom')
is indebted to Profert as follows:
2.1 Fertilizer products sold and delivered at your special
instance and request for the period prior to 28 November 2013 ('the legacy debt');
and
2.2 Written memorandum of agreement dated 28 November 2013
('the MOA'), read together with a written amendment dated 14 February 2014, in
respect of additional credit in addition to the legacy debt.
3. The legacy debt already due and payable at the
conclusion of the MOA was duly recorded and acknowledged by Macdom in the MOA
to wit US$545,698=62.
4. Limited payments have been made in respect of the said
legacy debt with the amount presently due and payable being US$567,879=80 as
set out in Annexure “A” hereto.
5. The amount presently due and payable in respect of the
MOA is US$682,221=82, as set out in Annexure 'B' hereto.
6. Demand in terms
of the Companies Act:
6.1 Profert, in terms of section 205(a) of the Companies
Act [Chapter 24:03] ('The Companies Act'), hereby requires of Macdom to pay the
said amounts of US$567,879=80 and US$682,221=82, respectively, already due and
payable.
6.2 This demand shall be served and a copy left by the
Sheriff at the registered office of Macdom.
6.3 Should Macdom neglect to pay the said amounts for a
period of three weeks after receipt of this notice, Macdom shall be deemed to
be unable to pay its debts.
6.4 In such event, Macdom may be wound up by the court as
it is unable to pay its debts, in terms of section 206(f) of the Companies Act.
6.5 We hold instructions accordingly.
7. Notice in respect
of release Orders
7.1 In terms of the MOA, and in order to secure payment for
the fertilizer provided to Macdom, Green Fuel (Pvt) Ltd ('GF') has executed
Release Orders in favour of Profert, or its duly nominated agent, for anhydrous
ethanol fuel.
7.2 It was agreed in the MOA that in the event that Macdom
fails to pay Profert for fertilizer supplied in terms of the MOA, Profert shall
be entitled, upon giving 10 days written notice to GF and Macdom to use the
Release Orders so that Profert may be able to recover the outstanding purchase
price.
7.3 GF has executed the following replacement Release Orders
in terms of the MOA;
7.3.1 Release Order GF000635 dated 30 June 2014: 39,600
litres;
7.3.2 Release Order GF000697 dated 11 July 2014: 536,800
litres; and
7.3.3. Total 932,800 litres.
7.4 Macdom is, in addition to the demand and remedy set out
in paragraph 6, hereby notified that should payment not be made within 10 days
of receipt hereof, Profert shall, through its nominated agent, RAM Petroleum,
have the said fuel released and liquidated.
7.5 Any such proceeds shall be credited to the amounts due
and payable, as set out above.
7.6 Any balance then owing shall remain due and payable in
terms of the demand in paragraph 6.
7.7 This notice shall also be served on GF and the Msasa
Depot in Harare of the National Oil Infrastructural Company.
8. Your speedy response would be appreciated.
Yours faithfully
MATIZANADZO & WARHURST”
On 3 November 2014, the respondent's legal practitioners
responded to the demands and threats to apply for compulsory liquidation by
indicating as follows:-
“…,. As previously advised in our letter dated 5th
September 2014, our clients took issue to your client's irregular pricing and
your client duly obliged and agreed to the adjustment of same. The
reconciliation that your client had agreed to undertake from inception of supply
to date was never done and hence our clients still dispute your client's
invoices. The fact that your client has failed and/or refused to undertake the
reconciliation has compounded our client's suspicion of pricing irregularities.
Our clients are, accordingly, not failing to pay your
client's supposed debt but rather disputing the quantum due to your client.
In the light of the above, your client is thus misguided in
seeking to apply for liquidation of Macdom Investments (Pvt) Ltd and Rating
Investments (Pvt) Ltd in terms of section 205 of the Companies Act (Chapter
24:03) given that our clients cannot be 'deemed unable to pay its debts.'
In any event, our clients are not insolvent…,.”
On 7 April 2015, the application for the winding up of the
respondent, in terms of section 206(f) of the Companies Act [Chapter 24:03] was
duly filed. The application is opposed on the broad grounds outlined in the
letter by the respondent's legal practitioners.
I now proceed to deal with the points in limine that have
been raised by the respondent.
Preliminary
Points
In oral argument, counsel for the respondent raised three
preliminary issues. All but one of these points was seriously pursued and calls
for determination by this court.
1. Non-compliance
with Companies (Winding-Up) Rules, 1972
The respondent averred that the application before the
court does not comply with the provisions of section 5 of the Companies
(Winding Up) Rules, 1972, RGN 841 of 1972, neither does the applicant show any
awareness of those Rules. Resultantly, it is argued, this application fails to
comply with section 5(1)(a) of the Rules.
It is beyond dispute that the clear provision of Rule 5 of
the Companies (Winding-Up) Rules, 1972, RGN 841 of 1972 requires a petition for
the winding-up of a company to state:-
“The capital, object, and nature of the company.”
The issue to be decided is, however, whether the failure to
state those terms, as stipulated in the Companies (Winding-Up) Rules, 1972, RGN
841 of 1972 is fatal to the present application.
The respondent contends that in application proceedings, an
application stands to be determined on the basis upon which it has been made.
Put differently, an application based on a defective or inadequate founding
affidavit must be dismissed.
In my view, when determining whether the application for a
winding-up of a company is fatally defective by reason of non-compliance with
the Companies (Winding Up) Rules, 1972, RGN 841 of 1972, one has to consider
whether the failure to state the capital, object and nature of the company is
relevant to the issues brought before this court for the winding up of the
respondent. As was stated by VAN WINSEN AJA in Federated Trust Ltd v Botha 1978
(3) SA 645 (A)…, albeit in different circumstances;
“Rules are not an end in themselves to be observed for their
own sake. They are provided to secure the inexpensive and expeditious
completion of litigation before the courts…,.”
I am persuaded by counsel for the applicant's argument that
the point taken on behalf of the respondent '“propounds no more than sterile
formalism.' See Jockey Club of South Africa v Forbes 1993 (1) SA 649…, where
the learned KRIEGLER AJA stated:
“This case is a good example of the stultification inherent
in reading Rule 53 as a law of the Medes and Persians…,.”
The above position finds favour in the case of Scottish
Rhodesian Finance Ltd v Honiball 1973 (2) SA 747 (R)…, where BECK J stated as
follows:
“The Rules of Court are not laws of the Medes and Persians,
and, in suitable cases, the court will not suffer sensible arrangements between
the parties to be sacrificed on the altar of slavish obedience to the letter of
Rules.”
I hold the view, therefore, that the omission of certain
formal allegations in the application which are not relevant to the issues
before this court do not render the application defective and bad in law.
The decision of the Supreme Court in African Gold
(Zimbabwe) (Pvt) Ltd v Modest (Pvt) Ltd 1999
(2) ZLR 61 (SC) did not deal with the issue before this court, and,
specifically did not deal with the general applicability of Rule 5 of the
Companies (Winding-Up) Rules, 1972, RGN 841 of 1972, and, therefore, affords no
authority for the preliminary point taken by the respondent.
In that matter, the requirement of service upon the
company, stipulated in Rule 5(2) of the Companies (Winding Up) Rules, 1972, RGN
841 of 1972 had not been met. Because no notice had been given, the provisional
order of liquidation was set aside.
That is not the position in this matter.
In this matter, the omission relates to the failure to
state the “capital, object and nature of the company,” in the founding
affidavit. I take the view that the omission does not offend any notions of
justice or rules of the common law.
I therefore dismiss the first preliminary point….,.
The Winding-Up
In terms of section 206(f) of the Companies Act [Chapter
24:03], a company may be wound up by the court if it is unable to pay its
debts. In terms of section 205 of the Companies Act [Chapter 24:03], a company
will be deemed to be unable to pay its debts in the circumstances set out. So
far as is relevant to the present matter, paragraphs (a) and (c) of that
section provide as follows:
“A company shall be deemed to be unable to pay its debts –
(a) If a creditor, by cession or otherwise, to whom the company
is indebted in a sum exceeding one hundred United States dollars then due, has
served on the company a demand requiring it to pay the sum so due by leaving
the demand at its registered office and if the company has, for three weeks
thereafter, neglected to pay the sum or to secure or compound for it to the
reasonable satisfaction of the creditor; or
(c) If it is proved to the satisfaction of the court that
the company is unable to pay its debts, and, in determining whether a company
is unable to pay its debts, the court shall take into account the contingent
and prospective liabilities of the company.”
The applicant contends that as far as the requirements of
section 205(a) of the Companies Act [Chapter 24:03] are concerned, the applicant caused to be
served, by the Deputy Sheriff, a demand requiring the respondent to pay the
outstanding debt within a three week period.
Service of the demand was effected on the respondent's
legal practitioners on 14 October 2014. The response from the respondent, through
its legal practitioners, was sent via a letter dated 3 November 2014. The
applicant contends that since the debt outstanding is in excess of the
statutory limit, the requirements of section 205(a) of the Companies Act
[Chapter 24:03] result in it being deemed that the respondent is unable to pay
its debts. It was argued by counsel for the applicant, passionately, that the
general rule is that since the respondent cannot meet its day to day
obligations, and pay its debts, creditors are entitled to an order ex debito
justitiae, save in exceptional circumstances. It was argued that the court has
a very narrow discretion on the matter where it is established that the debtor
is unable to pay its debts.
I must observe that the applicant appears to be the only
creditor that has chosen to apply for the liquidation of the respondent. The
court has not been favoured with any details of any other major creditors
pursuing the respondent for non-payment of debts.
It is trite law that for an order for liquidation to be
granted, the court must be satisfied that the applicant has proved that the
respondent is insolvent and is not able to meet its financial obligations. An
order for liquidation will not be granted under circumstances where the
petitioner seeks to abuse the process of the court by pursuing some ulterior
design.
In the case of Dominion Trading FC–LLC v Victoria Foods
(Pvt) Ltd HH324-13, the court stated…, as follows:
“It occurs to me that the insistence of the applicant on a
winding up against this background is indicative of an abuse of process, the
employment of the judicial process for a purpose other than that for which it
was intended…,. This is unacceptable as it amounts to harassment of the
respondent.”
It seems to me that there is ample evidence in this matter
to show that there is a genuine dispute regarding the applicant's claims.
It is a basic principle of our law that an applicant must
establish and prove its claims.
What the applicant seeks to avoid is to sue out a summons
against the respondent as the claim will lead to a trial action. The applicant
may not avoid proving its claims by seeking the liquidation of the respondent.
The respondent's defence to the claims is that certain figures were inflated
resulting in gross over-pricing. That defence has not been tested. The
existence and extent of the debt needs to be readily ascertainable. In view of
the apparent disputes of fact in the matter, which abound, the court has a
discretion in its consideration for an application for a liquidation order.
This court must take into account the fact that the
respondent has not been proved to be insolvent.
The respondent has stated that it has sufficient money to pay the
applicant, but will not tender payment until the fair market value, or rate, prevailing
at the time the fertilizer was delivered has been determined and affixed to the
quantity of fertilizer that was supplied.
The respondent's assertion that it has assets in excess of
US$6 million has not been controverted by the applicant.
I must turn to consider the issue of the notice given to
the respondent in terms of section 205 of the Companies Act [Chapter 24:03]. The
applicant has referred, for its contention that the respondent is insolvent, to
the case of De Waard v Andrew & Thiehaus Ltd 1907 TS 727…, where INNES CJ
stated as follows:-
“Now, when a man commits an act of insolvency he must
expect his estate to be sequestrated. The matter is not sprung upon him; first,
a judgment is obtained against him then a writ is taken out, and he must
expect, if he does not satisfy the claim, that his estate will be sequestrated.
Of course, the court has a large discretion in regard to making the rule
absolute; and in exercising that discretion the condition of man's assets and
his general financial position will be important elements to be considered.
Speaking for myself, I always look with great suspicion upon, and examine very
narrowly, the position of a debtor who says:
'I am sorry that I cannot pay my creditors, but my assets,
far exceed my liabilities.'
To my mind, the best proof of solvency is that a man should
pay his debts, and, therefore, I always examine in a critical spirit the case
of a man who does not pay what he owes.”
In this matter, there can be no doubt that the applicant
has not sued out a summons against the respondent. The applicant has not sought
and obtained judgment against the respondent. The applicant has not obtained a
writ of execution against the respondent. I have already observed that the
respondent's claims are disputed. The basis of the dispute is known to the
applicant. The applicant has not sought to obtain judgment, preferring instead
to proceed with an application for liquidation. The explanation for the
adoption of this procedure is that the respondent is by all accounts
“commercially insolvent.”
In Badenhorst v Northern Construction Enterprises Ltd 1956
(2) SA 346 (T), HIEMSTRA J, referred with approval to the following extract
from BUCKLEY's On Companies:
“A winding-up petition is not a legitimate means of setting
to enforce payment of a debt which is bona fide disputed by the company. A
petition presented ostensibly for a winding up order but really to exercise
pressure will be dismissed, and, under circumstance, may be stigmatized as
scandalous abuse of the process of court.
Some years ago, petitions founded on disputed debts were
directed to stand over till the debt was established by action. If, however,
there was no reason to believe that the debt, if established, would not be
paid, the petition was dismissed. The modern practice has been to dismiss such
petitions. But, of course, if the debt is not disputed on some substantial
ground, the court may decide it on petition and make the order.”
In the circumstances, I find that the respondent has
succeeded in establishing that the debt is disputed on bona fide and reasonable
grounds which can only be resolved by way of action proceedings. Further, and
in any event, the applicant has not proved that the respondent is insolvent.
The respondent has indicated that it has secured adequate finance to settle the
applicant's claims once these are established. It seems to me that the
winding-up order has been instituted to harass the respondent and compel it to
pay the disputed amounts. I have reached this conclusion because in spite of
the respondent's demands to reconcile the disputed invoices, particularly to
attend to the “irregular” pricing of fertilizer, the applicant has spurned all
attempts to do so.
I would, accordingly, exercise my discretion on
the matter, and dismiss the application with costs.
