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 s 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 s 205 (a) of the Companies Act [Cap 24:03]. The respondent
has accordingly committed an act of insolvency as contemplated in s 11 of the
Insolvency Act [Cap 6:04]. The applicant further argues that the respondent
has failed to pay its debt as contemplated in s 206 (f) of the Companies Act
and it is just and equitable that the respondent be liquidated in terms of s
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 s 345 (1) (c ) reads
with s 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 s 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 s 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. Firstly s 206 of the
Companies Act [Cap 24:03] gives the
court the discretion in this regard by the use of the word 'may'. 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
