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CASE LAW UPDATE

29 January 2025

COMPANY – Director – Liability – Respondent the sole director of investment holding company – Purchased shares and loan accounts from applicant – Company failed to pay even a quarter of amount owed – Liquidation order obtained – Respondent took unjustifiable risk on behalf of company – Acted at least grossly negligently – Circumstances indicative of reckless trading – Respondent personally liable for the debt owed by company – Companies Act 71 of 1973, s 424.

Facts: This case is a good illustration of the pitfalls of doing business with members of one’s own family. The applicant and the respondent are sister and brother. The respondent was the sole director and shareholder of an investment holding company called Good Hope Holdings (Pty) Ltd (GHH). In November 2015, GHH, represented by the respondent, purchased shares and loan accounts from the applicant. Payment of the purchase price was to be made in instalments over a period of two years. Notwithstanding an interim settlement agreement and two court orders, GHH failed to pay even a quarter of the amount owed to the applicant. In 2022, the applicant obtained a final liquidation order in respect of GHH. The winding-up process of GHH is ongoing.


Application: The applicant now approaches this court in terms of section 424 of the Companies Act 71 of 1973, which section continues in force pursuant to item 9 of Schedule 5 to the Companies Act 71 of 2008, for an order that the respondent is personally responsible for the debt of GHH. The quantum claimed by the applicant is R9,285,000 plus interest. She however asks the court to make provision for the effective reduction of that amount commensurate with any dividend that the applicant may receive in the winding-up of GHH.


Discussion: Family acrimony was one of the reasons the applicant agreed to sell her shares in Bunkers Hill to the respondent. The applicant contends in her founding affidavit that the business of GHH was at all relevant times carried on recklessly by the respondent, and that he was knowingly a party to this as envisaged in section 424 of the 1973 Act. More particularly, she contends that as the sole director of GHH, he entered into the sale agreement and caused GHH to take delivery of the Bunker Hills shares and loan accounts when he knew, or when a reasonable businessman in his position would have known, that GHH did not have the financial resources or ability to pay the purchase price. GHH failed almost from the outset to make the agreed payments, and ultimately paid less than a quarter of the capital before it was placed in liquidation. The indications are that the liabilities of GHH well exceed the fair value of its assets.


Findings: The respondent’s version as to his personal state of mind regarding how GHH would meet its obligations under the sale-of-shares agreement is vague, internally contradictory and bereft of any clear plan or expectation, at the time of concluding the agreement, as to how GHH was going to pay what the agreement required of it. The inference is justified that in committing GHH to acquire the Bunker Hills shares from the applicant on the terms agreed, the respondent was party to the reckless carrying-on of the business of GHH. The absence of any concrete or reliable expectation at the time that GHH would be able to meet its payment obligations as they arose allows only for the conclusion that the respondent took an unjustifiable risk on behalf of GHH, and so acted at least grossly negligently. There was, objectively regarded, a very strong chance, even if falling short of a virtual certainty, that the applicant would not be paid (as turned out to be the case). This is indicative of reckless trading. The respondent was generally prepared to commit GHH to making payments before even approaching the operating companies for the money it needed to do so, and without knowing whether there was any prospect of success in this regard.


Order: The respondent is personally liable for the debt owed by GHH to the applicant in the amount of R4,035,000. The order makes provision for payment of interest and for the accounting of any dividend be payable to the applicant by the liquidators of GHH pursuant to an approved liquidation and distribution account, against the amount of the order.

JANISCH AJ

FAMILY – Divorce – Accrual – Request for compliance with section 7 of Act – Requires respondent to disclose all assets and liabilities comprising of estate – Strong default assumption – No real basis to decline request for compliance – No real prejudice – Court already held once that respondent had failed to make full disclosure of financial position – Behaviour has given rise to heightened concern that full and frank disclosure will not be forthcoming – Ordered to deliver reply to applicant’s notice – Matrimonial Property Act 88 of 1984, s 7.

Facts: The applicant launched a divorce action against the respondent. In addition to citing the respondent as the first defendant, she cited him in his official capacity as a trustee of the Houghton Trust, and she also joined various companies and trusts as further defendants (amongst other defendants not relevant here). Her basis for citing most of the additional defendants is her contention that these entities are alto egos of the respondent or are controlled by him and were established to house part of the respondent’s personal estate to the prejudice of the applicant. The parties are involved in a protracted and acrimonious pending divorce action. It has resulted in two full judgments on interlocutory issues (an exception and a Rule 43 application), as well as several orders in other preliminary disputes. In the application before court, the applicant seeks an order compelling the respondent to reply to a notice which the applicant issued in terms of section 7 of the Matrimonial Property Act 88 of 1984 (MPA), within ten days of the court’s order.


Issue: Section 7 of the MPA provides that, “when it is necessary to determine the accrual of the estate of a spouse or a deceased spouse, that spouse or the executor of the estate of the deceased spouse, as the case may be, shall within a reasonable time at the request of the other spouse or the executor of the estate of the other spouse, as the case may be, furnish full particulars of the value of that estate.” This application raises a crisp legal question: What does this provision mean when it says: “when it is necessary to determine the accrual of the estate of a spouse”?


Discussion: A court considering an application to compel compliance with section 7 has a discretion as to whether to grant the application. A court has the power to refuse an application to compel compliance with section 7 if the court considers it to be in the interests of justice to do so at that particular stage of the proceedings. The respondent does raise the arguable defence that the section 7 notice seeks to pre-empt the separation application. In substance, that argument constitutes the respondent’s sole basis for refusing disclosure, although he does advance the related argument that the notice goes further than what section 7 allows. One of the main issues in the proceedings as a whole is whether the respondent is the beneficial owner of a range of assets, despite them not being registered in his name. The strong default assumption has to be that an application of this nature should be granted. Something compelling would need to be raised by the respondent to resist disclosure. Other than the reference to the separation application, court cannot discern any real basis for the respondent to decline the applicant’s request for compliance with section 7 at this stage.


Findings: The respondent has pointed to no real prejudice if the application is granted. Even if the respondent is correct that the separation application will have a major impact on the scope of the section 7 response, no real prejudice can be seen if the respondent is required to explain his current understanding of his assets and liabilities, to enable the applicant to prepare for trial. The fact that the battle lines have already been drawn in the affidavits in related proceedings, does not mean that the applicant is not entitled to disclosure under section 7. The court is unconvinced that the separation application has the significance that the respondent attaches to it. This court has already held once that the respondent has failed to make full disclosure of his financial position. By virtue of the findings of a judge in a binding ruling, it is relevant to the exercise of the court’s discretion that the respondent’s own behaviour has given rise to a heightened concern that full and frank disclosure will not, if the respondent is left to his own devices, necessarily be forthcoming.


Order: The respondent is ordered to deliver a reply to the applicant’s notice in terms of section 7 of the Matrimonial Property Act 88 of 1984, within 20 days from the date of the order. The respondent is to pay the applicant’s costs in this application to compel on a party-and-party basis.

FRIEDMAN AJ

INSOLVENCY – Locus standi – Insolvent in own name – Appellant was divested of estate and all his property belonged to and vested in provisional trustees – Cannot institute legal proceedings in his own name without knowledge and consent of provisional trustees – Trustees were correct persons to take action – Discharge of provisional sequestration order does not confer locus standi on insolvent retrospectively – Appeal dismissed – Insolvency Act 24 of 1936.

Facts: The appellant (Mr Du Plessis), a farmer, is the sole member of Full Circle, which owns the property. He leased various farms to conduct his business operations, one such farm being the property. The lease agreement in respect of the property was concluded for a period of 9 years until September 2027. Full Circle was subsequently liquidated in 2021. Mr Du Plessis was also provisionally sequestrated in March 2021. De Wet and Govender were appointed as provisional trustees of his insolvent estate. The liquidators of Full Circle were mandated by its creditors to realise the assets of the company. Acting in terms of that mandate, the liquidators sold the property to the De Klerk Familie Trust, represented by Mr and Ms De Klerk, without taking into consideration the lease agreement. Their case, in this regard, is that there was no valid lease in existence at the time of the sale, hence the property was sold free of any lease. This is what catalyzed the main application, which is the subject of this appeal. It is not in dispute that at the time that Mr du Plessis instituted the main application, he had been provisionally sequestrated.


Appeal: The relief Mr Du Plessis sought in the High Court was, in summary, granting him the power to institute action or application proceedings or oppose any action or application proceedings, and staying the transfer of the property. The counter-application was brought by Mr and Ms De Klerk, in their capacities as trustees of the De Klerk Trust. The High Court dismissed the main application and granted the counter-application. Mr Du Plessis sought an interim interdict restricting the transfer of the property to the second respondent, Mr De Klerk. Three issues arise for determination in this appeal: the appellant’s locus standi; the validity of the lease agreement; and the status of the sale of the property.


Discussion: Mr and Ms De Klerk were in agreement with the contention of Mr Majiedt, as well as the finding of the High Court that Mr du Plessis lacked locus standi to bring the main application, and to oppose the counter-application. While they did not, however, agree with the finding of the High Court that the counter-application had to be determined on an unopposed basis, they agreed with the court’s finding that the discharge of the provisional sequestration order did not remedy Mr Du Plessis’s lack of locus standi. In a similar vein to that argued by Mr Majiedt, Mr and Ms de Klerk were of the view that Full Circle’s non-compliance with section 3.3 of the mortgage bond rendered the lease agreement void and unenforceable. A further point made by Mr and Ms De Klerk, as well as by Mr Majiedt, is that, even if the court should find that the lease agreement was valid, the liquidators of Full Circle were entitled to sell the property to the De Klerk Trust, by virtue of the value that was realised from such sale. The lease would have been terminated upon the conclusion of that sale and was not enforceable by the appellant. Therefore, the further consequence of the sale is that the basis upon which the appellant approached the court for interdictory relief fell away.


Findings: Mr du Plessis was, upon the grant of the order for his provisional sequestration, divested of his estate; and all his property, both movable and immovable, belonged to and vested in his provisional trustees. He cannot therefore institute legal proceedings in his own name, without the knowledge and consent of the provisional trustees. Mr Du Plessis at no stage indicated that the trustees had approved of his initiating the main application or that they refused to so on behalf of his insolvent estate, and that he was, consequently, vested with locus standi. His argument that he derived his locus standi from his membership of Full Circle is not sustainable. The appellant failed to establish his locus standi to bring the application in his own name. The main application was instituted by Mr Du Plessis in July 2021, being after the lease had lapsed. Therefore, there was no valid lease in existence which would have founded Mr Du Plessis’ claim to a prima facie right for the interdictory relief that he claimed. On this score too, he has failed to make out a case for the relief he seeks. He also did not satisfy the other requirements for interdictory relief. It follows, therefore, that the sale of the property is unimpeachable.


Order: The appeal is dismissed with costs.

NAIDOO AJA (DAMBUZA JA, MOLEFE JA, SMITH JA and MJALI AJA concurring)

LABOUR – Discrimination – Race – Applicant alleging discrimination and harassment arising from role as personal assistant to chief prosecutor – Applicant omitted to plead and prove she was subjected to conduct complained of because she is coloured person – Not disclosing ground in respect of which discrimination is prohibited – Not proving harassment she sought to rely on – Not proving she was discriminated against by the respondents’ employees – Application is dismissed – Employment Equity Act 55 of 1998, ss 6 and 11.

Facts: The applicant is the personal assistant to Mr Matlhoko, a Chief Prosecutor. It was submitted on behalf of the applicant, a colored person, that Matlhoko discriminated against her on grounds of race by making the following utterance to her: “Sy moet fokof uit my kantoor, ek soek haar nie meer as ’n PA.” He also said in public at a farewell function that the applicant was a useless personal assistant. Lastly, Matlhoko told the applicant that she had “opgefok” a docket she had photocopied for him. She lodged grievances and was transferred to work as Advocate Roothman’s personal assistant, however, Roothman later refused to continue working with her. She was instructed to return to Matlhoko’s office. She lodged a grievance because Roothman had labelled her a problematic person and she did not trust that Matlhoko would change the way he treated her which resulted in her being moved from his office. She was informed that she should return to Matlhoko’s office as there was no vacant position at her level. Her grievance was thereafter considered closed.


Application: The applicant approached this court in terms of section 10 of the Employment Equity Act 55 of 1998 (the EEA), alleging that the respondents discriminated unfairly against her. When this matter served before court it was argued on behalf of the applicant that the issue for determination is discrimination on the basis of race which resulted in the impairment of her dignity. The applicant’s claim for compensation is based on harassment.


Discussion: The application at hand was brought when applications were regulated by the predecessor to the current Labour Court Rules. Rule 7(3) of the old Labour Court Rules provides for how the application must be supported by affidavit. In the allegations the applicant made in her founding affidavit she omitted the legal issue of racial discrimination and the facts on which it arose. The omission constituted non-compliance with rule 7(3)(b) and (c) of the old Labour Court Rules. The direct consequence of the omission is that the respondents were unable to answer to allegations that were not made in the founding affidavit. The applicant omitted to pleaded and prove that she was subjected to the conduct she complained of because she is a coloured person. It is impermissible for the applicant to raise the issues of racial discrimination after the filing of the answering affidavit and in argument as it does not form part of her pleaded case. Argument must be foreshadowed in pleadings.


Findings: Implicit in section 11 of the EEA is the applicant’s duty to plead and prove that she was discriminated against either on a listed or non-listed ground. The applicant’s pleaded case is that she was harassed by the respondent’s employees, especially Matlhoko, who spoke to her in a manner that impaired her dignity. Harassment is defined in item 4 of the Code of Good Practice. It is, inter alia, unwanted conduct which impairs dignity, creates a hostile or intimidating work environment and is related to one or more grounds in respect of which discrimination is prohibited in terms of section 6(1) of the EEA. The applicant did not disclose the ground in respect of which discrimination is prohibited in section 6 (1) of the EEA. The consequences of the omission of the essential element of harassment are that she did not prove the harassment she sought to rely on. She further did not discharge the onus of proof that she was discriminated against by the respondents’ employees. The court must accept the respondents’ submission that the applicant failed to discharge the onus of proving that she was discriminated against by them.


Order: The application is dismissed. There is no order as to costs.

LALLIE J

NATURE vs MINING OPERATION

It was contended that the respondent’s mining operations were causing significant environmental damage and detrimentally affecting the Camdeboo National Park. The applicants asserted, furthermore, that after having become aware that the department had granted a mining right to the respondent, they intended to follow the internal appeal process contemplated under the Mineral and Petroleum Resources Development Act 28 of 2002. Considerable noise and dust were caused by the mining company’s blasting and rock crushing activities, as well as the use of heavy vehicles. The company has chosen not to deal with the applicants’ allegations regarding irregularities in the public participation process. The company is interdicted from conducting any mining operations on the property, pending the finalisation of the applicants’ internal appeal.

NO BAIL FOR ACCUSED ON ROBBERY CHARGES

The appellants are charged with robbery with aggravating circumstances and they are appealing the refusal of the magistrate to grant them bail. The overriding question remains whether the appellants did in fact discharge the onus in showing that exceptional circumstances do exist that would warrant their release on bail. The appellants are required not merely to regurgitate their personal circumstances in a hope that these will morph into exceptional circumstances and further to deny that they will act as described in section 60(4)(a) to (d) of the Criminal Procedure Act. Undoubtedly, the provisions of section 60(11)(a) make the release on bail more difficult than in bail applications in the ordinary course for the clear reason that it relates to the more serious offences which ravage our country. The appeal is dismissed.

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