THE
HIGH COURT OF SWAZILAND
J
& E CONSTRUCTION (PTY) LTD 1st Petitioner
JOAO
FIGUREDO LOPES 2nd Petitioner
And
MABALABALA
INVESTMENTS (PTY) LTD 1st Respondent
DAVID
MAMBA 2nd Respondent
Civil
Case No. 756/2004
Coram
S.B. MAPHALALA – J
For
the Petitioners MR. M. MAGAGULA
For
the Respondents In absentia
JUDGMENT
(16/04/2004)
2
The relief sought
Before
court is a petition for a winding up of a company in terms of Section
112 of the Company's Act No. 7 of 1912. The Petitioners pray for an
order, inter alia winding up the 1st Respondent provisionally;
appointing Sibusiso Motsa as provisional liquidator of the 1st
Respondent and granting him full powers as listed in Section 127 of
the Companies Act, alternatively, directing that the 1st and 2nd
Respondents show cause on a certain day why; there should not be an
order for a final winding up of the 1st Respondent under the
supervision of the Master of the High Court; and further that the
costs of this petition should not be costs in the winding up of the
1st Respondent. I granted a final order for the winding up of the 1st
Respondent on the 6th April 2004 in open court and I intimated that I
will furnish full reasons for the order in due course. Following are
my reasons for the order I granted on the 6th April 2004.
Introduction.
The
matter first came before me as a matter of urgency on the 17th March
2004, whereupon the parties agreed that it be postponed to the 31st
March 2004. In the meantime the Respondents were to file their
answering affidavits on or before the 29th March 2004. The matter was
to be argued on the merits on the 31st March 2004.
However,
on the return date the matter did not proceed as agreed but was
further postponed by consent of the parties to the 6th April 2004.
The Respondents had not filed any answering affidavits as agreed on
the 17th March 2004. Again the Respondents were afforded another
opportunity to file their opposing affidavits on or before the 2nd
April 2004, and the Petitioners were to file their replying
affidavits, if any, on or before the 5th April 2004. The Respondents
were further ordered to pay the wasted costs of the 31st March 2004.
When
the matter was called on the return date being the 6th April 2004,
the Respondents had not filed their opposing papers still. Mr.
Magagula appeared for the Petitioners and there was no appearance for
the Respondents.
3
Mr.
Magagula submitted from the bar that he had had contact with Mr.
Mamba for the Respondent who conceded that in the circumstances the
Petitioners could obtain a final order in this matter. It appeared
from what Mr. Magagula told the court that the Respondents were no
longer opposing the matter. It was in this vein, therefore that I
allowed Mr. Magagula to move the petition. He duly took the court
through the various averments and made submissions of law. I granted
the order and intimated that I will furnish full reasons in due
course in view of the complex nature of the principles involved in
the matter.
The
parties.
The
1st Petitioner is J & E Construction (Pty) Limited a company duly
registered and incorporated with limited liability in accordance with
the company laws of the Kingdom of Swaziland, with its principal
place of business at 4th Street, Plot No. 301 and 302, Nhlangano,
district of Shiselweni, Swaziland,
The
2nd Petitioner is an adult male businessman, Director of the 1st
Petitioner.
The
1st Respondent is also a company duly registered and incorporated
with limited liability in accordance with the company laws of the
Kingdom of Swaziland and carrying on business at 5th Street,
Nhlangano, Shiselweni district.
The
2nd Respondent is an adult male businessman, Director of the lst
Respondent of SNPF Flat No. 25, 6th Street, Nhlangano, Shiselweni
district.
The
facts of the matter.
The
background of the matter is that the 1st Respondent a private limited
company was incorporated on or about July 2003. The 2nd Petitioner
and the 2nd Respondent are both members and directors of the 1st
Respondent, The 2nd Petitioner and the 2nd Respondent hold 50% each
of the shares in the 1st Respondent and they have one vote for each
share they hold. The 1st Respondent was incorporated for purposes of
running a hardware business in Nhlangano as well as another hardware
business at New Haven and a tyre business in Nhlangano. The 2nd
Petitioner and the 2nd
4
Respondent
did not invest any funds in the 1st Respondent. The initial capital
to start the business was by way of loans provided by 1st and 2nd
Petitioners.
The
said loans were to be repaid yearly on a percentage of the profits of
the 1st Respondent. The loans were to be utilized to purchase the
hardware business from Mr Peter Cooper a liquidator of Skonkwane
Franchise Ltd and Asibemunye Builders Suppliers Ltd, to pay arrear
rentals for Nhlangano Tyres and to purchase stock and provide working
capital.
The
1st Petitioner provided a loan in the sum of E600, 000-00 which was
put up as a guarantee at the Standard Bank of Swaziland in favour of
Mica Plus Limited for Mica Stock Purchases made through Mica Plus
Limited and associated companies. The 2nd Petitioner on the other
hand provided a loan totalling the sum of E330, 000-00 which amount
was used to purchase stock, to pay the liquidator, to settle
outstanding arrear rentals for Nhlangano Tyres and generally as
working capital for the business.
The
Petitioners aver that during the time when 2nd Petitioner and 2nd
Respondent were working out the financing details of the business, it
was agreed that a shareholders' agreement would be signed wherein all
the terms upon which the 2nd Petitioner and the 2nd Respondent,
respectively agree to structure their interests in the 1st Respondent
are recorded. No finality was reached on some of the issues that were
to form part of the shareholders' agreement. What was conclusively
agreed upon was that the 2nd Respondent was to be responsible for the
day-to-day management of the business, which included the New Haven
branch and Nhlangano Tyres.
A
bank account was opened with Standard Bank, Nhlangano branch, which
account was to operate as a business account for all the Respondents
businesses, being in Nhlangano branch of the hardware business, the
New Haven branch and Nhlangano Tyres. The said bank account was only
opened in August 2003, and by this time the businesses were already
operational and the loans from 1st and 2nd Petitioners had already
been paid to the 1st Respondent. Prior to the opening of the
accounts, all receipts were to be deposited in a safe.
5
A
shareholders' agreement was prepared on 2nd Petitioner's instruction
and was given to the 2nd Respondent to consider and sign if he was in
agreement.
From
paragraph 16 to paragraph 25 the Petitioners outline the sequence of
events leading to the breakdown in their confidence in the 2nd
Respondent and that the cordial relationship which existed between
the parties was destroyed with the result that the parties barely
talk to each other and this caused the business to suffer
irreparably.
In
paragraphs 26, 27, 28, 29 to 30 the Petitioners relate what efforts
they have made to resolve the difficulties.
In
paragraph 32 the Petitioner deposes that the 1st Respondent is truly
indebted to the Petitioners in the sum of E930, 000-00 being in
respect of the loan advances.
In
paragraph 33 the Petitioner avers that the 1st Respondent is
commercially insolvent in that it clearly can no longer and will in
future be unable to pay the Petitioners and/or the other creditors'
claim. The 1st Respondent is barely carrying on business and
generates very little income, which is insufficient to sustain it as
a usable commercial entity. That the 1st Respondent is now unable to
pay its debts. In paragraph 33.1.3 the Petitioners aver that it is
just and equitable that the 1st Respondent be wound up in terms of
Section 112 (6) of the Company's Act No. 7 of 1912, to enable the
liquidator to take charge of the 1st Respondent and to administer and
reduce the assets of the 1st Respondent under the machinery of
winding up and to reach compromises with all the 1st Respondent's
creditors for purposes of settling their debts.
In
paragraph 34, 34.1, 34.1.1, 34.1.2, 34.1.3 averments are made
relating to immediate consequence of liquidation, which include inter
alia, that the winding up of the 1st Respondent will enable the
liquidator to properly and immediately investigate the affairs of the
1st Respondent, realize and dispose off, the movable assets of the
1st Respondent at a market related price, with a view to setting the
creditor's indebtedness as well as reaching compromises with the
creditors under the machinery of winding up.
6
In
paragraph 37 averments are made on the question of urgency.
The
above therefore are the facts of this matter. What the court has to
decide is whether the provisions of Section 112 of the Act have been
satisfied in casu.
The
applicable law.
This
matter is governed by Section 112 (g) of the Companies Act No. 7 of
1912. The Section, in part reads as follows:
Winding
up by court
Circumstances
in which company may be wound up by court.
A
company may be wound up by the court if:
.................................
.................................
.................................
.................................
.................................
.................................
The
court is of the opinion that it is just and equitable that the
company should be wound up.
Trollip
J in the case of Moosa vs Mavjee Bhawan (Pty) Ltd 1967 (3) S.A. 131
(T) in dealing with a similar section in South Africa had this to
say, and I quote:
"The
ground relied upon for a final winding up order is that in paragraphs
(g) of Section 111 of the Companies Act, namely, that it is "just
and equitable" that the company should be wound up. That
paragraph, unlike the preceding paragraphs of Section 111, postulates
not facts but only a broad conclusion of law, justice, and equity, as
a ground for winding up... In its terms and effect, therefore,
Section 111 (g) confers upon the court a wide discretionary power,
the only limitation originally being that it has to be exercised
judicially with due regard to the justice and equity of the competing
interests of all concerned".
7
The
learned Judge in his judgment proceeded to cite with approval the
principle enunciated by Lord Shaw in the English case of Loch vs John
Blachvood Ltd (1924) AC 78 where His Lordship propounded that it may
be just and equitable for a company to be wound up where there is:
"Justifiable
lack of confidence in the conduct and management of the company's
affairs ... grounded on conduct of the directors not in regard to
their private life or affairs, but in regard to the company's
business; that lack of confidence is not justifiable if it springs
merely from dissatisfaction at being out voted on the business
affairs or on what is called the domestic policy of the company".
In
another English case of In Re: Yenidje Tobacco Co. Ltd (1916) 2 CH
426 (CA) the "deadlock" principle was enuanciated on the
analogy of partnership and is strictly confined to those small
domestic companies in which, because of some arrangement, express,
tacit or implied, there exists between the members in regard to the
company's affairs a particular personal relationship of confidence
and trust similar to that existing between partners in regard to the
partnership business.
Leon
J in the case of Emphy & another vs Pacer Properties (Pty) Ltd
1979 (3) S.A. 363 (D) whilst agreeing that the ejusdem generis does
not apply, held that the "just and equitable" rule must not
be limited to cases where the substratum of the company has
disappeared or where there has been a complete deadlock. The learned
Judge, expressed himself as follows:
"Where
...there is in substance a partnership in the form of a private
company, circumstances which would justify the dissolution of the
partnership would also justify the winding up of the company under
the just and equitable clause".
The
above therefore are the legal principles which govern in the
circumstances of the instant case.
The
law as applied to the facts.
On
the facts, it is my considered view that the 2nd Respondent's lack of
probity in managing the company's affairs as outlined in the
uncontroverted averments of the 2nd
8
Petitioner
in paragraphs 16 up to 25 of the petition justifies the winding up of
the company in terms of Section 112 of the Companies Act under the
"just and equitable" principle. There has been an
irretrievable breakdown of the relationship between the members of
the 1st Respondent. The deadlock in the management of the 1st
Respondent caused solely by the 2nd Respondent is another reason
which justified the winding up of the company under the Section.
Further, the 1st Respondent is presently insolvent.
In
the totality of the averments in the petition and on principles of
law I have outlined above, I have come to a considered view that the
requirements of Section 112 (g) have been satisfied in the present
case that the 1st Respondent be wound up under the said Section.
The
above therefore are the reasons for the order I issued on the 6th
April 2004, directing that the 1st Respondent be wound up under the
supervision of the Master of the High Court.
S,B.MAPHALALA
JUDGE