CHIWESHE
JP:
The applicant seeks the winding up of the respondent on the basis
that it is deemed to be unable to pay its debts by virtue of section
205(a) of the Companies Act [Cap
24;03].
In
its founding affidavit sworn to by Jacobus Johannes Ellis, a
director, the applicant states that it has been supplying the
respondent with goods since 2009. The respondent has not been paying
for these goods. Statements covering July 2009 are filed of record
showing various amounts owed by the respondent.
As
at 31 August 2009 the respondent owed the applicant the sum of
$248,991.66.
It
further owed various sums in the months succeeding August 2009. The
cumulative debt is substantial. Demand for payment was made on 18
March 2010 and served on the respondent's managing director at
respondents registered address.
On
26 March 2010 the respondent agreed that it owed the sum of
$698,408.07. Three weeks have lapsed since demand was made.
The
respondent, argues the applicant, should be deemed to be unable to
pay its debts in terms of section 205(a) of the Companies Act [Cap
24:03].
The respondent has accordingly committed an act of insolvency as
contemplated in section 11 of the Insolvency Act [Cap
6:04].
The applicant further argues that the respondent has failed to pay
its debt as contemplated in section 206(f) of the Companies Act and
it is just and equitable that the respondent be liquidated in terms
of section 260(g) of the same Act.
The
applicant proposes to appoint Theresa Grimmel as the provisional
liquidator. The Master of the High Court has been furnished with the
necessary bond of security. The Master has no objection to the
appointment of Theresa Grimmel.
The
respondent opposes this application.
It
admits that it owes the applicant the sum of US$698,408.01 but denies
that it is unable to pay its debts. The respondent says that it
entered into negotiations with the applicant wherein it sought the
rescheduling of its debt. No agreement was reached in this regard
because the applicant was negotiating “in bad faith”. Further the
respondent has obtained a suitable guarantee of $250,000.00 to partly
pay its debt. It is in further negotiations with the applicant for
the payment of the outstanding balance. The respondents have also
provided title deeds to its properties as security for the debts.
The
issues to be decided in applications of this nature are aptly summed
up in the headnote to the South African case of ABSA
Bank Ltd vs Rhebos Kloof (Pty) Ltd and Others
1993 (4) SA 436. It reads:
“The
primary question which a court is called upon to answer in deciding
whether or not a company carrying on business should be wound up
because it is commercially insolvent is whether or not it has liquid
or readily realisable assets available to meet its liabilities as
they fall due to be met in the ordinary course of business and
thereafter to be in a position to carry on normal trading. Once the
Court finds that the company cannot do so, it is entitled to, and
should, hold that the company is unable to pay its debts within the
meaning of section 345(1)(c) reads with section 344(f) of the
Companies Act 61 of 1973. Whilst it is true that, if the company is
solvent in the sense that its assets exceed its liabilities, the
Court has a discretion to refuse a winding up order in those
circumstances, it is one which is limited if there is a creditor
whose debt the company is unable to pay.”
The
applicant argues that section 205(a) of the Companies Act is a
deeming provision.
Once
certain criteria are met a company is regarded as being unable to pay
its debts, regardless of whether or not it is factually able to do
so.
Therefore,
argues the applicant, all it needs to show in terms of section 205(a)
of the Companies Act is that the respondent is indebted to it in a
sum exceeding $100.00 which is due, a demand has been delivered to
the registered office of the respondent for payment and that for the
following three weeks the respondent neglected to pay, secure or
compound the sum due.
These
requirements have been shown to have been met avers the applicant.
The
respondent on the other hand argues that the applicant must show that
the debtor is unable to pay its debt and not merely that there has
been a delay or a failure to pay the debt. Winding up terminates the
life of a company. It cannot be taken save for good cause. The term
“unable” refers to incapacity to pay the debt. The respondent
says it has sufficient assets to pay the debt. The respondent also
avers that the parties have been involved in negotiations in terms of
which the applicant intended to acquire shares in the respondent. The
present application seeks to arm-twist the respondent because
negotiations have not been finalised as per the applicant's
expectations.
In
the alternative the respondent argues that even if the applicant has
established an act of insolvency, this court has a discretion to
dismiss the application. In support of this submission the respondent
quotes the case of Croc
Ostritch Breeders of Zimbabwe (Pvt) Ltd v Best of Zimbabwe (Pvt) Ltd
1999
(2) ZLR 410 (H).
I
agree with the respondent in that “the court has an inherent
discretion to refuse to order liquidation, notwithstanding the proven
existence of grounds for liquidation. This discretion derives from
two sources:
(i)
Firstly section 206 of the Companies Act [Cap
24:03]
gives the court the discretion in this regard by the use of the word
'may'.
(ii)
Secondly, the court has a discretion flowing from its inherent
jurisdiction to prevent abuse of process.” (See the Croc-Ostritch
Breeders case above.)
I
also agree with the respondent that it has shown on a balance of
probabilities that it has assets whose combined value exceeds the
debt complained of.
Indeed
a bond of security has been issued in favour of the applicant to
secure this very debt by way of title deeds. The respondent has also
secured a bank guarantee to meet part of its debt.
For
this reason I would hold that the respondent is able to pay this debt
and that winding up would be “seriously disproportionate in its
prejudicial effect upon the respondent.” (Croc – Ostritch
Breeders case supra)
It
is common cause that the parties have engaged in serious negotiations
in terms of which the applicant would have secured fifty per cent of
the shares of the respondent. These negotiations have failed. Whilst
it has not been conclusively shown that the applicants are doing so,
it is possible they have lodged this application in order to
influence the outcome of these negotiations. Should that be the case
it would amount to harassment of the respondent, which would be an
abuse of court process.
For
these reasons I would, as I hereby do, dismiss the application with
costs.
Coghlan,
Welsh & Guest,
applicant's legal practitioners
Gill,
Godlonton & Gerrans,
respondent's legal practitioners
